Exhibit 99.1

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Maui Land & Pineapple Company, Inc.

Kahului, Hawaii

We have audited the accompanying consolidated balance sheets of Maui Land & Pineapple Company, Inc. and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedule listed in the Index at Item 15. We also have audited the Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and financial statement schedule and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Maui Land & Pineapple Company, Inc. and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of the Emerging Issues Task Force of the Financial Accounting Standards Board (“FASB”) (“EITF”) Issue No. 06-8, Applicability of the Assessment of a Buyer’s Continuing Investment under FASB Statement No. 66 for Sales of Condominiums on January 1, 2008, FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 on January 1, 2007, and Statement of Financial Accounting Standards (“SFAS”) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R), on December 31, 2006.

We have not audited any financial statements of the Company for any period subsequent to December 31, 2008.  However, as discussed in Note 21 to the consolidated financial statements, the Company’s recurring losses and negative cash flows from operations through September 30, 2009 and deficiency in stockholders’ equity at September 30, 2009 raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans with regard to these matters are also described in Note 21.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ DELOITTE & TOUCHE LLP

Honolulu, Hawaii
March 30, 2009
(December 28, 2009 as to Note 21)

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MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

See Notes to Consolidated Financial Statements

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MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Financial Statements

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MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Years Ended December 31, 2008

(in thousands)

See Notes to Consolidated Financial Statements

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MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:

·                  Property acquired under capital leases was $1,532,000, $2,038,000, and $81,000 in 2008, 2007 and 2006, respectively.

·                  Amounts included in trade accounts payable for additions to property and other investments totaled $2,010,000, $2,046,000 and $2,359,000 at December 31, 2008, 2007 and 2006, respectively.

See Notes to Consolidated Financial Statements

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MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

The consolidated financial statements include the accounts of Maui Land & Pineapple Company, Inc. and its subsidiaries, primarily Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. The Company’s principal operations include production and sale of pineapple products, resort operations, and real estate development and sales. Significant intercompany balances and transactions have been eliminated.

LIQUIDITY

The Company incurred an operating loss of $71.6 million and negative cash flow from operations of $51.8 million for the year ended December 31, 2008. On March 30, 2009, the Company has borrowings of almost $100 million outstanding (Notes 5 and 21) and approximately $11.7 million available under existing lines of credit. In March 2010, $70 million of the Company’s available credit matures. This credit is comprised of two revolving credit facilities, both of which have financial covenants requiring a minimum of $10 million in liquidity and limitations on new indebtedness. Failure to satisfy any of the covenants or to otherwise default under either of the credit agreements would result in the outstanding borrowings to become immediately due and would also cause a default under the other credit agreement and the $40 million senior secured convertible notes issued in July 2008. If the Company defaults under the senior secured convertible notes, the holders of such notes may require the Company to redeem the notes, in which case the Company would also be required to pay a redemption premium equal to 115% multiplied by (i) the principal and accrued and unpaid interest under the note, or (ii) the highest closing sale price of the Company’s common stock during the period between the event of default and delivery of redemption notice multiplied by the number of shares of our common stock into which a note is then convertible. The Company would have been out of compliance at December 31, 2008 with certain financial covenants under the line of credit agreement and the revolving loan agreement had it not amended the agreements as discussed in the following paragraph. At December 31, 2008 these factors raised significant uncertainty about the Company’s ability to continue as a going concern.

In response to these matters, the Company has undertaken several financial and strategic initiatives to restructure the terms of its credit agreements and generate cash flow from a variety of sources, including the sale of several real estate assets. In March 2009, the Company sold the Plantation Golf Course (PGC) for $50 million (see Note 21) and $45 million of the sales proceeds were applied to partially repay outstanding borrowings. In conjunction with the PGC sale, the Company amended its line of credit agreement to extend the maturity date to March 2010 and all financial covenants were eliminated, except for a minimum liquidity requirement and limitations on new indebtedness. The Company also amended its revolving loan agreement in March 2009 to suspend financial covenants through 2009, except for a minimum liquidity requirement and limitations on additional indebtedness. In return for the suspension of the covenants, the maturity date of the revolving loan was accelerated to March 2010 from June 2011. The Company is currently in discussions with both lenders to further restructure its line of credit and revolving loan agreements to extend the maturity dates beyond 2010, and to increase the amounts available under the line of credit agreement based, in part, on a re-appraisal of the properties securing the line of credit and by providing additional properties as collateral under the agreement. In addition, the Company has taken several other actions to reduce cash outflows including reducing its headcount by about 100 personnel (approximately 10% of employees) in March 2009, as well as other measures to reduce operating expenses. The Company also plans to sell selected real estate assets in 2009 to provide additional liquidity. As a result of these actions, the Company believes it will be able to continue to be in compliance with its covenants under its borrowing arrangements and will continue operating as a going concern.

COMPREHENSIVE INCOME

Comprehensive income includes all changes in Stockholders’ Equity, except those resulting from capital stock transactions. Comprehensive income includes the pension benefit adjustment (see Note 10).

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand, deposits in banks and commercial paper with original maturities of three months or less at the time of purchase.

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INVENTORIES

The Company’s fresh fruit and processed juice inventories are stated at cost, not to exceed net realizable value using the first-in, first-out (“FIFO”) method. 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. These costs include land preparation and planting, cultivation, irrigation, crop development, harvesting and hauling to the packing facility. They also include certain overhead costs that are directly related to the growing of pineapple. 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 generally consisted of approximately 2,000 acres that are expected to yield up to 52 tons per acre for the first crop harvested. The Company’s growing crops are in various stages of development, and will be harvested principally in the years 2009 through 2011.

Real estate is stated at the lower of cost or fair value less cost to sell. These costs generally include direct on-site construction costs, offsite improvement costs, planning and permitting costs for the project, and the cost of the land.

