MAUI LAND & PINEAPPLE COMPANY, INC
ANNUAL REPORT
2000
CONTENTS
Letter to Shareholders 2
Pineapple 4
Resort 5
Commercial & Property 6
Independent Auditors' Report 7
Consolidated Balance Sheets 8
Consolidated Statements of Operations and Retained Earnings 10
Consolidated Statements of Comprehensive Income 10
Consolidated Statements of Cash Flows 11
Notes to Consolidated Financial Statements 12
Quarterly Earnings 19
Common Stock 19
Selected Financial Data 20
Management's Discussion and Analysis of
Financial Condition and Results of Operations 21
Officers and Directors inside back cover
THE COMPANY
Maui Land & Pineapple Company, Inc., a Hawaii corporation
organized in 1909, is a land-holding and operating company with
several wholly owned subsidiaries, including two major operating
companies, Maui Pineapple Company, Ltd. and Kapalua Land Company,
Ltd. The Company, as used herein, refers to the parent and its
subsidiaries. The Company's principal business activities are
Pineapple, Resort and Commercial & Property.
The Company owns approximately 28,600 acres of land on the
island of Maui, of which about 8,400 acres are used directly or
indirectly in the Company's operations. The Company employed
approximately 1,890 people in 2000 on a year-round or seasonal
basis.
Maui Pineapple Company, Ltd. is the operating subsidiary for
Pineapple. Its canned pineapple, pineapple juice and fresh
pineapple are found in supermarkets throughout the United States.
The canned pineapple products are sold as store-brand pineapple
with 100% HAWAIIAN U.S.A. imprinted on the can lid. In addition,
the products are sold through institutional, industrial and
export distribution channels.
Kapalua Land Company, Ltd. is the development and operating
subsidiary for the Kapalua Resort. The Kapalua Resort is a
master-planned, golf resort community on Maui's northwest coast.
The property encompasses 1,650 acres bordering the ocean with
three white sand beaches.
Commercial & Property includes the operations of various
properties, including Kaahumanu Center, the largest retail and
entertainment center on Maui. It also includes the Company's
land entitlement and management activities and land sales that
are not part of the Kapalua Resort.
On the cover: The Village Clubhouse at Kapalua Resort opened in
August 2000.
To request a copy of news releases or other financial reports,
contact us at our corporate offices or visit our web sites.
Printed in Hawaii
10-K REPORT
Shareholders who wish to receive, free of charge, a copy of the
Company's 10-K Report to the Securities and Exchange Commission
(excluding certain exhibits) may write to:
Corporate Secretary
Maui Land & Pineapple Company, Inc.
P. O. Box 187
Kahului, Hawaii 96733-6687
OFFICES
Corporate Offices Pineapple Marketing Office
Maui Land & Pineapple Company, Inc. Maui Pineapple Company, Ltd.
P. O. Box 187 P. O. Box 4003
Kahului, Hawaii 96733-6687 Concord, California 94524-4003
Telephone: 808-877-3351 Telephone: 925-798-0240
Fax: 808-871-0953 Fax: 925-798-0252
www.mauiland.com
Maui Pineapple Company, Ltd.
P. O. Box 187
Kahului, Hawaii 96733-6687
Telephone: 808-877-3351
Fax: 808-871-0953
www.pineapplehawaii.com
Kapalua Land Company, Ltd.
1000 Kapalua Drive
Kapalua, Hawaii 96761-9028
Telephone: 808-669-5622
Fax: 808-669-5454
www.kapaluamaui.com
Kaahumanu Center
275 Kaahumanu Avenue
Kahului, Hawaii 96732-1612
Telephone: 808-877-3369
Fax: 808-877-5992
www.kaahumanu.net
Transfer Agent & Registrar Independent Auditors
Mellon Investor Services LLC Deloitte & Touche LLP
P. O. Box 3315 1132 Bishop Street, Suite 1200
South Hackensack, New Jersey 07606-1915 Honolulu, Hawaii 96813-2870
Telephone: 800-356-2017 Telephone: 808-543-0700
www.mellon-investor.com
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
FINANCIAL HIGHLIGHTS
2000 1999 1998
(Dollars in Thousands Except Per Share Amounts)
REVENUES
Pineapple $ 85,892 $ 94,535 $ 97,658
Resort 50,262 47,950 41,929
Commercial & Property 5,043 4,381 4,087
Corporate 286 132 37
Total 141,483 146,998 143,711
NET INCOME 452 4,670 3,596
NET INCOME PER COMMON SHARE $ .06 $ .65 $ .50
AVERAGE COMMON
SHARES OUTSTANDING 7,195,800 7,188,840 7,188,500
TOTAL ASSETS $ 169,951 $ 153,387 $136,247
CURRENT RATIO 1.7 1.5 2.1
LONG-TERM DEBT and
CAPITAL LEASES $ 41,012 $ 25,497 $ 23,592
STOCKHOLDERS' EQUITY 65,922 66,400 62,492
STOCKHOLDERS' EQUITY PER
COMMON SHARE $ 9.16 $ 9.23 $ 8.69
EMPLOYEES 1,890 2,040 2,030
TO OUR SHAREHOLDERS and EMPLOYEES:
We are disappointed to report that net income fell from
$4,670,000 in 1999 to $452,000 in 2000. While substantial progress
in terms of profit contribution was made in the Resort division,
extremely competitive market conditions in the United States for
canned pineapple products resulted in a dramatically lower profit
contribution from the Pineapple division. Our strategic focus
remains on improving the level of consistent profitability,
particularly from the cyclical Pineapple segment. Our goal for the
Company remains to produce a 10% to 15% return on equity.
Net income for 2000 includes a $2 million pre-tax profit
contribution from the sale of single family home lots in Plantation
Estates Phase II at Kapalua. Land sales and development activity
contributed approximately $1.3 million to net income in 2000 and
$1.5 million in 1999. Cash provided by operating activities
decreased by $16.8 million from $18.5 million in 1999 to $1.7
million in 2000. The decrease in cash flow from operations on a
year-to-year basis is attributable to lower operating results and
cash flow in the Pineapple division. Investment in property, plant
and equipment was approximately $18.2 million in both 1999 and
2000, and the Company's total debt, including capital leases,
increased by $16 million, from $28.6 million in 1999 to $44.5
million in 2000. As a result, interest expense increased
substantially, from $1.8 million in 1999 to $3.1 million in 2000.
Interest of approximately $643,000 in 1999 and $840,000 in 2000 was
capitalized in connection with construction projects, such as the
Village Clubhouse and Kapalua Golf Academy project. Interest
expense in 2000 also increased because of higher average interest
rates on the Company's debt.
The Company's Pineapple division reported an operating loss of
$2.9 million in 2000, a $9 million reduction from the 1999
operating profit of $6.1 million. Sales volume in cases sold
declined primarily due to a high level of imported canned pineapple
products entering the retail stores in 2000 and highly competitive
market conditions. Contributing to the operating loss for the year
was a lower average per case sales price for canned pineapple
products due to the same competitive conditions. Also contributing
to the Pineapple operating loss in 2000 was the effect of very low
rainfall experienced over the last several years. Lower rainfall
had the effect of reducing the quality of fruit processed in the
cannery and, as a result, the recovery of finished goods per ton of
fresh pineapple was lower in 2000 than in 1999. We were pleased
with the increase in sales volume of fresh whole pineapple and
fresh cut pineapple products. The increases in fresh sales volume
were, however, more than offset by the reduction in canned
pineapple sales.
Next week, we will present testimony to the U.S. International
Trade Commission in support of a five-year renewal of anti-dumping
duties on canned pineapple fruit imported from Thailand into the
United States. These duties have been in effect for the last five
years and are an important element in the future profitability and
success of the Company's canned pineapple business. The decision
of the Commission on whether to renew the tariffs for another five
years should be made by mid-year.
In addition to cost reduction, a major element of strategic
planning for the Pineapple division is to diversify its revenue
sources by development of new and higher margin products.
Considerable success has been realized in the development and sale
of fresh cut pineapple in various container sizes and fruit
configurations. Further market penetration and sales volume must
be achieved before the product line makes a major profit
contribution. Sales of single strength pineapple juice packed in
64 ounce plastic containers grew to significant levels in 2000.
Distribution was limited to the California market and, hopefully,
will increase as distribution to other market areas is achieved.
The contribution from the Resort division increased
substantially in 2000. Operating profit of $7.8 million was up 36%
over the operating profit of $5.7 million in 1999. Almost all of
the improvement in contribution was realized as a result of better
performance from Resort operations. The Resort continued to
benefit from a healthy U.S. economy for most of the year, high
consumer confidence levels and a record year for the Hawaii visitor
industry with over 7 million visitors and a statewide increase in
occupancy in 2000 of 7%. The Kapalua Resort experienced
significantly higher occupancy and average room rates in 2000
compared to 1999. The island of Maui continued to benefit from a
strong appeal to visitors from the mainland, an important factor in
the operating performance at Kapalua. Another important element of
the Resort's performance is the recognition provided by the
Mercedes Championships Golf Tournament, which was held again in
January. This nationally televised event featuring tournament
champions from the 2000 PGA tour provides an extraordinary level of
market exposure for the Kapalua Resort. It is very important to
the Company and the continued success of the Kapalua Resort that
Maui's infrastructure issues, particularly adequacy of highways and
roads, be addressed in a positive manner in the near term. For
this purpose, we will continue to urge the State and County
governments to address the deficiencies.
The Resort made substantial progress in improving the quality
of its guest experience in 2000. Completion of the Village
Clubhouse and Kapalua Golf Academy at a cost of over $16 million
represents a major improvement in the golf operation. We believe
that the commitment to providing a quality guest experience results
in increased value and return to the Company over the long term.
The appeal of the Resort as a residential community was
demonstrated in the last year by the level of sales of residential
real estate. Coconut Grove on Kapalua Bay is the first condominium
project undertaken at Kapalua since the early 1980s. The project
is completely sold and the first of the finished condominiums is
expected to be delivered to the buyers in the second quarter of
this year. To date, 16 of 31 single family homesites in Pineapple
Hill Estates have been sold. Construction commenced in March 2001
and this project is expected to be completed in the fourth quarter
of this year.
The recent slowing of economic activity in the United States
and dramatic drop in consumer confidence levels appear to have had
a negative impact on the pace of advanced hotel reservations in
Hawaii and in the pace of real estate sales. As a result, the
contribution from Resort operations may be somewhat lower in 2001.
The contribution provided by development activities at the Kapalua
Resort should, however, be substantially higher due to recognition
of profit from the two real estate projects mentioned above.
The Commercial & Property division posted modestly improved
results in 2000. The operating loss of $441,000 was $13,000 better
than the operating loss incurred in 1999. Merchandise sales at
Kaahumanu Center, Maui's largest shopping center, increased by
approximately 6% over 1999 levels. Continued improvement in the
general economy of Maui led by higher occupancy and rates in the
visitor industry and construction activity continue to have a
positive impact. The opening of two new shopping centers, located
at Wailea and in Kihei, and the expected opening of two major new
retailers, Home Depot and Walmart, are expected to worsen the
current oversupply of retail space. As a result, we expect the
highly competitive retail business environment to continue. Sales
at Napili Plaza increased in 2000 by approximately 7%, but
contribution to net income remained about the same as 1999.
