UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-6510
MAUI LAND & PINEAPPLE COMPANY, INC.
(Exact name of registrant as specified in its charter)
HAWAII 99-0107542
(State or other jurisdiction (IRS EmployerIdentification No.)
of incorporation or organization)
P. O. BOX 187, KAHULUI, MAUI, HAWAII 96733-6687
(Address of principal executive offices)
Registrant's telephone number, including area code: (808) 877-3351
NONE
Former name, former address and former fiscal year, if changed
since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [x]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 5, 2004
Common Stock, no par value 7,384,550 shares
MAUI LAND & PINEAPPLE COMPANY, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets,
September 30, 2004 and December 31, 2003 (Unaudited) 3
Condensed Consolidated Statements of Operations and Retained
Earnings,
Three Months Ended September 30, 2004 and 2003 (Unaudited) 4
Condensed Consolidated Statements of Operations and Retained
Earnings,
Nine Months Ended September 30, 2004 and 2003 (Unaudited) 5
Condensed Consolidated Statements of Comprehensive Income (Loss),
Three Months Ended September 30, 2004 and 2003 (Unaudited) 6
Condensed Consolidated Statements of Comprehensive Income (Loss),
Nine Months Ended September 30, 2004 and 2003 (Unaudited) 6
Condensed Consolidated Statements of Cash Flows,
Nine Months Ended September 30, 2004 and 2003 (Unaudited) 7
Notes to Condensed Consolidated Financial Statements (Unaudited)8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 28
Item 4. Controls and Procedures 28
PART II. OTHER INFORMATION
Item 5. Other Information 30
Item 6. Exhibits 30
Signatures 31
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
9/30/04 12/31/03
(Dollars in Thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 3,691 $ 7,863
Accounts and notes receivable 13,804 24,141
Inventories 18,747 13,263
Other current assets 6,712 6,021
Total current assets 42,954 51,288
Property 245,863 249,038
Accumulated depreciation (149,464) (153,990)
Property - net 96,399 95,048
Other Assets 15,858 15,344
Total 155,211 161,680
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt
and capital lease obligations 3,680 3,850
Trade accounts payable 9,986 12,434
Deferred Income 10,633 589
Other current liabilities 9,905 10,848
Total current liabilities 34,204 27,721
Long-Term Liabilities
Long-term debt and capital lease obligations 15,618 22,996
Accrued retirement benefits 30,258 30,168
Other long-term liabilities 4,339 3,921
Total long-term liabilities 50,215 57,085
Minority Interest in Subsidiary 798 5,330
Stockholders' Equity
Common stock, no par value - 8,000,000 shares
authorized, 7,199,550 and 7,195,800 issued
and outstanding as of September 30, 2004
and December 31, 2003, respectively 12,579 12,455
Paid-in-capital 1,418 195
Retained earnings 58,346 61,354
Accumulated other comprehensive loss (2,349) (2,460)
Stockholders' equity 69,994 71,544
Total $155,211 $ 161,680
See accompanying Notes to Condensed Consolidated Financial
Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
Three Months Ended
9/30/04 9/30/03
(Dollars in Thousands
Except Share Amounts)
Revenues
Net sales $26,320 $26,971
Operating revenues 8,151 8,041
Equity in earnings of joint ventures 139 13,343
Other revenues 118 2,161
Total Revenues 34,728 50,516
Costs and Expenses
Cost of goods sold 16,403 17,806
Operating expenses 9,195 8,221
Shipping and marketing 3,771 5,304
General and administrative 8,083 6,397
Interest 314 791
Equity in losses of joint ventures 435 2
Total Costs and Expenses 38,201 38,521
Income (Loss) From Continuing Operations
Before Income Taxes (3,473) 11,995
Income Tax Benefit (Expense) 1,240 (3,414)
Income (Loss) From Continuing Operations (2,233) 8,581
Income From Discontinued Operations (net of
income tax expense of $50 and $1,465) 80 867
Net Income (Loss) (2,153) 9,448
Retained Earnings, Beginning of Period 60,499 50,699
Retained Earnings, End of Period 58,346 60,147
Earnings Per Common Share - Basic and Diluted
Continuing Operations (.31) 1.19
Discontinued Operations .01 .12
Net Income (Loss) $ (.30) $ 1.31
See accompanying Notes to Condensed Consolidated Financial
Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
Nine Months Ended
9/30/04 9/30/03
(Dollars in Thousands
Except Share Amounts)
Revenues
Net sales $77,571 $74,664
Operating revenues 27,050 26,101
Equity in earnings of joint venture 139 12,651
Other revenues 252 3,321
Total Revenues 105,012 116,737
Costs and Expenses
Cost of goods sold 47,679 50,057
Operating expenses 26,900 25,116
Shipping and marketing 11,843 14,205
General and administrative 22,290 21,418
Interest 966 2,013
Equity in losses of joint ventures 134 18
Total Costs and Expenses 109,812 112,827
Income (Loss) From Continuing Operations
Before Income Taxes (4,800) 3,910
Income Tax Benefit (Expense) 1,678 (1,214)
Income (Loss) From Continuing Operations (3,122) 2,696
Income From Discontinued Operations (net
of income tax expense of $70 and $1,924) 114 2,094
Net Income (Loss) (3,008) 4,790
Retained Earnings, Beginning of Period 61,354 55,357
Retained Earnings, End of Period 58,346 60,147
Earnings Per Common Share - Basic and Diluted
Continuing Operations (.43) .37
Discontinued Operations .01 .29
Net Income (Loss) $ (.42) $ .66
See accompanying Notes to Condensed Consolidated Financial
Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Three Months Ended
9/30/04 9/30/03
(Dollars in Thousands)
Net Income (Loss) $(2,153) $ 9,448
Other Comprehensive Loss - Foreign
Currency Translation Adjustment -- (49)
Comprehensive Income (Loss) $(2,153) $ 9,399
Nine Months Ended
9/30/04 9/30/03
(Dollars in Thousands)
Net Income (Loss) $(3,008) $ 4,790
Other Comprehensive Income (Loss) - Foreign
Currency Translation Adjustment 111 (60)
Comprehensive Income (Loss) $(2,897) $ 4,730
See accompanying Notes to Condensed Consolidated Financial
Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
9/30/04 9/30/03
(Dollars in Thousands)
Net Cash Provided by
Operating Activities $ 15,343 $ 6,991
Investing Activities
Purchases of property (11,256) (6,345)
Proceeds from disposals of property 2,992 6,720
Other (2,824) 1,344
Net Cash Used in Investing Activities (11,088) 1,719
Financing Activities
Payments of long-term debt and capital
lease obligations (17,548) (25,870)
Proceeds from long-term debt 10,000 18,347
(Distributions to) contributions
from minority interest (879) 271
Payment of short-term debt -- (420)
Net Cash Used in Financing Activities (8,427) (7,672)
Net Increase (Decrease) in Cash (4,172) 1,038
Cash and Cash Equivalents
at Beginning of Period 7,863 658
Cash and Cash Equivalents
at End of Period $ 3,691 $ 1,696
Supplemental Disclosures of Cash Flow Information - Interest (net
of amounts capitalized) of $994,000 and $1,897,000 was paid
during the nine months ended September 30, 2004 and 2003,
respectively. Income taxes of $1,831,000 and $(2,164,000) were
paid (received) during the nine months ended September 30, 2004
and 2003, respectively.