Merchandise, materials and supplies are stated at cost, not in excess of fair value, using the retail and average cost methods. Merchandise inventories are retail inventories held for sale at the Kapalua Resort. Materials and supply inventories include amounts for both the Agriculture and the Resort segments.

REAL ESTATE HELD FOR SALE

Real estate held for sale at December 31, 2008 includes the net book value of the buildings and land improvements located on an approximately 25-acre parcel of land in Kahului, Maui. The Company’s Board of Directors approved the sale of the Kahului property in the fourth quarter of 2008 and the property is currently being actively marketed. The Kahului property includes the Company’s administrative offices, a fresh fruit packing facility and a former cannery site.

INVESTMENT IN AFFILIATES

Investments in affiliates, partnerships, and limited liability companies, over which the Company exercises significant influence, but not control, are accounted for using the equity method.

Investments in unconsolidated affiliates are reviewed for impairment whenever there is evidence of a loss in value. An investment is written down to fair value if the impairment is considered to be other-than-temporary. In evaluating the fair value of an investment, the Company reviews the discounted projected cash flows associated with the investment and other relevant information. In evaluating whether an impairment is other-than-temporary, the Company considers all available information, including the length of time and extent of the impairment, the financial condition and near-term prospects of the affiliate, the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value, and projected industry and economic trends, among others. In 2008, the Company evaluated its investment in Kapalua Bay Holdings, LLC (“Bay Holdings”) for impairment. As a result of this process, the Company recorded an other-than-temporary impairment loss of $37.8 million. In determining the fair value of an investment and assessing whether any identified impairment is other-than-temporary, significant estimates and considerable judgment are involved. These estimates and judgments are based, in part, on the Company’s current and future evaluation of economic conditions in general, as well as Bay Holdings’ current and future plans. These impairment calculations contain additional uncertainties because they also require management to make assumptions and apply judgments to, among others, estimates of future cash flows, probabilities related to various cash flow scenarios, and appropriate discount rates. Changes in these and other assumptions could affect the projected operational results of Bay Holdings and, accordingly, may require valuation adjustments to the Company’s investment in Bay Holdings that may materially impact the Company’s financial condition or its future operating results. For example, if current market conditions continue to deteriorate or Bay Holdings’ plans change, additional impairment charges may be required in future periods, and those charges could be material.

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OTHER ASSETS

Deferred costs are primarily real estate development costs related to various projects at the Kapalua Resort that will be allocated to future income-producing development projects. In 2008, the Company evaluated its deferred costs related to real estate developments for impairment and, as a result of this process, the Company recorded an impairment loss of $10.6 million (see Note 3).

Cash surrender value of life insurance policies is reflected net of loans against the policies.

PROPERTY AND DEPRECIATION

Property is stated at cost. Major replacements, renewals and betterments are capitalized while maintenance and repairs that do not improve or extend the life of an asset are charged to expense as incurred. When property is retired or otherwise disposed of, the cost of the property and the related accumulated depreciation are written off and the resulting gains or losses are included in income. Depreciation is provided over the estimated useful lives of the respective assets using the straight-line method generally over three to 25 years.

LONG-LIVED ASSETS

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When such events or changes occur, an estimate of the future cash flows expected to result from the use of the assets and their eventual disposition is made. If the sum of such expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized in an amount by which the assets’ net book values exceed their fair value. The Company has evaluated certain long-lived assets for impairment; however, no impairment charges were recorded as a result of this process, other than impairment charges recorded for deferred development costs (see Note 3). These asset impairment loss analyses require management to make assumptions and apply considerable judgments to, among others, estimates of the timing and amount of future cash flows, expected useful lives of the assets, uncertainty about future events, including changes in economic conditions, changes in operating performance, changes in the use of the assets, and ongoing cost of maintenance and improvements of the assets, and thus, the accounting estimates may change from period to period. If management uses different assumptions or if different conditions occur in future periods, the Company’s financial condition or its future operating results could be materially impacted.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company accounts for all derivative financial instruments, such as interest rate swap agreements and the derivative liability related to its convertible debt, by recognizing the derivative on the balance sheet at fair value, regardless of the purpose or intent of holding them. Changes in the fair value will be recognized in interest expense.

EMPLOYEE BENEFIT PLANS

The Company’s policy is to fund pension cost at a level at least equal to the minimum amount required under federal law, but not more than the maximum amount deductible for federal income tax purposes.

The Company adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 158 (“SFAS 158”), Employers’ Accounting for Defined Benefits Pension and Other Postretirement Plans as of December 31, 2006. The Standard requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur though comprehensive income. The pension asset or liability is the difference between the plan assets at fair value and the projected benefit obligation as of year end.

Deferred compensation plans for certain management employees provide for specified payments after retirement. The present value of estimated payments to be made is accrued over the period of active employment. In 1998, future benefits under these plans were terminated (see Note 10).

The estimated cost of providing postretirement health care and life insurance benefits is accrued over the period employees render the necessary services.

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REVENUE RECOGNITION

Product revenues primarily include the sales of pineapple, retail merchandise at the Kapalua Resort, sales of real estate inventories and revenues from the sale of non-core land parcels (land not used in the Company’s core operations). Service revenues primarily include revenues from golf course operations, revenues from the Kapalua Villas rental program, lease revenues and real estate commission income.

Revenues from the sale of pineapple products are recognized when title and risk of loss to the product are transferred to the customer. The timing of transfer of title varies according to the shipping and delivery terms of the sale.

Sales of real estate are recognized as revenues in the period in which sufficient cash has been received, collection of the balance is reasonably assured and risks of ownership have passed to the buyer. 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 construction improvement period on the basis of costs incurred as a percentage of expected total costs to be incurred. Bay Holdings also uses the percentage-of-completion method for its sales of condominiums (see Note 4).

