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, 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 August 6, 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, June 30, 1999 (Unaudited) and December 31, 1998 3 Condensed Statements of Operations and Retained Earnings, Three Months Ended June 30, 1999 and 1998 (Unaudited) 4 Condensed Statements of Operations and Retained Earnings, Six Months Ended June 30, 1999 and 1998 (Unaudited) 5 Condensed Statements of Cash Flows, Six Months Ended June 30, 1999 and 1998 (Unaudited) 6 Notes to Condensed Financial Statements (Unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security-Holders 16 Item 6. Exhibits and Reports on Form 8-K 16
PART I FINANCIAL INFORMATION Item 1. Financial Statements MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES CONDENSED BALANCE SHEETS Unaudited 6/30/99 12/31/98 (Dollars in Thousands) ASSETS Current Assets Cash and cash equivalents $ 2,254 $ 3,447 Accounts and notes receivable 8,723 13,005 Inventories 21,363 15,520 Other current assets 3,518 3,659 Total current assets 35,858 35,631 Property 215,573 209,967 Accumulated depreciation (124,364) (120,046) Property - net 91,209 89,921 Other Assets 11,624 10,695 Total 138,691 136,247 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion of long-term debt and capital lease obligations 3,546 2,753 Trade accounts payable 5,400 6,613 Other current liabilities 8,242 7,280 Total current liabilities 17,188 16,646 Long-Term Liabilities Long-term debt and capital lease obligations 23,050 23,592 Accrued retirement benefits 23,200 22,920 Equity in losses of joint venture 8,476 7,969 Other long-term liabilities 3,179 2,628 Total long-term liabilities 57,905 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 51,280 50,174 Stockholders' equity 63,598 62,492 Total $138,691 $ 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 6/30/99 6/30/98 (Dollars in Thousands Except Share Amounts) Revenues Net sales $22,013 $22,263 Operating income 8,032 7,221 Other income 326 652 Total Revenues 30,371 30,136 Costs and Expenses Cost of goods sold 13,776 15,122 Operating expenses 6,946 6,500 Shipping and marketing 3,603 3,689 General and administrative 4,773 3,563 Interest 401 325 Equity in losses of joint ventures 268 748 Total Costs and Expenses 29,767 29,947 Income Before Income Taxes 604 189 Income Tax Expense 223 66 Net Income 381 123 Retained Earnings, Beginning of Period 50,899 46,272 Retained Earnings, End of Period 51,280 46,395 Per Common Share Net income $ .05 $ .02 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 6/30/99 6/30/98 (Dollars in Thousands Except Share Amounts) Revenues Net sales $45,297 $42,421 Operating income 18,196 15,408 Other income 525 776 Total Revenues 64,018 58,605 Costs and Expenses Cost of goods sold 28,518 29,402 Operating expenses 13,422 13,002 Shipping and marketing 9,367 7,168 General and administrative 8,220 7,168 Interest 892 1,508 Equity in losses of joint ventures 417 647 Total Costs and Expenses 60,836 58,895 Income (Loss) Before Income Taxes 3,182 (290) Income Tax Expense (Credit) 1,177 (107) Net Income (Loss) 2,005 (183) Retained Earnings, Beginning of Period 50,174 46,578 Cash Dividends (899) -- Retained Earnings, End of Period 51,280 46,395 Per Common Share Net income (loss) .28 (.03) Dividends $ .125 $ -- See accompanying Notes to Condensed Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended 6/30/99 6/30/98 (Dollars in Thousands) Net Cash Provided by (Used in) Operating Activities $ 7,852 $ (806) Investing Activities Purchases of property (7,027) (3,060) Proceeds from disposal of property 122 601 Contributions to joint ventures (300) (100) Other (1,462) (454) Net Cash Used in Investing Activities (8,667) (3,013) Financing Activities Payments of long-term debt and capital lease obligations (954) (4,839) Proceeds from long-term debt 932 7,800 Proceeds from short-term debt 273 -- Dividend paid (899) -- Other 270 -- Net Cash Provided by (Used in) Financing Activities (378) 2,961 Net Decrease in Cash (1,193) (858) Cash and Cash Equivalents at Beginning of Period 3,447 1,611 Cash and Cash Equivalents at End of Period $ 2,254 $ 753 Supplemental Disclosure and Cash Flow Information - Interest (net of amounts capitalized) of $844,000 and $1,581,000 was paid during the six months ended June 30, 1999 and 1998, respectively. Income taxes of $1,036,000 and $519,000 were paid during the six months ended June 30, 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 June 30, 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 $688,000 and $493,000 at June 30, 1999 and December 31, 1998, respectively. 5. Inventories as of June 30, 1999 and December 31, 1998 were as follows (in thousands): 6/30/99 12/31/98 Pineapple products Finished goods $ 8,543 $ 5,979 Work in progress 2,657 839 Raw materials 2,669 1,562 Real estate held for sale 1,187 1,083 Merchandise, materials and supplies 6,307 6,057 Total Inventories $21,363 $15,520 6. Business Segment Information (in thousands): Three Months Ended Six Months Ended June 30 June 30 1999 1998 1999 1998 Revenues Pineapple $ 19,249 $ 19,710 $ 39,168 $ 37,026 Resort 10,057 9,329 22,801 19,436 Commercial & Property 1,031 1,132 1,954 2,127 Other 34 (35) 95 16 Total revenues 30,371 30,136 64,018 58,605 Operating profit (loss) Pineapple 1,399 539 3,242 (200) Resort 1,101 843 2,759 2,326 Commercial & Property (166) (158) (381) (400) Other (1,329) (287) (1,546) (508) Total operating profit 1,005 937 4,074 1,218 Interest expense (401) (748) (892) (1,508) Income tax (expense) credit (223) (66) (1,177) 107 Net income $ 381 $ 123 $ 2,005 $ (183) 7. Average common shares outstanding for the interim periods ended June 30, 1999 and 1998 were 7,188,500. 