At its meeting on March 7, 2001, the Company's Board of
Directors received the resignation of Mr. Daniel H. Case as a
director and approved his appointment as a director emeritus.
Concurrently, the board unanimously appointed Mr. John H. Agee as
director to fill the unexpired term of Mr. Case. We welcome Mr.
Agee to the board and believe, with his extensive experience, he
will make significant contributions. We are very pleased to
continue to have the benefit of continued participation by Mr. Case
as a director emeritus.
The business climate for the Pineapple division will continue
to be difficult in 2001. The oversupply of canned pineapple
products in the market should persist due to the high level of
imports. While the economic environment for the Resort division
likely will not be as favorable as 2000, we believe the Resort will
continue to make a significant contribution.
While not demonstrated by 2000 financial performance, we
believe progress has been made in enhancing the long-term value of
the Company's assets and in moving toward the Company's financial
goal of a consistent higher level of profitability.
Thank you for your continued support and for your commitment
to the Company's success.
/S/ RICHARD H. CAMERON
Richard H. Cameron
Chairman
/S/ GARY L. GIFFORD
Gary L. Gifford
President & CEO
March 7, 2001
PINEAPPLE
The Pineapple division reported an operating loss in 2000,
before allocated interest and income taxes, of $2.9 million
compared to an operating profit in 1999 of $6.1 million.
Pineapple revenue for 2000 was $85.9 million, down 9% from
1999 revenue of $94.5 million. Canned pineapple produced 86% of
the total revenue and overall case volume decreased 9% compared to
1999. Case sales volume of grocery and institutional fruit, the
largest and third largest categories within the canned fruit
product line, decreased by 22% and 15%, respectively, from 1999
levels. Juice case sales volume increased overall by 2%. The
introduction of pineapple juice in 64 ounce plastic bottles
(commonly called "PET") into the California market contributed to
the increase in juice case sales volume. Concentrate case sales
volume was down 76% in 2000 compared to 1999 as the company shifted
product to more profitable lines.
The decline in canned fruit case sales volume in 2000 is
mainly due to a 39% increase in pineapple imports in 1999 versus
1998 that acted to suppress market pricing as much of this product
came into retail stores in 2000. The suppression of market pricing
in 2000 was particularly true of the national brands as they fought
to recapture lost share caused by shortage of product from 1998
through mid-1999. In addition, Y2K concerns resulted in consumer
pantry-loading in the last quarter of 1999 and in lower purchases
of canned food products in early 2000 as consumers worked through
their household inventory.
In 2000, a reduction in unit values of imports also put severe
downward pricing pressure on the U.S. market, the company's primary
market. Although the case volume of imports decreased in 2000, the
total average unit value for imports of canned pineapple and
pineapple juice concentrate also decreased 17% and 29%,
respectively. Case volume of canned pineapple imports into the
United States were down 9% through November 2000 versus 1999 with
most of the decrease reflecting a 32% decline in imports from
Thailand. The decrease in import case volume appears to be a
result of antidumping duties on canned pineapple fruit imported
from Thailand. We believe that the reduction in import case
volume, combined with the decline in unit values, is reflective of
a general decrease in demand for canned fruits.
Fresh whole pineapple net sales for 2000 were 8% higher than
1999 sales and tons sold were up 8% from 1999. Sales of Jet Fresh
pineapple, the company's largest fresh fruit category, surged in
the fourth quarter and ended the year with a 12% increase over
1999. Maui sales of fresh whole pineapple also were strong with
case sales up 17% over 1999.
Although a small part of the overall volume, fresh cut
pineapple case sales volume increased by 73%. This increase was
important to the company as the product continues to get a
favorable reaction from retailers and we further expand
distribution of fresh cut pineapple on the West Coast.
The pineapple crop on Maui experienced another prolonged
drought in 2000. Rainfall at every key rain gauge station on the
Haliimaile and Honolua plantations was once again recorded at
levels below the five-year historical average. This was the sixth
consecutive year of dry weather conditions. The most stressed
areas were in the Kula and Omaopio fields of the Haliimaile farm.
The new Haliimaile well and the irrigation systems on both
plantations were used at maximum capacity available to mitigate
effects of the drought, resulting in higher than expected
irrigation costs.
Total tonnage of pineapple harvested in 2000 was below 1999
levels, partially because of dry conditions, but more so due to a
planned reduction in the company's plantings in less productive
fields. While tonnage is expected to be lower in the future, we
anticipate a reduction in cost of production and improvement in the
quality of our fruit. Fruit and juice recovery in 2000 were below
1999 levels due to less than favorable weather conditions and
smaller than normal fruit size in part due to higher tonnage from
ratoon fields. Total production costs increased significantly in
2000 due to price increases in steel, fiber, fuel, fertilizer and
water.
In 2000, the company was successful in obtaining an exclusion
from the 95% antidumping duties levied against our steel supplier
from Japan. Because of this, we expect to have lower steel costs
in 2001.
Antidumping duties were in effect on canned pineapple from
Thailand throughout 2000. The U.S. Department of Commerce
concluded the fourth annual review of these tariffs and determined
that all Thai pineapple companies reviewed continued to dump, but
overall the dumping margins were lower than those currently being
assessed. A "Sunset Review" of antidumping duties on imports of
canned pineapple is now in progress. The Department of Commerce
determined that the revocation of the antidumping duty on canned
pineapple from Thailand would likely result in continued dumping by
these companies. The International Trade Commission (ITC) is
expected to determine by mid-year 2001 whether the domestic
industry will be injured again if these duties are removed. If the
ITC decision is affirmative, the duties will stay in place until
the next "Sunset Review" in five years.
A new federal law was passed in 2000 that provides for the
distribution of all antidumping and countervailing duties collected
by U.S. Customs to the injured U.S. companies. The ITC has listed
Maui Pineapple Company, Ltd. as qualifying for the distribution of
antidumping duties. Until regulations and procedures to administer
this new law are written, the company is unable to estimate the
amount or timing of the potential distribution.
In 2000, extensive progress was made with new products, both
in the fresh cut and canned categories. We expect to test market
several of these new products in 2001. Our emphasis on fresh fruit
will continue through 2001.
We expect 2001 will be a challenging year as we proceed with
expanding and improving our business.
RESORT
Overall, 2000 was a very good year for the resort division
with record profits from ongoing operations and the fourth
consecutive year of improved total profits. For 2000, operating
profit before allocated interest and taxes totaled $7.8 million
compared with $5.7 million in 1999.
Kapalua resort operations benefited from a positive external
business environment in 2000. Hawaii's visitor industry achieved a
record number of visitors to the State, resort real estate demand
continued to grow and Hawaii's economy finally began to show
improvement. These trends were fueled primarily from the strength
of the U.S. economy and were seen throughout the State, including
the island of Maui.
Maui again led all islands with an annual hotel occupancy in
2000 of 80.1% and an increase of almost 13% in revenue per
available room. Kapalua resort continued to show significant
increased demand reflected in a 4% gain in occupancy and a 16%
increase in revenue per available room.
Profits from resort operations increased almost 36% and
accounted for most of the total resort division profit in 2000.
All major revenue segments of golf, villas, retail and leasing
showed significant growth with a 12% gain in total gross revenue.
In addition to the increase in occupancy, our operations benefited
from the opening of the Kapalua Golf Academy (January) and new
Village Clubhouse (August). In total, this development represents
a major investment of over $16 million and is a key foundation for
the future Central Resort development and our strategic positioning
as one of the world's finest resort golf communities.
In September 2000, Marriott International purchased The Ritz-
Carlton Kapalua hotel from Nissho Iwai for $144 million. After
securing a long-term hotel management contract for Ritz-Carlton,
Marriott sold the hotel in February 2001 at approximately the same
price to Capital Hotel Investments LLC, a joint venture between
Marriott International and affiliates of Blackacre Capital
Management LLC. The sale provides assurance for the long-term
management of the hotel by Ritz-Carlton with no significant changes
to our ground lease.
Resort development also showed substantial progress in 2000,
but most of the financial impact will be recognized in 2001.
Resort real estate trends continued to demonstrate strong gains
through year-end with a 33% increase in total resale volume on
Maui. Kapalua led Maui resorts with an increase of 154% in total
resale dollar volume, mostly from the growth in luxury single-
family home sales. Inventory of resort real estate available for
resale is at record low levels, resulting in continued pricing
pressure. This resale growth occurred despite significant new
product sales at Kapalua.
Profit from resort development in 2000 was due mostly to the
fourteen two-acre lots in Plantation Estates II. The last two lots
closed escrow in the first quarter of 2000, but profits have been
accounted for using the percentage-of-completion method, which
resulted in profit recognition of $2 million in 2000.
Significant progress has been made on The Coconut Grove on
Kapalua Bay, the 36 luxury beachfront condominiums we are
developing through a 50/50 partnership with Lend Lease Real Estate
Investment, Inc., owner of the Kapalua Bay Hotel. All 36
exclusive residences are under binding contract for a total sales
volume of $68.6 million. Profits will be recorded when title to
the residences is delivered after construction is completed, which
is now scheduled for the second quarter of 2001.
In November 2000, we began sales of 31 half-acre custom lots
in Pineapple Hill Estates. To date, escrow has closed on 16 lots
with total sales prices of $10.2 million and two additional lots
are under contract. Construction of the subdivision improvements
is expected to begin in March 2001 and be completed by year end.
Profits will be recorded on a percentage-of-completion method and
should result in full profit recognition in 2001 for sales that
have closed escrow.
We are proceeding with design and entitlements of future
resort development, including the Central Resort and additional
residential opportunities in Project District 2, which primarily
surrounds the Village Course.
The Mercedes Championships continue to be an important feature
of our marketing plan and strategic positioning for the Kapalua
resort. The recently completed 2001 event was a great success
highlighted by another dramatic finish on the last hole. Our
winner, Jim Furyk, is a Kapalua property owner, having previously
purchased a lot at Plantation Estates. With one year remaining on
our initial contract with the PGA TOUR and Mercedes-Benz, we are
optimistic that a four-year extension will be concluded in 2001.
We anticipate 2001 will reflect significant development
profits from The Coconut Grove on Kapalua Bay and Pineapple Hill
Estates, but as with any development, this is subject to
substantial timing and other normal development risks. Signs of
concern are being expressed for both Hawaii's visitor industry and
resort real estate market, reflecting the recent downturn and
uncertainty of the U.S. economy. As a result, we believe 2001 will
be a more difficult year for Kapalua resort operations. Despite
this challenge in 2001, we are confident the resort division
continues to be very well positioned for the future.
COMMERCIAL & PROPERTY
The Commercial & Property business segment produced an
operating loss, before allocation of interest and income taxes, of
$441,000 in 2000 compared to a slightly higher operating loss of
$454,000 in 1999. Revenue increased from $4.4 million in 1999 to
$5.0 million in 2000.
Joint venture losses at Kaahumanu Center, a 570,000 square
foot regional mall in Kahului, increased from $1,800,000 in 1999 to
$1,942,000 in 2000. Kaahumanu Center's revenue increased by 7% in
2000 and expenses increased by 15% compared to 1999. Higher
minimum and percentage rents contributed to improved revenues.