Rental income is recognized on a straight-line basis over the terms of the leases. Also included in rental income are certain percentage rents determined in accordance with the terms of the leases. Rental income arising from tenant rents that are contingent upon the sales of the tenant exceeding a defined threshold are recognized only after the contingency has been resolved (e.g., sales thresholds have been achieved).

Revenues from other activities are recognized when delivery has occurred or services have been rendered, the sales price is fixed or determinable, and collectibility is reasonably assured.

INTEREST CAPITALIZATION

Interest costs are capitalized during the construction period of major capital projects.

ADVERTISING AND RESEARCH AND DEVELOPMENT

The costs of advertising and research and development activities are expensed as incurred. Advertising costs are included in shipping and marketing costs, and research and development costs are included in operating expenses in the consolidated statements of operations.

LEASES

Leases that transfer substantially all of the benefits and risks of ownership of the property are accounted for as capital leases. Amortization of property under capital leases is included in depreciation expense. Other leases are accounted for as operating leases. Rentals under operating leases are recognized on a straight-line basis.

INCOME TAXES

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”) on January 1, 2007. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return (see Note 13).

The Company’s provision for income taxes is calculated using the liability method. Deferred income taxes are provided for all temporary differences between the financial statement and income tax bases of assets and liabilities using tax rates enacted by law or regulation. A valuation allowance is established for deferred income tax assets if management believes that it is more likely than not that some portion or all of the asset will not be realized through future taxable income.

STOCK COMPENSATION PLANS

The Company adopted SFAS No. 123(R), Share-Based Payment (“SFAS 123(R)”), effective January 1, 2006, using the modified prospective application transition method. The Company had previously accounted for its stock-based compensation arrangements under SFAS 123, Accounting for Stock-Based Compensation. SFAS 123(R) requires all share-based payments, including grants of employee stock options, to be recognized as compensation expense over the

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service period (generally the vesting period) in the consolidated financial statements based on their fair values. Under the modified prospective method, awards that were granted, modified, or settled on or after January 1, 2006 are measured and accounted for in accordance with SFAS 123(R). The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Future actual amounts could differ from these estimates.

RISKS AND UNCERTAINTIES

Factors that could adversely impact the Company’s operations or financial results include, but are not limited to, the following: continued unfavorable economic conditions in Hawaii and the mainland United States that result in a further decline in the market demand for the Company’s products and services; numerous risks related to the Company’s investments in real property which could be impacted by unfavorable economic conditions, interest rates, and availability of financing; untimely completion of land development projects within forecasted timing and budget; inability to obtain land use entitlements at a reasonable cost; unfavorable legislative decisions by the County of Maui; the cyclical market demand for luxury real estate on Maui; increased competition from other luxury real estate developers on Maui; the Company’s limited guarantees to complete development of the Residences at Kapalua Bay project; failure of joint venture partners to perform; environmental regulations; competition from other agriculture producers; adverse weather conditions and natural disasters; failure of the Company’s consignment arrangement to sell fresh pineapple; inability to find a title sponsor for the Company’s LPGA or other events; availability of reliable and low-cost transportation to serve customers; being located apart from the United States mainland makes the Company more sensitive to economic factors; failure to comply with restrictive financial covenants in the Company’s credit arrangements; an inability to achieve the Company’s short and long-term goals and cash flow requirements; future impairment charges of long-lived assets or investments; and inadequate internal controls.

NEW ACCOUNTING PRONOUNCEMENTS

As of January 1, 2008, the Company and its equity method investee, Bay Holdings (see Note 4) adopted the provisions of the Emerging Issues Task Force of the FASB (“EITF”) Issue No. 06-8, Applicability of the Assessment of a Buyer’s Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate (“SFAS No. 66”), for Sales of Condominiums (“EITF 06-8”). EITF 06-8 requires condominium sales to meet the continuing investment criterion in SFAS No. 66 in order for profit to be recognized under the percentage-of-completion method. For sales through 2007 that do not meet the continuing investment criteria in SFAS No. 66, EITF 06-8 requires that such transactions be accounted for using the deposit method with profits being deferred until the sales qualify for percentage-of-completion, or full accrual accounting in later periods. The cumulative effect for the Company of applying EITF 06-8, including its share of Bay Holdings’ cumulative effect was $4,622,000 (net of income tax effect) and is reported as a charge to retained earnings as of January 1, 2008.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133. SFAS 161 requires enhanced disclosures about (i) how and why derivative instruments are used; (ii) how derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities as amended; and (iii) how derivative instruments and related hedged items affect the Company’s financial position, results of operations, and cash flows. SFAS 161 is effective for the Company on January 1, 2009 and is not expected to have a significant impact on the disclosures in the consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 requires that a noncontrolling interest in a subsidiary be reported as equity and the amount of consolidated net income specifically attributable to the noncontrolling interest be identified in the consolidated financial statements. It also calls for consistency in the manner of reporting changes in the parent’s ownership interest and requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation. SFAS 160 is effective for the Company on January 1, 2009. The Company does not expect the adoption of SFAS 160 to have a material effect on its consolidated financial statements.

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In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R broadens the guidance of SFAS141, extending its applicability to all transactions and other events in which one entity obtains control over one or more other businesses. It broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a result of business combinations. SFAS 141R expands on required disclosures to improve the statement users’ abilities to evaluate the nature and financial effects of business combinations. SFAS 141R is effective for the Company on January 1, 2009. The Company does not expect the adoption of SFAS 141R to have a material effect on its consolidated financial statements.

EARNINGS (LOSS) PER COMMON SHARE

Basic earnings (loss) per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares from stock- based compensation arrangements had been issued.

Diluted earnings (loss) per common share is computed on the assumption that the shares of nonvested restricted stock are issued for an amount based on the grant date market price of the shares and that the outstanding stock options are exercised. The treasury stock method is applied to determine the number of potentially dilutive shares for nonvested restricted stock and stock options. Convertible debt is assumed to be converted by applying the if-converted method.