Non-Cash Investing Activity - During the nine months ended
September 30, 2004, the Company purchased three industrial lots
on Oahu and exchanged the lots for a 223-acre land parcel that
was owned by the State of Hawaii and is located adjacent to the
Company's proposed Kapalua Mauka project.
See accompanying Notes to Condensed Consolidated Financial
Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of management, the accompanying condensed
consolidated financial statements contain all normal and
recurring adjustments necessary to fairly present the statement
of financial position, results of operations and cash flows for
the interim periods ended September 30, 2004 and 2003.
2. The Company's reports for interim periods utilize numerous
estimates of production cost, general and administrative
expenses, and other costs for the full year. Future actual
amounts may differ from the estimates. Amounts in the interim
reports are not necessarily indicative of results for the full
year.
3. The effective tax rate for 2004 and 2003 differs from the
statutory federal rate of 34% primarily because of the state tax
provision, refundable state tax credits and foreign income taxes
related to discontinued operations.
4. Accounts and notes receivable are reflected net of allowance
for doubtful accounts of $766,000 and $994,000 at September 30,
2004 and December 31, 2003, respectively.
5. Inventories as of September 30, 2004 and December 31, 2003
were as follows
(in thousands):
9/30/04 12/31/03
(Dollars in Thousands)
Pineapple products
Finished goods $ 6,928 $ 6,199
Work in progress 320 755
Raw materials 1,041 299
Real estate held for sale 2,619 --
Merchandise, materials and supplies 7,839 6,010
Total Inventories $18,747 $13,263
The Company accounts for the costs of growing pineapple in
accordance with the "annual accrual method," which has been
used by Hawaii's pineapple and sugarcane growers since the
1950s. Under this method, revenues and costs are determined
on the accrual basis, and pineapple production costs incurred
during a year are charged to the costs of crops harvested
during that year. Accordingly, no costs are assigned to the
growing (unharvested) crops. The annual accrual method is
the most appropriate method of accounting for the costs of
growing pineapple because of the pineapple's crop cycle (18
to 48 months) and the uncertainties about fruit quality and
the number of crops to be harvested from each planting (one
to three crops). AICPA Statement of Position No. 85-3 (SOP),
"Accounting by Agricultural Producers and Agricultural
Cooperatives," states that all direct and indirect costs of
growing crops should be accumulated and growing crops should
be reported at the lower of cost or market. However, the SOP
does not apply to growers of pineapple and sugarcane in
tropical regions because tropical agriculture (of which
pineapple and sugarcane production in Hawaii are examples)
differs greatly from agriculture in temperate regions of the
mainland United States. The Company's growing (unharvested)
crops at September 30, 2004, consisted of approximately 5,000
acres in various stages of growth that will be harvested
principally in the years 2004 through 2007, and are expected
to yield an average of approximately 32 tons per acre. At
December 31, 2003, growing crops consisted of approximately
7,600 acres that will be harvested in the years 2004 through
2006, and are expected to yield an average of approximately
30 tons per acre. The estimated average yield of tons per
acre reflects the Company's expectation that it will harvest
second ratoon crops (fruit from the third harvest), which
yield less tons per acre. The reduction in planted acreage
from December 31, 2003 to September 30, 2004 reflects
management's decision to discontinue farming certain fields
that were considered less productive.
The Company uses the percentage-of-completion method to
recognize revenues and profits from the sale of residential
land parcels where the Company is obligated to construct
improvements (roads, sidewalks, drainage, and utilities)
after the closing of the sale. Under this method, revenues
are recognized over the improvement construction period on
the basis of costs incurred as a percentage of total costs to
be incurred. In the third quarter of 2004, the Company
recognized revenues and profits using the percentage of
completion method for the sales of 10 lots in Plantation
Estate Phase III residential subdivision (sold as "Honolua
Ridge") that closed escrow. At September 30, 2004,
construction of the improvements was estimated to be
approximately 30% complete. Costs of sales are allocated to
each lot based on relative sales values. The total estimated
costs are approximately $12.6 million, and consist primarily
of executed contracts with contractors. This estimate could
be affected by construction or land conditions that were not
anticipated that could result in additional change orders to
the existing contracts or other unforeseen variables that may
affect the total cost of the improvements to be constructed.
Construction of the project's 25 residential lots and related
improvements are scheduled to be completed by March 2005.
6. Kapalua Bay Hotel Acquisition
On August 31, 2004, the Company, Marriott International Inc.
("Marriott") and Exclusive Resorts LLC ("ER"), through wholly
owned affiliates, entered into an agreement to form Kapalua
Bay Holdings, LLC ("Bay Holdings"). A 42% shareholder of the
Company through related companies is the majority owner of ER.
Bay Holdings also formed a wholly-owned, single member limited
liability company, Kapalua Bay LLC ("Kapalua Bay"). On August
31, 2004, Kapalua Bay completed the purchase of the leasehold
interest and improvements of the Kapalua Bay Hotel ("KBH")
from YCP Kapalua L.P. and YCP Kapalua Operator, Inc. for $48.3
million.
In connection with the formation of Bay Holdings and Kapalua
Bay, the Company contributed $500,000 to Bay Holdings and
contributed approximately 21 acres of land underlying the KBH
to Kapalua Bay. The parties valued the land at $25 million
through arms length negotiations. In exchange for its
contributions to Bay Holdings and Kapalua Bay, the Company
received 51% of the outstanding membership interests of Bay
Holdings. Marriott contributed $17.0 million to Bay Holdings
for 34% of the outstanding membership interests in Bay
Holdings, and ER contributed $7.5 million to Bay Holdings for
15% of the outstanding membership interests in Bay Holdings.
In connection with the transaction, Kapalua Bay secured a $45
million credit agreement with two lenders. The credit
agreement is secured by a mortgage on the KBH and is non-
recourse to the Company except for its pro-rata share of a $5
million indemnity and guaranty agreement of certain defined
obligations that may arise in connection with the credit
agreement. Kapalua Bay drew down $26 million and used the
cash contributions made by the members to conclude the
purchase of the KBH.
