SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 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 96732 (Address of principal executive offices) (808) 877-3351 (Registrant's telephone number, including area code) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 1, 1996 Common Stock, no par value 1,797,125 shares
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheets - September 30, 1996 (Unaudited) & December 31, 1995 3 Condensed Statements of Operations and Retained Earnings, Three Months Ended September 30, 1996 & 1995 (Unaudited) 4 Condensed Statements of Operations and Retained Earnings, Nine Months Ended September 30, 1996 & 1995 (Unaudited) 5 Condensed Statements of Cash Flows Nine Months Ended September 30, 1996 & 1995 (Unaudited) 6 Notes to Condensed Financial Statements (Unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings 12 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 14
PART I. - FINANCIAL INFORMATION Item 1. Financial Statements MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES CONDENSED BALANCE SHEETS Unaudited 9/30/96 12/31/95 (Dollars in Thousands) ASSETS Current Assets Cash $ 465 $ 166 Accounts and notes receivable 17,581 13,142 Inventories 24,547 19,675 Other current assets 3,989 3,571 -------- -------- Total current assets 46,582 36,554 Property 189,469 185,175 Accumulated depreciation (102,916) (96,618) -------- -------- Property - net 86,553 88,557 Other Assets 10,365 11,974 -------- -------- TOTAL 143,500 137,085 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion of long-term debt 20,000 -- Trade accounts payable 5,731 5,761 Other current liabilities 7,645 7,365 -------- -------- Total current liabilities 33,376 13,126 Long-Term Liabilities Long-term debt and capital lease obligations 21,653 36,227 Accrued retirement benefits 21,721 22,594 Other long-term liabilities 7,218 6,268 -------- -------- Total long-term liabilities 50,592 65,089 Stockholders' Equity Common stock, no par value - 1,800,000 shares authorized, 1,797,125 issued and outstanding 12,318 12,318 Retained earnings 47,214 46,552 -------- -------- Stockholders' Equity 59,532 58,870 -------- -------- $143,500 $137,085 TOTAL ======== ======== 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 9/30/96 9/30/95* (Dollars in Thousands Except Share Amounts) REVENUES Net sales $30,435 $27,394 Operating income 6,229 6,031 Other income 340 660 ------- ------- Total Revenues 37,004 34,085 ------- ------- COSTS AND EXPENSES Cost of goods sold 20,977 21,691 Operating expenses 6,258 5,930 Shipping and marketing 4,341 3,634 General and administrative 3,515 3,484 Equity in losses (earnings) of joint ventures 88 (8,576) Interest 937 1,149 ------- ------- Total Costs and Expenses 36,116 27,312 ------- ------- INCOME BEFORE INCOME TAXES 888 6,773 INCOME TAXES 370 2,454 ------- ------- NET INCOME 518 4,319 RETAINED EARNINGS, BEGINNING OF PERIOD 46,696 44,046 ------- ------- RETAINED EARNINGS, END OF PERIOD 47,214 48,365 ======= ======= PER COMMON SHARE Net Income $ .29 $ 2.40 ======= ======= *Certain amounts have been restated to conform with the 1996 presentation. See accompanying Notes to Condensed Financial Statements. MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (UNAUDITED) Nine Months Ended 9/30/96 9/30/95* (Dollars in Thousands Except Share Amounts) REVENUES Net sales $74,750 $64,797 Operating income 19,161 21,563 Other income 1,224 3,882 ------- ------- Total Revenues 95,135 90,242 ------- ------- COSTS AND EXPENSES Cost of goods sold 51,076 48,684 Operating expenses 17,566 18,329 Shipping and marketing 11,155 9,609 General and administrative 10,875 11,636 Equity in losses (earnings) of joint ventures 646 (4,390) Interest 2,708 5,952 ------- ------- Total Costs and Expenses 94,026 89,820 ------- ------- INCOME BEFORE INCOME TAXES 1,109 422 INCOME TAXES 447 168 ------- ------- NET INCOME 662 254 RETAINED EARNINGS, BEGINNING OF PERIOD 46,552 48,111 ------- ------- RETAINED EARNINGS, END OF PERIOD 47,214 48,365 ======= ======= PER COMMON SHARE Net Income $ .37 $ .14 ======= ======= *Certain amounts have been reclassified to conform with the 1996 presentation. See accompanying Notes to Condensed Financial Statements. MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended 9/30/96 9/30/95 (Dollars in Thousands) Net Cash From (Used In) Operating Activities $(3,071) $ (4,897) ------- -------- Investing Activities Purchases of property (3,288) (4,906) Proceeds from disposal of property 789 3,056 Reimbursements from Kaahumanu Center Associates -- 11,224 Proceeds from surrender of insurance policies 3,246 -- Other 400 (2,682) ------- -------- Net Cash From (Used In) Investing Activities 1,147 6,692 ------- -------- Financing Activities Payments of long-term debt & capital lease obligations (10,177) (16,298) Proceeds from long-term borrowings 12,400 13,288 Proceeds from short-term debt -- 113 ------- ------- Net Cash From (Used In) Financing Activities 2,223 (2,897) ------- ------- Net Cash Increase (Decrease) 299 (1,102) Cash At Beginning of Period 166 2,269 ------- ------- Cash At End of Period $ 465 $ 1,167 ======= ======== Supplemental Disclosure of Cash Flow and Non-Cash Information - Interest (net of amounts capitalized) of $ 3,276,000 and $6,597,000 was paid during the nine months ended September 30, 1996 and 1995, respectively. Income taxes of $306,000 were paid during the nine months ended September 30, 1996. Income tax refunds (net of payments) of $1,509,000 were received during the nine months ended September 30, 1995. Capital lease obligations of $848,000 were incurred during the nine months ended September 30, 1996. See also Notes 4 and 5 to Condensed Financial Statements. 