Reconciliation between average number of shares outstanding and the average number of shares outstanding after the effect of dilutive shares follows:

The computation of average dilutive shares outstanding excluded 587,902, 623,280, and 433,540 of non-qualified stock options to purchase common stock, non-vested restricted stock and common stock issuable upon assumed conversion of convertible debt (see Note 11) for the years ended December 31, 2008, 2007 and 2006, respectively. These amounts were excluded because the options’ effect would be anti-dilutive.

2. INVENTORIES

At December 31, 2008, pineapple inventories consist of (finished goods) fresh fruit and processed juice products at First-in, First-out (“FIFO”) cost. At December 31, 2007, finished goods inventories were comprised of fresh fruit at a FIFO cost of $1.0 million and processed juice products at a Last-In, First-Out (“LIFO”) cost of $112,000. The replacement cost of the LIFO inventories at year-end 2007 was approximately $628,000. In 2007 and 2006, there were partial liquidations of LIFO inventories; thus, cost of product revenues included prior years’ inventory costs, which were lower than current costs. Had current costs been charged to cost of product revenues, income before income taxes for 2007 and 2006 would have decreased by $4.3 million and $2.3 million, respectively.

Effective January 1, 2008, the Company changed its method of accounting for pineapple juice inventory from the LIFO method to the FIFO method, which is the method used for fresh pineapple fruit inventory. The Company did not apply the accounting change to its previous inventories of processed solid-pack pineapple products, as the Company ceased all processing and canning of solid-pack pineapple products in 2007 and had no inventory as of January 1, 2008. The Company expects that a single method of accounting for both fresh fruit and processed juice will improve the clarity of the Company’s financial results by more clearly reflecting periodic income. The Company believes the FIFO method is preferable to the LIFO method because it 1) provides better matching of inventory costs to revenues, 2) eliminates the non-cash earnings that have resulted from past LIFO liquidations and from future liquidations that are likely to occur, 3) better reflects the physical flow of inventories, and 4) more closely reflects the current cost of inventories on the Company’s consolidated balance sheet. The effect of the accounting change would not have been material to the Company’s previously issued condensed consolidated financial statements for quarterly periods during 2007, or to the Company’s consolidated financial statements for the years ended December 31, 2007 or 2006. As a result, the Company has not made any adjustments to reflect a retrospective application to its prior financial statements; rather the Company recorded the cumulative effect of this change of $326,000 (net of income taxes of $191,000) as a credit to cost of product revenues with associated increases in inventory and deferred tax liabilities.

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3. OTHER ASSETS

Other Assets at December 31, 2008 and 2007 consisted of the following:

In the fourth quarter of 2008, due to uncertainty in the real estate markets and to cash flow constraints, we delayed the start of construction of new development projects until internal and external conditions improve. Deferred development costs and construction in progress totaling $10.6 million were written off in the fourth quarter of 2008. Costs written off consisted of development plans that were abandoned and other pre-development work that are not expected to benefit existing projects and are not recoverable.

The Company maintained a non-qualified deferred compensation plan whereby management could make pre-tax deferrals of their salary and any cash bonus. Effective December 31, 2008, the plan ceased operations and all of the funds in the plan were distributed to the participants in February 2009.

In 2008, the Company cancelled substantially all company-owned life insurance policies and all policy loans were repaid. At December 31, 2007, cash surrender value of life insurance policies is stated net of policy loans, totaling $642,000. Interest rates on the loans were 5.75% to 8% and were payable upon the death of the insured or cancellation of the policies. The Company owned the insurance policies and the related cash surrender values, and had directly borrowed against such cash surrender values for general operating purposes. The loans were not provided by or on behalf of the Company to our officers and/or directors. The Company had the right to offset the loans against the proceeds received on maturity or cancellation of the policies; accordingly, the loans were presented as a reduction of the respective cash surrender values included in other noncurrent assets on the Company’s balance sheet.

4. INVESTMENT IN AFFILIATES

The Company’s investment in affiliates consists of the following as of December 31, 2008 and 2007:

KAPALUA BAY HOLDINGS, LLC

The Company has a 51% ownership interest in Bay Holdings, which is the sole member of Kapalua Bay LLC, (“Kapalua Bay”). The other members of Bay Holdings through wholly owned affiliates are Marriott International Inc. (“Marriott”), 34%, and Exclusive Resorts LLC (“ER”), 15%. A 43% shareholder and director (as of December 31, 2008) of the Company through related companies is the majority owner of ER. Bay Holdings is not a variable interest entity, as defined in FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities (“FIN 46(R)”). The Company accounts for its investment in Bay Holdings using the equity method of accounting because, although it has the ability to exercise significant influence over operating and financial policies, it does not control Bay Holdings through a majority voting interest. Under the LLC agreement, major decisions require the approval of either 75% or 100% of the membership interests. The Company has been designated as the managing member of Bay Holdings and as such manages the day-to-day affairs of the entity. Profits and losses of Bay Holdings are allocated in proportion to the members’ ownership interests, which approximate the estimated cash distributions to the members.

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Upon formation of Kapalua Bay in 2004, the Company’s non-monetary contributions to Bay Holdings, including a 21-acre land parcel, were valued at $25 million by the members through arms-length negotiations. The land contribution was recorded by the Company in its investment in Bay Holdings at historical cost, which was nominal, and Bay Holdings recorded the contribution at its fair value of $25 million. The Company recorded its non-monetary capital contributions to Bay Holdings at the carrying values (carryover historical cost basis) of the assets contributed because the contributions are not the culmination of an earnings process. The historical cost basis of the land is nominal because it was acquired in the early 1900s. Through December 31, 2008, the Company has made cash contributions to Bay Holdings of $53.2 million.

