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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 JUNE 30, 2003
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 Employer Identification 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 August 4, 2003
Common Stock, no par value 7,195,800 shares
MAUI LAND & PINEAPPLE COMPANY, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets,
June 30, 2003 (Unaudited) and December 31, 2002 3
Condensed Statements of Operations and Retained Earnings,
Three Months Ended June 30, 2003 and 2002 (Unaudited) 4
Condensed Statements of Operations and Retained Earnings,
Six Months Ended June 30, 2003 and 2002 (Unaudited) 5
Condensed Statements of Comprehensive Income
Three Months Ended June 30, 2003 and 2002 (Unaudited) 6
Condensed Statements of Comprehensive Income
Six Months Ended June 30, 2003 and 2002 (Unaudited) 6
Condensed Statements of Cash Flows,
Six Months Ended June 30, 2003 and 2002 (Unaudited) 7
Notes to Condensed Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 17
Item 4. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security-Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
Unaudited
6/30/03 12/31/02
(Dollars in Thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 1,023 $ 658
Accounts and notes receivable 18,836 22,315
Inventories 27,177 23,365
Other current assets 11,065 8,385
Total current assets 58,101 54,723
Property 258,148 264,647
Accumulated depreciation (153,060) (152,449)
Property - net 105,088 112,198
Other Assets 16,608 17,274
Total 179,797 184,195
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt and
capital lease obligations 6,450 6,846
Trade accounts payable 10,279 13,057
Other current liabilities 9,773 9,318
Total current liabilities 26,502 29,221
Long-Term Liabilities
Long-term debt and capital lease obligations 44,054 43,252
Accrued retirement benefits 34,221 33,089
Equity in losses of joint venture 13,564 12,840
Other long-term liabilities 1,451 1,867
Total long-term liabilities 93,290 91,048
Minority Interest in Subsidiary 1,935 1,187
Stockholders' Equity
Common stock, no par value - 7,200,000 shares
authorized, 7,195,800 issued and outstanding 12,455 12,455
Retained earnings 50,699 55,357
Accumulated other comprehensive loss (5,084) (5,073)
Stockholders' equity 58,070 62,739
Total $179,797 $ 184,195
See accompanying Notes to Condensed Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
Three Months Ended
6/30/03 6/30/02
(Dollars in Thousands
Except Share Amounts)
Revenues
Net sales $26,591 $25,227
Operating income 8,660 8,092
Other income 1,239 242
Total Revenues 36,490 33,561
Costs and Expenses
Cost of goods sold 17,885 16,814
Operating expenses 8,723 8,316
Shipping and marketing 5,038 4,761
General and administrative 8,933 5,767
Interest 655 572
Equity in losses of joint ventures 452 388
Total Costs and Expenses 41,686 36,618
Loss Before Income Taxes and
Minority Interest (5,196) (3,057)
Income tax benefit 1,432 1,054
Minority interest in income of
consolidated subsidiary (268) (63)
Net Loss (4,032) (2,066)
Retained Earnings, Beginning of Period 54,731 61,842
Retained Earnings, End of Period 50,699 59,776
Per Common Share
Net Loss $ (.56) $ (.29)
See accompanying Notes to Condensed Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
Six Months Ended
6/30/03 6/30/02
(Dollars in Thousands
Except Share Amounts)
Revenues
Net sales $53,746 $50,337
Operating income 18,618 18,451
Other income 1,399 1,058
Total Revenues 73,763 69,846
Costs and Expenses
Cost of goods sold 34,747 32,870
Operating expenses 17,094 16,660
Shipping and marketing 10,114 9,509
General and administrative 15,514 10,834
Interest 1,289 1,153
Equity in losses of joint ventures 708 628
Total Costs and Expenses 79,466 71,654
Loss Before Income Taxes and
Minority Interest (5,703) (1,808)