Marriott has an agreement with Kapalua Bay to operate and
manage the KBH. The Company has been designated as the
managing member of Bay Holdings and as such will manage the
affairs of the entity. Profits and losses of Bay Holdings
will be allocated in proportion to the members' ownership
interests, which approximate the estimated cash distributions
to the members. The Company does not have a majority voting
interest in Bay Holdings and Bay Holdings is not a variable
interest entity as defined by Financial Accounting Standards
Board Interpretation No. 46R, Consolidation of Variable
Interest Entities. Accordingly, the Company will account for
its investment in Bay Holdings using the equity method.
7. Business Segment Information (in thousands):
Three Months Ended Nine Months Ended
September 30 September 30
2004 2003 2004 2003
(Dollars in Thousands)
Revenues
Pineapple $19,008 $25,651 $57,620 $64,136
Resort 11,399 10,952 37,812 34,111
Development 4,174 166 9,399 3,868
Commercial & Property 147 13,697 178 14,591
Other -- 50 3 31
Total Revenues 34,728 50,516 105,012 116,737
Operating Profit (Loss)
Pineapple (3,445) (133) (7,386) (6,074)
Resort (835) (12) 151 363
Development 1,662 (350) 5,087 29
Commercial & Property 144 13,519 142 13,062
Other (primarily unallocated
corporate expenses) (685) (238) (1,828) (1,457)
Total Operating
Income (Loss) (3,159) 12,786 (3,834) 5,923
Interest Expense (314) (791) (966) (2,013)
Income Tax (Expense)
Benefit 1,240 (3,414) 1,678 (1,214)
Income (Loss) - Continuing
Operations (2,233) 8,581 (3,122) 2,696
Income - Discontinued
Operations 80 867 114 2,094
Net Income (Loss) $(2,153) $ 9,448 $(3,008) $4,790
In 2004, the Company reorganized its reportable business
segments and prior year amounts were restated for comparability.
The new Development segment is primarily comprised of all of the
Company's real estate entitlement, development, construction and
sales activies. These activities were previously reported as
part of the Resort or the Commercial & Property segments. As of
August 31, 2004, the Development segment also includes the
Company's investment in Bay Holdings (see Note 6 to Condensed
Consolidated Financial Statements). The Resort segment now
includes the operation of recreation and retail facilities,
utility companies, and property management activities at the
Kapalua Resort.
Beginning in 2004, the operations of the Commercial &
Property segment will be nominal. Revenues and operating profit
(loss) reported in 2004 in the table above for Commercial &
Property represent the Company's equity in the income (loss) from
Kaahumanu Center Associates (KCA) and other revenues and expenses
related to the Company's investment in KCA.
In September 2003, Queen Ka`ahumanu Center was sold, and in
accordance with the partnership agreement, KCA was dissolved.
The Company as managing partner is winding up the affairs of KCA.
As a result of the dissolution of the partnership, the Company's
accumulated losses of KCA in excess of its investment were
reversed in the third quarter of 2003. Operating profit for the
Commercial & Property segment for the quarter and nine months
ended September 30, 2003 includes $13.5 million attributable to
the sale of Queen Ka`ahumanu Center and the dissolution of KCA,
primarily representing the reversal of the accumulated losses of
KCA in excess of the Company's investment in KCA.
In 2003, the Napili Plaza, the other primary asset of the
Commercial & Property segment, was sold and was classified as a
part of discontinued operations. The remaining activities of the
Commercial & Property segment, which consisted of land
entitlement and management activities, and non-resort land sales
and development, are now being accounted for and reported in the
Development segment.
8. Discontinued Operations
In August 2003, the Company sold its Napili Plaza shopping
center in West Maui. The Company's gain from the transaction of
$1.9 million and the results of operations prior to the sale is
included in discontinued operations. In December 2003, the
Company entered into an agreement to sell substantially all of
the assets of its 51% owned Costa Rican pineapple subsidiary, and
in 2003, title to all but two parcels of land in Costa Rica was
transferred to the buyer. In February 2004, title to one of the
remaining parcels was transferred to the buyer and $2.7 million
of the previously withheld sales price was paid to the Company's
subsidiary. The Company's pre-tax share of the gain was
approximately $700,000, which was offset by operating losses of
$560,000. In August 2004, title to the last parcel was
transferred to the buyer for $417,000 and the pre-tax gain
recognized by the Company was $163,000. The results of these
operations prior to the sales and the gains and other revenues
and expenses realized after the sale are being reported as
discontinued operations, with prior period amounts restated for
comparability.
Revenues and operating results for these two discontinued
operations are as follows:
Three Months Ended Nine Months Ended
September 30 September 30
2004 2003 2004 2003
(Dollars in Thousands)
Revenues
Napili Plaza $ -- $ 2,021 $ -- $2,588
Pineapple subsidiary 386 2,066 2,126 8,349
Total 386 4,087 2,126 10,937
Income Before Taxes
Napili Plaza $ -- 1,954 $ 2 1,971
Pineapple subsidiary 130 378 182 2,047
Total 130 2,332 184 4,018
9. Average Common Shares Outstanding Used to Compute Earnings
Per Share
Three Months Ended Nine Months Ended
September 30 September 30
2004 2003 2004 2003
Basic and Diluted 7,197,819 7,195,800 7,196,485 7,195,800
Potentially dilutive common shares from stock-based
compensation arrangements are not included in the number of
diluted common shares because to do so would have an antidilutive
effect on the earning per share amounts for the three months and
nine months ended September 30, 2004. The potentially dilutive
common shares were 137,309 and 212,228, for the three months and
nine months ended September 30, 2004, respectively.
10. At September 30, 2004 and 2003, the Company did not hold
derivative instruments and did not enter into hedging
transactions.
11. Components of Net Periodic Benefit Cost
Three Months EndedNine Months Ended
September 30 September 30
2004 2003 2004 2003
(Dollars in Thousands)
Pension Benefits
Service cost $ 424 $ 457 $ 1,273 $ 1,371
Interest cost 699 688 2,096 2,064
Expected return on plan assets (748) (714) (2,243) (2,142)
Amortization of prior
service cost 10 11 30 33
Amortization of transition
liability 6 9 19 27
Special termination benefits -- -- 106 315
Recognized actuarial loss 100 156 301 468
Net expense $ 491 $ 607 $ 1,582 $ 2,136
Other Benefits
Service cost $ 82 $ 100 $ 245 $ 300
Interest cost 215 236 645 708
Amortization of prior
service cost (32) (32) (96) (96)
Special termination benefits -- 15 55 30
Recognized actuarial (gain) (70) (93) (210) (279)
Net expense $ 195 $ 226 $ 639 $ 663
The Company contributed $1.4 million to its defined benefit
pension plans in September 2004. Special termination benefits
for pension benefits and other benefits relate to management
changes in 2004 and 2003.