The carrying amount of the Company’s investment in Bay Holdings of $41.7 million as of December 31, 2008, reflects an impairment charge of $37.8 million recorded by the Company in December 2008. Higher than expected project costs and estimated carrying costs as a result of the restructured financing described below, as well as slower anticipated sell-out of the project in the current market environment, has reduced the expected return from the project. As a result, the fair value of the project was less than its carrying value, which the Company believes represents an other-than-temporary impairment in the carrying value of the investment.

Bay Holdings is constructing a residential development on land that it owns at the site of the former Kapalua Bay Hotel, and a spa on an adjacent parcel of land that is owned by the Company and leased to Bay Holdings. The Kapalua Bay Hotel closed in April 2006 to prepare for the commencement of sales and marketing efforts for the whole and fractional condominium units that comprise the Residences at Kapalua Bay project. In June 2006, Bay Holdings began to enter into binding sales contracts and, in the second half of 2006, demolition and construction began. Sales of the whole units began in June 2006 and sales of the fractional residential units began in July 2006. In 2007, Bay Holdings began to recognize profit from binding sales contracts on the whole and fractional ownership condominiums on the percentage-of-completion method.

The Company’s 2008, 2007 and 2006 equity in the income (losses) of Bay Holdings was $18.9 million (excluding the effect of the $37.8 million impairment charge discussed above), $16.8 million and $(5.3) million, respectively. While sales at the Residences at Kapalua Bay project have continued throughout 2008 and early 2009, based on potential for an increase in default rates because of the current economic environment, Bay Holdings significantly increased the allowance for default reserves and the Company recorded equity in losses from the joint venture of $7.5 million in the fourth quarter. In 2007, as Bay Holdings began to recognize profit from the binding sales contracts on a percentage-of-completion method, the Company began to recognize a proportionate amount of the unrealized appreciation of the fair value of the land and other non-monetary contributions to Bay Holdings and other deferred costs related to the joint venture. This resulted in additional income, net of deferred costs, of $3.0 million for 2008 and $3.3 million for 2007, which is included in the Company’s equity in income (losses) of Bay Holdings.

As of January 1, 2008, Bay Holdings adopted EITF 06-8. The cumulative effect of adopting EITF 06-8 of $12.5 million was recorded as a reduction to Bay Holdings’ January 1, 2008 retained earnings, and the Company recorded its proportionate share of this adjustment to its opening retained earnings for 2008 (see Note 1).

In July 2006, Bay Holdings entered into a syndicated construction loan agreement with Lehman Brothers Holdings Inc. (“Lehman”) for the lesser of $370 million or 61.6% of the total projected cost of the project. Lehman’s commitment under the loan agreement was approximately 78% of the total. The loan is collateralized by the project assets, including the fee simple interest in the land owned by Bay Holdings, the adjacent spa parcel owned by the Company, and all of the sales contracts.

On September 15, 2008 Lehman filed a petition under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York. As a result of Lehman’s failure to comply with the loan agreement, the members of Bay Holdings advanced funds to the joint venture, which, when combined with funding received from lenders other than Lehman under the loan agreement, was sufficient to pay minimum progress payments due to the general contractor. In October 2008, the Company made an uncollateralized loan to Bay Holdings totaling $3.6 million which incurs interest at 16%.

On February 11, 2009, Kapalua Bay, Lehman, other lenders under the loan agreement, Swedbank and MH Kapalua Venture, LLC, an affiliate of Marriott, entered into an Amended and Restated Construction Loan Agreement (the “Amended Loan Agreement”). Pursuant to the Amended Loan Agreement, the aggregate amount that Kapalua Bay may borrow, including amounts previously funded under the loan agreement is approximately $354.5 million. The Company believes that this amount will be sufficient to fund the full development and completion of the project.

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The Company and the other members of the joint venture continue to guarantee to the lenders completion of the project and each member’s pro rata share of costs and losses incurred by the lender as a result of the occurrence of specified triggering events during the term of the Amended Loan Agreement. The members’ guarantee to the lender does not include payment in full of the loan. The Company has recognized a liability of $968,000 at December 31, 2008, representing the estimated fair value of its obligation under these provisions.

The Company had an agreement with Bay Holdings to provide entitlement services relating to the receipt of governmental permits for the development projects. The fee to the Company for these services was $450,000, which in lieu of cash payment, was deemed to be contributed to the Company’s capital account in Bay Holdings in two equal installments in 2005 and 2006. The Company recorded income for 49% (amount attributable to the other members) of the fee earned in 2005 and 2006. In 2006, Bay Holdings entered into agreements with the Company to sell the spa, beach club improvements, and the sundry store to the Company upon completion. These agreements are currently being renegotiated. In addition, pursuant to a sales and marketing agreement, Bay Holdings paid $173,000, $98,000 and $341,000 to the Company in 2008, 2007 and 2006, respectively.

Summarized balance sheet information for Bay Holdings as of December 31, 2008 and 2007 and operating information for 2008, 2007 and 2006 are as follows:

A reconciliation of the Company’s equity in income (losses) of affiliates is as follows:

RITZ-CARLTON, KAPALUA HOTEL JV

In March 2007, the Company sold the land underlying the Ritz-Carlton, Kapalua hotel to W2005 Kapalua/Gengate Hotel Holdings, L.L.C., (the “Hotel JV”) that owned the hotel and was the lessee under the long-term ground lease with the Company. Approximately 49 acres, with a nominal cost basis, were sold for $25 million in cash at closing and for a 21.4% interest in the Hotel JV, and the Company recognized a gain of $24.8 million on the partial sale of the land.

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Profits and losses of the Hotel JV will be allocated in proportion to the members’ ownership interests, which approximate the estimated cash distributions to the members. The Company has the ability to exercise significant influence, but not control, over operating and financial policies of the Hotel JV and accounts for its investment in the Hotel JV using the equity method. The Hotel JV is not a variable interest entity as defined in FIN 46(R).

The Company’s carrying value of its interest in the Hotel JV is $0 and, accordingly, the Company is not recording its share of the equity in losses in the Hotel JV because the Company is neither guaranteeing the obligations of the Hotel JV nor is it committed or expected to fund future obligations or losses of the Hotel JV.