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 second quarter of 1999 was $381,000 compared to $123,000 for the second quarter of 1998. Revenues of $30.4 million for the second quarter of 1999 were approximately 1% higher than the second quarter of 1998. For the first half of 1999, the Company produced net income of $2 million compared to a net loss of $183,000 for the first half of 1998. Revenues for the first half of 1999 were 9% higher than the same period in 1998. Net income for 1999 is lower by $692,000 ($1.1 million general and administrative expense, less income tax credit of $406,000) because of a second quarter write-off of deferred costs for consultants engaged to analyze and develop potential strategic plans for the Company. These costs were charged to expense due to the pending sale of approximately 41% of the Company's outstanding shares that was announced on July 1, 1999. Interest expense was lower by 46% and 41% for the second quarter and first half of 1999, respectively, compared to the same periods in 1998 due to lower average borrowings and to lower average interest rates. Borrowings were lower in 1999 because of the retirement of certain debt in December 1998 and higher cash flows from operating activities during 1999. Pineapple Revenue from Pineapple operations was lower by 2% for the second quarter of 1999, but higher by 6% for the first half of 1999 as compared to the same periods in 1998. Pineapple operations produced an operating profit of $1.4 million for the second quarter of 1999 compared to $539,000 for the second quarter of 1998. For the first six months of 1999 the Pineapple segment reported operating profit of $3.2 million compared to an operating loss of $200,000 for the first six months in 1998. These results primarily reflect higher average prices for canned pineapple in 1999, which more than offset lower case sales volume and higher average cost of sales per case. Higher prices resulted in increased revenue of approximately $1.6 million and $2.9 million, respectively, for the second quarter and first half of 1999. Lower case sales volume resulted in lower revenue of approximately $2.2 million and $1 million, respectively, for the second quarter and first half of 1999. Unseasonably cool weather on Maui has caused some delays in delivery of fruit to the cannery. This resulted in higher production costs and a slightly higher cost of sales per case for the second quarter and first half of 1999. The County of Maui has imposed water use restrictions in Upcountry Maui because of drought conditions. Improvements to our irrigation systems over the past few years have substantially increased our ability to weather a drought. The Company has experienced some delay in its normal planting schedule because of the dry conditions. Resort Revenues from the Company's Kapalua Resort segment were $10.1 million for the second quarter of 1999 compared to $9.3 million for the second quarter of 1998. For the first half of 1999 Resort revenues were $22.8 million compared to $19.4 million for the first half of 1998. The operating profit from the Resort was $1.1 million for the second quarter of 1999 compared to $843,000 for the second quarter of 1998. For the first six months of 1999 Resort operating profit was $2.8 million compared to $2.3 million for the first six months of 1998. Approximately half of the increase in revenues for the first six months of 1999 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 in the first quarter of 1999. Higher Resort marketing expense is largely the reason for the increase in consolidated Shipping and Marketing expenses for the first six months of 1999 compared to the same period in 1998. The increase in revenues and operating profits in the second quarter and first half of 1999 were primarily attributable to increased profits from golf, retail, villa rental operations and the hotel ground leases. Higher average green fees in first half of 1999 more than offset a reduction in the number of paid rounds of golf. For the second quarter of 1999, both average green fees and the number of paid rounds of golf exceeded the second quarter of 1998. The Company is proceeding with development plans for 14 single- family lots on the remaining 34 acres in Plantation Estates Phase II. We have reservation agreements for 12 of the lots. If closing of the reservation agreements and construction of the improvements commence in October as currently planned, the Company will begin recognizing profits from this project in the fourth quarter of 1999, using the percentage of completion method, over the period of construction of the site improvements. Commercial & Property Revenues from the Commercial & Property segment were $1 million for the second quarter of 1999 compared to $1.1 million for the second quarter of 1998. For the first six months of 1999 Commercial & Property revenues were $2 million compared to $2.1 million for the first six months of 1998. Lower revenues in 1999 were primarily due to higher land sales in 1998. The segment generated an operating loss of $166,000 for the second quarter of 1999 compared to $158,000 for the second quarter of 1998. For the first half of 1999 the loss from this segment was $381,000 compared