Income tax benefit 1,741 637
Minority interest in income of
consolidated subsidiary (696) (119)
Net Loss (4,658) (1,290)
Retained Earnings, Beginning of Period 55,357 61,066
Retained Earnings, End of Period 50,699 59,776
Per Common Share
Net Loss $ (.65) $ (.18)
See accompanying Notes to Condensed Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
6/30/03 6/30/02
(Dollars in Thousands)
Net Loss $(4,032) $ (2,066)
Other Comprehensive Loss - Foreign
Currency Translation Adjustment (13) (8)
Comprehensive Loss $(4,045) $ (2,074)
Six Months Ended
6/30/03 6/30/02
(Dollars in Thousands)
Net Loss $(4,658) $ (1,290)
Other Comprehensive Income (Loss) -
Foreign Currency Translation
Adjustment (11) 16
Comprehensive Loss $(4,669) $ (1,274)
See accompanying Notes to Condensed Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
6/30/03 6/30/02
(Dollars in Thousands)
Net Cash Provided by (Used in)
Operating Activities $ 3,742 $ (2,217)
Investing Activities
Purchases of property (3,959) (5,416)
Proceeds from disposal of property 30 630
Increases in other assets (602) (996)
Net Cash Used in Investing Activities (4,531) (5,782)
Financing Activities
Payments of long-term debt and capital
lease obligations (11,974) (8,823)
Proceeds from long-term debt 12,847 14,389
Proceeds from (payment of)
short-term debt (320) 1,000
Other 601 168
Net Cash Provided by Financing Activities 1,154 6,734
Net Increase (Decrease) in Cash 365 (1,265)
Cash and Cash Equivalents
at Beginning of Period 658 2,173
Cash and Cash Equivalents
at End of Period $ 1,023 $ 908
Supplemental Disclosures of Cash Flow Information - Interest (net
of amounts capitalized) of $1,321,000 and $1,137,000 was paid
during the six months ended June 30, 2003 and 2002, respectively.
Income taxes of $(288,000) and $1,483,000 were (received) paid
during the six months ended June 30, 2003 and 2002, respectively.
See accompanying Notes to Condensed Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of management, the accompanying condensed
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 June 30, 2003 and 2002.
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 2003 and 2002 differs from the
statutory federal rate of 34% primarily because of the state
tax provision and refundable state tax credits.
4. Accounts and notes receivable are reflected net of allowance
for doubtful accounts of $1,040,000 and $572,000 at
June 30, 2003 and December 31, 2002, respectively.
5. Inventories as of June 30, 2003 and December 31, 2002 were
as follows (in thousands):
6/30/03 12/31/02
Pineapple products
Finished goods $ 9,384 $11,829
Work in progress 4,214 963
Raw materials 3,234 1,696
Real estate held for sale 4,434 2,134
Merchandise, materials and supplies 5,911 6,743
Total Inventories $27,177 $23,365
6. Business Segment Information (in thousands):
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
Revenues
Pineapple $23,876 $22,163 $44,774 $41,505
Resort 10,529 10,309 23,824 25,529
Commercial & Property 2,105 1,088 5,184 2,811
Other (20) 1 (19) 1
Total Revenues 36,490 33,561 73,763 69,846
Operating Profit (Loss)
Pineapple (2,879) (1,322) (4,416) (2,463)
Resort (1,028) (400) 266 2,556
Commercial & Property (139) (458) 210 (139)
Other (763) (368) (1,170) (728)
Total Operating Loss (4,809) (2,548) (5,110) (774)
Interest Expense (655) (572) (1,289) (1,153)
Income Tax Benefit 1,432 1,054 1,741 637
Net Loss $(4,032) $(2,066) $(4,658) $(1,290)
7. In June 2003, the Company entered into an agreement to sell
the Napili Plaza and in July 2003, the Company, as managing
member for Kaahumanu Center Associates, signed an agreement to
sell Queen Kaahumanu Center. At June 30, 2003, the Napili
Plaza property, plant and equipment (net of accumulated
depreciation of $4,373,000) has been classified as Real Estate
Held for Sale.