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 present a fair statement of financial position and results of operations for the interim periods ended September 30, 1996 and 1995. 2. The Company's reports for interim periods utilize numerous estimates of production, general and administrative expenses, and other costs for the full year. Consequently, amounts in the interim reports are not necessarily indicative of results for the full year. 3. The effective tax rate for 1996 and 1995 differs from the statutory federal rate of 34% primarily because of the state tax provision and refundable state tax credits. 4. On October 31, 1995, the partners of Kaptel Associates, which owns The Ritz-Carlton Kapalua Hotel, concluded an agreement to dissolve the partnership. Effective October 31, 1995, the Company and The Ritz-Carlton Hotel Company transferred their respective 25% interests in the partnership to the remaining partner, NI Hawaii Resorts, Inc. Because of the dissolution agreement, the Company's equity in the losses of Kaptel Associates recorded through June 30, 1995 were reversed in the third quarter of 1995. The reversal of these losses are reflected as decreases in costs and expenses of $8.9 million and $5 million, respectively, for the third quarter and the first nine months of 1995. 5. Effective April 30, 1995, the Employees' Retirement System of the State of Hawaii (ERS) converted its $30.6 million loan to an additional 49% ownership in Kaahumanu Center Associates (KCA). After the conversion, the Company no longer consolidated KCA, but accounted for its investment in KCA by the equity method. This resulted in a decrease in the Company's consolidated assets and consolidated debt of approximately $76 million. 6. The entire $20 million outstanding under the $22 million revolving credit agreement has been reflected as a current liability because maturity is currently scheduled for June 30, 1997. The Company anticipates extending and modifying the terms of this facility (see page 12). 7. Inventories as of September 30, 1996 and December 31, 1995 were as follows (in thousands): 9/30/96 12/31/95 (restated) Pineapple products- Finished goods $14,894 $11,631 Work in progress 2,315 1,088 Raw materials 926 1,201 Real estate held for sale 339 340 Merchandise, materials and supplies 6,073 5,415 ------- ------- Total Inventories $24,547 $19,675 ======= ======= 8. Average common shares outstanding for the interim periods ended September 30, 1996 and 1995 were 1,797,125.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Consolidated Consolidated net income for the nine months ended September 30, 1996 was $662,000 compared to $254,000 for the same period in 1995. For the third quarter of 1996, net income was $518,000 compared to $4.3 million for the third quarter of 1995. Net income for the third quarter and first nine months of 1995 includes $5.7 million ($8.9 million before income taxes) and $3.2 million ($5 million before income taxes) of income attributable to the reversal of the Company's equity in losses of Kaptel Associates. These losses were reversed in the third quarter of 1995 because the Company disposed of its partnership interest in Kaptel in October 1995 (see Note 4 to Condensed Financial Statements). Interest expense for the first nine months and for the third quarter of 1996 was lower by 55% and 18%, respectively, than the same periods in 1995. The decreases resulted from lower average borrowings and the change in accounting for Kaahumanu Center Associates effective as of April 30, 1995 (see Note 5 to Condensed Financial Statements). General and administrative expenses decreased by 7% for the first nine months of 1996 compared to the first nine months of 1995. For the third quarter of 1996 these expenses increased by less than 1% compared to last year's third quarter. The decrease for the nine month period was largely a result of the change in accounting for Kaahumanu Center Associates effective as of April 30, 1995 (see Note 5 to Condensed Financial Statements). Pineapple The Company's Pineapple segment contributed revenue of $66.4 million in the first nine months of 1996 compared to $57.4 million in the same period for 1995. Operating profits for the first nine months of 1996 were $4.1 million compared to an operating loss of $1.8 million for the first nine months of 1995. Higher average prices per case of canned pineapple sold accounted for 58% of the $8.9 million net revenue increase and higher case volume of sales accounted for 52% of that increase. Partially offsetting the increase in average prices and volume were decreases totaling 10% attributable to sales mix and fresh fruit sales. Pineapple costs and expenses increased primarily as a result of the higher volume of cases sold. Pineapple operations contributed revenue of $27.7 million in the third quarter of 1996 compared to $25 million in the third quarter of 1995. Operating profit for the third quarter of 1996 was $2.5 million compared to an operating loss of $628,000 for last year's third quarter. Approximately 