to $400,000 for the first half of 1998. The Company's losses from its investment in Kaahumanu Center were $289,000 for the second quarter of 1999 compared to $321,000 for the second quarter of 1998. For the first half of 1999 the Company's loss from Kaahumanu Center was $469,000 compared to $651,000 for the first half of 1998. The lower loss for 1999 was principally attributable to higher revenues and lower bad debt expense in 1999. LIQUIDITY, CAPITAL RESOURCES AND OTHER Total debt including capital leases was $26.6 million at June 30, 1999, compared to $26.3 million at December 31, 1998. Outstanding debt is expected to increase in the third quarter as seasonal cash requirements for the pineapple operations and construction of The Village Course Clubhouse and Kapalua Golf Academy continues. Unused short- and long-term lines of credit available to the Company at June 30, 1999, including the $15 million development line of credit for construction of the clubhouse and golf academy, totaled $33.6 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 $11.2 million for the clubhouse and golf academy and $6.5 million for replacement of existing equipment for Pineapple and Resort operations. Effective June 1, 1999, the Company's $15 million bridge loan agreement was amended and restated in its entirety and converted to a term loan secured by certain parcels of the Company's real property on Maui. Principal payments are due from September 2004 through June 2009. Interest rates on the loan are adjustable to 2.15% to 2.55% above six-month, one year and three year rates made available by the Federal Farm Credit Bank. The agreement includes certain financial covenants including the maintenance of a minimum tangible net worth and debt coverage ratio, maximum funded debt to capitalization ratio, and limits on capital expenditures, investments and the payment of dividends. Kapalua Coconut Grove LLC is in the process of obtaining financing for the construction of 36 luxury beachfront condominiums on the parcel adjacent to the Kapalua Bay Hotel. The Company, as a 50% member of the limited liability company, may be required under certain circumstances to guarantee the construction loan. Presales of the project are scheduled for August 1999 and mass grading and site work is scheduled to begin in October. 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. In May of 1999 the manufacturer of the Company's power generating system informed the Company that the monitoring and control portion of the system is not Year 2000 compliant and that they would be unable to supply an upgrade or replacement parts for the non-compliant system. The Company has found alternative sources for monitoring and control systems that are Year 2000 compliant and has awarded the contract for the purchase and installation of the equipment. It is estimated that the power generating system will be compliant by October 15, 1999. Several of the Company's data processing applications use software programs purchased from outside vendors. All applications requiring software upgrades from outside vendors are now Year 2000 compliant. The upgrade to the operating system used by the Resort merchandise inventory control and golf reservations applications has been received and will be installed and tested in September. 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 completed by year-end 1998. The remaining custom data processing applications are now compliant and testing will continue through the end of the third 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. The Company received responses from all of those businesses 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 regarding Year 2000 is the non-compliance of the power generating system. These generators are the primary source of electricity for Kaahumanu Shopping Center, the Company's pineapple cannery and the administrative offices in Kahului. The Company is prepared to monitor and control the generators manually should there be delays in upgrading the system. Alternatively, the Company's electricity requirements can be met by the electric public utility company on Maui, but control and reliability could be sacrificed. It is anticipated the Company's Information Services personnel will spend approximately 50% of their time on continued testing and monitoring and 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, installation and testing, and that no outside resources will be required. 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. The Company has not incurred any material external expenditures for Year 2000 compliance to date. The purchase, installation and testing of the monitoring and control system for the power generation plant is expected to cost approximately $145,000. Should the alternative of purchasing electricity from the public utility become necessary, the incremental cost to the Company is estimated to be approximately $1,000 per day. Based on current information, no other material future expenditures have been identified. 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 development of Plantation Estates Phase II and Kapalua Coconut Grove, its expectations regarding the Year 2000 issue and other matters. 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 second quarter of 1999, the Company's conversion of its $15 million bridge loan into a term loan did not have a material impact on the Company's market risk exposure due to changes in interest rates.