On August 1, 2003, the sale of Napili Plaza was concluded and
the Company's $4.5 million mortgage loan on the on the property
was repaid. The Company will report a pretax gain of
approximately $2 million in the third quarter of 2003.
The sale of Queen Kaahumanu Center is expected to close before
the end of third quarter 2003.
8. Average common shares outstanding for the interim periods
ended June 30, 2003 and 2002 were 7,195,800. The Company has
no securities outstanding that would potentially dilute common
shares outstanding.
9. At June 30, 2003 and 2002, the Company did not hold
derivative instruments and did not enter into hedging
transactions.
10.On January 1, 2003, the Company adopted Statement of Financial
Accounting Standard No. 146, Accounting for Costs Associated
with Exit or Disposal Activities ("SFAS No. 146"). SFAS No.
146 requires that a liability for a cost associated with an
exit or disposal activity be recognized when the liability is
incurred, and not at the date of an entity's commitment to an
exit plan, as was previously required. The adoption of SFAS
No. 146 did not have a material effect on the Company's
financial statements.
On January 1, 2003, the Company adopted Financial Accounting
Standards Board Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN No. 45"). FIN No.
45 requires an entity to disclose in its financial statement
footnotes many of the guarantees or indemnification agreements
that it issues. In addition, under certain circumstances, an
entity will have to recognize a liability at the time it enters
into the guarantee. The adoption of FIN No. 45 did not have a
material impact on the Company's financial statements.
11.Certain amounts for the prior year have been reclassified to
conform to the current year presentation.
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. The
reserve recorded in 1999 and adjustments thereto through
June 30, 2003, did not have a material effect on the Company's
financial statements. 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.
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. The cost of
remediation will depend on the various alternatives as to the
use of the property and the method of remediation. Until the
Company makes further progress on obtaining proper entitlements
for the parcel, the ultimate use of the property remains
uncertain and, therefore, an estimate of the remediation cost
cannot be made.
In addition to the matters noted above, there are various other
claims and legal actions pending against the Company. In the
opinion of management, after consultation with legal counsel,
the resolution of these other matters 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.) 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 and a $1 million line of
credit used for working capital purposes. Both lines expire on
August 31, 2003.
The Company, as a partner in various partnerships, may under
particular circumstances be called upon to make additional
capital contributions.
The Company has guaranteed the payment of up to $10 million of
the $57 million mortgage loan of Kaahumanu Center Associates, a
limited partnership of which the Company is the general
partner. Upon closing of the sale of Queen Kaahumanu Center,
the mortgage loan will be repaid and the guarantee will be
released (see Note 7 to Condensed Financial Statements).
At June 30, 2003, the Company had purchase commitments under
signed contacts totaling $6.1 million, which relate primarily
to pineapple purchases for its Costa Rican operations and to
real estate projects on Maui.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Consolidated
The Company reported a net loss of $4,032,000 ($.56 per share)
for the second quarter of 2003 compared to a net loss of
$2,066,000 ($.29 per share) for the second quarter of 2002.
Consolidated revenues for the second quarter of 2003 were $36.5
million compared to $33.6 million for the second quarter of 2002.
For the first half of 2003, the Company had a net loss of
$4,658,000 ($.65 per share) compared to a net loss of $1,290,000
($.18 per share) for the first half of 2002. Consolidated
revenues for the first half of 2003 were $73.8 million compared
to $69.8 million for the same period in 2002.
Increased losses for the second quarter and first half of 2003
were due to lower net results from the Company's major business
segments, Pineapple and Resort, and increased general and
administrative expenses. The Commercial & Property segment
produced improved results for the second quarter and first half
of 2003.