Certain dilution provisions provide that should the Company choose not to fund additional cash calls, if any, its interest will be reduced by the aggregate amount of the increase in the percentage interests of all contributing members, but in no event shall the Company’s percentage interest be reduced below 10%. At December 31, 2008, the Company’s percentage interest in the Hotel JV was 15.9% reflecting dilution as a result of cash calls in which the Company chose not to participate in.

Concurrent with the Hotel JV Agreement, the Hotel JV entered into certain loan agreements with Lehman totaling $271.7 million and an amendment to an existing loan agreement of $20 million with Luxury Finance, LLC. The loans were principally for the purpose of acquiring the land from the Company, repaying existing debt, and completing a rooms conversion project and comprehensive refurbishment of the hotel. The Company is not liable for the repayment of the loans, but is liable for any loss suffered by the lenders as a result of the Company’s fraudulent acts, misrepresentation or certain other triggering events, up to 10.71% of the then outstanding loan balances. The Company has recognized a liability of $93,000, representing the estimated fair value of its obligations under these provisions.

5. FINANCING ARRANGEMENTS

During 2008, 2007 and 2006, the Company had average borrowings outstanding of $111.5 million, $39.1 million, and $29.5 million, respectively, at average interest rates of 5.0%, 7.7% and 7.4%, respectively. At December 31, 2008, the Company had unused long-term credit lines of $11.7 million.

Long-term debt at December 31, 2008 and 2007 consisted of the following (interest rates represent the rates at December 31):

On July 28, 2008, the Company concluded a securities purchase agreement with certain institutional accredited investors and issued an aggregate of $40 million in principal amount of senior secured convertible notes (the “convertible notes”), bearing 5.875% interest per annum payable quarterly in cash in arrears beginning October 15, 2008, resulting in proceeds of $38,365,000 (net of issuance costs of $1,635,000).

The convertible notes are convertible, at any time following their issuance, into shares of common stock of the Company at an initial conversion price of $33.50 per share, which is equal to an initial conversion rate of 29.8507 shares per $1,000 principal amount of the convertible notes. The conversion price is subject to (i) standard weighted-average anti-dilution protection, and (ii) to an automatic reset 18 months following the closing of the financing at the lower of the then current conversion price and 115% of the closing bid price of the common stock as reported on the NYSE on the adjustment date; provided, that, with respect to the reset adjustment, in no event shall the conversion price be reset below $30.00 per share. The convertible notes are not convertible to the extent that their conversion would cause the holder to be the beneficial owner of more than 4.99% of our common stock immediately after giving effect to such conversion. The convertible notes are secured by specified assets of the Company.

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Further, if an adjustment to the conversion price would result in any investor owning in excess of (i) such investor’s FIRPTA Cap (as defined in the convertible notes) on an as converted basis (without regard for any limitations of conversion set forth in the convertible notes) or (ii) the Exchange Cap Allocation (as defined in the convertible notes), then in lieu of the full anti-dilution adjustment, the conversion price will be reduced to the conversion price that would result in such note being convertible into such number of shares of common stock equal to the lower of the investor’s FIRPTA Cap or Exchange Cap Allocation, as applicable (without regard to any limitations on conversion set forth in the convertible note), and, in addition, no later than five business days following the date of conversion of the convertible note, such investor shall receive a cash payment from the Company equal to the product of (x) the closing bid price of our common stock on such conversion date and (y) the number of shares of common stock in excess of such FIRPTA Cap or Exchange Cap Allocation, as applicable, that would have otherwise been issuable without regard to such limitation and any other limitations on conversion set forth in the convertible note.

The convertible notes mature on July 15, 2013. However, at any time after the second anniversary of the closing, the Company has the right, but not the obligation, to require the investors to convert their convertible notes into shares of our common stock at the then applicable conversion price if the average of the daily volume weighted average price of the Company’s common stock is 175% of the conversion price then in effect for 20 out of 30 consecutive trading days.

On the third anniversary of the closing, each holder of the convertible notes has the right to require the Company to redeem all or any portion of such convertible note at a redemption price equal to 100% of the principal amount of the convertible note being redeemed, plus accrued and unpaid interest thereon. Upon the occurrence of a change of control of the Company, each convertible note holder will have the right to require the Company to repurchase all or any portion of such convertible note at a repurchase price equal to 100% of the principal amount of the convertible note being redeemed, plus accrued and unpaid interest thereon. If a convertible note holder elects to convert its convertible note in connection with a change of control, the Company will pay a make-whole premium to such convertible note holder, unless (i) at least 90% of the consideration, excluding cash payments for fractional shares, in such change of control consists of shares of capital stock of the surviving or resulting entity that are listed on, or immediately after the transaction or event will be listed on, a national securities exchange and as a result of such transaction or transactions the convertible notes become convertible into or exchangeable or exercisable for such capital stock of the surviving or resulting entity and such entity has assumed the obligations under the convertible note or (ii) the Company continues to be the successor entity and the common stock continues to be listed on a national securities exchange. The make-whole premium table included in the convertible notes sets forth the number of additional shares to be paid depending upon the effective date of the change of control triggering the make-whole premium payment and the price paid per share of common stock in the change of control.

Additionally, the convertible notes may become immediately due and payable upon an “event of default,” as defined in the convertible notes, such as the suspension from trading on the NYSE for more than 10 days in any 365-day period, failure to pay convert notes timely or to pay amounts due under the agreement, or bankruptcy. If a convertible note is redeemed in connection with an event of default, the Company may be required to pay a redemption premium, in which case the redemption amount would equal 115% multiplied by (i) the principal and accrued and unpaid interest under the convertible note, or (ii) the highest closing sale price of the Company’s common stock during the period between the event of default and delivery of redemption notice multiplied by the number of shares of the Company’s common stock into which a convertible note is then convertible.