83% of the $2.7 million net revenue increase was due to improved prices. Other fluctuations in revenues and costs and expenses were similar to the nine month periods. Resort The Company's Resort segment provided revenues of $25.1 million for the first nine months of 1996 compared to $23.8 million for the first nine months of 1995. Resort operating profits for the first nine months of 1996 were $2.7 million compared to $7.4 million for the nine month period in 1995. Operating profits for 1995 includes income of $5 million representing the reversal of the Company's equity in losses of Kaptel Associates (see Note 4 to Condensed Financial Statements). Excluding the effect of this adjustment, Resort operating profits improved by approximately $300,000 for the first nine months of 1996 as compared to the same period in 1995. These improved operating results from the Resort ongoing operations was principally attributable to higher occupancies at the Kapalua resort. Merchandise sales accounted for 38% of the $1.2 million net revenue increase. Approved rate increases for the Company's water and sewer utilities accounted for 45%, the Kapalua villa rentals were responsible for 35% of the increase, and other operations (net) provided 19% of the increase. Reductions in lease revenues primarily because of the revised ground lease on the Ritz-Carlton Kapalua offset these increases by approximately 37%. Marketing expenses increased because of two major advertising initiatives which began in 1996. Other cost and expense increases for the first nine months of 1996 compared to 1995 were largely commensurate with the increase in revenues. For the third quarter of 1996 the Resort segment contributed revenues of $8 million compared to $7.7 million for the third quarter of 1995. Resort operating profits were $546,000 for the third quarter of 1996 compared to $9.2 million for last year's third quarter. Operating profits for the third quarter of 1995 includes $8.9 million representing the reversal of the Company's equity in losses of Kaptel Associates (see Note 4 to Condensed Financial Statements). Excluding this adjustment, resort operating profits for the third quarter of 1995 was $275,000. The principal reasons for increases in revenues and operating profits from the Resort ongoing operations were similar to those for the nine month period.
Commercial Property The Commercial Property segment contributed revenues of $2.8 million and $5.7 million for the first nine months of 1996 and 1995, respectively. For the nine months ended September 30, 1996, this segment produced an operating loss of $434,000 compared to an operating profit of $427,000 for the same period in 1995. Occupancies and tenant sales at the Napili Plaza and Kaahumanu Center improved in the first nine months of 1996 compared to the first nine months of 1995. The lower reported results for the first nine months of 1996 reflect the Company's reduced ownership in Kaahumanu Center Associates (KCA) and the change to the equity method of accounting for this investment. The Company's investment in KCA has been accounted for by the equity method since April 30, 1995 because of the Company's reduced investment. Prior to that, the financial statements of KCA were consolidated with the Company (see Note 5 to Condensed Financial Statements). For the third quarter of 1996 the Commercial Property segment reported revenues of $1 million and an operating loss of $24,000. Results for the comparable period a year ago were revenues of $891,000 and an operating loss of $201,000. These improved results principally reflect increased occupancies and tenant sales at Napili Plaza and Kaahumanu Center. Land Management The Company's Land Management division produced revenues of $956,000 for the first nine months of 1996 compared to $3.2 million for the first nine months of 1995. Operating profits were $708,000 and $3.1 million, respectively, for the same periods. For the third quarter of 1996 Land Management revenue was $268,000 compared to $468,000 for the same period a year ago, and operating profits were $86,000 compared to $449,000 for the third quarter of 1995. The decrease in revenue and operating profit for the third quarter and first nine months of 1996 results from fewer land sales. LIQUIDITY AND CAPITAL RESOURCES The Company's total debt at September 30, 1996, including capital leases was $42.8 million compared to $37.5 million at December 31, 1995. The increase in debt for the first nine months of 1996 was largely a result of seasonal negative cash flows from operating activities. Peak pineapple canning during the summer months, coupled with a lag in receivable collections, principally from the U.S. Department of Agriculture, were the primary reasons for negative cash flows from operating activities during this period. The deficiency in cash flow from operating activities is expected to reverse in the fourth quarter of 1996 and borrowings will be reduced. The Company had approximately $3.5 million in unused revolving credit lines available at September 30, 1996. In November 1996 the Company expects to conclude a $5 million mortgage financing arrangement on the Napili Plaza. Proceeds from this loan will be used to reduce the $20 million balance under the Company's $22 million revolving credit facility. In the fourth quarter of 1996, the Company also expects to extend