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 was reached on July 28, 1999. In its decision by judges Archer and Rader, the United States Court of Appeals for the Federal Circuit said, "We conclude in this case that the Commerce's interpretation was reasonable, supported by substantial evidence, and thus entitled to deference. For the reasons stated, the decision of the Court of International Trade is REVERSED." The decision, in effect, affirms the duties on imports of canned pineapple fruit from Thailand established as a result of the Company's antidumping petition. Preliminary results of the third administrative review covering the period from July 1997 to June 1998 were published in June 1999, and did not result in any material changes to the duties being assessed. B. Chemical Litigation See item 3.B of Form 10-K for the year ended December 31, 1998, for background information concerning these proceedings. In Board of Water Supply of the County of Maui vs. Shell Oil Company, et al. (the "DBCP Litigation"), global settlement negotiations involving all of the Defendants, including the Company, with the assistance of a mediator are progressing. During the pendency of such negotiations the parties have stayed all discovery and trial preparation. In the DBCP Litigation, the County of Maui seeks to hold Dow Chemical Company, Occidental Chemical Corporation, Occidental Petroleum Corporation, Shell Oil Company, AMVAC Chemical Corporation, American Vanguard Corporation, Brewer Environmental Industries LLC, Maui Pineapple Company, Ltd. and Maui Land & Pineapple Company, Inc. jointly and severally liable for DBCP remediation of certain water wells. On August 5, 1999, Maui Land & Pineapple Company, Inc. and Maui Pineapple Company, Ltd., entered into a settlement agreement with Occidental Chemical Company and its affiliates in Maui Land & Pineapple Company, Inc. vs. Occidental Chemical Corporation regarding the claim made by Occidental for indemnification under that March 14, 1978 Agreement between the parties. The Company has agreed to pay to Occidental $100,000 for a release of liability for past, present and future attorneys' fees and costs in the DBCP Litigation and as elected by Occidental, either (a) (i) 50% of Occidental's share (up to a maximum of $300,000, subject to potential increase) of the negotiated cost of remediation of one existing well and the temporary drought treatment of two wells which are the subject of the DBCP Litigation and (ii) 50% of Occidental's share of future capital, operation and maintenance costs associated with the remediation of future DBCP affected wells on Maui as such costs may become due and payable to the Board of Water Supply (the "Board") pursuant to the terms of a settlement agreement with Occidental or (b) 50% of any settlement paid by Occidental to the Board relating to the DBCP Litigation if Occidental settles separately, or (c) in the event a settlement is not reached in the DBCP Litigation, 50% of Occidental's liability if the matter proceeds to trial and results in a judgment against Occidental. In addition, the Company has agreed to pay 50% of Occidental's share of any liability in any future action brought against it by the Board or any other person alleging property damage allegedly based on contamination of one or more water wells on Maui by DBCP, whether such liability is determined by settlement or by verdict, and pay 50% of Occidental's attorneys' fees and costs and expenses incurred in the defense of such action. The Company is a party to litigation with the Hawaiian Insurance & Guaranty Company (now known as HUI/Unico in Liquidation, Inc. ("HUI/Unico")) relating to insurance coverage for the claims made by Occidental. An agreement in principle, subject to formal settlement documentation, was reached on July 22, 1999, under which the Company would receive $600,000 from HUI/Unico and the Company would release any right that it had to make any existing or future claims against such insurance policy. A definitive settlement agreement is currently being prepared. A reserve of $250,000 was established in June 1999 against identifiable liabilities arising out of the foregoing cases.
Item 4. Submission of Matters to a Vote of Security-Holders On April 30, 1999, 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 8, 1999, the record date of the annual meeting, was 7,188,500. The results of the matters voted upon were as follows: Election of Class Three directors for a three-year term: Shares Voted For Shares Withheld Richard H. Cameron 6,624,510 55,740 Morton B. Plant 6,630,302 49,948 Election of the firm Deloitte & Touche LLP as auditor of the Company for the fiscal year 1999: Shares voted for: 6,656,186 Shares voted against: 16,270 Shares abstained: 7,794 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (4) Instruments Defining the Rights of Security Holders A.* Term Loan Agreement between Pacific Coast Farm Credit Services and Maui Land & Pineapple Company, Inc. entered into as of June 1, 1999. (27)* Financial Data Schedule As of June 30, 1999 and for the six 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. August 13, 1999 /S/ PAUL J. MEYER Date Paul J. Meyer Executive Vice President/Finance (Principal Financial Officer)