12. Contingencies
Pursuant to a 1999 settlement agreement resulting from a
lawsuit filed by the County of Maui, the Company and several
chemical manufacturers have agreed that until December 1, 2039,
they will pay for 90% of the capital cost to install filtration
systems in any future water wells if the presence of a nematocide
commonly known as DBCP exceeds specified levels, and for the
ongoing maintenance and operating cost for filtration systems on
existing and future wells. To secure its obligations, the
Company and the other defendants in the lawsuit 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. Adjustments to the reserve through
September 30, 2004 did not have a material effect on the
Company's financial statements. The Company is presently not
aware of any plans by the County of Maui to drill any water wells
in areas affected by agricultural chemicals. 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. 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. 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. Therefore, while it is likely that
the County of Maui will at sometime in the future drill
additional wells, the possible cost to the Company depends on
many factors, including, the location of the well, the
availability of suitable alternative sites and ultimately,
whether or not the contaminant DBCP is found in the water.
Accordingly, a reserve for costs relating to any future wells was
not recorded because the Company was not able to reasonably
estimate the amount of liability (if any).
A private water company on Maui detected the presence of DBCP and
1-2-3-trichloropropane in the water from wells located on Company
property that it is licensed to use. The chemicals are believed
to have come from agricultural chemicals that the Company used on
pineapple fields in the area. In pre-litigation mediation in
January 2004, the private water company, the Company and a
certain chemical manufacturing company executed a memorandum of
understanding that outlined terms of a settlement and release of
all claims. The memorandum of understanding was subject to
documentation in a formal, binding settlement agreement and to
court approval. In October 2004, the court approved the
settlement agreement, which did not have a material effect on the
Company's financial statements, and the Company expects to be
dismissed from the lawsuit.
In connection with pre-development planning for a land parcel in
Upcountry Maui, pesticide residues in the parcel's soil were
discovered in levels that are in excess of Federal and Hawaii
State limits. Studies by environmental consultants, in
consultation with the State Department of Health, indicate that
remediation probably will be necessary. Based on the possible
land use alternatives and the remediation alternatives proposed
by the environmental consultants, estimates of the future
remediation cost to the Company range from -0- to $3.5 million.
If the property were ultimately developed for sale, any
remediation cost would be capitalized as part of the project
cost. At September 30, 2004, it was not probable that a
liability for remediation cost had been incurred.
In addition to the matters noted above, there are various
other claims and legal actions pending against the Company. In
the current opinion of management, after consultation with legal
counsel, the resolution of these other matters will not have a
material adverse effect on the Company's financial position or
results of operations.
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., which is
wholly owned by the Company) and an Indonesian pineapple grower
and canner. The joint venture markets and sells Indonesian
canned pineapple in the United States. In the second quarter of
2004, PTI began to wind down its operations and the joint venture
is expected to be dissolved by the end of 2004. The Company was
a co-guarantor of a $3 million line of credit, which supported
letters of credit issued on behalf of PTI for import trading
purposes and a $250,000 line of credit used for working capital
purposes. Both lines expired on August 31, 2004.
At September 30, 2004, the Company had purchase commitments
under signed contracts totaling $9,941,000, which primarily
related to real estate projects on Maui.
13. Reclassifications
Certain amounts for the prior year have been reclassified to
conform to the current year's presentation.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
This report contains forward-looking statements, within the
meaning of Private Securities Litigation Reform Act of 1995,
which are provided in an effort to assist in the understanding of
certain aspects of the Company's anticipated future financial
performance. The words "estimate," "project," "intend,"
"expect," "believe" and similar expressions are intended to
identify forward-looking statements. Among other things, the
forward-looking statements in this report address the Company's
expectation's as to the transition of its pineapple operations to
put greater emphasis on fresh fruit, cash flows, the adequacy of
existing lines of credit, and increasing the existing lines of
credit to fund new projects. Forward-looking statements
contained in this report or otherwise made by the Company are
subject to significant risks and uncertainties, many of which are
outside of the Company's control. Although the Company believes
that the assumptions underlying its forward-looking statements
are reasonable, any assumption could prove to be inaccurate and
that could cause actual results to differ materially from those
in the forward-looking statements. Potential risks and
uncertainties include, but are not limited to, those risks and
uncertainties as disclosed in the Company's
Form 10-K filing with the Securities and Exchange Commission.
Unless expressly stated, the Company does not undertake and
specifically disclaims any obligation to update any forward-
looking statements to reflect events or circumstances after the
date of such statements. In addition, the following review
should be read in conjunction with our unaudited Condensed
Consolidated Financials Statements and the related notes for the
three and nine months ended September 30, 2004.
In the third quarter of 2004, significant events and
agreements included:
o A joint venture between the Company, Marriott International
Inc. and Exclusive Resorts LLC was formed to acquire the Kapalua
Bay Hotel, which is considered by the Company to be the
centerpiece of the Kapalua Resort. The acquisition was completed
on August 31, 2004 (see Note 6 to Condensed Consolidated
Financial Statements).
o The inaugural LifeFest Kapalua, featuring health and
wellness lectures, presentations, seminars and related events was
held in September 2004.
o The Company announced in September that it will form a joint
venture with Miraval, Life In Balance to create and manage
Hawaii's first multi-faceted health and wellness community at
Kapalua.
o In September, the Company's Board of Directors appointed
Walter A. Dods, Jr., to fill the position as Class I Director
that was left vacant by the resignation of Randolph G. Moore in
August 2004.
o Sales of residential lots in Honolua Ridge began in July
2004 and through September 30, 2004 ten lots had closed escrow.
At September 30, 2004, six lots were under contract and expected
to close escrow in October and November.
RESULTS OF OPERATIONS
CONSOLIDATED
Overview
The Company reported a net loss of $2,153,000 ($0.30 per
share) for the third quarter of 2004 compared to net income of
$9,448,000 ($1.31 per share) for the third quarter of 2003. For
the first nine months of 2004, the Company had a net loss of
$3,008,000 ($0.42 per share) compared to net income of $4,790,000
($0.66 per share) for the first nine months of 2003.
Net income for the third quarter and first nine months of
2003 included the Company's $1.9 million (pre-tax) gain from the
sale of the Napili Plaza in August 2003 and $13.5 million (pre-
tax) attributable to the September 2003 sale of Queen Ka`ahumanu
Center (primarily representing the reversal of the accumulated
losses of joint venture in excess of investment) (see Notes 7 and
8 to Condensed Consolidated Financial Statements).
