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, 1998 [ ] 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 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 3, 1998 Common Stock, no par value 7,188,500 shares
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheets, June 30, 1998 (Unaudited) and December 31, 1997 3 Condensed Statements of Operations and Retained Earnings, Three Months Ended June 30, 1998 and 1997 (Unaudited) 4 Condensed Statements of Operations and Retained Earnings, Six Months Ended June 30, 1998 and 1997 (Unaudited) 5 Condensed Statements of Cash Flows, Six Months Ended June 30, 1998 and 1997 (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 4. Submission of Matters to a Vote of Security-Holders 12 Item 6. Exhibits and Reports on Form 8-K 12
PART I FINANCIAL INFORMATION Item 1. Financial Statements MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES CONDENSED BALANCE SHEETS Unaudited 6/30/98 12/31/97 (Dollars in Thousands) ASSETS Current Assets Cash $ 753 $ 1,611 Accounts and notes receivable 10,997 12,748 Inventories 23,965 18,713 Other current assets 3,554 4,076 Total current assets 39,269 37,148 Property 203,613 200,504 Accumulated depreciation (116,658) (112,457) Property - net 86,955 88,047 Other Assets 9,482 9,519 Total 135,706 134,714 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion of long-term debt and capital lease obligations 2,612 3,052 Trade accounts payable 4,228 6,166 Other current liabilities 7,361 7,647 Total current liabilities 14,201 16,865 Long-Term Liabilities Long-term debt and capital lease obligations 32,836 29,435 Accrued retirement benefits 21,699 21,571 Equity in losses of joint venture 7,344 6,655 Other long-term liabilities 913 1,292 Total long-term liabilities 62,792 58,953 Stockholders' Equity Common stock, no par value - 7,200,000 shares authorized, 7,188,500 issued and outstanding 12,318 12,318 Retained earnings 46,395 46,578 Stockholders' equity 58,713 58,896 Total $135,706 $ 134,714 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 6/30/98 6/30/97 (Dollars in Thousands Except Share Amounts) Revenues Net sales $22,263 $22,417 Operating income 7,221 6,396 Other income 652 4,297 Total Revenues 30,136 33,110 Costs and Expenses Cost of goods sold 15,122 15,882 Operating expenses 6,500 6,704 Shipping and marketing 3,689 3,436 General and administrative 3,563 3,587 Equity in losses of joint ventures 325 270 Interest 748 760 Total Costs and Expenses 29,947 30,639 Income Before Income Taxes 189 2,471 Income Tax Expense 66 914 Net Income 123 1,557 Retained Earnings, Beginning of Period 46,272 45,819 Retained Earnings, End of Period 46,395 47,376 Per Common Share Net income $ .02 $ .22 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 6/30/98 6/30/97 (Dollars in Thousands Except Share Amounts) Revenues Net sales $42,421 $43,469 Operating income 15,408 13,849 Other income 776 4,680 Total Revenues 58,605 61,998 Costs and Expenses Cost of goods sold 29,402 30,413 Operating expenses 13,002 12,730 Shipping and marketing 7,168 6,811 General and administrative 7,168 7,464 Equity in losses of joint ventures 647 513 Interest 1,508 1,431 Total Costs and Expenses 58,895 59,362 Income (Loss) Before Income Taxes (290) 2,636 Income Tax Expense (Credit) (107) 975 Net Income (Loss) (183) 1,661 Retained Earnings, Beginning of Period 46,578 45,715 Retained Earnings, End of Period 46,395 47,376 Per Common Share Net income (loss) $ (.03) $ .23 See accompanying Notes to Condensed Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended 6/30/98 6/30/97 (Dollars in Thousands) Net Cash Used in Operating Activities $ (806) $ (202) Investing Activities Purchases of property (3,060) (5,760) Proceeds from disposal of property 601 3,380 Contributions to joint ventures (100) (830) Other (454) (441) Net Cash Used in Investing Activities (3,013) (3,651) Financing Activities Payments of long-term debt and capital lease obligations (4,839) (5,032) Proceeds from long-term debt 7,800 10,355 Net Cash Provided by Financing Activities 2,961 5,323 Net Increase (Decrease) in Cash (858) 1,470 Cash at Beginning of Period 1,611 453 Cash at End of Period $ 753 $ 1,923 Supplemental Disclosure and Cash Flow Information - Interest (net of amounts capitalized) of $1,581,000 and $1,669,000 was paid during the six months ended June 30, 1998 and 1997, respectively. Income taxes of $519,000 were paid during the six months ended June 30, 1998. 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 June 30, 1998 and 1997. 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 1998 and 1997 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 $447,000 and $567,000 at June 30, 1998 and December 31, 1997, respectively. 