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 MARCH 31, 1999 [ ] 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 May 3, 1999 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, March 31, 1999 (Unaudited) and December 31, 1998 3 Condensed Statements of Operations and Retained Earnings, Three Months Ended March 31, 1999 and 1998 (Unaudited) 4 Condensed Statements of Cash Flows, Three Months Ended March 31, 1999 and 1998 (Unaudited) 5 Notes to Condensed Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings 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 3/31/99 12/31/98 (Dollars in Thousands) ASSETS Current Assets Cash and cash equivalents $ 3,471 $ 3,447 Accounts and notes receivable 11,894 13,005 Inventories 16,161 15,520 Other current assets 3,411 3,659 Total current assets 34,937 35,631 Property 211,292 209,967 Accumulated depreciation (122,216) (120,046) Property - net 89,076 89,921 Other Assets 11,463 10,695 Total 135,476 136,247 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion of long-term debt and capital lease obligations 3,159 2,753 Trade accounts payable 4,648 6,613 Other current liabilities 7,364 7,280 Total current liabilities 15,171 16,646 Long-Term Liabilities Long-term debt and capital lease obligations 22,940 23,592 Accrued retirement benefits 23,055 22,920 Equity in losses of joint venture 8,169 7,969 Other long-term liabilities 2,924 2,628 Total long-term liabilities 57,088 57,109 Stockholders' Equity Common stock, no par value - 7,200,000 shares authorized, 7,188,500 issued and outstanding 12,318 12,318 Retained earnings 50,899 50,174 Stockholders' equity 63,217 62,492 Total $135,476 $ 136,247 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 3/31/99 3/31/98 (Dollars in Thousands Except Share Amounts) Revenues Net sales $23,284 $20,158 Operating income 10,164 8,187 Other income 199 124 Total Revenues 33,647 28,469 Costs and Expenses Cost of goods sold 14,742 14,280 Operating expenses 6,476 6,502 Shipping and marketing 5,764 3,479 General and administrative 3,447 3,605 Interest 491 760 Equity in losses of joint ventures 149 322 Total Costs and Expenses 31,069 28,948 Income (Loss) Before Income Taxes 2,578 (479) Income Tax Expense (Credit) 954 (173) Net Income (Loss) 1,624 (306) Retained Earnings, Beginning of Period 50,174 46,578 Cash Dividends (899) -- Retained Earnings, End of Period 50,899 46,272 Per Common Share Net income (loss) .23 (.04) Dividends $ .125 $ -- See accompanying Notes to Condensed Financial Statements. MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended 3/31/99 3/31/98 (Dollars in Thousands) Net Cash Provided by Operating Activities $ 4,165 $ 1,109 Investing Activities Purchases of property (2,674) (1,546) Contributions to joint ventures -- (100) Other (322) (328) Net Cash Used in Investing Activities (2,996) (1,974) Financing Activities Payments of long-term debt and capital lease obligations (246) (2,089) Dividend paid (899) -- Proceeds from long-term debt -- 2,300 Net Cash Provided by (Used in) Financing Activities (1,145) 211 Net Increase (Decrease) in Cash 24 (654) Cash and Cash Equivalents at Beginning of Period 3,447 1,611 Cash and Cash Equivalents at End of Period $ 3,471 $ 957 Supplemental Disclosure and Cash Flow Information - Interest (net of amounts capitalized) of $375,000 and $1,319,000 was paid during the three months ended March 31, 1999 and 1998, respectively. Income taxes of $277,000 and $250,000 were paid during the three months ended March 31, 1999 and 1998, 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 present a fair statement of financial position, results of operations and cash flows for the interim periods ended March 31, 1999 and 1998. 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 1999 and 1998 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 $610,000 and $493,000 at March 31, 1999 and December 31, 1998, respectively. 5. Inventories as of March 31, 1999 and December 31, 1998 were as follows (in thousands): 3/31/99 12/31/98 Pineapple products Finished goods $ 5,361 $ 5,979 Work in progress 2,244 839 Raw materials 1,028 1,562 Real estate held for sale 1,146 1,083 Merchandise, materials and supplies 6,382 6,057 Total Inventories $16,161 $15,520 6. Business Segment Information (in thousands): Three Months Ended March 31 1999 1998 Revenues Pineapple $ 19,919 $ 17,316 Resort 12,744 10,107 Commercial & Property 923 995 Other 61 51 Total revenues 33,647 28,469 Operating profit (loss) Pineapple 1,843 (739) Resort 1,658 1,483 Commercial & Property (215) (242) Other (217) (221) Total operating profit 3,069 281 Interest expense (491) (760) Income tax (expense) credit (954) 173 Net income (loss) $ 1,624 $ (306) 7. Average common shares outstanding for the interim periods ended March 31, 1999 and 1998 were 7,188,500. On May 1, 1998, the Company effected a four-for-one split of its common stock. Income (loss) per common share for the period ended March 31, 1998 has been restated to reflect such split. 