Results for the first nine months of 2004 include the sale
of ten lots at Honolua Ridge that added approximately $2.7
million (pre-tax) to income for the third quarter of 2004 and the
sale (first quarter of 2004) of a 6.5-acre conservation-zoned
parcel at Kapalua, which contributed $4.0 million (pre-tax) to
income.
Revenues for the third quarter of 2004 decreased by $15.8
million (31%) to $34.7 million, compared to $50.5 million for the
third quarter of 2003. For the first nine months of 2004,
revenues declined by $11.7 million (10%) to $105.0 million,
compared to $116.7 million for the first nine months of 2003.
For both the third quarter and the first nine months of 2004,
lower revenues from the Commercial & Property and Pineapple
segments were partially offset by increased revenues from the
Development and Resort segments.
In 2004, there were no active operations in the Commercial &
Property segment. Revenues from Commercial & Property operations
decreased by $13.6 million for the third quarter of 2004 and
$14.4 million for the first nine months of 2004 compared to the
same periods in 2003 because of the sale of Queen Ka`ahumanu
Center in 2003 and the reorganization of the Company's business
segments in 2004 (see Notes 7 and 8 to Condensed Consolidated
Financial Statements).
General and Administrative
Consolidated general and administrative expenses increased
by $1.7 million (26%) to $8.1 million for the third quarter of
2004 compared to $6.4 million for the third quarter of 2003. For
the first nine months of 2004, consolidated general and
administrative expenses increased by $872,000 (4%) to $22.3
million compared to $21.4 million for the same period in 2003.
The major components of the change for the third quarter and
first nine months of 2004 compared to the same periods in 2003
were as follows ($ in millions):
Third Quarter
2004 2003 inc (dec)
Professional services $ 0.7 $ 1.3 $ (0.6)
Write-offs of property
& equipment 1.3 -- 1.3
Stock compensation 0.6 -- 0.6
Other (net) 5.5 5.1 0.4
Total $ 8.1 $ 6.4 $ 1.7
First Nine Months
2004 2003 inc (dec)
Professional services $ 2.4 $ 4.1 $ (1.7)
Employee severance expense 1.5 1.8 (0.3)
Stock compensation 1.1 -- 1.1
Write-offs of property
& equipment 1.3 0.1 1.2
Medical insurance 3.4 3.2 0.2
Other (net) 12.6 12.2 0.4
Total $ 22.3 $ 21.4 $ 0.9
The decrease in professional services largely reflects
expenses incurred in 2003 for legal fees and consultant costs
related to lawsuits in the Pineapple segment, partially offset by
increased costs in 2004 for outside consultants primarily related
to the Company's restructuring efforts and new business
initiatives. The Pineapple segment lawsuits were settled in
2003.
In the third quarter and first nine months of 2004, stock
compensation incentives (that vest based on time or performance
over three to five year periods) were awarded to certain
management employees. During the first nine months of 2003, the
Company had no stock compensation plans.
In the third quarter of 2004, the Company wrote off assets
with a net book value of $1.3 million, primarily representing
Pineapple segment property and equipment. During 2004, the
Company has been evaluating the fixed assets used in its
Pineapple operations in an effort to determine the most efficient
usage of its assets based on the planned reduction in canned
pineapple production, the shift in planting for the fresh fruit
market, and changes in agronomic practices. In the third quarter
of 2004, management decided to abandon certain assets because
they were in excess of the Pineapple division's current and
future needs. Some of the assets will be replaced with equipment
that is more efficient or more suitable to the Company's
production and agronomic needs.
General and administrative expenses are incurred at the
corporate level and in the operating segments. In the third
quarter and first nine months of 2004 and 2003, 80% and 71%,
respectively, of corporate general and administrative expense
were allocated to the operating segments.
Interest Expense
Interest expense was lower by $477,000 (60%) and $1,047,000
(52%), respectively, for the third quarter and first nine months
of 2004 as compared to the same periods in 2003. The decrease in
interest expense was primarily due to lower average borrowings in
2004, partially offset by higher average interest rates. The
Company's average borrowings were lower in 2004 because (1) the
debt level at the beginning of 2004 was lower by 46% compared to
the beginning of 2003; and (2) as a result of positive cash flows
from operating activities (see Liquidity and Capital Resources,
below).
PINEAPPLE
Overview
The Pineapple operating segment includes growing, packing
and processing, and marketing of canned and fresh pineapple. The
fruit grown by the Company principally consists of three types of
pineapple, Champaka (largely used for canning), Hawaiian GoldTM
(usually sold as fresh, whole fruit) and organic pineapple, a new
product sold as fresh whole fruit. In recent years, the Company
has begun to shift its pineapple operations away from the
production of canned products to a higher level of fresh fruit
production.
Effective January 2004, the Company hired two new executives
with extensive experience in fresh pineapple operations to lead
its Pineapple operating segment. It is the Company's intention
to remain in the canned pineapple business, but to decrease the
tonnage of fruit going to the cannery and commensurately reduce
the number of market sectors that it is currently serving. The
transition of the Company's pineapple operations continues with
an emphasis on upgrading and building production and crop
capacity to deliver a consistent supply of high quality fruit.
This is a reversal of the previous practice of reducing new
planting acreage.
The fresh fruit market is a year around business, which
requires consistency of supply. In 2004, the Company began to
change its agronomic practices and planting schedules in an
effort to begin to produce a more consistent and predictable
supply of fruit throughout the year. In addition, improved crop
maintenance and agronomic practices have been implemented in 2004
to improve plant yields (tons of fruit per acre) and the overall
quality of the Company's pineapple products in future harvests.
Approximately $5.4 million will be invested in 2004 (more than
twice the average of the prior two years) for field preparation
and seed development in order to accomplish its production goals;
however, because of the long pineapple growing cycle (18 to 23
months for the first crop), the benefit of most changes
implemented in 2004 will not be reflected in the results until
later in 2005 through 2008.
The Company directs fruit to either canned or fresh pack
lines at the time of harvest based on a variety of factors
including: market conditions, fruit size and quality.
The Pineapple segment produced an operating loss from
continuing operations of $3.4 million in the third quarter of
2004 compared to an operating loss of $133,000 in the third
quarter of 2003. Revenues from Pineapple operations decreased by
$6.6 million (26%) to $19.0 million for the third quarter of 2004
compared to $25.6 million for the third quarter of 2003.
For the first nine months of 2004, the Pineapple segment
incurred an operating loss of $7.4 million compared to an
operating loss of $6.1 million for the first nine months of 2003.