5. Inventories as of June 30, 1998 and December 31, 1997 were as follows (in thousands): 6/30/98 12/31/97 Pineapple products Finished goods $10,992 $ 8,977 Work in progress 2,419 823 Raw materials 2,561 1,325 Real estate held for sale 1,439 1,349 Merchandise, materials and supplies 6,554 6,239 Total Inventories $23,965 $18,713 6. Business Segment Information (in thousands): Three Months Ended June 30 Six Months Ended June 30 1998 1997 1998 1997 Revenues Pineapple $ 19,710 $ 20,003 $ 37,026 $ 38,419 Resort 9,329 12,001 19,436 21,390 Commercial & Property 1,132 1,100 2,127 2,178 Corporate (35) 6 16 11 Total revenues 30,136 33,110 58,605 61,998 Operating profit (loss) Pineapple 920 667 593 1,007 Resort 1,068 3,691 2,794 5,394 Commercial & Property (20) (119) (112) (209) Total operating profit 1,968 4,239 3,275 6,192 Corporate expenses - net (1,031) (1,008) (2,057) (2,125) Interest expense (748) (760) (1,508) (1,431) Income tax (expense) credit (66) (914) 107 (975) Net income (loss) $ 123 $ 1,557 $ (183) $ 1,661 7. Average common shares outstanding for the interim periods ended June 30, 1998 and 1997 were 7,188,500. On May 1, 1998, the Company effected a four-for-one split of its common stock. All references to the number of shares of common stock and per share amounts have been restated to reflect the split. 8. Certain prior period amounts have been restated to conform to the current presentation. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Consolidated Consolidated net income for the second quarter of 1998 was $123,000 compared to $1.6 million for the second quarter of 1997. Revenues for the second quarter of 1998 were 9% lower than the second quarter of 1997. For the first six months of 1998 the Company had a net loss of $183,000 compared to net income of $1.7 million for the first half of 1997. Revenues for the same period declined by 5%. Lower results for the second quarter and first half of 1998 primarily reflect the sale, in the second quarter of 1997, of a 50 percent interest in the 12-acre parcel adjacent to the Kapalua Bay Hotel. This transaction added $4.2 million to revenues and $2.6 million to net income in 1997. Interest expense was 2% lower for the second quarter and 5% higher for the first six months of 1998 compared to the same periods in 1997 primarily as a result of differences in the average borrowing levels. Average interest rates were approximately the same in 1998 and 1997. General and administrative expenses were lower by 1% for the second quarter and 4% for the first half of 1998 compared to the same periods in 1997, principally due to lower costs in the land management area and staffing changes made by the Pineapple division. Pineapple Revenues from Pineapple operations were lower by 1% and 4%, respectively, for the second quarter and first half of 1998, respectively, as compared to the same periods in 1997 largely due to lower canned pineapple case sales volume. Revenues were reduced by $600,000 and $2.5 million, respectively, for the second quarter and first six months of 1998 compared to 1997, as a result of lower sales volume. The decline in revenues due to lower case sales volume was partially offset by higher prices and an increase in fresh fruit sales. Pineapple operations produced an operating profit of $920,000 for the second quarter of 1998 compared to $667,000 for the second quarter of 1997. For the first six months of 1998 Pineapple operations had an operating profit of $593,000 compared to $1 million for the same period in 1997. Increased operating profit for the second quarter of 1998 reflects lower per unit cost of sales due to a change in the mix of products sold (fruit, juice, concentrate) and improved recoveries (cases per ton), which more than offset lower sales volume and higher shipping and selling costs. Resort Revenues from the Company's Kapalua Resort segment were $9.3 million and $12 million for the second quarter of 1998 and 1997, respectively. For the first six months of 1998 and 1997, revenues were $19.4 million and $21.4 million, respectively. Operating profits from the Resort were $1.1 million and $3.7 million for the second quarter of 1998 and 1997, respectively. For the first half of 1998 and 1997 operating profits were $2.8 million and $5.4 million, respectively. Resort revenues and operating profit for the second quarter and first six months of 1997 includes $4.2 million from the sale of the parcel next to the Kapalua Bay Hotel. Excluding this transaction, revenues and operating profits from the Resort improved substantially in the second quarter and first half of 1998 as compared to the same periods in 1997. Revenues from golf operations increased in 1998 due to more rounds played and higher average green fees. Lease revenues, in particular from the Kapalua Bay Hotel, increased in 1998, primarily due to planned ground lease reductions in 1997 to accommodate the closure of the hotel for restoration work. Income from real estate commissions increased in 1998 as a result of resale activity. The Kapalua Villas contributed to the improved results with increased occupancies and room