Factors that led to the increased expenses included higher repairs
and maintenance, professional fees and payroll-related costs. The
Company's share of these losses, together with management fees and
other expenses, resulted in an operating loss of $207,000 compared
to an operating loss of $468,000 in 1999. The reduction in the
overall loss from Kaahumanu Center in 2000 was due to improved
recoveries on the sale of electricity from the Company to Kaahumanu
Center.
Occupancy at Kaahumanu Center remained about the same as 1999.
Several new merchants opened in 2000, including Hot Topic,
Motherhood, Moondoggy's, Tahitian Pearl, First At Hemp, Maui
Mudworks, Maui Waterwear and North Shore Break. Merchant sales at
Kaahumanu Center increased over 6% compared to the prior year. In
2000, Kaahumanu Center formulated a plan to increase its marketing
efforts. Key elements of the plan include modification of the
name, a new logo and a new look for the center. This will be
extended to numerous enhancements of signage, d,cor, graphics,
entertainment and cultural heritage.
Napili Plaza, the Company's 45,000 square foot community
shopping center, showed a profit of $200,000 in 2000, which was
very close to the results for 1999. New tenants included
Cinemagic, Third Heaven, an expansion of Boss Frog Dive Shop and an
architectural office. Merchant sales at Napili Plaza were up
almost 7% in 2000 compared to the previous year. Both revenue and
expenses were up slightly for Napili Plaza in 2000 compared to
1999.
Operating losses in other property-related and land management
and development activities increased from $409,000 in 1999 to
$491,000 in 2000. Gains from land sales decreased in 2000 by
$148,000 from the prior year.
In 2000, the Company obtained land use entitlement approvals
from the County of Maui for approximately 11 acres of land within
Haliimaile Village in Upcountry Maui. Of the 11 acres of Company-
owned lands that were rezoned, approximately 2 acres were rezoned
to Country Town Business District with the remaining 9 acres
rezoned to Light Industrial District. In 1998, approximately 2.5
acres of Company-owned lands within Haliimaile Village were rezoned
to County Town Business District. Planning work that commenced in
1999 for the business-commercial development of the initial 2.5
acres of land rezoned to Country Town Business District was amended
to include the additional 11 acres of rezoned lands.
The Maui Planning Commission, during a special meeting held
November 27, 2000, granted approval of the Special Management Area
Permit for the Company's Kapua Village Employee Subdivision in West
Maui. The Special Management Area Permit is the final
discretionary permit needed for the subdivision. Construction
documents for infrastructure improvements for the subdivision were
submitted to the governmental agencies for their initial review in
December 2000. It is anticipated that work on the construction
phase of the subdivision will commence sometime in 2001.
In 2000, the Land Management & Development Division also
initiated work on the conceptual development planning, evaluation
of development alternatives and feasibility analysis for other
Company-owned lands.
Overall in 2000, the Land Management & Development Division
continued to work toward strategies, goals and objectives to more
effectively and responsibly manage, plan and develop the Company's
valuable land and water assets.
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Directors of Maui Land & Pineapple Company,
Inc.:
We have audited the accompanying consolidated balance sheets
of Maui Land & Pineapple Company, Inc. and its subsidiaries as of
December 31, 2000 and 1999, and the related consolidated statements
of operations and retained earnings, comprehensive income, and cash
flows for each of the three years in the period ended December 31,
2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Companies at December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.
/S/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Honolulu, Hawaii
February 1, 2001
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
2000 1999
(Dollars in Thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 351 $ 2,657
Accounts and notes receivable,
less allowance of $1,028 and $783
for doubtful accounts 16,032 15,098
Inventories
Pineapple products 15,332 9,714
Real estate held for sale 1,592 577
Merchandise, materials and supplies 7,332 6,634
Prepaid expenses and other assets 5,498 4,779
Total Current Assets 46,137 39,459
INVESTMENTS AND OTHER ASSETS 14,089 12,952
PROPERTY
Land 4,940 4,737
Land improvements 56,013 46,062
Buildings 58,529 50,317
Machinery and equipment 115,950 105,784
Construction in progress 6,745 18,058
Total Property 242,177 224,958
Less accumulated depreciation 132,452 123,982
Net Property 109,725 100,976
TOTAL $169,951 $153,387
2000 1999
(Dollars in Thousands)
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current portion of
long-term debt $ 3,120 $ 2,792
Current portion of capital lease
obligations 388 264
Trade accounts payable 8,476 12,492
Customers' deposits 1,460 1,264
Payroll and employee benefits 4,484 4,662
Deferred revenue 8,102 3,365
Other accrued liabilities 803 1,696
Total Current Liabilities 26,833 26,535
LONG-TERM LIABILITIES
Long-term debt 40,330 25,077
Capital lease obligations 682 420
Accrued retirement benefits 23,575 23,204
Accumulated losses of joint venture
in excess of investment 9,990 8,944
Other noncurrent liabilities 2,215 2,361
Total Long-Term Liabilities 76,792 60,006
MINORITY INTEREST IN SUBSIDIARY 404 446
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock--no par value, 7,200,000 shares
authorized, 7,195,800 shares issued
and outstanding 12,455 12,455
Retained earnings 53,498 53,945
Accumulated other comprehensive loss (31) --
Stockholders' Equity 65,922 66,400
TOTAL $169,951 $153,387
See Notes to Consolidated Financial Statements
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
(Dollars in Thousands Except Per Share Amounts)
REVENUES
Net sales $103,194 $112,191 $113,391
Operating revenue 36,908 33,982 29,123
Other income 1,381 825 1,197
Total Revenues 141,483 146,998 143,711
COSTS AND EXPENSES
Cost of goods sold 72,803 74,494 76,049
Operating expenses 30,169 27,440 26,168
Shipping and marketing 18,289 18,479 16,673
General and administrative 15,825 16,408 15,094
Equity in losses of joint ventures 972 956 1,160
Interest 3,061 1,834 3,039
Total Costs and Expenses 141,119 139,611 138,183
INCOME BEFORE
INCOME TAXES AND
EXTRAORDINARY LOSS 364 7,387 5,528
INCOME TAX EXPENSE (CREDIT) (88) 2,717 1,188
INCOME BEFORE
EXTRAORDINARY LOSS 452 4,670 4,340
EXTRAORDINARY LOSS, NET OF
INCOME TAX CREDIT OF $456 -- -- (744)
NET INCOME 452 4,670 3,596
RETAINED EARNINGS,
BEGINNING OF YEAR 53,945 50,174 46,578
CASH DIVIDENDS 899 899 --
RETAINED EARNINGS, END OF YEAR 53,498 53,945 50,174
PER COMMON SHARE
Income Before
Extraordinary Loss .06 .65 .60
Extraordinary Loss,
Net of Income Tax Credit -- -- (.10)
Net Income .06 .65 .50
Cash Dividends $ .125 $ .125 $ --
Average Common Shares
Outstanding 7,195,800 7,188,840 7,188,500
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
(Dollars in Thousands)
NET INCOME $ 452 $ 4,670 $ 3,596
Other comprehensive loss -
Foreign currency translation
adjustment (31) -- --
COMPREHENSIVE INCOME $ 421 $ 4,670 $ 3,596
See Notes to Consolidated Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $ 452 $ 4,670 $ 3,596
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation 9,002 8,445 8,176
Undistributed equity in
losses of joint ventures 1,025 1,019 1,194
Gain on property disposals (113) (49) (627)
Deferred income taxes (776) 552 (523)
Increase in accounts
receivable (1,630) (1,700) (526)
Increase in inventories (6,660) (2,360) 5,193
Increase (decrease) in
trade payables (2,595) 3,798 (420)
Net change in other operating
assets and liabilities 2,987 4,094 1,568
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,692 18,469 17,631
INVESTING ACTIVITIES
Purchases of property (18,179) (18,213) (8,230)
Proceeds from sale of property 371 509 634
Contributions to joint ventures -- (575) (425)
Payments for other investments (512) (2,735) (1,632)
NET CASH USED IN
INVESTING ACTIVITIES (18,320) (21,014) (9,653)
FINANCING ACTIVITIES
Proceeds from long-term debt 34,196 15,632 30,647
Payments of long-term debt (18,720) (13,659) (35,780)
Proceeds from short-term debt 105 729 --
Payments on capital lease
obligations (318) (494) (1,009)
Dividend paid (899) (899) --
Other (42) 446 --
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 14,322 1,755 (6,142)
NET INCREASE (DECREASE) IN CASH (2,306) (790) 1,836
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 2,657 3,447 1,611
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 351 $ 2,657 $ 3,447
Supplemental Disclosures of Cash Flow Information and Non-Cash
Investing and Financing Activities:
1. Cash paid during the year (in thousands):
Interest (net of
amount capitalized) $ 2,952 $ 1,711 $ 4,809
Income taxes 1,490 1,842 984
2. Amounts included in accounts payable for additions to property
and other investments totaled $2,024,000, $3,445,000 and
$1,227,000, respectively, at December 31, 2000, 1999 and 1998.
3. In December 1999, 7,300 shares of Company stock, which was
held by a wholly owned subsidiary of the Company, were
contributed to the Company's Employee Stock Ownership Plan (see
Note 5 to Consolidated Financial Statements).
4. Capital lease obligations of $704,000 in 2000 were incurred
for new equipment.
5. During the fourth quarter of 2000, the Company received land,
including two water reservoirs, in satisfaction of $486,000
of trade receivables.
See Notes to Consolidated Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts
of Maui Land & Pineapple Company, Inc. and subsidiaries,
primarily Maui Pineapple Company, Ltd. and Kapalua Land Company,
Ltd. Significant intercompany balances and transactions have
been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, deposits in
banks and commercial paper with original maturities of three
months or less.
INVENTORIES
Inventories of tinplate, cans, ends and canned pineapple
products are stated at cost, not in excess of market value, using
the dollar value last-in, first-out (LIFO) method.
The costs of growing pineapple are charged to production in
the year incurred rather than deferred until the year of harvest.
For financial reporting purposes, each year's total cost of
growing and harvesting pineapple is allocated to products on the
basis of their respective market values; for income tax purposes,
the allocation is based upon the weight of fruit included in each
product.
Real estate held for sale is stated at the lower of cost or
fair value less cost to sell.
Merchandise, materials and supplies are stated at cost, not
in excess of market value, using retail and average cost methods.
INVESTMENTS AND OTHER ASSETS
Cash surrender value of life insurance policies is reflected
net of loans against the policies.
Investments in joint ventures are generally accounted for
using the equity method.
PROPERTY AND DEPRECIATION
Property is stated at cost. Major replacements, renewals
and betterments are capitalized while maintenance and repairs
that do not improve or extend the life of an asset are charged to
expense as incurred. When property is retired or otherwise
disposed of, the cost of the property and the related accumulated
depreciation are written off and the resulting gains or losses
are included in income. Depreciation is provided over estimated
useful lives of the respective assets using the straight-line
method.
POSTRETIREMENT BENEFITS
The Company's policy is to fund pension cost at a level at
least equal to the minimum amount required under federal law, but
not more than the maximum amount deductible for federal income
tax purposes.