The conversion features of the convertible notes including the make-whole premium (“conversion features”) gave rise to an embedded derivative instrument that is required to be accounted for separately in accordance with SFAS No. 133 and EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. Accordingly, the Company bifurcated the fair value of the conversion features of the convertible notes which was determined to be $10.1 million on July 28, 2008, and was recorded as a derivative liability carried at fair value, with changes in fair value being recorded in earnings. At December 31, 2008, the fair value of the derivative liability was approximately $2.7 million, and the $7.4 million reduction in fair value was recorded as a credit to interest expense. As a result of the bifurcation, the carrying value of the convertible notes was $29.9 million which is being accreted to interest expense using the effective interest method to the stated value of the convertible notes of $40 million over the three-year term of the Notes. For 2008, such accretion amounted to $1.2 million and is recorded as interest expense.

In November 2007, the Company entered into a $90 million revolving line of credit secured by approximately 1,437 acres of the Company’s West Maui land. At the Company’s option, interest on advances will be based on the Administrative Agent’s prime rate or a one- to six-month LIBOR rate. Interest is due monthly and all outstanding principal and accrued interest was scheduled to be due on November 13, 2009. There are no commitment fees on the unused portion of the revolving facility. The line of credit agreement contains various representations, warranties, affirmative, negative and financial covenants and events of default customary for financings of this type. The initial advance at closing in November 

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2007, of approximately $16.1 million was used to repay all principal and interest due on the Company’s $30 million revolving credit agreement and such agreement was cancelled. At December 31, 2008, the Company had irrevocable letters of credit totaling $509,000 that were secured by this loan facility. The line of credit agreement includes certain financial covenants, including the maintenance of a minimum net worth, liquidity and interest coverage ratio, and maximum funded debt. At December 31, 2008, the Company would have been out of compliance with certain of these covenants and, in March 2009, the Company amended the line of credit agreement in order to be in compliance with certain financial covenants effective December 31, 2008. The agreement was further amended to eliminate all financial covenants except for the maintenance of minimum liquidity of $10 million and to limit additional indebtedness, to eliminate the limitations on the lenders’ recourse to recovery against the Company, to increase the interest rate on loan draws by 275 basis points as of April 1, 2009, and to require a re-appraisal of the collateral and a permanent pay down if the collateral value is less than 50% of the loan commitment. The properties are currently being re-appraised. In March 2009, the Company sold the Plantation Golf Course (PGC) for $50 million (see Note 21), which was included in the collateral securing the line of credit agreement. In consideration for release of the PGC from the collateral, $45 million of the sales proceeds were applied to partially repay outstanding borrowings and the credit limit under this facility was reduced to $45 million. In conjunction with the PGC sale, the Company amended the line of credit agreement to extend the maturity date to March 13, 2010 and, accordingly, classified the remaining outstanding principle of $32.8 million as a noncurrent liability at December 31, 2008 in the consolidated balance sheet. The Company is currently in discussions with the lender to restructure the line of credit agreement to extend the maturity date beyond 2010 and to increase the available credit under this agreement.

The Company has a $25.0 million revolving loan that is secured by certain parcels of the Company’s real property on Maui that matures in March 2010 (as amended). Commitment fees of .25% to .50% are payable on the unused portion of the revolving facility. At the Company’s option, interest rates on advances are adjustable to the prime rate or based on one-month to one-year LIBOR rates. The agreement included financial covenants for the maintenance of a minimum net worth and interest coverage ratio, and maximum permitted indebtedness and funded debt to capitalization ratio. At December 31, 2008, the Company would have been out of compliance with certain covenants and, in March 2009, the Company amended the agreement in order to be in compliance with all covenants effective December 31, 2008. These covenants were suspended through 2009 and replaced with covenants for the maintenance of minimum liquidity of $10 million and limitations on additional indebtedness. The line of credit agreement was also amended to eliminate the automatic extension of the draw period and maturity that was to occur on June 1, 2011, to change the maturity to March 2010, increase the interest rate on loan draws by 60 to 110 basis points, and to require a re-appraisal of the collateral and a permanent pay down or encumbrance of additional assets if the collateral value is less than 50% of the loan commitment.

A $9.7 million term loan and $6.5 million of equipment loans were repaid in 2008 with proceeds from the convertible debt and the revolving loans.

Maturities of long-term debt during the next five years, from 2009 through 2013, are as follows: $45,000,000 in 2009, $57,800,000 in 2010 and $31,159,000 in 2013.

6. FAIR VALUE

The Company adopted SFAS No. 157, Fair Value Measurements, on January 1, 2008 for its financial assets and liabilities and there was no material impact to the consolidated financial statements. SFAS No. 157 applies to all assets and liabilities that are being measured and reported on a fair value basis. SFAS No. 157 requires new disclosure that establishes a framework for measuring fair value in GAAP, and expands disclosure about fair value measurements. This statement is intended to enable the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The statement requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

In July 2008, the Company issued $40 million in senior secured notes that are convertible in to the Company’s common stock (see Note 5). The conversion features related to the notes that gave rise to a derivative liability is recorded at fair value as of December 31, 2008.

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In January 2008, the Company entered into interest rate swap agreements to reduce future cash flow variability for approximately two years on $55 million of variable rate debt. The effect of the agreements is to convert variable-rate interest, which was previously tied to 1-, 2-, 3- and 6-month LIBOR terms, to fixed-rate interest of approximately 4.4% based on a 2-year fixed LIBOR rate. The transactions were not designated as hedges under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and accordingly, the gains and losses resulting from the change in fair value from these interest rate swaps are recognized currently in interest expense.

Fair value measurements at December 31, 2008 using significant other inputs (Level 2) were as follows and are recognized as current liabilities on the Company’s consolidated balance sheet:

SFAS No. 157 is effective for the Company’s nonfinancial assets and liabilities on January 1, 2009; it is not expected to have a significant impact on the consolidated financial statements.