Consolidated general and administrative expenses increased by 57%
and 45% for the second quarter and first half of 2003,
respectively, compared to the same periods in 2002. General and
administrative expenses are incurred at the segment level and at
the corporate level. Approximately 70% of the general and
administrative expenses incurred at the corporate level were
allocated to the business segments in 2003 and 2002. Operating
profit (loss) reported for the business segment is after
allocation of corporate general and administrative expense, but
before interest expense and income taxes. Charges related to
management changes and employee layoffs in the Pineapple segment
accounted for approximately 49% and 33% of the increased
consolidated general and administrative expense for the second
quarter and first half of 2003, respectively. Litigation costs
incurred in the Pineapple segment, other consultant fees, higher
depreciation expense and increased pension expense were
responsible for approximately 47% and 57% of the increased
general and administrative expense for the second quarter and
first half of 2003, respectively.
Consolidated pension expense for the year 2003 is expected to be
$2.7 million, an increase of about 100% over 2002. This increase
reflects the decline in pension asset values in 2002 and a
decrease in assumed discount rate as of December 31, 2002. While
pension asset values have improved in the first six months of
2003, fixed long-term interest rates have continued to decline.
At year-end 2003, the Company could be required to recognize an
additional minimum liability as prescribed by SFAS No. 87,
Employers' Accounting for Pensions. The liability would not
affect net income, but would be recorded as a reduction of equity
through a non-cash charge to accumulated other comprehensive
income.
Interest expense was higher in the second quarter and first half
of 2003 compared to the same periods in 2002 because of higher
average borrowings. Borrowings were higher in 2003 because cash
flows from operating activities were insufficient to reduce debt.
See Liquidity, Capital Resources and Other for further discussion
of cash flows. The Company's average interest rates were lower
in the second quarter and first half of 2003 compared to the same
periods in 2002.
Pineapple
Pineapple operations produced an operating loss of $2.9 million
for the second quarter of 2003 compared to an operating loss of
$1.3 million for the second quarter of 2002. For the first half
of 2003 the operating loss from Pineapple was $4.4 million
compared to $2.5 million for the first half of 2002. Revenues
for the second quarter and first half of 2003 were $23.9 million
and $44.8 million, respectively, an increase of approximately 8%
for both the quarter and six-month period versus the comparable
periods in 2002.
Increased revenues for the second quarter and the first six
months of 2003 were due primarily to higher volume and prices of
pineapple sales from Costa Rica by the Company's 100% owned
subsidiary, Royal Coast Tropical Fruit Company, Inc. and
increased sales volume of Hawaiian GoldTM, fresh whole pineapple
grown on Maui. Increased revenues for the first six months of
2003 also reflected higher average sales prices for the Company's
canned pineapple products. Sales volume of the Company's canned
pineapple products was lower in the second quarter and first half
of 2003 compared to 2002 and currently represents approximately
65% of the Pineapple segment net sales compared to approximately
75% of the segment's net sales a year ago. Revenues for the
second quarter of 2003 include $850,000 from a non-recurring cash
receipt in April 2003.
Cost of sales as a percentage of sales was lower in the second
quarter and first half of 2003 compared to 2002 primarily because
of the larger proportion of fresh pineapple sales, which
generally have a higher profit margin compared to canned sales,
and because of lower production cost (primarily at the
plantations) in 2003.
The increased operating loss for the Pineapple segment for the
second quarter and first half of 2003 was primarily due to
increased general and administrative expenses as discussed above.
General and administrative expense for the Pineapple segment
increased by $2.1 million and $3.4 million in the second quarter
and first half of 2003, respectively, compared to the same
periods in 2002. Significant litigation cost to defend the
Company's right to grow certain hybrid pineapple varieties were
incurred in the first half of 2003, but the expense is not
expected to continue after August 2003. Higher depreciation
charged to Pineapple general and administrative expense is
attributable to the integrated accounting system that was fully
placed in service as of January 2003. This depreciation expense
currently is expected to be approximately $1.9 million per year
in 2003 through 2006.
Production costs are expected to be lower in 2003 because of a
reduction in the number of acres that will be planted as compared
to 2002. In accordance with Hawaii industry practice, the
Company's policy is to charge the costs of growing pineapple to
production in the year incurred rather than deferring these costs
until the year of harvest. This reduction in acres to be planted
in 2003 as compared to 2002 is expected to reduce cost of sales
for the year 2003 by approximately $1.0 million.