Deferred compensation plans for certain management employees
provide for specified payments after retirement. The present
value of estimated payments to be made were accrued over the
period of active employment. On October 1, 1998, these plans
were terminated (see Note 5 to Consolidated Financial
Statements).
The estimated cost of providing postretirement health care
and life insurance benefits is accrued over the period employees
render the necessary services.
REVENUE RECOGNITION
Revenue from the sale of pineapple is recognized when title
to the product is transferred to the customer. The timing of the
transfer of title varies according to the shipping and delivery
terms of the sale.
Sales of real estate are recognized as revenues in the
period in which sufficient cash has been received, collection of
the balance is reasonably assured and risks of ownership have
passed to the buyer. When the Company's remaining obligation to
complete improvements is significant, the sale is recognized on
the percentage-of-completion method.
Revenue from other activities is recognized when delivery
has occurred or services have been rendered, the sales price is
fixed or determinable and collectibility is reasonably assured.
INTEREST CAPITALIZATION
Interest costs are capitalized during the construction
period of major capital projects.
ADVERTISING AND RESEARCH AND DEVELOPMENT
The costs of advertising and research and development
activities are expensed as incurred.
LEASES
Leases that transfer substantially all of the benefits and
risks of ownership of the property are accounted for as capital
leases. Amortization of capital leases is included in
depreciation expense. Other leases are accounted for as
operating leases.
INCOME TAXES
The Company's provision for income taxes is calculated using
the liability method. Deferred income taxes are provided for all
temporary differences between the financial statement and tax
bases of assets and liabilities using enacted tax rates.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's majority owned
subsidiary in Central America are translated into U.S. dollars at
exchange rates in effect at the balance sheet date, and revenues
and expenses are translated at weighted average exchange rates in
effect during the period. Translation adjustments are reported
as other comprehensive income and accumulated in Stockholders'
Equity. Transaction gains and losses that arise from exchange
rate changes on transactions denominated in a currency other than
the functional currency are included in income as incurred.
During 2000 and 1999, foreign transaction adjustments were not
material.
USE OF ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Future actual amounts
could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENT
FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, became effective on
January 1, 2001. The Company has performed an assessment of its
contracts and agreements and to date, has not identified any
derivative instruments.
EARNINGS PER COMMON SHARE
Earnings per common share is computed using the weighted
average number of shares outstanding during the period. The
Company has no dilutive potential common shares outstanding.
2. INVENTORIES
Pineapple product inventories were comprised of the
following components at December 31, 2000 and 1999:
2000 1999
(Dollars in Thousands)
Finished Goods $ 12,855 $ 7,399
Work In Progress 1,030 839
Raw Materials 1,447 1,476
Total $ 15,332 $ 9,714
The replacement cost of pineapple product inventories at
year end approximated $27 million in 2000 and $21 million in
1999. In 1998, there was a partial liquidation of LIFO
inventories; thus, cost of sales included prior years' inventory
costs, which were lower than current costs. Had current costs
been charged to cost of sales, net income for 1998 would have
decreased by $1,360,000 or $.19 per share.
3. INVESTMENTS AND OTHER ASSETS
Investments and Other Assets at December 31, 2000 and 1999
consisted of the following:
2000 1999
(Dollars in Thousands)
Deferred Costs $ 5,922 $ 6,657
Cash Surrender Value of Life
Insurance Policies (net) 798 633
Prepaid Pension Asset 4,068 2,774
Kapalua Coconut Grove LLC 1,058 905
Other 2,243 1,983
Total $14,089 $12,952
Deferred costs are primarily intangible predevelopment costs
related to various projects at the Kapalua Resort that will be
allocated to future development projects.
Cash surrender value of life insurance policies are stated
net of policy loans, totaling $597,000 at December 31, 2000 and
1999.
KAPALUA COCONUT GROVE LLC
Kapalua Coconut Grove LLC (KCG) is a Hawaii limited
liability company whose members are the Company and an affiliate
of Lend Lease Real Estate Investments, Inc. KCG was formed in
June 1997 to own, develop and sell the 12-acre parcel of
beachfront property adjacent to the Kapalua Bay Hotel. Each
member contributed to the venture its 50% interest in the land
parcel and $1.1 million in cash. Presales of the 36 luxury
residential condominiums to be constructed on the parcel began in
August 1999 and mass grading and site work began in November
1999. As of June 2000, all 36 condominiums were under binding
sales contracts. Sales are expected to close beginning in the
second quarter of 2001 as construction of the buildings is
completed and title is delivered to the buyers. Each member has
a 50% interest in KCG and the Company has accounted for its
investment in KCG by the equity method. The Company's pre-tax
share of KCG's net income (loss) was $(62,000) in 2000,
$(172,000) in 1999 and $1,000 in 1998.
KAAHUMANU CENTER ASSOCIATES
In June 1993, Kaahumanu Center Associates (KCA) was formed
to finance the expansion and renovation of and to own and operate
Kaahumanu Center. KCA is a partnership between the Company as
general partner and the Employees' Retirement System of the State
of Hawaii (ERS) as a limited partner. The Company contributed
the then existing shopping center, subject to a first mortgage,
and approximately nine acres of adjacent land. ERS contributed
$312,000 and made a $30.6 million loan to the partnership.
The expansion and renovation were substantially complete by
the end of November 1994. Effective April 30, 1995, the ERS
converted its $30.6 million loan to an additional 49% ownership
in KCA. Effective with conversion of the ERS loan, the Company
and ERS each have a 50% interest in KCA and the Company has
accounted for its investment in KCA by the equity method.
The Company has a long-term agreement with KCA to manage
Kaahumanu Center. The agreement provides for certain performance
tests that, if not met, could result in termination of the
agreement. The tests were not met in 2000, but termination of
the agreement is not presently being considered. KCA does not
have any employees. As manager, the Company provides all
administrative and on-site personnel and incurs other costs and
expenses, primarily insurance, which are reimbursable by KCA.
The Company generates a portion of the electricity used by
Kaahumanu Center. In accordance with the limited partnership
agreement, the Company as manager may make cash advances to KCA
in order to avoid a cash flow deficit. The advances bear
interest at one percent above the interest rate on KCA's first
mortgage loan. In 2000, cash advances from the Company to KCA
totaled $586,000 and interest on the advances at 9.57% totaled
$34,000. In 2000, 1999 and 1998, reimbursements from KCA for
payroll and other costs and expenses totaled $2,637,000,
$2,417,000 and $2,303,000, respectively, and the Company charged
KCA $3,328,000, $2,531,000 and $2,402,000, respectively, for
electricity and management fees. At December 31, 2000 and 1999,
$1,216,000 and $1,154,000, respectively, were due to the Company
from KCA for cash advances, management fees, electricity and
reimbursable costs.
Summarized balance sheet information for KCA as of
December 31, 2000 and 1999 and operating information for each of
the three years ended December 31, 2000 follows:
2000 1999
(Dollars in Thousands)
Current assets $ 1,197 $ 1,188
Property and equipment, net 69,200 72,277
Other assets, net 1,710 1,701
Total Assets 72,107 75,166
Current liabilities 2,978 2,969
Noncurrent liabilities 59,226 60,352
Total Liabilities 62,204 63,321
Partners' Capital $ 9,903 $ 11,845
2000 1999 1998
Revenues $ 15,654 $ 14,506 $ 13,625
Costs and Expenses 17,596 16,306 16,104
Net Loss $ (1,942) $ (1,800) $ (2,479)
The Company's share of losses from KCA was $971,000,
$900,000 and $1,240,000, respectively, for 2000, 1999 and 1998.
ERS and the Company each have a 9% cumulative, non-compounded
priority right to cash distributions based on their net
contributions to the partnership (preferred return). For the
purpose of calculating preferred returns, each partner's capital
contribution had an agreed upon value of $30.9 million on May 1,
1995. The Company's preferred return is subordinate to the ERS
preferred return. As of December 31, 2000, the accumulated
unpaid preferred return was $13 million each for ERS and the
Company.
The Company's investment in KCA is a negative $9.9 million
at December 31, 2000. The negative balance is a result of (1)
recording the Company's initial contribution in 1993 at net book
value of the assets contributed, reduced by the related debt and
(2) the Company's share of KCA's accumulated losses since 1995.
4. BORROWING ARRANGEMENTS
During 2000, 1999 and 1998, the Company had average
borrowings outstanding of $43.5 million, $29.5 million and $33
million, respectively, at average interest rates of 8.5%, 7.8%
and 8.9%, respectively.
Short-term bank lines of credit available to the Company at
December 31, 2000 were $1.4 million. These lines provide for
interest at the prime rate (9.5% at December 31, 2000) plus 1/4%
to 1/2%. There were no borrowings under these lines at December
31, 2000, but $618,000 in letters of credit was reserved against
these lines to secure the Company's deductible portion of
insurance claims administered by various insurance companies.
The Company has a $900,000 working capital credit facility for
its Central American operations. At December 31, 2000 and 1999,
the Company had borrowings outstanding of $834,000 and $729,000
under this facility at 7.15% and 7.55%, respectively.
Long-term debt at December 31, 2000 and 1999 consisted of
the following (interest rates represent the rates at December 31):
2000 1999
(Dollars in Thousands)
Term loan, 7.87% to 8.39% and 9.44%
to 9.73% $ 15,000 $ 15,000
Revolving credit agreement, 8.5% and
8.83% to 8.91% 10,850 3,400
Development line of credit, 8.62%
to 9.03% 8,800 --
Mortgage loan, 7.25% 4,721 4,807
Equipment loans, 6.76% to 8.46% 3,245 3,932
Total 42,616 27,139
Less portion classified as current 2,286 2,062
Long-term debt $ 40,330 $25,077
The Company has a $15 million term loan that is secured by
certain parcels of the Company's real property on Maui.
Principal payments are due from September 2004 through June 2009.
Interest rates on the loan are adjustable to 2.15% to 2.55% above
six-month, one-year and three-year rates made available by the
Federal Farm Credit Bank. The agreement includes certain
financial covenants, including the maintenance of a minimum
tangible net worth and debt coverage ratio, maximum funded debt
to capitalization ratio, and limits on capital expenditures,
investments and the payment of dividends.
The Company has a revolving credit agreement with
participating banks under which it may borrow up to $15 million
in revolving loans through December 31, 2002. Amounts
outstanding at that date, at the Company's option, may be
converted to a three-year term loan payable in six equal semi-
annual installments. The agreement also includes an $8.8 million
non-revolving development line of credit facility for
construction of the Village Course Clubhouse and Kapalua Golf
Academy. The development facility reduces to $8 million in March
2001 and matures in March 2002. Commitment fees of 1/4% are
payable on the unused portions of the revolving credit line and
the development facility. At the Company's option, interest on
advances under both the revolving credit line and the development
facility is at the prime rate or based on a LIBOR rate. The loan
is collateralized by the Company's three golf courses at the
Kapalua Resort. The agreement contains certain financial
covenants, including the maintenance of consolidated net worth
and working capital at certain levels and limits on the
incurrence of other indebtedness and capital expenditures.
Declaration and payment of cash dividends is restricted to 30% of
prior year's net income.