8. In December of 1998, the presentation of "operating profit (loss)" was modified to include allocated expenses of centralized functions and the part of corporate administration attributable to the business segment. Operating profits for prior periods 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 first quarter of 1999 was $1.6 million compared to a net loss of $306,000 for the first quarter of 1998. Revenues of $33.6 million for the first quarter of 1999 were higher than the first quarter of 1998 by 18%. Improved operating profits from all of the Company's business segments and a 35% decrease in interest expense contributed to the improved net results. The decrease in interest expense was attributable to lower average borrowings and lower average interest rates. Borrowings were lower in the first quarter of 1999 because of the retirement of certain debt in December 1998 and higher cash flows from operating activities during the quarter. General and administrative expenses were lower by 4% for the first quarter of 1999 compared to the first quarter of 1998 primarily because of lower pension and workers compensation costs, and a reduction of personnel, particularly in the Pineapple segment. Pineapple Revenues from Pineapple operations increased by 15% for the first quarter of 1999 compared to the first quarter of 1998. Higher prices and increased sales volume were about equally responsible for the revenue increase. These positive results can largely be attributed to a worldwide pineapple supply shortage, which may continue through the second quarter of 1999, but is not expected to continue for the entire year. Pineapple operations produced an operating profit of $1.8 million for the first quarter of 1999 compared to an operating loss of $739,000 for the first quarter of 1998. Cost of sales per case of canned pineapple sold was lower in 1999 than 1998 because of lower production costs. Resort Revenues from the Company's Kapalua Resort segment were $12.7 million for the first quarter of 1999 compared to $10.1 million for the first quarter of 1998. The operating profit from the Resort was $1.7 million for the first quarter of 1999 compared to $1.5 million for the first quarter of 1998. Approximately two- thirds of the increase in revenues was due to tournament operations fees received as a result of hosting the Mercedes Championships held in January of 1999. Costs and expenses to host the tournament more than offset the tournament operations fees and were charged primarily to marketing expense for the first quarter of 1999. Higher Resort marketing expense is largely the reason for the increase in consolidated Shipping and Marketing expenses. In the first quarter of 1999, room occupancies at Kapalua Resort exceeded the first quarter of 1998 and were reflected in increased revenues and operating profits from the Kapalua Villas rental program, the hotel ground leases and from the Resort's recreation and retail operations, in particular, merchandise sales. Higher average green fees in 1999 were more than offset by a reduction in the number of paid rounds of golf, which was due partly to the weather and to restricted play during the Mercedes Championships. Commercial & Property Revenues from the Commercial & Property segment were $923,000 for the first quarter of 1999 compared to $995,000 for the first quarter of 1998. The segment generated an operating loss of $215,000 for the first quarter of 1999 compared to $242,000 for the first quarter of 1998. Lower revenues were primarily due to rate reductions for the electricity generated by the Company and sold to Kaahumanu Center. The Company's losses from its investment in Kaahumanu Center were $180,000 for the first quarter of 1999 compared to $330,000 for the first quarter of 1998. Lower loss for 1999 was principally attributable to bad debt expenses recorded in the first quarter of 1998. LIQUIDITY, CAPITAL RESOURCES AND OTHER Total debt including capital leases was $26.1 million at March 31, 1999, approximately $200,000 lower than December 31, 1998. Outstanding debt is expected to increase in the second quarter as seasonal cash requirements for the pineapple operations reach a peak during the summer and as construction of The Village Course Clubhouse and Kapalua Golf Academy continues. Unused short- and long-term lines of credit available to the Company at March 31, 1999, including the $15 million development line of credit for construction of the clubhouse and golf academy, totaled $35.4 million. These credit lines and anticipated cash flows from operations are expected to be adequate to cover the Company's cash requirements for 1999. Expenditures for fixed assets and deferred development costs are estimated to be approximately $22 million in 1999. This amount includes approximately $11.5 million for the clubhouse and golf academy. Also included is approximately $6.8 million for replacement of existing equipment for Pineapple and Resort operations. In April of 1999, the maturity of the Company's $15 million bridge loan was extended to June 1, 1999 to allow additional time to complete the documentation required for closing of a senior secured term loan facility, which will refinance the bridge loan. The Company has evaluated its information technology (IT) and non- IT systems with respect to Year 2000 capability and has set target dates for compliance of all systems. Several of the Company's data processing applications use software programs purchased from outside vendors. Except for the Resort merchandise inventory control and golf reservations system, all applications requiring software upgrades from outside vendors are now Year 2000 compliant. The Company received the Resort merchandise inventory control software upgrade at the end of April 1999. Installation and testing is now underway and is scheduled to be completed by July 1, 1999. The golf reservations section of the software upgrade is expected to be received by July 1, 1999 and is targeted to be Year 2000 compliant by September 1, 1999. The upgrade to