The Company's canned pineapple is sold in competition with
product produced in foreign countries; thus, the volume of
imports of canned pineapple and the average unit value declared
on these imports influences the competitive environment of the
market for the Company's products. The effect on the marketplace
of a change in the volume or average unit value is not
necessarily immediate, and other factors also influence the
market, but the import statistics may be indicative of future
market condition. For the first five months of 2003, the volume
of imports of canned pineapple into the United States increased
by 14% and the average unit value increased by 8%.
Antidumping duties ranging from less than 1% up to 51% have been
in effect on canned pineapple fruit imported from Thailand since
mid-1995. At the request of either the Company or a Thai
producer, the amount of duties on pineapple imports from Thailand
is subject to annual administrative reviews by the U. S.
Department of Commerce. Based on the preliminary results of the
seventh annual administrative review announced in June 2003,
three Thai importers have dumping margins that are considered "de
minimis." A determination of a de minimis dumping margin for
three consecutive years will result in an importer being exempt
from the anti-dumping duty order. In 2001, the Company had
appealed a determination that one large Thai producers' dumping
margin was de minimis, and in April 2003, the margin was
recomputed to an amount in excess of the de minimis threshold.
Over the last several years, the Company has been reducing the
acreage planted in Champaka pineapple (primarily a canning
variety) and increasing the acreage in Hawaiian GoldTM pineapple
(primarily sold as fresh whole fruit), resulting in a net
reduction in the total planted acreage. This reduction in
planted acreage has resulted in a gradual reduction in the need
for seasonal labor as well as reductions in the full-time labor
force. The first six months of 2003 includes approximately
$400,000 of employment severance charges. Acceleration of the
reduction in canned pineapple production will result in further
decreases to the size of the workforce. The Company's labor
force needs are being evaluated and additional charges for
severance and termination benefits may be necessary in future
periods. The Company is also evaluating the fixed assets used in
its Pineapple operations in an effort to determine the most
efficient usage of its assets based on an overall reduction in
canned pineapple production. This evaluation may result in
additional depreciation or impairment charges.
Resort
Kapalua Resort reported an operating loss for the second quarter
of 2003 of $1,028,000 compared to an operating loss of $400,000
for the second quarter of 2002. For the first half of 2003
Kapalua produced an operating profit of $266,000 compared to an
operating profit of $2,556,000 for the first half of 2002.
Revenues for the second quarter of 2003 were 2% higher than the
second quarter of 2002. For the first half of 2003, revenues of
$23.8 million were 7% lower than the same period in 2002.
Increased revenues for the second quarter of 2003 compared to the
second quarter of 2002 were attributable to increased hotel and
villa room occupancies at Kapalua, an increased number of paid
rounds of golf, higher green fees and to improved merchandise
sales. For the first half of 2003, the overall room occupancy at
the Resort and paid rounds of golf were lower than the first half
of 2002. The increase in merchandise sales in the second quarter
and first half of 2003 compared to the same periods in 2002
primarily reflects an increase in Company-operated retail space
at Kapalua Resort.
The increased operating loss for the second quarter of 2003 and
the reduction in operating profit for the first half of 2003 was
due to fewer sales of new real estate product in 2003, higher
operating costs and higher direct and allocated general and
administrative expenses as explained above. Operating cost
increases were primarily due to labor related costs.
Operating profit attributable to real estate development
decreased by $400,000 and $1.5 million in the second quarter of
2003 and first half of 2003, respectively, compared to the same
periods in 2002, reflecting lower inventory of new real estate
product available for sale. There were no sales of new real
estate product in the second quarter of 2003, while the second
quarter of 2002 included one Pineapple Hill Estates lot sale.
The first half of 2003 included the sale of one lot at Pineapple
Hill Estates compared to the first half of 2002, which included
the sale of two lots at Pineapple Hill Estates and two lots at
Plantation Estates.