The mortgage loan is collateralized by the Napili Plaza
shopping center and matures on December 31, 2005. Payments are
based on a 25-year amortization. Effective January 1, 1999, the
interest rate on the loan was amended to 7.25% until January 1,
2002. The interest rate will be adjusted to the lender's then
prevailing rate of interest for such loans as of January 1, 2002
and January 1, 2005.
The Company has agreements that provide for term loans that
were used to purchase assets for the Company's pineapple and
resort operations. At December 31, 2000, $1,188,000 of these
term loans had interest rates that were adjustable to one month
LIBOR plus 2.25%. The balance of these loans is at fixed
interest rates. The loans mature through December 2004. The
agreements include certain financial covenants that are similar
to those in the Company's revolving credit agreement. One of the
agreements also requires the maintenance of a minimum tangible
net worth and debt coverage ratio (as defined).
Maturities of long-term debt during the next five years,
from 2001 through 2005, are as follows: $2,286,000 $9,192,000
$4,386,000 $3,828,000 and $3,741,000.
5. POSTRETIREMENT BENEFITS
The Company has defined benefit pension plans and defined
benefit postretirement health care and life insurance plans.
Changes in benefit obligations and changes in plan assets
for 2000 and 1999 and the funded status of the plans and amounts
recognized in the balance sheets as of December 31, 2000 and 1999
were as follows:
Pension Benefits Other Benefits
2000 1999 2000 1999
(Dollars in Thousands)
Change in benefit obligations:
Benefit obligations at
beginning of year $ 35,863 $ 35,071 $ 13,263 $ 15,379
Service cost 1,501 1,443 358 359
Interest Cost 2,535 2,396 920 895
Actuarial gain (127) (897) (400) (2,657)
Amendments 265 -- 194 --
Benefits paid (2,145) (2,150) (716) (713)
Benefit obligations at
end of year 37,892 35,863 13,619 13,263
Change in plan assets:
Fair value of plan assets
at beginning of year 46,167 41,807 -- --
Actual return on plan (2,133) 6,367 -- --
assets
Employer contributions 346 143 716 713
Benefits paid (2,145) (2,150) (716) (713)
Fair value of plan assets at
end of year 42,235 46,167 -- --
Funded status 4,343 10,304 (13,619) (13,263)
Unrecognized actuarial gain (1,186) (7,548) (5,469) (5,425)
Unrecognized net transition (224) (759) -- --
asset
Unrecognized prior service
cost 376 185 (845) (1,172)
Net amounts recognized 3,309 2,182 (19,933) (19,860)
Amounts recognized in
balance sheets consist of:
Prepaid benefit cost 4,068 2,774 -- --
Accrued benefit liability (759) (592) (19,933) (19,860)
Net amounts recognized $ 3,309 $ 2,182 $(19,933) $(19,860)
Net periodic benefit costs for 2000, 1999 and 1998 included
the following components:
2000 1999 1998
(Dollars in Thousands)
Pension benefits:
Service cost $ 1,501 $ 1,443 $ 1,240
Interest cost 2,535 2,396 2,261
Expected return on plan
assets (4,036) (3,638) (2,925)
Amortization of net
transition asset (535) (535) (535)
Amortization of prior
service cost 74 59 61
Recognized net actuarial
(gain) loss (319) (14) 3
Special termination benefits -- -- 314
Net expense (credit) (780) (289) 419
Other benefits:
Service cost 358 359 411
Interest cost 920 895 1,024
Amortization of prior service
cost (133) (146) (147)
Recognized net actuarial gain (356) (320) (209)
Special termination benefits -- -- 29
Net expense $ 789 $ 788 $ 1,108
In 1998, in an effort to reduce the size of its workforce,
the Company offered a voluntary, enhanced early retirement
program to employees in the Pineapple and Corporate divisions
based on age and years of service. Net pension expense for 1998
increased by $314,000 and net expense for other postretirement
benefits increased by $29,000 as a result of implementing this
program.
The projected benefit obligation, accumulated benefit
obligation and fair value of plan assets for the pension plan
with accumulated benefits in excess of plan assets were
$1,328,000, $744,000 and $-0-, respectively, as of December 31,
2000 and $1,028,000, $578,000 and -0-, respectively, as of
December 31, 1999.
The benefit obligations for pensions and other
postretirement benefits were determined using a discount rate of
7.25% as of December 31, 2000 and 1999, and compensation
increases ranging up to 4.5%. The expected long-term rate of
return on assets ranged up to 9% for 2000 and 1999.
The accumulated postretirement benefit obligation for health
care as of December 31, 2000 and 1999 was determined using a
health care cost trend rate of 10% in 1995, decreasing by .5%
each year from 1995 through 2004 and 5% thereafter. The effect
of a 1% annual increase in these assumed cost trend rates would
increase the accrued postretirement benefit obligation by
approximately $1,642,000 as of December 31, 2000, and the
aggregate of the service and interest cost for 2000 by
approximately $173,000; a 1% annual decrease would reduce the
accrued postretirement benefit obligation by approximately
$1,345,000 as of December 31, 2000, and the aggregate of the
service and interest cost for 2000 by approximately $140,000.
The Company has an Employee Stock Ownership Plan (ESOP) for
non-bargaining salaried employees and for bargaining unit
clerical employees of Maui Pineapple Company, Ltd. All of the
shares originally sold to the ESOP in 1979 have been allocated to
participants since December 1993. In December 1999, 7,300 shares
of the Company's common stock held by a wholly owned subsidiary
were contributed to the ESOP. The Company recorded a charge to
employee benefit expense of $137,000 and a corresponding credit
to Common Stock. Effective December 31, 1999, the Company's
Board of Directors approved a plan amendment to freeze the ESOP.
Accordingly, after 1999 there were no further contributions to
the ESOP and no additional employees became participants of the
plan.
On October 1, 1998, deferred compensation plans that
provided for specified payments after retirement for certain
management employees were terminated. At the termination date,
these employees were given credit for existing years of service
and future accruals were discontinued.
6. MINORITY INTEREST IN SUBSIDIARY
In February 1999, Royal Coast Tropical Fruit Company, Inc.
(a wholly owned subsidiary of Maui Pineapple Company, Ltd.)
formed a subsidiary company in Central America and invested
$503,000 for a 51% ownership interest in a new pineapple
production company. The minority stockholders contributed
$460,000. The minority stockholders' share of the 2000 and 1999
operating losses were not material.
7. DEFERRED REVENUE
Deferred revenue for 2000 and 1999 primarily represents
proceeds received on closed lot sales at the Kapalua Resort in
excess of revenue recognized on the percentage-of-completion
method. In December 2000, 12 of the 31 lots in Pineapple Hill
Estates closed escrow. No revenue was recognized on these sales
in 2000. Construction of the Pineapple Hill Estates subdivision
improvements is expected to begin in the first quarter of 2001
and is scheduled to be substantially completed during the fourth
quarter of 2001. At December 31, 1999, 12 of the 14 lots in
Plantation Estates Phase II had closed escrow and revenue was
recognized on the percentage-of-completion method. Construction
of the Plantation Estates Phase II subdivision improvements began
in the fourth quarter of 1999 and was substantially complete in
the second quarter of 2000.
8. LEASES
LESSEE
The Company has capital leases, primarily on equipment used
in pineapple operations, which expire at various dates through
2005. At December 31, 2000 and 1999, property included capital
leases of $1,615,000 and $900,000, respectively (accumulated
depreciation of $506,000 and $452,000, respectively). Future
minimum rental payments under capital leases aggregate $1,180,000
(including $110,000 representing interest) and are payable as
follows (2001 to 2005): $436,000, $325,000, $122,000, $114,000
and $183,000.
The Company has various operating leases, primarily for land
used in pineapple operations, which expire at various dates
through 2012. A major operating lease covering approximately
1,500 acres used primarily for pineapple operations expired on
December 31, 1999. The lease currently is being renegotiated for
a minimum term of ten years. Total rental expense under
operating leases was $821,000 in 2000, $801,000 in 1999 and
$746,000 in 1998. Future minimum rental payments under operating
leases aggregate $5,307,000 and are payable during the next five
years (2001 to 2005) as follows: $691,000, $614,000, $501,000,
$482,000, $479,000, respectively, and $2,540,000 thereafter.
LESSOR
The Company leases land and land improvements, primarily to
hotels at Kapalua, and buildings, primarily to retail tenants.
The leases generally provide for minimum rents and, in most
cases, percentage rentals based on tenant revenues. In addition,
the leases generally provide for reimbursement of common area
maintenance and other expenses. Total rental income under these
operating leases was as follows:
2000 1999 1998
(Dollars in Thousands)
Minimum rentals $ 1,832 $ 1,744 $ 1,694
Percentage rentals 3,140 2,232 1,279
Total $ 4,972 $ 3,976 $ 2,973
Property at December 31, 2000 and 1999 includes leased
property of $20,519,000 and $20,473,000, respectively
(accumulated depreciation of $11,279,000 and $10,623,000,
respectively).
Future minimum rental income aggregates $6,884,000 and is
receivable during the next five years (2001 to 2005) as follows:
$1,314,000, $1,067,000, $849,000, $667,000, $607,000,
respectively, and $2,380,000 thereafter.
9. INCOME TAXES
The components of the income tax provision (credit) were as
follows:
2000 1999 1998
(Dollars in Thousands)
Current
Federal $ 984 $ 1,831 $ 1,225
State (296) 334 30
Total 688 2,165 1,255
Deferred
Federal (777) 584 (415)
State 1 (32) (108)
Total (776) 552 (523)
Total provision (credit) $ (88) $ 2,717 $ 732
Reconciliation between the total provision and the amount
computed using the statutory federal rate of 34% follows:
2000 1999 1998
(Dollars in Thousands)
Federal provision at
statutory rate $ 124 $ 2,512 $ 1,471
Adjusted for State income taxes,
net of effect on federal income
taxes (210) 200 (91)
Appreciated property donation -- -- (721)
Other (2) 5 73
Total income tax
provision (credit) $ (88) $ 2,717 $ 732
Deferred tax assets and liabilities were comprised of the
following types of temporary differences as of December 31, 2000
and 1999:
2000 1999
(Dollars in Thousands)
Accrued retirement benefits $ 6,789 $ 6,921
Minimum tax credit carryforward 3,379 2,567
Accrued liabilities 1,491 1,120
Inventory 468 439
Allowance for doubtful accounts 359 216
Net operating loss carryforward 85 70
Total deferred tax assets 12,571 11,333
Deferred condemnation proceeds (5,891) (5,864)
Property net book value (2,923) (2,629)
Income from partnerships (1,847) (1,840)
Pineapple marketing costs (691) (583)
Other (146) (120)
Total deferred tax liabilities (11,498) (11,036)
Net deferred tax asset $ 1,073 $ 297
A valuation allowance against deferred tax assets as of
December 31, 2000 and 1999 is not considered necessary as the
Company believes that it is more likely than not the deferred tax
assets will be fully realized.
At December 31, 2000, the Company had federal minimum tax
credit carryforwards of $3.4 million.
The Company's federal income tax return for 1993 is under
examination by the Internal Revenue Service. The revenue agent's
report on this examination has not been issued and the Company
presently cannot predict the outcome of this examination.