Pineapple segment revenues for the first nine months of 2004
decreased by $6.5 million (10%) to $57.6 million compared to
$64.1 million for the first nine months of 2003. Lower results
in the third quarter and first nine months of 2004 are generally
attributable to the smaller crop size projected for 2004 due to
reduced planting in previous years, higher production costs
related to increased plantings and improved field maintenance,
and the softness in the fresh pineapple market in the third
quarter.
Pineapple revenues included nonrecurring cash receipts for
the third quarter and first nine months of 2003 of $2 million and
$3 million, respectively, related to the settlement of legal
issues. Pineapple segment operating loss for the third quarter
and first nine months of 2004 includes the write-off of property
and equipment with a net book value of $1.3 million because they
were considered in excess of the Pineapple segment's current and
future needs.
Canned and Fresh Operations
The volume of canned pineapple sales decreased by 32% for
the third quarter and 18% for the first nine months of 2004 as
compared to the same periods in 2003, in large part reflecting
the Company's strategy to sharply reduce supply to selected
market segments. This market refinement has resulted in the
average sales prices for the Company's canned pineapple products
to increase by approximately 7% and 10% in the third quarter and
first nine months of 2004, respectively, compared to the third
quarter and first nine months of 2003. The Company implemented
price increases for its canned product lines in March 2004, June
2004 and August 2004.
Increased sales to the U.S. Government partially offset the
reduction in sales volume to other sectors of the market. Sales
to the U.S. government represented approximately 30% of net
canned pineapple sales in both the third quarter of 2004 and
first nine months of 2004, compared to approximately 20% and 13%,
respectively, for the third quarter and first nine months in
2003. In the fresh fruit business, the period between harvest of
the fruit and recognition of revenues is very short as compared
to canned sales. This inherent lag between production and
revenue recognition is particularly the case for government
sales.
The sale of fresh pineapple represented approximately 27% of
net pineapple sales for the third quarter of 2004 compared to 20%
for the third quarter of 2003. For the first nine months of
2004, the sale of fresh pineapple represented approximately 25%
of net pineapple sales compared to 21% for the first nine months
of 2003.
The volume of fresh pineapple sales increased by 10% in both
the third quarter and the first nine months of 2004 compared to
the same periods in 2003. The average sales prices for the third
quarter of 2004 were about 1% lower, and for the first nine
months of 2004, the average fresh pineapple sales prices were
less than 1% higher as compared to the same periods in 2003. The
softness in fresh fruit sales prices for the third quarter of
2004 reflect the over-supply market condition in July and August
due to precocious fruiting, particularly in Costa Rica. The
increased sales volume reflects an improved sales and marketing
strategy and operational improvements that yield greater shelf
life.
Natural fruit differentiation, more commonly known as
precocious fruiting, is a phenomenon experienced in commercial
pineapple production. The effect is that pineapple plants begin
to fruit naturally, usually during the summer, rather than under
inducement. This summer, precocious fruiting impacted nearly all
fresh pineapple growing regions, including Maui, thus creating
over-supply in all markets.
Pineapple cost of sales decreased by 14% and 5%,
respectively, in the third quarter and first nine months of 2004
compared to the same periods in 2003. The average per unit cost
of sales is higher in 2004 because of increased costs incurred at
the plantations and higher per unit cannery costs. In 2004, the
Company is increasing the total number of acres planted, with
emphasis in Hawaiian GoldTM and organic pineapple. The Company
is also increasing near-term emphasis on seed development in an
effort to improve the quality and consistency of its products and
on crop maintenance to improve yields and mitigate precursor
conditions of precocious fruiting. In addition, higher cost was
incurred to harvest because of the precocious fruiting that
occurred this past summer. The Company's plan for 2004 includes
packing a reduced number of cases of canned pineapple as compared
to 2003, which is the principal reason for higher per unit
cannery costs in 2004.
Rainfall at the Company's pineapple plantations,
particularly in the first 5 months of 2004, increased by as much
as 300% as compared to the average for the last five years. This
resulted in a delay of the Company's pineapple planting schedule
and increased 2004 costs by approximately $250,000. Most of the
set back in planting was made up during the third quarter of
2004.
Pineapple shipping and marketing costs decreased by $1.8
million (38%) for the third quarter and $3.0 million (24%) for
the first nine months of 2004 compared to the same periods in
2003. The reduction in these costs is due to the streamlining of
canned pineapple sales distribution, resulting in a lower average
per unit shipping cost. The reduction in fresh pineapple
shipping costs versus the same periods in 2003 was due to greater
use of surface shipment to the West Coast of the United States
for the Company's fresh pineapple. In the third quarter and
first nine months of 2004, the Company shipped approximately 55%
and 60% of its Hawaiian GoldTM and Champaka fresh pineapple to
the U.S. mainland by surface rather than by air. A greater level
of airfreight was used in the third quarter to mitigate the
reduced shelf life of precocious fruit and to avoid the unloading
delays at the harbor serving southern California. For the same
periods in 2003, the Company shipped about 20% of its fresh whole
pineapple by surface. The increased use of surface shipment,
which is substantially less costly, was possible in 2004
partially because of the extended shelf life of the fruit
resulting from improved post-harvest practices. The increased
use of surface shipment reduced the average per unit fresh fruit
shipping cost in the third quarter and first nine months of 2004
by 42% and 28%, respectively.
RESORT
Overview
The Resort segment consists of ongoing operations at the
Kapalua Resort. These operations include three championship golf
courses, a tennis facility, a vacation rental program (The
Kapalua Villas), a 22,000 square foot shopping center (Kapalua
Shops) (through August 31, 2004), a real estate sales office
(Kapalua Realty), ten retail outlets and Public Utilities
Commission regulated water and sewage transmission operations.
The Resort segment also includes the management of several
leases, including the ground leases for the land underlying the
Kapalua Bay Hotel (through August 31, 2004) and the Kapalua, Ritz-
Carlton Hotel.
On August 31, 2004, the Company acquired a 51% ownership
interest in the LLC that purchased Kapalua Bay Hotel (see Note 6
to Condensed Consolidated Financial Statements). In connection
with the acquisition transaction, the Company's interest in the
Kapalua Shops was also transferred to the new LLC (Bay Holdings).
The Company's equity in the income and loss of Bay Holdings is
included in the Development segment. Revenues of approximately
$1.6 million (on an annual basis) from the hotel ground lease and
the Kapalua Shops were previously included in the Resort segment.
The Resort segment produced an operating loss of $835,000
for the third quarter of 2004, compared to an operating loss of
$12,000 for the third quarter of 2003. Revenues from the resort
segment increased by $447,000 (4%) to $11.4 million compared to
$11.0 million for the third quarter of 2003.