A house on a lot at Pineapple Hill Estates that the Company
constructed through a joint venture was completed in March 2003
and is available for sale. The Company presently has a 6.5-acre
oceanfront parcel at Kapalua in escrow. This sale is expected to
close after the State Department of Land & Natural Resources
approves the buyers' construction plans for a home on this
conservation-zoned parcel. The next phase of Plantation Estates
at Kapalua may be available for sale before year-end 2003, but
revenues from this subdivision would be recognized as subdivision
improvements are completed, so revenues probably will not be
recognized until 2004.
Resort real estate sales are cyclical and depend on a number of
factors. Results of real estate sales activity for the second
quarter and first half of 2003 are not necessarily indicative of
future performance trends for this segment.
Hotel and condominium room occupancies for the first six months
of 2003 compared to the same period in 2002, increased slightly
for the State of Hawaii and for the island of Maui, room
occupancies increased by approximately 3%. Room occupancies at
the Kapalua Resort decreased by almost 3% for the first six
months of 2003 compared to the same period in 2002. Part of the
decreased occupancy at Kapalua is due to a greater number of
units available in The Kapalua Villas, the Company's short-term
condominium rental program. In addition, a portion of the
accommodations at the Kapalua Resort is dependent on group
business, which was lower in 2003 compared to 2002. Advanced
bookings for the second half of 2003 indicate that Kapalua Resort
occupancies for the remainder of 2003 and the full year 2003 may
exceed 2002.
Commercial & Property
Commercial & Property operations produced an operating loss of
$139,000 for the second quarter of 2003 compared to an operating
loss of $458,000 for the second quarter of 2002. For the first
half of 2003 the Commercial & Property operating profit was
$210,000 compared to an operating loss of $139,000 for the first
half of 2002. Revenues from these operations was $2,105,000 for
the second quarter of 2003 compared to $1,088,000 for the second
quarter of 2002; and $5,184,000 for the first half of 2003
compared to $2,811,000 for the first half of 2002.
Higher revenues and improved net operating results for the second
quarter and first half of 2003 were primarily due to the closing
of lot sales at the Kapua Village employee subdivision. The
second quarter and first half of 2003 included ten and 31 lot
closings, respectively. The closing of lot sales in this
subdivision began in December 2002 and one lot remained in
inventory at June 30, 2003. The final lot was sold in July 2003.
Revenues and operating profit for the first half of 2002 included
a $624,000 gain on the sale of a land parcel.
LIQUIDITY, CAPITAL RESOURCES AND OTHER
At June 30, 2003, total debt, including capital leases was $50.5
million, an increase of $400,000 from December 31, 2002.
Typically, the increase in the Company's debt level from the
prior year-end to the end of the second quarter would be
significantly greater because cash requirements increase as the
seasonal pineapple canning activity begins. However, the
Company's debt level at the end of 2002 was relatively high
because certain pineapple sales made late in 2002 were not
collected before year-end. The debt was reduced to a more normal
year-end level when the receivables were collected in early 2003.
Cash flows from operating activities was $3.7 million for the
first half of 2003 compared to a negative $2.2 million for the
same period in 2002.
The seasonal pineapple canning activity of the summer months will
increase the Company's cash requirements. However, the Company's
overall debt level is expected to be lower by the end of the
third quarter as compared to June 30, 2003, primarily because the
mortgage loan on Napili Plaza was repaid on August 1, 2003 (see
Note 7 to Condensed Financial Statements). At June 30, 2003,
unused short- and long-term lines of credit totaled $7.1 million.
It is anticipated that cash flows from operating activities
together with the credit lines currently available to the Company
will be sufficient to cover the Company's peak cash requirements
in 2003. Should additional credit become necessary the Company
would seek additional credit from its lenders.
In January 2003, the sales, manufacturing and payroll modules of
the integrated accounting system, which the Company began
implementing in August 2000, "went live." Through approximately
early April 2003, the Pineapple Sales Division experienced
significant backlogs in invoicing because of previously
unforeseen issues in the new system. At June 30, 2003, the
backlog in invoicing was at acceptable levels.