the operating system used by the merchandise inventory control and golf reservations applications is presently available and will be installed after the software applications are installed, tested and in use. The target date for completion is October 1, 1999. All of the Company's custom data processing applications required modification to be Year 2000 compliant. Among them, the Pineapple sales system and the Pineapple warehouse system are critical to the Company's operations. Modification and testing of both systems were complete by year-end 1998 and the remaining custom data processing applications are scheduled to be compliant by the end of the second quarter of 1999. The Company initiated correspondence with vendors, suppliers and trading partners during 1998 and through the first quarter of 1999 to assess risk of business interruption by noncompliance of third parties. Through late April 1999, the Company received responses to approximately 52% of its inquiries, including all of those whose noncompliance would have a material impact on the Company. The responses indicate that these companies' data processing systems are either Year 2000 compliant or are expected to be compliant by the end of the third quarter of 1999. The most reasonably likely worst case scenario involves the compliance of the Resort merchandise inventory control system. This system accumulates and processes data for approximately 150,000 items sold in ten retail outlets at the Kapalua Resort. Delay in the installation and testing of this software upgrade could affect merchandise purchase order procedures, resulting in decreased control over inventory levels. Reorder lead times range from four to seven months and proper reorder control requires that active purchase orders be recorded in the inventory control system. Because the software upgrade has now been delivered, the Company believes that at worst, tracking and reordering may have to be performed manually for a period while installation and testing is being completed. The volume of inventory reorders for delivery in 2000 is relatively low between June 1 and September 1, and the Company is prepared to perform tracking and reordering manually during this period if necessary. It is anticipated the Company's Information Services personnel will spend approximately 90% of their time on Year 2000 compliance through the second quarter of 1999 and approximately 50% of their time on non-critical Year 2000 programming issues during the second half of 1999 and the first quarter of 2000. It appears that the Company's present Information Services personnel will be able to complete all program modifications, installations and testing, and that no outside resources will be required. The Company has not incurred any material expenditures of Year 2000 compliance to date. Based on current information, no material future expenditures have been identified. The Company does not separately track internal costs incurred for Year 2000 issues. Such costs are principally payroll and related costs for the Company's Information Services personnel. This report contains forward-looking statements, within the meaning of Private Securities Litigation Reform Act of 1995, as to the Company's expectations for positive cash flows from operating activities, the worldwide supply of pineapple and its expectations regarding the Year 2000 issue. Forward-looking statements contained in this report or otherwise made by the Company are subject to certain risks and uncertainties 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 Form 10-K filing with the Securities and Exchange Commission. 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 manages this risk by monitoring interest rates and future cash requirements, and evaluating opportunities to refinance borrowings at various maturities and interest rates. During the first quarter of 1999 there were no substantial changes in the composition of the Company's borrowing commitments or borrowings outstanding. PART II OTHER INFORMATION Item 1. Legal Proceedings A. Antidumping Petition In April of 1998, the United States Court of Appeals for the Federal Circuit heard the appeals of Maui Pineapple Company, Ltd. and the Department of Commerce regarding the antidumping petition and calculation of duties on imports of canned pineapple fruit from Thailand. A final decision is expected sometime in 1999. The third administrative review covering the period from July 1997 to June 1998 commenced in August of 1998. Five Thai companies are being reviewed and a preliminary determination is expected sometime in the second quarter of 1999. B. Chemical Litigation See Item 3.B. of Form 10-K for the year ended December 31, 1998, for background information of this proceeding. The Motion for Summary Judgment filed by the Company's insurers, which was scheduled to be heard on April 23, 1999, has been rescheduled to May 14, 1999. The Company and Maui Pineapple Company, Ltd. have filed answers to the Third-Party Complaint filed by The Dow Chemical Company. Settlement negotiations have been initiated. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (3ii)* Bylaws (Amended as of March 29, 1999). (27)* Financial Data Schedule As of March 31, 1999 and for the three months then ended. *Filed Herewith (b) Reports on Form 8-K The Company filed no reports on Form 8-K 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. May 11, 1999 /S/ PAUL J. MEYER Date Paul J. Meyer Executive Vice President/Finance (Principal Financial Officer)