10. INTEREST CAPITALIZATION
Interest cost incurred in 2000, 1999 and 1998 was
$3,901,000, $2,477,000 and $3,179,000, respectively, of which
$840,000, $643,000 and $140,000, respectively, was capitalized.
11. ADVERTISING AND RESEARCH AND DEVELOPMENT
Advertising expense totaled $2,000,000 in 2000, $1,801,000
in 1999 and $1,397,000 in 1998. Research and development
expenses totaled $845,000 in 2000, $839,000 in 1999 and $815,000
in 1998.
12. EXTRAORDINARY LOSS
In December 1998, the Company retired $20 million of 8.86%
senior unsecured notes. Principal payments on the $20 million
loan were due from 1999 through 2003. A prepayment penalty of
$1.2 million was paid for early extinguishment of the 8.86% notes
and has been accounted for as an extraordinary loss of $744,000
(net of income tax credit of $456,000).
13. CONTINGENCIES AND COMMITMENTS
In 1996, the County of Maui sued several chemical
manufacturers claiming that they were responsible for the
presence of a nematocide commonly known as DBCP in certain water
wells on Maui. The Company was a Third Party Defendant in the
suit as a result of a 1978 agreement for the sale of DBCP to the
Company from one of the DBCP manufacturers. In August 1999,
settlement of the case was reached. The Company's portion of the
cash payment in 1999 to install filtration systems in existing
contaminated wells was substantially covered by proceeds of a
settlement concluded on this issue with its insurance carrier.
The Company and the other defendants as a group have agreed that
until December 1, 2039, they will pay for 90% of the capital cost
to install filtration systems in any future wells if DBCP
contamination exceeds specified levels and for the ongoing
maintenance and operating cost for filtration systems on existing
and future wells. The level of DBCP in the existing wells should
decline over time as the wells are pumped, which may end the
requirement for filtration before 2039. To secure the
obligations of the defendants under the settlement agreement, the
defendants are required to furnish to the County of Maui an
irrevocable standby letter of credit throughout the entire term
of the agreement. The Company had estimated a range of its share
of the cost to operate and maintain the filtration systems for
the existing wells and its share of the cost of the letter of
credit, and recorded a reserve for this liability in 1999. The
reserve recorded in 1999 and adjustments thereto in 2000 did not
have a material effect on the Company's financial statements for
the years ended December 31, 2000 and 1999. There are procedures
in the settlement agreement to minimize the DBCP impact on future
wells by relocating the wells to areas unaffected by DBCP or by
using less costly methods to remove DBCP from the water. The
Company is unable to estimate the range of potential financial
impact for the possible filtration cost for any future wells
acquired or drilled by the County of Maui and, therefore, has not
made a provision in its financial statements for such costs.
There are various claims and legal actions pending against
the Company. In the opinion of management, after consultation
with legal counsel, the resolution of these matters will not have
a material adverse effect on the Company's financial position or
results of operations.
The Company has guaranteed the payment of up to $10 million
of the $60 million mortgage loan of Kaahumanu Center Associates.
The lender will release the guaranty when Kaahumanu Center
attains a defined level of net operating income.
Premium Tropicals International, LLC (PTI) is a joint
venture between Royal Coast Tropical Fruit Company, Inc. (a
wholly owned subsidiary of Maui Pineapple Company, Ltd.) and an
Indonesian pineapple grower and canner. The joint venture
markets and sells Indonesian canned pineapple in the United
States. The Company is a guarantor of a $3 million line of
credit, which supports letters of credit to be issued on behalf
of PTI for import trading purposes.
At December 31, 2000, the Company had commitments under
signed contracts totaling $2,786,000.
14. CONCENTRATIONS OF CREDIT RISK
A substantial portion of the Company's trade receivables
results from sales of pineapple products, primarily to food
distribution customers in the United States. Credit is extended
after evaluating creditworthiness and no collateral generally is
required from customers. Notes receivable result principally
from sales of real estate in Hawaii and are collateralized by the
property sold.
15. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Except for certain long-term debt, the carrying amount of
the Company's financial instruments is considered to be the fair
value. The fair value of long-term debt was estimated based on
rates currently available to the Company for debt with similar
terms and remaining maturities.
The estimated fair values for these financial instruments at
December 31, 2000 and 1999 were as follows:
2000 1999
(Dollars in Thousands)
Carrying Fair Carrying Fair
Amount Value Amount Value
Long-Term Debt $42,616 $42,302 $ 27,139 $ 26,348
16. BUSINESS SEGMENTS
The Company's reportable segments are Pineapple, Resort and
Commercial & Property. Each segment is a line of business
requiring different technical and marketing strategies.
Pineapple includes growing pineapple, canning pineapple in
tin-plated steel containers fabricated by the Company and
marketing canned and fresh pineapple products.
Resort includes the development and sale of real estate,
property management and the operation of recreational and retail
facilities and utility companies at Kapalua on Maui.
Commercial & Property covers non-resort real estate
activities, including the Company's investment in Kaahumanu
Center Associates, Napili Plaza shopping center and non-resort
real estate development, rentals and sales. It includes the
Company's land entitlement and land management activities.
The accounting policies of the segments are the same as
those described in Note 1, Summary of Significant Accounting
Policies.
Commercial
2000 Pineapple Resort & Property Other Consolidated
(Dollars in Thousands)
Revenues (1) $85,892 $ 50,262 $ 5,043 $ 286 $ 141,483
Operating profit
(loss) (2) (2,891) 7,752 (441) (995) 3,425
Interest expense (1,572) (992) (164) (333) (3,061)
Income (loss) before
income taxes and
extraordinary loss (4,463) 6,760 (605) (1,328) 364
Depreciation 5,106 3,222 498 176 9,002
Equity in earnings
(losses)of joint
ventures 61 (62) (971) -- (972)
Investment in joint
ventures 206 1,058 (9,990) -- (8,726)
Segment assets (3) 81,294 69,227 7,169 12,261 169,951
Expenditures for
segment assets 8,378 9,069 304 2,225 19,976
1999
Revenues (1) $94,535 $ 47,950 $ 4,381 $ 132 $ 146,998
Operating profit
(loss) (2) 6,071 5,702 (454) (2,098) 9,221
Interest expense (919) (443) (133) (339) (1,834)
Income (loss) before
income taxes and
extraordinary loss 5,152 5,259 (587) (2,437) 7,387
Depreciation 5,040 2,796 481 128 8,445
Equity in earnings
(losses)
of joint ventures 116 (172) (900) -- (956)
Investment in joint
ventures 198 905 (8,944) -- (7,841)
Segment assets (3) 69,733 64,943 7,190 11,521 153,387
Expenditures for
segment assets 8,365 13,750 226 795 23,136
1998
Revenues (1) $97,658 $ 41,929 $ 4,087 $ 37 $ 143,711
Operating profit
(loss) (2) 5,480 5,239 (1,085) (1,067) 8,567
interest expense (1,543) (1,089) (167) (240) (3,039)
Income (loss) before
income taxes and
extraordinary loss 3,937 4,150 (1,252) (1,307) 5,528
Depreciation 4,795 2,743 487 151 8,176
Equity in losses of
joint 79 1 (1,240) -- (1,160)
ventures
Investment in joint
ventures 145 495 7,969) -- (7,329)
Segment assets (3) 2,384 53,323 6,780 13,760 136,247
Expenditures for
segment assets 6,433 3,930 406 997 11,766
(1) Amounts are principally revenues from external customers.
Intersegment revenues and interest revenues were insignificant.
Sales to any single customer did not exceed 10% of consolidated
revenues. Revenues attributed to foreign countries were $2.6
million, $3.1 million and $4.3 million, respectively, in 2000,
1999 and 1998. Foreign sales are attributed to countries based
on the location of the customer.
(2) "Operating profit (loss)" is total revenues less all
expenses except allocated interest expenses and income taxes.
Operating profit (loss) included in "Other" is primarily
unallocated corporate expenses.
(3) Segment assets are located in the United States, primarily
Maui. Other assets are corporate and non-segment assets.
QUARTERLY EARNINGS
(unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
(Dollars in Thousands Except Per Share Amounts)
2000
Total revenues $34,775 $30,921 $37,195 $38,592
Net sales 24,138 21,135 28,279 29,642
Cost of sales 15,719 14,341 19,675 23,068 (a)
Net income (loss) 1,945 300 556 (2,349)(a)
Net income (loss) per
common share .27 .04 .08 (.33)
1999
Total revenues $33,647 $30,371 $39,659 $43,321 (b)
Net sales 23,284 22,013 31,277 35,617 (b)
Cost of sales 14,742 13,776 21,592 24,384
income 1,624 381 1,270 1,395
Net income per
common share .23 .05 .18 .19
(a) In the fourth quarter of 2000, the per unit cost of sales
for pineapple products increased primarily as a result of a
decrease in the planned production tonnage for the year. In
addition, the Pineapple segment incurred increased fourth quarter
2000 charges for marketing and bad debt expenses.
(b) Total revenues and net sales for the fourth quarter of 1999
included $5.4 million from lot sales at the Plantation Estates
Phase II.
COMMON STOCK
The Company's common stock is traded on the American Stock
Exchange under the symbol "MLP."
A dividend of $.125 per share was paid in March of 2000 and
1999. The declaration and payment of cash dividends are
restricted by the terms of borrowing arrangements to 30% of prior
year's net income.
At February 13, 2001, there were 467 shareholders of record.
The following chart reflects high and low sales prices
during each of the quarters in 2000 and 1999:
First Second Third Fourth
Quarter Quarter Quarter Quarter
2000 High $ 17.50 $ 23.50 $ 26.63 $ 26.75
Low 14.00 14.75 22.13 21.00
1999 High $ 10.00 $ 15.88 $ 30.75 $ 21.75
Low 9.00 9.88 15.00 17.38
SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996
(Dollars in Thousands Except Per Share Amounts)
FOR THE YEAR
Summary of Operations
Revenues $141,483 $ 46,998 $ 43,711 $136,498 $136,335
Cost of goods sold 72,803 74,494 76,049 72,200 75,279
Operating expenses 30,169 27,440 26,168 26,027 24,030
Shipping and marketing 18,289 18,479 16,673 18,053 19,185
General and
administrative 15,825 16,408 15,094 14,600 14,507
Equity in losses
of joint ventures 972 956 1,160 1,211 882
Interest expense 3,061 1,834 3,039 3,045 3,575
Income tax expense
(credit) (88) 2,717 1,188 499 (376)
Income (loss) before
extraordinary loss 452 4,670 4,340 863 (747)
Extraordinary loss, net of
income tax credit -- -- (744) -- --
Net income (loss) 452 4,670 3,596 863 (747)
Per Common Share (1)
Income (loss) before
extraordinary loss .06 .65 .60 .12 (.10)
Extraordinary loss, net of
income tax credit -- -- (.10) -- --
Net income (loss) .06 .65 .50 .12 (.10)
Other Data
Cash dividends
Amount 899 899 -- -- 90
Per common share (1) .125 .125 -- -- .01
Depreciation $ 9,002 $ 8,445 $ 8,176 $ 8,041 $ 8,606
Return on beginning
stockholders' equity .7% 7.5% 6.1% 1.5% (1.3%)
Percent of net income (loss)
to revenues .03% 3.2% 2.5% .6% (.5%)
AT YEAR END
Current assets less
current liabilities (2)$19,304 $ 12,924 $ 18,985 $ 20,283 $ 19,467
Ratio of current assets
to current liabilities (2) 1.7 1.5 2.1 2.2 2.2
Property, net of
depreciation $109,725 $100,976 $ 89,921 $ 88,047 $ 86,610
Total assets 169,951 153,387 136,247 135,507 132,851
Long-term debt and
capital leases 41,012 25,497 23,592 29,435 28,898
Stockholders' equity
Amount 65,922 66,400 62,492 58,896 58,033
Per common share (1) $ 9.16 $ 9.23 $ 8.69 $ 8.19 $ 8.07
Common shares
outstanding (1) 7,195,800 7,195,800 7,188,500 7,188,500 7,188,500
(1) All references to the number of shares of common stock and
per share amounts prior to 1999 have been restated to reflect the
four-for-one common stock split as of May 1, 1998.