rates. Merchandise sales were marginally better in the first half of 1998 compared to the first half of 1997 and increased by approximately 8% for the second quarter of 1998 as compared to the second quarter of 1997. Commercial & Property Revenues from the Commercial & Property segment increased by 3% for the second quarter of 1998 and operating losses decreased by approximately $100,000 as compared to the second quarter of 1997. For the first six months of 1998, revenues declined by 2% and the operating loss was $112,000 compared to $209,000 for the first half of 1997. The improved results were primarily due to the sale of two land parcels in the second quarter of 1998 that resulted in operating profit contributions of approximately $200,000. The Company's equity in the losses of Kaahumanu Center Associates increased in the second quarter and first half of 1998 largely because of higher bad debt expense. LIQUIDITY, CAPITAL RESOURCES AND OTHER At June 30, 1998, total debt including capital leases was $35.4 million, approximately $3 million higher than December 31, 1997. Borrowings are expected to continue to increase through September corresponding to the Company's peak pineapple canning months. Unused short- and long-term lines of credit available to the Company at the end of the second quarter of 1998 totaled $17.6 million. Expenditures for fixed assets, investments and Resort deferred development costs are estimated to be approximately $11.7 million in 1998. Included in this amount is approximately $5.3 million for replacement of existing equipment for Pineapple and Resort operations. The Company expects to finance most of these expenditures with cash flows from operations. The Company's target for installing and testing Year 2000 upgrades for its core data processing applications is year-end 1998. Presently, it appears that the receipt from vendors and installation of two software upgrade packages may be delayed to the first quarter 1999. The Company has completed a checklist of its non-information technology systems and has identified the systems that may require upgrades in order to be Year 2000 compliant. In the second quarter of 1998 the Company initiated letters to major vendors, suppliers and trading partners to assess the risk of interruption of the Company's businesses by outsiders. Currently, no material expenditures for Year 2000 compliance have been identified. For background information see Liquidity, Capital Resources and Other under Management's Discussion and Analysis of Financial Condition and Results of Operations in the Maui Land & Pineapple Company, Inc. 1997 Annual Report. The Company is in the process of implementing a plan to reduce over five years the production of canned pineapple by as much as 13%. Approximately 1,400 acres of land, most of which is currently leased from third parties, will as a result be removed from pineapple cultivation over the next five years. Staff size will also be reduced by job consolidations and an early retirement incentive package. On May 1, 1998, the Company's common stock began trading on the American Stock Exchange under the ticker symbol "MLP." PART II OTHER INFORMATION Item 1. Legal Proceedings Cannery Waste Water Citations The Department of Health of the State of Hawaii ("DOH") had cited the Company for violation of permits that regulate the disposal of processing wastewater and cooling water used by the Kahului cannery. In June of 1997, at a total cost of $3.2 million the Company completed a system for disposing of the processing water by transmission to sugar cane fields for irrigation. In June of 1998 the Company and the DOH entered into a Consent Order whereby the Company agreed to pay a cash penalty of $40,000 and to perform Supplemental Environmental Projects ("SEPS") totaling $346,400. The SEPS which the Company and the DOH have agreed to are designed to protect the environment. Item 4. Submission of Matters to a Vote of Security-Holders On May 1, 1998, 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 6, 1998, the record date for the annual meeting, was 1,797,125. The results of the matters voted upon were as follows: Election of Class Two directors for a three-year term: Shares Voted For Shares Withheld Peter D. Baldwin 1,519,855 12,615 Samuel K. Himmelrich Sr. 1,517,832 14,638 Election of the firm Deloitte & Touche LLP as auditor of the Company for fiscal year 1998: Shares voted for: 1,530,872 Shares voted against: 588 Shares abstained: 1,010 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (27) Financial Data Schedule As of June 30, 1998 and for the six months then ended.* *Filed Herewith (b) Reports on Form 8-K A report of Form 8-K, dated April 2, 1998 and filed on April 3, 1998, included Item 5, Other Information 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 4, 1998 /S/ PAUL J. MEYER Date Paul J. Meyer Executive Vice President/Finance (Principal Financial Officer)