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)