For the first nine months of 2004, the Resort segment
produced an operating profit of $151,000 compared to an operating
profit of $363,000 for the first nine months of 2003. Revenues
for the first nine months of 2004 increased by $3.7 million (11%)
to $37.8 million compared to $34.1 million for the first nine
months of 2003.
Higher operating expenses because of new union contracts,
costs for deferred maintenance of facilities, expenses to enforce
and protect the Kapalua trade name, and outside consultant costs
related to repositioning and upgrading several areas of the
resort resulted in lower net results for the third quarter and
first nine months of 2004.
In the second quarter of 2003, a collective bargaining
settlement was reached with the Company's golf maintenance
employees and resulted in increased labor cost. In March 2004, a
collective bargaining labor agreement for the Company's golf
services personnel was ratified, resulting in additional
operating costs.
Increased revenues for the third quarter and the first nine
months are primarily due to higher hotel and condominium
occupancies. An increase in occupancies at the Resort, and to a
somewhat lesser extent for Maui in general, largely drives the
increase in resort activity as reflected by increased golf play,
merchandise sales and increased lease revenues from the hotel
ground leases. Hotel and condominium room occupancies at Kapalua
Resort increased by 2 and 8 percentage points in the third
quarter and first nine months of 2004, respectively, compared to
the same periods in 2003. For the nine months ended September
30, 2004, occupancies for the island of Maui increased by 3
percentage points and for the State of Hawaii occupancies
increased by 5 percentage points compared to the same period in
2003.
Golf, Merchandise, Villas and Realty Operations
Revenues from golf operations increased by 6% for the third
quarter and 7% for the first nine months of 2004 compared to the
same periods in 2003, as the number of paid rounds of golf
increased by approximately 4% for both periods. Increased golf
operations revenues also reflects higher average green fees of
approximately 3% for both the third quarter and first nine months
of 2004 compared to the same periods in 2003. Rainfall at the
Kapalua Resort through the first five months of 2004 was up to
300% higher than the average for the prior five years and
negatively affected some of the Resort segment's operating
results.
Merchandise sales increased by 6% for the third quarter and
16% for the first nine months of 2004 compared to the same
periods in 2003 due primarily to the increased number of visitors
to Kapalua and to additional retail floor space with the opening
of the Kapalua Collections store at the end of the first quarter
of 2003.
Revenues from the Kapalua Villas increased by 3% and 9%,
respectively, for the third quarter and first nine months of 2004
compared to the same periods in 2003, primarily reflecting
increased occupancies. The average daily room rates increased by
less than 1%. Occupied rooms at the Kapalua Villas increased by
approximately 3% and 8%, respectively, for the third quarter and
first nine months of 2004 compared to the same periods in 2003.
Kapalua Realty's commission income from the resale of
residential units in the Kapalua Resort decreased by 9% in the
third quarter of 2004 compared to the third quarter of 2003
because lower average sales prices more than offset an increase
in the number of units resold. For the first nine months of
2004, commission income increased by 67% compared to the first
nine months of 2003, reflecting both an increase in the number of
residential units being resold and an increase in the average
price of the transactions.
DEVELOPMENT
Overview
The Development segment primarily includes the Company's
real estate entitlement, development, construction and sales
activities. The Company has approximately 1,500 acres of land in
Maui that are at various stages in the land entitlement process.
Land must be appropriately entitled if development or
construction is the intended use. Securing proper land
entitlement is a process that requires obtaining county, state
and federal approvals, which can take several years to complete
and entails a variety of risks.
Beginning August 31, 2004, the Development segment includes
the Company's equity in the income/loss of Bay Holdings, the new
51% owned limited liability company that owns the Kapalua Bay
Hotel (see Resort, above and Note 6 to Condensed Consolidated
Financial Statements).
In connection with the acquisition of the Kapalua Bay Hotel
by Bay Holdings, the Company reacquired the leasehold interest in
the Bay Club, a seaside restaurant adjacent to the hotel. The
Company has temporarily closed the Bay Club for renovation. In
2004, the Company began a number of initiatives to revitalize and
upgrade the Kapalua Resort. Many of the initiatives are capital
projects that will be accounted for in the Development segment.
The Company has hired outside consultants and has increased
staffing to accomplish these initiatives.
In July 2004, the Company received final map and
registration approvals from the State of Hawaii for Honolua
Ridge, and sales of the project commenced on July 14, 2004. This
subdivision consists of 25 agricultural lots ranging from three
to 15 acres, with sales prices ranging from $895,000 to $3.0
million. Through September 30, 2004, ten lot sales had closed
escrow and 6 lots were under contract with expected closing dates
through mid-November 2004.
The Development segment reported an operating profit of $1.7
million for the third quarter of 2004 compared to an operating
loss of $350,000 for the third quarter of 2003. Revenues from
this segment were $4.2 million in the third quarter of 2004
compared to $166,000 in the third quarter of 2003.
For the first nine months of 2004, the Development segment
reported an operating profit of $5.1 million compared to an
operating profit of $29,000 for the first nine months of 2003.
Revenues from this segment were $9.4 million for the first nine
months of 2004 compared to $3.9 million for the first nine months
of 2003.
Real Estate Sales
Operating profit for the third quarter and first nine months
of 2004 includes $2.7 million and $7.2 million, respectively,
from the sale of real estate. In July 2004, sale of Honolua
Ridge began and through September, the sale of ten lots had
closed escrow. Revenues and profit from Honolua Ridge are being
recognized using the percentage-of-completion method; thus $9.6
million of the sales proceeds received from the closing of lot
sales were recorded as deferred revenues on the Company's balance
sheet and revenues of $4.0 million were recognized in the third
quarter of 2004. Construction of the subdivision improvements
began in June 2004 and as of September 30, 2004, the improvements
were approximately 30% complete. Construction of the subdivision
improvements is expected to be substantially complete by the end
of the first quarter 2005. In May 2004, the sale of a custom
home at Pineapple Hill Estates that the Company constructed as
part of a joint venture closed escrow resulting in revenues of
$810,000 to the Company. In March 2004, the sale of a 6.5-acre
conservation parcel at Kapalua closed escrow resulting in
revenues of $4.3 million.
The third quarter and first nine months of 2003 includes the
sale of 1 and 32 lots, respectively, in the Company's Kapua
Village employee subdivision, contributing revenues of $2.9
million in the first nine months of 2003. Kapua Village is a 45-
lot employee subdivision developed by the Company. Sales began
in December 2002 and were completed in the third quarter of 2003.
The first nine months of 2003 also includes revenues of $655,000
from the sale of one lot in the Pineapple Hill Estates
subdivision at Kapalua.