(2) Current assets less current liabilities and ratio of current
assets to current liabilities for 1999 decreased primarily
because of increased accounts payable resulting from the high
level of construction in progress at year-end.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
2000 vs. 1999
The Company reported consolidated net income of $452,000 for
2000 compared to $4.7 million for 1999. The lower net income in
2000 was attributable to losses from the Pineapple segment and
increased interest expense, which more than offset substantially
increased operating profit from the Resort segment.
General and administrative expenses for 2000 of $15.8
million were lower than 1999 by 4%. In 2000, the Company's
payroll related costs decreased compared to 1999 primarily
because there were no accruals for bonus incentives for 2000.
The cost for outside consultants also was lower in 2000 because
in 1999 the Company wrote off $1.1 million of deferred costs for
consultants who were engaged to analyze and develop strategic
plans for the Company. This reduction in outside consultant
costs were partially offset by increased expenses in 2000 for
consultants related to the selection of an integrated accounting
and information technology system, which the Company is in the
process of implementing. Pension expense was lower in 2000
compared to 1999 primarily because of a discount rate increase as
of year-end 1999 and because of favorable investment returns in
1999. Expenses for medical and general insurance, workers
compensation and vacation accruals increased in 2000 compared to
1999.
Interest expense increased by 67% in 2000 compared to 1999
because of higher average borrowings and higher interest rates.
Average borrowings were higher in 2000 as a result of lower cash
flows from operating activities combined with a large amount of
capital expenditures, in particular construction at the Kapalua
Resort. An increase in the amount of interest capitalized in
2000, primarily because of construction of the Village Course
Clubhouse, partially offset the increase in interest expense.
PINEAPPLE
Pineapple revenues of $86 million for 2000 were lower by 9%
as compared to 1999. The segment produced an operating loss of
$2.9 million in 2000 compared to operating profit of $6.1 million
in 1999. The reduction in revenues was a result of both a lower
case sales volume (the number of cases sold) as well as lower
prices in 2000. These results reflect the highly competitive
market conditions for canned pineapple products that the Company
has been faced with throughout 2000 and anticipates continuing
through the first half of 2001. Revenues from fresh whole and
fresh cut pineapple products increased in 2000. The increased
operating loss in 2000 also was due to higher marketing and bad
debt expense and higher per case cost of sales primarily because
of processing fewer tons of fruit in 2000.
The average unit value of imported canned pineapple products
declined significantly in 2000 compared to 1999, which put severe
downward pressure on the market prices in the U.S. In addition
market prices were suppressed in 2000 as a result of much of the
1999 imports entering the U.S. retail stores in 2000. In 1999,
imports of canned pineapple products into the U.S. increased by
39%. Total imports of canned pineapple into the United States
decreased by 9% in 2000 compared to 1999 primarily reflecting
reduced import volume from Thailand. The reduced case volume of
imports appears to be a result of the antidumping duties on
canned pineapple fruit from Thailand. The Company believes that
the reduction in import case volume combined with the decline in
unit values is reflective of a general decrease in demand for
canned fruits.
Antidumping duties were in effect on canned pineapple fruit
imported from Thailand since mid-1995 as a result of an
antidumping petition in 1994 to which the Company was a party.
The amount of duties on pineapple imports from Thailand is
subject to annual administrative reviews by the U. S. Department
of Commerce. Either the Company or the Thai producers may
request these reviews. If the cost of production changes
relative to the selling price of the product in the U.S., the
duties would be adjusted. Some of the Thai pineapple companies
have significantly reduced their antidumping duties through the
annual review process. Present antidumping duties on imports of
canned pineapple from Thailand range from less than 1% up to 51%.
Final results of the fourth annual administrative review,
covering the period from July 1, 1998 to June 30, 1999, were
released in December 2000. Overall, the nine Thai pineapple
companies reviewed were found to have lower dumping margins than
those reflected in the antidumping duties currently being
assessed.
In 2000, the Department of Commerce initiated proceedings
for the "Sunset Review" of antidumping duties on imports of
canned pineapple from Thailand. Preliminary results released by
the Department of Commerce in the third quarter of 2000 indicate
that revocation of the antidumping duties on canned pineapple
from Thailand likely would result in continued dumping by Thai
pineapple companies. The
U. S. International Trade Commission (ITC) also began its
proceedings for the Sunset Review in 2000. The Company
anticipates that preliminary results from the ITC may be
available in April or May 2001. For a continuation of existing
duties, the Company must convince the ITC during the Sunset
Review that elimination of the duties will potentially cause
injury to the domestic industry. Elimination of the import
duties could have a material adverse effect on the Company.
In 2000, a new federal law was passed that provides for
disbursement to injured U.S. companies of all antidumping duties
collected by U.S. Customs. Although Maui Pineapple Company, Ltd.
is listed as a company qualifying for these disbursements, the
Company is unable to estimate the amount or timing of the
potential disbursements until regulations and procedures to
administer this new law are written.
RESORT
Kapalua Resort revenues, including operations and
development, of $50.2 million for 2000 were 5% higher than 1999.
Resort operating profit was $7.8 million in 2000 compared to $5.7
million in 1999. Higher revenues and operating profit generated
by resort operations more than offset lower results from the sale
of real estate inventories.
Revenues from golf operations increased 11%, merchandise
sales increased 12% and income from lease rents increased 26%.
These improved results were largely due to higher average green
fees, increased room occupancies at the hotels and increased
ground lease percentages from the hotels. Revenue from The
Kapalua Villas operations increased 12% in 2000 as a result of
increased room occupancies and higher average room rates.
Commissions from Kapalua Realty operations increased 71% in 2000,
reflecting increased activity in the resale of Resort real
estate. In addition to these revenue increases, improved
operating results in 2000 also were due to general excise tax
refunds related to prior years.
Revenue from real estate sales decreased 21% in 2000
compared to 1999. Contribution to operating profit from sale of
real estate inventory was $2 million in 2000 compared to $2.2
million in 1999. In the fourth quarter of 1999, the Company
began the construction and sale of Plantation Estates Phase II, a
fourteen single-family lot subdivision at Kapalua. Twelve of the
fourteen lots closed escrow in 1999 and the Company recognized
profits on the percentage-of-completion method. The last two
lots closed escrow in the first quarter of 2000 and construction
of improvements was substantially complete in the second quarter
of 2000.
In December of 2000, the Company began selling lots in
Pineapple Hill Estates, a 31 single-family lot subdivision in the
Kapalua Resort. Twelve sales closed escrow in 2000 and all of
the proceeds were recorded as deferred revenues. Revenue will be
recognized in 2001 on the percentage-of-completion method as
construction of the subdivision improvements takes place.
COMMERCIAL & PROPERTY
Revenue from Commercial & Property was $5 million in 2000
compared to $4.4 million in 1999. These revenues include gains
from land sales of $75,000 in 2000 and $223,000 in 1999. The
operating loss from this segment was $441,000 in 2000 or 3% lower
than 1999. The reduced loss in 2000 from the Commercial &
Property segment is primarily due to improved recoveries on
electricity sales from the Company to Kaahumanu Center
Associates.
The Company's equity in the losses of Kaahumanu Center
Associates was $971,000 in 2000 or $71,000 higher than the loss
in 1999. Although Kaahumanu Center minimum and percentage rents
increased in 2000, increased operating expenses, in particular
repairs and maintenance, professional fees and payroll related
expenses, more than offset the higher rental revenues.
1999 vs. 1998
CONSOLIDATED
The Company reported consolidated net income of $4.7 million
for 1999 compared to $3.6 million for 1998. Higher net income in
1999 was due to improved results from all of the Company's
business segments and to lower interest expense. In addition,
net income for 1998 included an extraordinary loss of $744,000
(net of taxes) for the prepayment of $20 million of debt.
General and administrative expenses for 1999 were higher
than 1998 by 9% or $1.3 million. Included in 1999 were $1.1
million of deferred cost write-offs for consultants who were
engaged to analyze and develop potential strategic plans for the
Company. These costs were charged to expense in the second
quarter of 1999 because of the then pending sale of approximately
41% of the Company's outstanding shares by certain shareholders.
Other components of the increased expense in 1999 were increased
accruals for bonus incentives for the Company's non-bargaining
personnel and a reserve for the Company's portion of costs of
filtration of certain water wells on Maui (see Note 13 to
Consolidated Financial Statements). Partially offsetting these
increases were lower pension expense as a result of favorable
investment experiences and lower expense for postretirement
health and life insurance because of lower premium cost and a
reduction in the number of covered employees.
Interest expense was lower in 1999 by 40% compared to 1998
as a result of lower average borrowings and interest rates and
because of a greater amount of interest capitalized in 1999.
Borrowings were lower in 1999 because a large part of the 1999
capital expenditures and other cash outflows for investing
activities were funded by cash flows from operating activities.
The higher amount of interest capitalized was due largely to
commencing construction during 1999 of the Village Course
Clubhouse and Kapalua Golf Academy.
PINEAPPLE
Pineapple revenues decreased in 1999 by 3% or $3.1 million
compared to 1998. Operating profit was $6.1 million in 1999
compared to $5.5 million in 1998. Lower revenues were due
largely to a decline in case sales volume (the number of cases
sold) of canned pineapple. Lower case sales volume was
attributed in part to a planned reduction in the acreage planted
to eliminate planting in unreliable fields with a history of low
yields. The decrease in case volume also was attributable to a
substantial increase in imports of canned pineapple into the
United States during the second half of 1999. The decrease in
revenues caused by lower sales volume was partially offset by
higher average prices. Higher average prices in 1999 were
largely the result of low inventories of imports at the beginning
of the year, which kept prices firm through the first half of
1999. Competitive pressure on prices increased in the second
half of 1999, reflecting the large increase in imports after May.
Pineapple cost of sales decreased in 1999 by 4% or $2.8
million largely because of the decrease in case sales volume.
Average cost of sales per case of pineapple sold was higher in
1999 primarily because in 1998 there was a partial liquidation of
LIFO inventories, resulting in lower costs from prior years being
included in cost of sales. Cost of sales for 1998 would have
been higher by $1.6 million based on current production costs for
1998. Unit production cost in 1999 and 1998 were approximately
the same.
Lower shipping and selling costs in 1999, as a result of the
reduction in case sales volume and decreased general and
administrative costs, more than offset increased marketing
expenses.