The Company's capital expenditures and expenditures for general
planning and land entitlements are expected to be approximately
$9.3 million in 2003. Approximately $3.4 million is estimated to
be for replacement of existing equipment and facilities. Some of
these expenditures may be funded with capital leases or new
equipment financing loans.
In August 2003, the Company expects to receive a non-recurring
cash payment of $2 million as a result of resolution of
litigation that will be recorded as Other Income in the Pineapple
segment.
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
belief regarding the effect of imports on canned pineapple
pricing; the Company's expectations as to depreciation expense,
pineapple production costs and capital expenditures; the
Company's expectations as to the closing of the sale on the 6.5
acre land parcel at Kapalua and the closing of the sale of Queen
Kaahumanu Center; the possibility that the next phase of
Plantation Estates at Kapalua may be available for sale before
year-end 2003; the Company's expectations as to Resort room
occupancies; expectations regarding certain non-recurring cash
receipts; and the Company's expectations regarding the adequacy
of credit facilities and operating cash flows. 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
Annual Report to Shareholders and 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.
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 six months of 2003.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The
Company's principal executive officer and principal financial
officer evaluated the effectiveness of the Company's disclosure
controls and procedures as of June 30, 2003. Based on this
evaluation, it was concluded that the Company's disclosure
controls and procedures are effective in timely identifying
material information that should be disclosed in this report.
(b) Changes in internal controls. There were no changes in the
Company's internal control over financial reporting that occurred
during the Company's last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On August 5, 2003 a settlement agreement was signed, which
resolved all claims, counterclaims, and/or contentions on terms
satisfactory to all parties, with regard to Maui Pineapple
Company, Ltd., et al. v. Del Monte Fresh Produce (Hawaii), Inc.,
et al. Civil No. 01-1-0173(1), (Circuit Court of the Second
Circuit, State of Hawaii) and Maui Pineapple Company, Ltd., et
al. v. Del Monte Corporation, et al., Case No: C 01-01449 CRB, in
the United States District Court For the Northern District of
California (San Francisco Division).
Item 4. Submission of Matters to a Vote of Security-Holders
On May 27, 2003, the annual meeting of the Company's shareholders
was held. Proxies for the meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934. The
number of outstanding shares as of March 20, 2003, the record
date of the annual meeting, was 7,195,800.
The results of the voting were as follows:
Election of Class one Directors for a three-year term:
Shares Voted For Shares Withheld
Randolph G. Moore 6,563,378 152,799
Fred E. Trotter III 6,543,375 172,802
Election of the firm Deloitte & Touche LLP as auditor of the
Company for the fiscal year 2003:
Shares voted for: 6,572,776
Shares voted against: 135,273
Shares abstained: 8,128
There were no broker non-votes on any matter voted upon at the
meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(4) Instruments Defining the Rights of Security
Holders
4.1(x) Third Loan Modification Agreement, dated as
of August 11, 2003 (Filed Herewith)
4.2(vii) Sixth Amendment to Term Loan Agreement,
entered into on July 30, 2003, and effective
as of June 29, 2003 (Filed Herewith)
(10) Material Contracts
10.3(x) Employment Separation Agreement (Gary L.
Gifford, President/CEO), dated April 15, 2003
(31) Rule 13a - 14(a) Certifications
(32) Section 1350 Certifications
(b) Reports on Form 8-K
(1) A report on Form 8-K dated and filed on May 6, 2003,
included Item 7, Financial Statements, Pro Forma Financial
Information and Exhibits and Item 9, Regulation FD Disclosure
and no financial statements.
(2) A report on Form 8-K dated and filed on June 10, 2003,
included Item 9, Regulation FD Disclosure and no financial
statements.
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.
August 13, 2003 /S/ PAUL J MEYER
Date Paul J. Meyer
Executive Vice President/Finance
(Principal Financial Officer)