and modify its $22 million revolving credit facility. It is expected that this financing arrangement, which currently expires on June 30, 1997, will be extended to December 31, 1997 and that the available commitment will be reduced to $15 million. The net effect of these financing arrangements will be to reduce the Company's available credit lines by $2 million. The Company believes that these credit facilities will be sufficient to meet its seasonal cash requirements. Capital expenditures for pineapple operations are expected to be $4.3 million in 1996. Approximately 50% of these expenditures are for equipment replacements. Resort capital expenditures for 1996 are projected to be $1.8 million. Approximately 55% of these expenditures are for replacement of equipment used by the resort recreation and retail operations. The corporate division expects to have capital expenditures in 1996 of approximately $400,000 primarily for replacements and additions to the company's computer system. Capital leases of approximately $1.1 million will be incurred to finance some of the new equipment purchased in 1996. The remainder is expected to be financed from operating cash flows. PART II OTHER INFORMATION Item 1. Legal Proceedings A. Antidumping Petition. In June of 1994, Maui Pineapple Company, Ltd. and the International Longshoremen's and Warehousemen's Union filed an antidumping petition with the U. S. International Trade Commission and the U.S. Department of Commerce. The petition alleged that Thai producers of canned pineapple were violating U.S. and international trade laws by selling their products in the United States at less than fair value, and that such sales were causing injury to the U.S. industry producing canned pineapple. On May 30, 1995, the U.S. Department of Commerce completed it's portion of the investigation, concluding that imports of canned pineapple from Thailand were being sold in the United States at less than fair value. Thai producers investigated included Dole Thailand, Ltd., The Thai Pineapple Public Co., Ltd., Siam Agro Industry Pineapple and Others Co., Ltd., and Malee Sampran Factory Public Co., Ltd. On June 30, 1995, the U.S. International Trade Commission announced its unanimous determination that the domestic industry producing canned pineapple was materially injured by reason of the unfair imports of canned pineapple from Thailand. As a result of the affirmative findings of both the U.S. Department of Commerce and International Trade Commission, antidumping duties were imposed on all imports of canned pineapple fruit from Thailand into the United States, with cash duty deposits ranging from 2 to 51 percent. The Thai respondents have appealed the dumping calculations of the Department of Commerce to the U.S. Court of International Trade. Maui Pineapple has filed a cross appeal concerning one element of the Department's determination. On August 19, 1996, the U.S. Court of International Trade heard arguments from all parties to the appeals. As of this time, no decision has been announced by the court. In the third quarter of 1996, four Thai producers of canned pineapple requested that the Department of Commerce conduct an annual review of their records in order to ascertain whether the current antidumping duties should be adjusted. The reviews are expected to be completed by July 31, 1997. B. Arosi Litigation. On July 10, 1996, Arosi Hawaii, Inc. ("Arosi") filed a complaint against Maui Land & Pineapple Company, Inc. ("MLP"), and two of its officers, Don Young and Paul J. Meyer, entitled Arosi Hawaii, Inc. v. Maui Land & Pineapple Company, Inc., etal., Civil No. 96-087(1) (Circuit Court of the Second Circuit, State of Hawaii). The complaint, which seeks unspecified special, general and punitive damages, alleges that the exercise by MLP of a first refusal right constituted tortious interference with Arosi's attempt to purchase the Kapalua Bay Hotel and Villas from KBH Operations Limited Partnership ("KBH"). The first refusal right was included in a ground lease under which MLP leased the land underlying the hotel to KBH. Arosi entered into a hotel purchase contract, which expressly acknowledged MLP's first refusal right. After MLP exercised that right, Arosi terminated the contract with KBH, and KBH initiated a Chapter XI proceeding. The hotel was subsequently sold to a third party, pursuant to bankruptcy court approval and stipulations among KBH, MLP and other parties. The litigation is still in its preliminary stages. Item 5. Other Information In September 1996 the owners of the Kapalua Bay Hotel sold the hotel to a third party. The Company, as ground lessor, has agreed to the assignment of the lease to the buyer and to the amendment of certain terms of the lease (see Exhibit (10)A, filed herewith). Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (10) Material Contracts A. Third Amendment of Hotel Ground Lease, dated and effective as of September 5, 1996. Attached. (27) Financial Data Schedule As of September 30, 1996 and for the nine months then ended. Attached. (b) Reports on Form 8-K There were no reports on Form 8-K filed for the period covered by this report.
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MAUI LAND & PINEAPPLE COMPANY, INC. November 12, 1996 /S/ PAUL J. MEYER Date Paul J. Meyer Executive Vice President/Finance (Principal Financial Officer)