RESORT
Kapalua Resort revenues, including operations and
development, increased in 1999 by 14% or $6 million compared to
1998. Resort operating profit was $5.7 million in 1999 compared
to $5.2 million in 1998. Approximately 30% of the revenue
increase in 1999 was due to tournament operations fees received
for hosting the Mercedes Championships in January of 1999. Costs
and expenses to host the tournament more than offset the
tournament operations fees and were charged primarily to
marketing expense in 1999. In 1998, Kapalua did not host a major
golf tournament; thus, the 1999 tournament expenses were the
primary reason for the increase in Resort marketing expense in
1999.
Revenue from the sale of real estate inventories increased
3% in 1999 and the contribution to operating profit was $2.2
million in 1999 compared to $2.8 million in 1998. In the fourth
quarter of 1999, construction and sale of fourteen single-family
lots in Plantation Estates Phase II began. Profit was recognized
in 1999 on the percentage-of-completion method for sales that
closed prior to year-end. Construction was substantially
complete in the second quarter of 2000. Sale of Resort real
estate inventories in 1998 included a December 1998 sale of a 75-
acre parcel in Plantation Estates Phase II.
Revenues from the Resort golf operations increased 8%,
merchandise sales increased 16%, income from The Kapalua Villas
rental program increased 20% and income from lease rents
increased 58%. A large part of the increase in lease rent income
was attributable to recognizing lease rents from The Ritz
Carlton, Kapalua Hotel as of January 1, 1999. The Company did
not recognize revenue from that ground lease since December 31,
1995, as a result of an agreement to offset lease rents against a
previous loan from the partnership that originally owned the
hotel. As of January 1, 1999, the remaining loan balance was
canceled. For accounting purposes, the loan was written off
against the related off site improvements in 1995. In addition
to these lease rents, revenue increased in 1999 because of
increased hotel room occupancies throughout the Resort and at The
Kapalua Villas, as well as higher room rates at The Kapalua
Villas, an increase in paid rounds of golf and higher green fees
and cart fees.
COMMERCIAL & PROPERTY
Revenue from Commercial & Property was $4.4 million in 1999
compared to $4.1 million in 1998. Gains from land sales of
$223,000 in 1999 were comparable to 1998. The segment produced
an operating loss of $454,000 in 1999 compared to $1.1 million in
1998. The primary reason for the lower operating loss was a
reduction in the loss from Kaahumanu Center. The Company's
equity in losses of Kaahumanu Center Associates was $900,000 in
1999 or $340,000 less than 1998. Improved results from Kaahumanu
Center primarily reflected increased rental revenues because of
an increase in the percentage of space occupied and higher sales
reported by the tenants, higher recoveries of common area costs
and lower expense for bad debts.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, the Company's total debt, including
capital leases, was $44.5 million, an increase of $16 million
from year-end 1999. Unused short- and long-term credit lines
available to the Company at December 31, 2000 totaled $7.9
million. The increased debt level in 2000 primarily was the
result of negative cash flows from Pineapple operations and
construction activity at the Kapalua Resort. In 2000, the Resort
completed construction of the Village Course Clubhouse and
Kapalua Golf Academy. Although cash flow requirements for the
Company's Pineapple operations are seasonal, overall, cash flow
from Pineapple operations are expected to improve in 2001 as a
lower level of production is planned. Distribution of proceeds
from the closing of condominium sales by the Kapalua Coconut
Grove LLC also is expected to contribute to debt reduction in
2001. All of the 36 luxury beachfront condominiums, called The
Coconut Grove on Kapalua Bay, presently are under binding sales
contract. The condominium units are scheduled for completion
beginning in April 2001 and sales are scheduled to close
thereafter. Construction of improvements for the 31 lot
Pineapple Hill Estates subdivision is expected to begin in the
first quarter of 2001 and may result in increased debt as
proceeds received in December 2000 from the closing of twelve lot
sales were used to reduce debt in 2000. The credit facilities
currently available to the Company are estimated to be adequate
to cover the 2001 cash requirements.
Resort capital expenditures and planning costs are expected
to be $8.2 million in 2001. This amount includes approximately
$4 million for replacements, the most significant being
renovation of the Bay Course and replacement of its irrigation
system. Pineapple capital expenditures are expected to be $5.9
million in 2001 of which approximately $3.8 million is for the
replacement of existing equipment and facilities. Other capital
expenditures and planning and entitlement costs are anticipated
to be approximately $3 million in 2001. This includes $1.9
million for completion of the implementation and installation of
an integrated accounting and information system.
The Company, as a partner in various partnerships, may under
particular circumstances be called upon to make additional
capital contributions (see Note 3 to Consolidated Financial
Statements).
IMPACT OF INFLATION AND CHANGING PRICES
The Company uses the LIFO method of accounting for its
pineapple inventories. Under this method, the cost of products
sold approximates current cost and, during periods of rising
prices, the ending inventory is reflected at an amount below
current cost. The replacement cost of pineapple inventory was
$26.5 million at December 31, 2000, which was $11 million more
than the amount reflected in the financial statements.
Most of the land owned by the Company was acquired from 1911
to 1932 and is carried at cost. A small portion of "Real Estate
Held for Sale" represents land cost. Replacements and additions
to the Pineapple operations occur every year and some of the
assets presently in use were placed in service in 1934. At
Kapalua, some of the fixed assets were constructed and placed in
service in the mid-to-late 1970s. Depreciation expense would be
considerably higher if fixed assets were stated at current cost.
MARKET RISK
The Company's primary market risk exposure with regard to
financial instruments is to changes in interest rates. The
Company manages this risk by monitoring interest rates and future
cash requirements and evaluating opportunities to refinance
borrowings at various maturities and interest rates. At December
31, 2000, 77% of the Company's short- and long-term borrowing
commitments carried interest rates that were periodically
adjustable to the prime rate, a Federal Farm Credit Bank index
rate or to a LIBOR rate and 23% carried interest at fixed rates.
Based on debt outstanding at the end of 2000, a hypothetical
decrease in interest rates of 100 basis points would increase the
fair value of the Company's long-term debt by approximately
$388,000. At December 31, 2000, the carrying value of the
Company's long-term debt exceeded the fair value by approximately
$314,000 as a result of a general increase in quoted interest
rates.
FORWARD-LOOKING STATEMENTS
The Company's Annual Report to Shareholders contains forward-
looking statements (within the meaning of Private Securities
Litigation Reform Act of 1995) as to the future of new products
and new business development, future cost reductions in pineapple
operations, results of the International Trade Commission's
"Sunset Review" of antidumping duties on canned pineapple,
completion of development and close of sales of condominiums
comprising The Coconut Grove on Kapalua Bay, completion of
development and sale of Pineapple Hill Estates, extension of the
PGA TOUR and Mercedes-Benz contract for the Mercedes
Championships and 2001 expectations as to cash flow. In
addition, from time to time, the Company may publish forward-
looking statements as to those matters or other aspects of the
Company's anticipated financial performance, business prospects,
new products, marketing initiatives or similar matters.
Forward-looking statements contained in the Annual Report to
Shareholders or otherwise made by the Company are subject to
numerous factors (in addition to those otherwise noted in the
Company's Annual Report or in its filings with the Securities and
Exchange Commission) that could cause the Company's actual
results and experience to differ materially from expectations
expressed by the Company. Factors that might cause such
differences, among others, include (1) changes in domestic,
foreign or local economic conditions that affect availability or
cost of funds, or the number, length of stay or expenditure
levels of international or domestic visitors, or agricultural
production and transportation costs of the Company and its
competitors or Maui retail or real estate activity; (2) the
effect of weather conditions on agricultural operations of the
Company and its competitors; (3) the success of the Company in
obtaining land use entitlements; (4) the possibility of an
unfavorable outcome in the "Sunset Review" of antidumping duties;
(5) events in the airline industry affecting passenger or freight
capacity or cost; (6) possible shifts in market demand; and (7)
the impact of competing products, competing resort destinations
and competitors' pricing.
MAUI LAND & PINEAPPLE COMPANY, INC.
Officers
President & Chief Executive Officer
Gary L. Gifford
Executive Vice President/Finance
Paul J. Meyer
Executive Vice President/Pineapple
Douglas R. Schenk
Executive Vice President/Resort
Donald A. Young
Vice President/Human Resources
J. Susan Corley
Vice President/Retail Property
Scott A. Crockford
Vice President/Land Management & Development
Warren A. Suzuki
Treasurer
Darryl Y. H. Chai
Controller & Secretary
Adele H. Sumida
Directors
Richard H. Cameron--Chairman
Private Investor
John H. Agee
President and Chief Executive Officer
Ka Po'e Hana LLC
David A. Heenan
Trustee
The Estate of James Campbell
Randolph G. Moore
Chief Executive Officer
Kaneohe Ranch
Claire C. Sanford
Co-owner
Top Dog Studio
Fred E. Trotter III
President
F. E. Trotter, Inc.
Daniel H. Case-Director Emeritus
Chairman of the Board
Case Bigelow & Lombardi
Mary C. Sanford-Director Emeritus
Retired Chairman of the Board
Maui Publishing Company, Ltd.
Compensation Committee
Fred E. Trotter III-Chairman
John H. Agee
Richard H. Cameron
Daniel H. Case
David A. Heenan
Randolph G. Moore
Claire C. Sanford
Mary C. Sanford
Audit Committee
Randolph G. Moore-Chairman
David A. Heenan
Fred E. Trotter III
PRINCIPAL SUBSIDIARIES
MAUI PINEAPPLE COMPANY, LTD.
Officers
President & Chief Executive Officer
Douglas R. Schenk
Executive Vice President/Sales & Marketing
James B. McCann
Executive Vice President/Finance
Paul J. Meyer
Vice President/Quality Assurance & Product Development
Eduardo E. Chenchin
Vice President/Agricultural Business Development
L. Douglas MacCluer
Treasurer
Darryl Y. H. Chai
Secretary
Adele H. Sumida
Controller
Stacey M. Jio
Directors
Richard H. Cameron-- Chairman
John H. Agee
Gary L. Gifford
David A. Heenan
Paul J. Meyer
Randolph G. Moore
Claire C. Sanford
Douglas R. Schenk
Fred E. Trotter III
Daniel H. Case-Director Emeritus
Mary C. Sanford-Director Emeritus
KAPALUA LAND COMPANY, LTD.
Officers
President & Chief Executive Officer
Donald A. Young
Executive Vice President/Finance
Paul J. Meyer
Vice President/Marketing
Kim D. Carpenter
Vice President/Administration
Caroline P. Egli
Vice President/Development
Robert M. McNatt
Vice President/Resort Operations
Gary M. Planos
Vice President/Kapalua Club & Villas
David M. Sosner
Treasurer
Darryl Y. H. Chai
Secretary
Adele H. Sumida
Controller
Russell E. Johnson
Directors
Richard H. Cameron-- Chairman
John H. Agee
Gary L. Gifford
David A. Heenan
Paul J. Meyer
Randolph G. Moore
Claire C. Sanford
Fred E. Trotter III
Donald A. Young
Daniel H. Case-Director Emeritus
Mary C. Sanford--Director Emeritus