LIQUIDITY, CAPITAL RESOURCES AND OTHER
Debt Reduction
At September 30, 2004, the Company's total debt, including
capital leases, was $19.3 million, a reduction of $7.5 million
from December 31, 2003. In the first nine months of 2004, the
following sources of cash was partially used to reduce debt:
o A reduction in the Pineapple segment's trade accounts
receivable by $11.5 million due to higher than average sales late
in 2003, and from an increased emphasis in 2004 on timely billing
and collection efforts.
o Cash distributions to the Company from the Costa Rican
subsidiary of $2.5 million as a result of the sale of
substantially all of the foreign subsidiary's assets in 2003 and
2004.
o Net cash proceeds to the Company of $18 million from the
sale of new real estate product at Kapalua, including proceeds
from the closing of ten lot sales at Honolua Ridge and a 6.5-acre
conservation-zoned land parcel.
Operating Cash Flows
Operating activities for the first nine months of 2004
provided $15.2 million of net cash flows. For the first nine
months of 2003, operating activities provided $7.0 million of net
cash flows. By business segment, these cash flows were
approximately as follows ($ in millions):
Nine Months Ended September 30,
2004 2003
Pineapple $ 4.0 $ 4.3
Resort 3.8 3.9
Development 15.9 1.0
Corporate, Interest,
Taxes & Other (8.5) (2.2)
Total $ 15.2 $ 7.0
The variation in cash flows from Development segment
operating activities and cash outflows attributable to corporate,
interest, taxes & other between the first nine months of 2004 and
the comparable period in 2003 are primarily due to:
o An increase in new real estate product available for sale in
2004 compared to 2003.
o Net tax refunds of $2.2 million for the nine months of 2003
compared to net income tax payments of $1.8 million for the nine
months of 2004.
o Receipt of $1.3 million of amounts due from Kaahumanu Center
Associates primarily for management fees and electricity that was
repaid when the Queen Kaahumanu Center was sold in September
2003.
Non-Recurring Investing Cash Outflows
Cash used in investing activities for the first nine months
of 2004 includes the following non-recurring transactions:
o $3.9 million for the purchase of ten acres in West Maui,
expected to be used for the Company's future headquarters, was
paid in January 2004;
o $1.9 million was expended in June 2004 for the purchase of
three industrial lots on Oahu, which were exchanged with the
State of Hawaii for 223 acres at Kapalua located adjacent to the
Company's Kapalua Mauka project;
o The Company made a $500,000 net cash contribution for a 51%
membership interest in Bay Holdings (see Note 6 to Condensed
Consolidated Financial Statements). The Company paid $2,000,000
in non-refundable deposits to purchase the hotel in the second
quarter of 2004. In the third quarter of 2004, the Company was
partially reimbursed by the other members of the LLC;
o $500,000 was invested in Series A preferred convertible
stock of the Hawaii Superferry venture in May 2004; and
o Cash distributions totaling $5.4 million were paid to the
minority shareholders of the Company's Costa Rican subsidiary.
Future Cash Outflows
Capital expenditures in 2004 are expected to be $15.8
million, of which $4.0 million is for the replacement of existing
equipment and facilities. In addition, the Company expects to
incur approximately $1.8 million for highway improvements related
to subdivision projects sold in prior years. The Company
believes that the cash flows from operations and its existing
lines of credit will be sufficient to fund these expenditures.
At September 30, 2004, the Company had unused short- and long-
term credit lines of $35.4 million.
Construction of the improvements for Honolua Ridge began in
June 2004 and is expected to cost approximately $12.6 million.
Sale of the lots began in July 2004 and the proceeds from the lot
sales that closed escrow through September 30, 2004 were
approximately $13.6 million. The Company does not expect that
additional funding will be necessary for completion of this
project.
The Company has capital projects (fixed assets and real
estate developed for sale) and project-planning costs totaling
over $40 million that may be incurred in 2005. Some of the
projects would be constructed for sale to the public and might be
funded by pre-sale proceeds. There are also new and replacement
facilities and equipment for use by the Resort and Pineapple
segments. The planning costs relate to new capital projects.
The Company is in the process of securing an increase to its
existing credit facilities to fund some of these projects. The
Company may seek project specific financing for some of the
capital projects.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
The Company's primary market risk exposure with regard to
financial instruments is to changes in interest rates. The
Company attempts to manage this risk by monitoring interest rates
and future cash requirements, and evaluating opportunities to
refinance borrowings at various maturities and interest rates.
There were no material changes to the Company's market risk
exposure during the first nine months of 2004.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, that are designed to
ensure that information required to be disclosed in the Company's
Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated
to Company's management, including its Chief Executive officer
and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
In designing and evaluating the disclosure controls and
procedures, the Company's management recognized that any controls
and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired
control objectives, and the Company's management necessarily was
required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
As required by Rule 13a-15(b) and 15d-15(b) under the
Exchange Act, the Company carried out an evaluation, under the
supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures as
of the end of the fiscal quarter covered by this report. Based
upon the foregoing, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective in reaching a level of
reasonable assurance in achieving the Company's desired control
objectives.
There have been no significant changes in the Company's
internal controls over financial reporting during the most recent
fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Company's internal controls over
financial reporting.
PART II OTHER INFORMATION
Item 5. Other Information
On September 1, 2004, the Company entered into the Eight
Amendment to Term Loan Agreement, between American AgCredit, FLCA
and Maui Land & Pineapple Company, Inc. The amendment serves to
provide additional flexibility to this $14.6 million term loan,
by adding a 30-day Libor rate option.
Item 6. Exhibits
(a) Exhibits
(4) Instruments Defining the Rights of Security Holders.
(A) Eighth Amendment to Term Loan Agreement, entered
into on
September 1, 2004, between American AgCredit, FLCA
and Maui Land & Pineapple Company, Inc.
(10) Material Contracts
(A) Limited Liability Company Agreement of Kapalua Bay
Holdings, LLC, dated as of August 31, 2004.
Portions of the exhibit filed herewith have been
omitted pursuant to a request for confidential
treatment under Rule 24b-2 of the Exchange Act.
(B) First Amendment to Purchase and Sale Agreement and
Joint Escrow Instructions, entered into as of
August 6, 2004, by and among YCP Kapalua L.P., and
YCP Kapalua Operator, Inc. and Maui Land &
Pineapple Company, Inc.
(C) Termination of Hotel Ground Lease, effective as of
August 31, 2004.
(31) Rule 13a - 14(a) Certifications
(32) Section 1350 Certifications
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MAUI LAND & PINEAPPLE COMPANY, INC.
November 12, 2004 /S/ FRED W. RICKERT
Date Fred W. Rickert
Vice President/Chief Financial Officer
(Principal Financial Officer)