7. PINEAPPLE OPERATIONS RESTRUCTURING

In April 2007, the Company’s Board of Directors approved a comprehensive plan that would continue to shift the pineapple operations’ focus to fresh fruit sales. As part of this plan, the Company ceased substantially all canning and processing of solid-pack pineapple products effective as of June 30, 2007. The Company continues to process pineapple juice and has extended its fresh fruit line to include products for institutional accounts.

As a result of this restructuring, the Company eliminated 133 positions in its pineapple operations, including all but one of its California sales staff. Agreements were concluded to terminate a long-term purchase commitment for Champaka pineapple (a variety used principally for canning or juice) and to cancel the Company’s seven-year lease of its California sales office. Equipment, material and supplies related to the canning operations were sold to a third party auctioneer or written off. The net charges recorded in 2007 related to the restructuring of canning operations were as follows:

At December 31, 2008, $900,000 related to the purchase supply contract remains unpaid.

8. REAL ESTATE SALES

In 2008, the Company sold approximately 111 acres of non-core Upcountry Maui property in three land sales transactions and recognized revenues of $4.4 million and pre-tax gains of $4.1 million.

In 2007, the Company sold approximately 683 acres of non-core Upcountry Maui property in five land sales transactions and recognized revenues of $19.9 million and a pre-tax gain of approximately $19.5 million. The Company also sold the approximately 49 acres of land underlying the Ritz-Carlton, Kapalua hotel and recorded a gain of $24.8 million (see Notes 4 and 12). In 2007, the Company recognized revenues of $14.7 million for the sale of lots at Honolua Ridge Phase II.

In 2006, the Company sold approximately 2,200 acres of non-core Upcountry Maui land in three land sales transactions, and recognized pre-tax gains of $31.6 million. In 2006, the Company recognized revenues of $26.2 million on a percentage-of-completion basis from lot sales at Honolua Ridge Phase II.

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9. LEASING ARRANGEMENTS

LESSEE

The Company has capital leases, on equipment used in its Resort and Agriculture operations, which expire at various dates through 2014. At December 31, 2008 and 2007, property included capital leases of $3,384,000 and $2,308,000 (before accumulated amortization of $1,665,000 and $1,335,000, respectively). Future minimum rental payments under capital leases aggregate $3,465,000 (including $433,000 representing interest) and are payable for the next five years (2009 to 2013) as follows: $1,290,000, $944,000, $572,000, $319,000 and $259,000 respectively, and $81,000 thereafter.

The Company has various operating leases, primarily for land used in Agriculture operations, which expire at various dates through 2018. Total rental expense under operating leases was $1,342,000 in 2008, $1,288,000 in 2007 and $878,000 in 2006. Future minimum rental payments under operating leases aggregate to $2,536,000 and are payable during the next five years (2009 to 2013) as follows: $948,000, $662,000, $499,000, $308,000 and $82,000, respectively, and $37,000 thereafter.

LESSOR

The Company leases space in buildings, primarily to retail tenants. These operating leases generally provide for minimum rents and, in most cases, percentage rentals based on tenant revenues. In addition, the leases generally provide for reimbursement of common area maintenance and other expenses. Total rental income under these operating leases was as follows:

Property at December 31, 2008 and 2007 includes leased property of $18,679,000 and $13,699,000, respectively (before accumulated depreciation of $4,874,000 and $4,322,000, respectively). As discussed in Note 4, the Company was the ground lessor of the land underlying the Ritz-Carlton, Kapalua hotel until the sale of the land in March 2007.

Future minimum rental income aggregates $5,103,000 and is receivable during the next five years (2009 to 2013) as follows: $961,000, $882,000, $613,000, $473,000 and $473,000, respectively, and $1,701,000 thereafter.

10. EMPLOYEE BENEFIT PLANS

The Company has defined benefit pension plans covering substantially all full-time, part-time and intermittent employees. Pension benefits are based primarily on years of service and compensation levels. The Company has defined benefit postretirement health and life insurance plans that cover primarily non-bargaining salaried employees and certain bargaining unit employees. Postretirement health and life insurance benefits are principally based on the employee’s job classification at the time of retirement and on years of service.

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The measurement date for the Company’s benefit plan disclosures is December 31st of each year. The changes in benefit obligations and plan assets for 2008 and 2007, and the funded status of the plans, and assumptions used to determine benefit information at December 31, 2008 and 2007 were as follows:

Curtailments in 2008 relate primarily to the termination of approximately 11% of the non-bargaining unit pension and postretirement plan participants. Special termination benefits and curtailments in 2007 primarily relate to the termination of Agriculture segment employees because of changes in the business.

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefits in excess of plan assets were $59,737,000, $56,243,000 and $31,723,000, respectively as of December 31, 2008 and $57,195,000, $53,042,000 and $46,745,000, respectively as of December 31, 2007.

The accumulated postretirement benefit obligation for health care as of December 31, 2008 was determined using a health care cost trend rate of 8% and decreasing by .5% each year through 2013, and 5% thereafter. The effect of a 1% annual increase in these assumed cost trend rates would increase the accrued postretirement benefit obligation by approximately $1,247,000 as of December 31, 2008, and the aggregate of the service and interest cost for 2008 by approximately $140,000. A 1% annual decrease would reduce the accrued postretirement benefit obligation by approximately $1,028,000 as of December 31, 2008, and the aggregate of the service and interest cost for 2008 by approximately $113,000.

The amounts recognized on the Company’s consolidated balance sheets as of December 31, 2008 and 2007 were as follows:

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Amounts recognized in accumulated other comprehensive (income) loss (before income tax effect of $0 and $701,000) at December 31, 2008 and 2007 are as follows:

Amounts in accumulated other comprehensive (income) loss at December 31, 2008 that are expected to be recognized as components of net periodic benefit cost in 2009 are as follows: