MAUI LAND & PINEAPPLE COMPANY, INC
ANNUAL REPORT
1999
CONTENTS
Letter to Shareholders 2
Pineapple 4
Resort 5
Commercial & Property 6
Independent Auditors' Report 7
Consolidated Balance Sheets 8
Consolidated Statements of Operations and Retained Earnings 10
Consolidated Statements of Cash Flows 11
Notes to Consolidated Financial Statements 12
Common Stock 19
Selected Financial Data 20
Management's Discussion and Analysis of
Financial Condition and Results of Operations 21
Officers and Directors inside back cover
THE COMPANY
Maui Land & Pineapple Company, Inc., a Hawaii corporation
organized in 1909, is a land-holding and operating company with
several wholly owned subsidiaries, including two major operating
companies, Maui Pineapple Company, Ltd. and Kapalua Land Company,
Ltd. The Company, as used herein, refers to the parent and its
subsidiaries. The Company's principal business activities are
Pineapple, Resort and Commercial & Property.
The Company owns approximately 28,600 acres of land on the
island of Maui, of which about 8,400 acres are used directly or
indirectly in the Company's operations. The Company employed
approximately 2,040 people in 1999 on a year-round or seasonal
basis.
Maui Pineapple Company, Ltd. is the operating subsidiary for
Pineapple. Its canned pineapple, pineapple juice and fresh
pineapple are found in supermarkets throughout the United States.
The canned pineapple products are sold as store-brand pineapple
with 100% HAWAIIAN U.S.A. imprinted on the can lid. In addition,
the products are sold through institutional, industrial and
export distribution channels.
Kapalua Land Company, Ltd. is the development and operating
subsidiary for the Kapalua Resort. The Kapalua Resort is a
master-planned golf resort community on Maui's northwest coast.
The property encompasses 1,650 acres bordering the ocean with
three white sand beaches.
Commercial & Property includes the operations of various
properties, including Kaahumanu Center, the largest retail and
entertainment center on Maui. It also includes the Company's
land entitlement and management activities and land sales that
are not part of the Kapalua Resort.
On the cover: 18th green at the Plantation Course during the
Mercedes Championships; Pailolo channel and the island of Molokai
in the background.
Quarterly reports: As part of our company-wide effort to reduce
costs, we are eliminating printed quarterly reports after 1999.
To request a copy of news releases or other financial reports,
contact us at our corporate offices or visit our web sites.
Printed in Hawaii
10-K REPORT
Shareholders who wish to receive, free of charge, a copy of the
Company's 10-K Report to the Securities and Exchange Commission
(excluding certain exhibits) may write to:
Corporate Secretary
Maui Land & Pineapple Company, Inc.
P. O. Box 187
Kahului, Hawaii 96733-6687
OFFICES
Corporate Offices Pineapple Marketing Office
Maui Land & Pineapple Company, Inc. Maui Pineapple Company, Ltd.
P. O. Box 187 P. O. Box 4003
Kahului, Hawaii 96733-6687 Concord, California 94524-4003
Telephone: 808-877-3351 Telephone: 510-798-0240
Fax: 808-871-0953 Fax: 510-798-0252
www.mauiland.com
Maui Pineapple Company, Ltd.
P. O. Box 187
Kahului, Hawaii 96733-6687
Telephone: 808-877-3351
Fax: 808-871-0953
www.pineapplehawaii.com
Kapalua Land Company, Ltd.
1000 Kapalua Drive
Kapalua, Hawaii 96761-9028
Telephone: 808-669-5622
Fax: 808-669-5454
www.kapaluamaui.com
Kaahumanu Center
275 Kaahumanu Avenue
Kahului, Hawaii 96732-1612
Telephone: 808-877-3369
Fax: 808-877-5992
www.kaahumanu.net
Transfer Agent & Registrar Independent Auditors
ChaseMellon Shareholder Services, LLC Deloitte & Touche LLP
P. O. Box 3315 1132 Bishop Street, Suite 1200
South Hackensack, NJ 07606-1915 Honolulu, Hawaii 96813-2870
Telephone: 800-356-2017 Telephone: 808-543-0700
www.chasemellon.com
<PAGE>
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
FINANCIAL HIGHLIGHTS
1999 1998 1997
(Dollars in Thousands Except Per Share Amounts)
REVENUES
Pineapple $ 94,535 $ 97,658 $ 90,949
Resort 47,950 41,929 40,338
Commercial & Property 4,381 4,087 5,065
Corporate 132 37 146
Total 146,998 143,711 136,498
INCOME BEFORE
EXTRAORDINARY LOSS 4,670 4,340 863
NET INCOME 4,670 3,596 863
PER COMMON SHARE
Income Before
Extraordinary Loss .65 .60 .12
Net Income $ .65 $ .50 $ .12
AVERAGE COMMON
SHARES OUTSTANDING 7,188,840 7,188,500 7,188,500
TOTAL ASSETS $ 153,387 $ 136,247 $135,507
CURRENT RATIO 1.5 2.1 2.2
LONG-TERM DEBT and
CAPITAL LEASES $ 25,497 $ 23,592 $ 29,435
STOCKHOLDERS' EQUITY 66,400 62,492 58,896
STOCKHOLDERS' EQUITY PER
COMMON SHARE $ 9.23 $ 8.69 $ 8.19
EMPLOYEES 2,040 2,030 2,270
<PAGE>
TO OUR SHAREHOLDERS and EMPLOYEES:
We are pleased to report that the Company made further
progress in terms of financial results in 1999. Net income
increased by 30% from $3,596,000 in 1998 to $4,670,000 in 1999.
This represents a 7.5% return on beginning equity compared to 6.1%
for 1998. While we are pleased with the improvement in net income,
this level of profitability still is short of our goal for the
Company of a 10% to 15% return on equity. Our focus will remain on
achieving an appropriate level of profitability for the Company and
on the steps necessary to achieve that goal.
The 1999 net income of $4,670,000 includes a portion of the
net income from the sale of twelve single-family home lots in
Plantation Estates Phase II at Kapalua in the fourth quarter. Land
sales and development activities contributed approximately $1.2
million to net income in 1999 compared to $2.4 million in 1998.
The increase in net income in 1999 resulted from improved
operating performance and higher operating profits from Pineapple
and Kapalua Resort operations. The Company's Commercial & Property
operation produced an operating loss of $454,000, which represented
a 58% improvement over the 1998 operating loss.
Cash provided by activities increased from $17.6 million in
1998 to $18.5 million in 1999. The increase in cash flow on a year-
to-year basis is attributable to improved operating results and
cash flow in the Pineapple and Resort divisions. As a result, the
Company was able to invest over $18 million in resort amenity
projects and plant and equipment while the Company's total debt,
including capital leases, increased by $2.2 million from $26.3
million to $28.6 million in 1999. Interest expense declined by
$1.2 million from $3 million in 1998 to $1.8 million in 1999.
Approximately $500,000 of the reduction is due to interest that was
capitalized in connection with construction projects, such as the
Village Course Clubhouse and Kapalua Golf Academy project.
Interest expense also declined because of lower interest rates on
the Company's debt and lower average borrowings compared to 1998.
The Company's Pineapple division reported an operating profit
of $6.1 million in 1999, a $591,000 improvement over 1998. Sales
volume in terms of cases sold declined, in part due to the
strategic goal of reducing acreage planted in pineapple and a
diversion of acreage to our fresh fruit business. Also, an
increased volume of imported canned pineapple was sold in the
United States in 1999 compared to 1998. The Pineapple division
benefited from relatively stable prices for canned pineapple
products during the year. We believe this is due, in part, to the
effect of the anti-dumping duties on canned pineapple fruit from
Thailand. These duties are subject to a sunset review, which is
scheduled to begin in the summer of 2000. Extension of these
duties will be an important factor in maintaining a stable,
competitive market price for canned pineapple in the U.S.
We are pleased with the progress of our fresh cut pineapple
products and with the results to date from the introduction of our
fresh pineapple salsa. We believe these products capitalize on
consumer preferences for fresh and convenient food products. We
look forward to the introduction later this year of our latest
product, pineapple juice packed in plastic containers, and
anticipate that it will be well received as demonstrated by
consumer preference for other fruit juices packed in plastic
containers. In addition, we are pleased with the progress of our
Royal Coast subsidiary in positioning the Company for long-term
development in Central America.
The Resort division also posted improved operating results.
Operating profits of $5.7 million improved by $463,000 over 1998
results. The relative health of the U.S. economy, as demonstrated
by record high consumer confidence indicator levels, resulted in a
higher level of westbound visitors to Maui and substantially higher
hotel occupancy levels for Maui's visitor industry. Kapalua
experienced significantly higher occupancies in 1999 and produced
record profits from Resort operations. Revenue from the Resort
division increased by 14% over 1998. An important factor in
improved operating performance at Kapalua is the quality of the
guest experience at the resort. The Ritz-Carlton, Kapalua Hotel,
The Kapalua Bay Hotel and The Kapalua Villas as well as Kapalua's
recreational facilities all received national and international
awards and accolades for excellence. We believe the commitment to
providing a quality guest experience results in increased value and
return over the long term. The recognition provided by the
Mercedes Championships golf tournament also is a positive factor in
the occupancy levels and financial performance of the Resort
division.
A number of new Resort projects were undertaken in 1999. The
$15 million Village Course Clubhouse and Kapalua Golf Academy
project is expected to be completed in June of this year. This
project demonstrates the Resort's commitment to remaining the
number one golf resort in Hawaii. The Coconut Grove at Kapalua Bay
project is the first condominium project undertaken at Kapalua
since the early 1980s. The project has been well received with 28
of the 36 condominiums already sold. Building construction
commenced in February of this year and delivery of the finished
condominiums is expected beginning in the later part of 2000. The
fourteen 2-acre lots representing the final phase of the Plantation
Estates subdivision project were offered for sale in 1999. Twelve
of the lots were sold in 1999 and the remaining two closed in the
first quarter of this year. Also underway at Kapalua is a
proposed 31-lot subdivision located on a 20-acre site adjoining the
Bay Course. We expect this project will receive its final
approvals and are optimistic that it will be well received when it
is offered for sale in the second half of this year.
The Commercial & Property division also posted improved
results in 1999. The operating loss of $454,000 represents an
improvement of $631,000 over the operating loss posted in 1998.
Merchandise sales at Kaahumanu Center, Maui's largest shopping
center, increased by 5% over 1998 levels. We believe the improved
sales reflect a modest improvement in the general economy of Maui
from the depressed levels experienced over the previous five years.
There remains an oversupply of retail space creating highly
competitive conditions. This is reflected in the level of sales at
the Napili Plaza Shopping Center, which was down 5.7% in 1999 from
1998 levels. We believe the retail environment will continue to be
extremely competitive for the foreseeable future.
As was well covered in the local and national press, the forty-
one percent interest in the Company owned by the Weinberg
Foundation of Baltimore was sold to Mr. Stephen M. Case on August
31, 1999. This transaction resolved, in a positive manner, the
uncertainty regarding longer-term ownership of this large block of
stock. We are pleased with the credentials and the contributions
of the Directors nominated by Mr. Case.
We believe the economic climate in 2000 will be relatively
positive for the Company's businesses. The New Economy, with its
associated higher levels of productivity, low inflation, high
employment and higher levels of personal wealth should provide a
favorable business environment for Maui's visitor industry. The
Kapalua Resort is particularly well positioned to benefit in terms
of occupancy and operating revenue.
We remain dedicated to achieving the Company's goals in terms
of financial performance and in enhancing the long-term value of
the Company's assets. In view of the 1999 profits, the Company's
Board of Directors declared, at its February 2000 meeting, a cash
dividend of $.125 per share.
Thank you for your continued support and for your commitment
to the Company's success.
/S/ RICHARD H. CAMERON
Richard H. Cameron
Chairman
/S/ GARY L. GIFFORD
Gary L. Gifford
President & CEO
February 24, 2000
<PAGE>
PINEAPPLE
The Pineapple division reported an operating profit in 1999,
before allocated interest and income taxes, of $6.1 million,
$591,000 higher than 1998. This was Pineapple's fourth consecutive
year of profitability and the division's best financial results
since 1987.
Pineapple revenue for 1999 was $94.5 million, down 3.2% from
1998. Canned pineapple provided 90% of total revenue in 1999 and
overall case sales volume decreased by 8.1% compared to 1998. Case
sales volume of grocery fruit, our largest category within the
canned product line, declined by 11%. Institutional and government
fruit also declined by 5% and 7%, respectively, from 1998 levels.
Juice case volume declined by 6% overall. Grocery and government
juice categories were down 6% and 35%, respectively. Concentrate
volume was down 24% from 1998 levels. Part of this decrease in
volume is a result of a planned reduction in the acreage being
cultivated and a diversion of other acreage to our fresh fruit
business. The balance of the case sales volume decline was due
primarily to a substantial increase in imports of canned pineapple
into the U.S. during the second half of 1999.
Pricing for canned pineapple remained relatively stable
throughout 1999, resulting in an increase in average prices over
1998. Low inventories of imports at the beginning of the year kept
prices firm through the first half of 1999. Although the large
influx of imports after May of 1999 caused prices to decline
somewhat, the effect of these imports was greater on case sales
volume than on pricing.
Fresh fruit sales volume in 1999 was lower than 1998 by 10%.
However, average pricing was slightly higher than 1998. The loss
in volume is due to an increase in fresh pineapple case volume from
Central American producing countries. In February 2000, the
Governor of the State of Hawaii canceled plans for extension of the
Kahului airport runway on Maui. The limited cargo capacity out of
Kahului airport has been a continuing problem for the Company;
however the new Boeing 777 aircraft, which recently made its first
flight to Kahului, may alleviate some of this problem. We are
reassessing our plans and strategy for our Jet Fresh fruit program
in light of these developments.
The pineapple crop on Maui experienced a prolonged drought in
1999. Rainfall at every key rain gauge station on both plantations
was recorded at levels below the five-year historical average.
This was the fifth consecutive year that dry weather conditions
negatively affected the pineapple crop. Conditions in East Maui
were much worse than in West Maui, in part due to East Maui water
restrictions by the County of Maui. In spite of the dry weather in
1999, tonnage was slightly higher than 1998, but fruit and juice
recovery was slightly lower than 1998. The higher tonnage was due
primarily to heavy use of the company's irrigation systems and good
agricultural practices.
In 1999, the division continued to reduce its production costs
by reducing planting in unreliable fields with a history of low
yields. As a result, we expect tonnage to be modestly lower in the
future, but we anticipate the average quality of our fruit to
improve. In addition, we expect to harvest more second ratoon
crops in the future. Production costs were reduced in 1999 as we
continued with our project to consolidate certain operating
departments. Additional cost reductions may be made in 2000 and
future years.
We continue to monitor canned pineapple imports into the
United States. As expected, imports of canned pineapple products
into the U.S. increased in 1999. Through November 1999, the year-
to-date case volume of imported canned pineapple fruit, juice and
concentrate increased by 44%, 11% and 34%, respectively. Imports
of canned pineapple from Thailand increased the most at 153% over
1998 levels. Over the past several years, companies in the major
pineapple producing areas have increased their plantings and we
expect competition to continue to intensify as more of these
plantings reach maturity. Accordingly, we expect the case volume
of imports of canned pineapple products into the U.S. to increase
in 2000.
Antidumping duties were in effect on canned pineapple fruit
from Thailand throughout 1999. The U.S. Department of Commerce has
begun the fourth annual review of these tariffs. We anticipate the
announcement of preliminary dumping margins and tariffs to be made
in April 2000 with final results expected in July 2000. We do not
expect any significant changes in the current duty structure as a
result of the fourth annual review. A "Sunset Review" of the
duties will take place beginning in summer 2000. For a
continuation of existing duties, we must convince the International
Trade Commission during the Sunset Review that elimination of the
duties will potentially cause injury to the domestic industry.
We continue to make progress in new product and business
development. In 1999, we expanded our fresh cut pineapple
distribution and introduced our product consisting of fresh cut
wedges and chunks of pineapple in plastic containers on the
mainland. We also introduced a fresh pineapple salsa product in
plastic containers to the Hawaii market and to certain stores in
California. Response from the retail trade for these products has
been excellent.
Our subsidiary, Royal Coast Tropical Fruit Company imports and
sells fresh pineapple from Central America and a variety of fresh
Hawaiian produce. Although 1999 sales were somewhat below
expectations, we are pleased with the progress made in 1999 in
positioning ourselves for long-term development and anticipate
increasing our pineapple sales volume of fruit from Central
America.
The Pineapple division's primary focus in 2000 will be to
increase its competitiveness and profitability by emphasizing
product quality, achieving cost reductions in operations,
maximizing yields and improving recovery. Significant capital
resources will be directed toward fresh and fresh cut products
where customer demand is growing. Sales and marketing objectives
will be to achieve the highest return from sales of 100% HAWAIIAN
U.S.A. canned pineapple and to expand sales through the Royal Coast
Tropical Fruit Company label.
We expect 2000 to be a challenging year as we continue to
expand and improve our business.
<PAGE>
RESORT
For the third consecutive, year the Resort division showed
financial improvement. The 1999 profit, before allocated interest
and income taxes, was $5.7 million compared with $5.2 million in
1998. The improvement in 1999 was due to record profits from
resort operations, which offset a lower contribution from resort
development activities.
Overall, Hawaii's resort real estate market continues to
strengthen, primarily from increased demand created by the strong
U.S. mainland economy. Total dollar volume of real estate resales
at Kapalua increased 19% in 1999 compared to 1998. This growth was
achieved despite strong competing interest in our new residential
product and historically low inventory of Kapalua resale listings.
The total resort development profit in 1999 of $1.6 million
was primarily from the development of the final 34-acre parcel in
Plantation Estates II. All fourteen of the two-acre lots were
sold for a total of $9.6 million. Twelve of the sales closed
escrow in 1999 while the remaining sales closed in the first
quarter of 2000. Construction of subdivision improvements began in
the fourth quarter of 1999 and should be substantially completed in
March 2000. Profits have been accounted for using the percentage-
of-completion method, which will result in the remaining profit
being recognized as the project is completed this year.
Construction of The Coconut Grove on Kapalua Bay also began in
the fourth quarter of 1999. Development of the 36 luxury
beachfront condominiums is through a 50/50 partnership with Lend
Lease Real Estate Investment Inc., owner of The Kapalua Bay Hotel.
We presently have sold 28 of these exclusive residences for a total
sales volume of $53.8 million, of which more than $47 million is
under binding contract. Mass grading has been completed and
building construction began in February 2000. Construction is
scheduled to be completed in the first quarter of 2001. Profits
will be recorded when title to the residences is delivered, which
could be in late 2000 for some of the buildings.
In December 1999, the Maui County Planning Commission approved
our Special Management Area permit application for the proposed 31
half-acre residential custom lot subdivision on Site 19. Final
subdivision approval, as well as a zoning change and Community Plan
amendment for about three acres of the 20-acre site are still
needed and are expected in May 2000. We have reached an agreement
with the Pineapple Hill Homeowners Association for the annexation
of this development with Pineapple Hill. Presales are expected to
begin in the second quarter of 2000 with construction completed by
year-end. Lot sales are expected to close in the third quarter
with profits being accounted for using the percentage-of-completion
method.
In January 2000, we opened the Kapalua Golf Academy and the
Hale Irwin-designed Village Course practice facility for limited
use by participants in the Mercedes Championships. A month later,
the facility was fully opened to the resort community and general
public. The response has been extremely positive and, in
conjunction with our staff of 30 PGA professionals, the Kapalua
Golf Academy gives us a distinct competitive advantage.
Equally important to our strategic golf positioning and future
town center development is the new 27,000 square foot Village
Course Clubhouse, which should be open by July 2000. The other
components of the $15 million clubhouse and golf academy
development include an 18-hole putting course and two commercial
retail parcels. Overall, this will provide a foundation for the
remaining Town Center, resort spa and residential development of
our central resort master plan.
As expected, Hawaii's visitor industry continued its struggle
to offset a decline in eastbound visitors in 1999 due to the
ongoing economic problems in Japan. This is particularly difficult
for the island of Oahu and the Waikiki hotels that have relied
heavily on the eastbound market. Growth from the westbound market,
mostly U.S. mainland, gave the state a slight gain in total visitor
counts and occupancies in 1999 with most of the gains reflected in
the neighbor islands. Maui showed surprisingly strong growth in
1999 with a 6% increase over 1998 and finished with an average
occupancy of over 77%, the highest of any Hawaiian island.
Total resort occupancy for Kapalua was up significantly in
1999 with an increase of almost 16% compared to 1998. All three of
the resort properties (The Kapalua Bay Hotel, The Ritz-Carlton,
Kapalua and The Kapalua Villas) finished the year with strong
occupancy gains and were equally successful in delivering high
quality guest experiences. Travel & Leisure magazine ranked all
three in the top 25 hotels in Hawaii for 1999 and rated The Ritz-
Carlton, Kapalua as #3 in the world.
The record profit from resort operations in 1999 is due mostly
to the higher occupancies, increased demand for golf and increased
hotel lease rents. Gross revenues from resort operations increased
13% in 1999 with all major business segments of golf, villas,
retail and commercial leases showing strong revenue gains.
Excluding direct revenue-related expenses, our total operating
costs increased less than 7%.
The marketing exposure from our inaugural Mercedes
Championships contributed to the positive results for Kapalua in
1999. In January 2000, we hosted the 2000 Mercedes Championships,
the first PGA TOUR event of the new millennium and saw Tiger Woods
culminate an extraordinary week at Kapalua with his dramatic
playoff victory over Ernie Els. ESPN television ratings on the
final day were the highest ever for ESPN golf. We believe the
Mercedes Championships has been a significant factor in helping to
define our strategic positioning as the #1 golf resort in Hawaii
and hope to continue our partnership with the tournament sponsor,
Mercedes Benz, and the PGA TOUR beyond our initial four-year
agreement on a long-term basis.
We expect the year 2000 will present challenges to resort
operations from the start-up phase of the new Village Course
Clubhouse and Kapalua Golf Academy. Profits from the two new
residential projects could be significant for the year 2000, but as
with any development, are subject to substantial timing and other
customary risks. Overall we believe the Resort division is in an
excellent position for continued long-term improvement from both
resort operations and development activities.
<PAGE>
COMMERCIAL & PROPERTY
The Company's Commercial & Property business segment produced
an operating loss, before allocation of interest and income taxes,
of $454,000 in 1999 compared to an operating loss of $1.1 million
in 1998. Revenue increased from $4.1 million in 1998 to $4.4
million in 1999. Improved results from Kaahumanu Center were
responsible for the lower operating loss in 1999.
Joint venture losses at Kaahumanu Center, a 573,000 square
foot regional mall, decreased from $2,479,000 in 1998 to $1,800,000
in 1999. The Company's share of these losses, together with
management fee revenues and other expenses, resulted in an
operating loss of $470,000 in 1999 compared to an operating loss of
$1,000,000 in 1998. Kaahumanu Center's revenues increased by 6% in
1999, reflecting improved occupancies, higher sales reported by
tenants and higher recovery of expenses from tenants. Costs and
expenses at Kaahumanu Center increased by 1% in 1999 as higher
utility and payroll costs were partially offset by lower expense
for bad debts.
Occupancy at Kaahumanu Center improved with new merchants
opening in 1999, including Gap Kids/Baby Gap, Pacific Sunwear,
d.e.m.o., The Gift Basket, Vitamin World, Athens Restaurant and an
expansion of Fun Factory. Anthurium's boutique, Twig, Native
Soles, Heaven Scents and Maui Elements opened in the first phase of
a plantation town themed area in the new "Plantation District" on
Kaahumanu Center's second level. Moondoggy's, a 7,000 square foot
restaurant, is slated to open in the second phase of the Plantation
District in March 2000. Merchant sales at Kaahumanu Center
increased over 5% in 1999 compared to 1998.
Napili Plaza, the Company's 44,000 square foot shopping and
commercial center in West Maui, showed a decrease in profits from
$268,000 in 1998 to $202,000 in 1999. Merchant sales at Napili
Plaza increased over the previous year in the latter part of 1999,
but overall were down 5.7% in 1999 compared to 1998 primarily as a
result of increased competition in the area.
Operating losses in other property-related and land management
activities declined from $574,000 in 1998 to $409,000 in 1999.
Gains from land sales of $223,000 in 1999 were comparable to 1998.
In 1999, the Company continued its efforts to obtain the
Special Management Area permit and other required permits for the
Kapua Village Employee Subdivision in West Maui. Delays were
encountered due primarily to legal challenges filed with the courts
by neighboring property owners opposing the Environmental
Assessment completed for the subdivision. We anticipate that
approval of the required permits will be obtained sometime in 2000.
Work commenced in 1999 on the preliminary planning phase for
the business-commercial development of the Country Town Business
zoned parcel of land located within Haliimaile Village in Upcountry
Maui, with alternative conceptual development plans reviewed and
evaluated. An important consideration for the proposed development
is recognition of the unique rural characteristics of the Upcountry
Maui area.
In addition to the Haliimaile business-commercial development,
other Company-owned lands were evaluated to determine appropriate
uses and potential opportunities that would achieve the highest and
best uses for the Company's lands.
Further progress was made by the Land Management & Development
Division in 1999 toward achieving strategic goals and objectives to
position the Company to more effectively and responsibly manage,
plan and develop the Company's valuable land and water assets.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Directors of Maui Land & Pineapple Company,
Inc.:
We have audited the accompanying consolidated balance sheets
of Maui Land & Pineapple Company, Inc. and its subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements
of operations and retained earnings and of cash flows for each of
the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Companies at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with generally
accepted accounting principles.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Honolulu, Hawaii
February 9, 2000
(February 24, 2000 as to Note 13)
<PAGE>
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
1999 1998
(Dollars in Thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,657 $ 3,447
Accounts and notes receivable,
less allowance of $783 and $493
for doubtful accounts 15,098 13,005
Inventories
Pineapple products 9,714 8,380
Real estate held for sale 577 1,083
Merchandise, materials and supplies 6,634 6,057
Prepaid expenses and other assets 4,779 3,659
Total Current Assets 39,459 35,631
INVESTMENTS AND OTHER ASSETS 12,952 10,695
PROPERTY
Land 4,737 4,618
Land improvements 46,062 45,868
Buildings 50,317 49,708
Machinery and equipment 105,784 104,052
Construction in progress 18,058 5,721
Total Property 224,958 209,967
Less accumulated depreciation 123,982 120,046
Net Property 100,976 89,921
TOTAL $153,387 $136,247
1999 1998
(Dollars in Thousands)
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current portion
of long-term debt $ 2,792 $ 2,254
Current portion of capital lease obligations 264 499
Trade accounts payable 12,492 6,613
Customers' deposits 1,264 1,304
Payroll and employee benefits 4,662 4,085
Deferred revenue 3,365 643
Other accrued liabilities 1,696 1,248
Total Current Liabilities 26,535 16,646
LONG-TERM LIABILITIES
Long-term debt 25,077 22,913
Capital lease obligations 420 679
Accrued retirement benefits 23,204 22,920
Equity in losses of joint venture 8,944 7,969
Other noncurrent liabilities 2,361 2,628
Total Long-Term Liabilities 60,006 57,109
MINORITY INTEREST IN SUBSIDIARY 446 --
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock--no par value, 7,200,000 shares
authorized, 7,195,800 and 7,188,500 shares issued
and outstanding at December 31, 1999
and 1998, respectively 12,455 12,318
Retained earnings 53,945 50,174
Stockholders' Equity 66,400 62,492
TOTAL $153,387 $136,247
See Notes to Consolidated Financial Statements
<PAGE>
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
(Dollars in Thousands Except Per Share Amounts)
REVENUES
Net sales $112,191 $113,391 $101,421
Operating revenue 33,982 29,123 29,058
Other income 825 1,197 6,019
Total Revenues 146,998 143,711 136,498
COSTS AND EXPENSES
Cost of goods sold 74,494 76,049 72,200
Operating expenses 27,440 26,168 26,027
Shipping and marketing 18,479 16,673 18,053
General and administrative 16,408 15,094 14,600
Equity in losses of joint ventures 956 1,160 1,211
Interest 1,834 3,039 3,045
Total Costs and Expenses 139,611 138,183 135,136
INCOME BEFORE
INCOME TAXES AND
EXTRAORDINARY LOSS 7,387 5,528 1,362
INCOME TAX EXPENSE 2,717 1,188 499
INCOME BEFORE
EXTRAORDINARY LOSS 4,670 4,340 863
EXTRAORDINARY LOSS, NET OF
INCOME TAX CREDIT OF $456 -- (744) --
NET INCOME 4,670 3,596 863
RETAINED EARNINGS,
BEGINNING OF YEAR 50,174 46,578 45,715
CASH DIVIDENDS 899 -- --
RETAINED EARNINGS, END OF YEAR 53,945 50,174 46,578
PER COMMON SHARE
Income Before
Extraordinary Loss .65 .60 .12
Extraordinary Loss,
Net of Income Tax Credit -- (.10) --
Net Income .65 .50 .12
Cash Dividends $ .125 $ -- $ --
Average Common
Shares Outstanding 7,188,840 7,188,500 7,188,500
See Notes to Consolidated Financial Statements.
<PAGE>
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $ 4,670 $ 3,596 $ 863
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation 8,445 8,176 8,041
Undistributed equity in
losses of joint ventures 1,019 1,194 1,211
Gain on property disposals (49) (627) (5,254)
Deferred income taxes 552 (523) (313)
(Increase) decrease in
accounts receivable (1,700) (526) 1,446
(Increase) decrease
in inventories (2,360) 5,193 (1,219)
Increase (decrease) in
trade payables 3,798 (420) (1,356)
Net change in other operating
assets and liabilities 4,094 1,568 34
NET CASH PROVIDED BY
OPERATING ACTIVITIES 18,469 17,631 3,453
INVESTING ACTIVITIES
Purchases of property (18,213) (8,230) (8,388)
Proceeds from sale of property 509 634 5,882
Distributions from joint ventures -- -- 1,460
Contributions to joint ventures (575) (425) (1,030)
Payments for other investments (2,735) (1,632) (1,815)
NET CASH USED IN
INVESTING ACTIVITIES (21,014) (9,653) (3,891)
FINANCING ACTIVITIES
Proceeds from long-term debt 15,632 30,647 23,891
Payments of long-term debt (13,659) (35,780) (20,991)
Proceeds from short-term debt 729 -- --
Payments on capital lease
obligations (494) (1,009) (1,304)
Dividend paid (899) -- --
Other 446 -- --
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,755 (6,142) 1,596
NET INCREASE (DECREASE) IN CASH (790) 1,836 1,158
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 3,447 1,611 453
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 2,657 $ 3,447 $ 1,611
Supplemental Disclosures of Cash Flow Information and Non-Cash
Investing and Financing Activities:
1. Cash paid during the year (in thousands):
Interest (net of
amount capitalized) $ 1,711 $ 4,809 $ 3,235
Income taxes 1,842 984 335
2. Amounts included in accounts payable for additions to
property and other investments totaled $3,419,000, $1,144,000 and
$280,000, respectively, at December 31, 1999, 1998 and 1997.
3. In December 1999, 7,300 shares of Company stock, which was
held by a wholly owned subsidiary of the Company, were
contributed to the Company's Employee Stock Ownership Plan (see
Note 7 to Consolidated Financial Statements).
4. Capital lease obligations of $739,000 in 1997 were incurred
for new equipment.
5. Effective December 31, 1997, the Company's investment in
Plantation Club Associates (PCA) was liquidated and the Company
assumed PCA's remaining assets totaling $1.4 million (see Note 3
to Consolidated Financial Statements).
See Notes to Consolidated Financial Statements.
<PAGE>
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts
of Maui Land & Pineapple Company, Inc. and subsidiaries,
primarily Maui Pineapple Company, Ltd. and Kapalua Land Company,
Ltd. Significant intercompany balances and transactions have
been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, deposits in
banks and commercial paper with original maturities of three
months or less.
INVENTORIES
Inventories of tinplate, cans, ends and canned pineapple
products are stated at cost, not in excess of market value, using
the dollar value last-in, first-out (LIFO) method.
The costs of growing pineapple are charged to production in
the year incurred rather than deferred until the year of harvest.
For financial reporting purposes, each year's total cost of
growing and harvesting pineapple is allocated to products on the
basis of their respective market values; for income tax purposes,
the allocation is based upon the weight of fruit included in each
product.
Real estate held for sale is stated at the lower of cost or
fair value less cost to sell.
Merchandise, materials and supplies are stated at cost, not
in excess of market value, using retail and average cost methods.
INVESTMENTS AND OTHER ASSETS
Cash surrender value of life insurance policies are
reflected net of loans against the policies.
Investments in joint ventures are generally accounted for
using the equity method.
PROPERTY AND DEPRECIATION
Property is stated at cost. Major replacements, renewals
and betterments are capitalized while maintenance and repairs
that do not improve or extend the life of an asset are charged to
expense as incurred. When property is retired or otherwise
disposed of, the cost of the property and the related accumulated
depreciation are written off and the resulting gains or losses
are included in income. Depreciation is provided over estimated
useful lives of the respective assets using the straight-line
method.
POSTRETIREMENT BENEFITS
The Company's policy is to fund pension cost at a level at
least equal to the minimum amount required under federal law, but
not more than the maximum amount deductible for federal income
tax purposes.
Deferred compensation plans for certain management employees
provide for specified payments after retirement. The present
value of estimated payments to be made were accrued over the
period of active employment. On October 1, 1998, these plans
were terminated (see Note 7 to Consolidated Financial
Statements).
The estimated cost of providing postretirement health care
and life insurance benefits is accrued over the period employees
render the necessary services.
REVENUE RECOGNITION
Revenue from the sale of pineapple is recognized when title
to the product is transferred to the customer. The timing of the
transfer of title varies according to the shipping and delivery
terms of the sale.
Sales of real estate are recognized as revenues in the
period in which sufficient cash has been received, collection of
the balance is reasonably assured and risks of ownership have
passed to the buyer. When the Company's remaining obligation to
complete improvements is significant, the sale is recognized on
the percentage-of-completion method.
INTEREST CAPITALIZATION
Interest costs are capitalized during the construction
period of major capital projects.
ADVERTISING AND RESEARCH AND DEVELOPMENT
The costs of advertising and research and development
activities are expensed as incurred.
LEASES
Leases that transfer substantially all of the benefits and
risks of ownership of the property are accounted for as capital
leases. Amortization of capital leases is included in
depreciation expense. Other leases are accounted for as
operating leases.
INCOME TAXES
The Company's provision for income taxes is calculated using
the liability method. Deferred income taxes are provided for all
temporary differences between the financial statement and tax
bases of assets and liabilities using enacted tax rates.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's majority owned
subsidiary in Central America are translated into U.S. dollars at
exchange rates in effect at the balance sheet date, and revenues
and expenses are translated at weighted average exchange rates in
effect during the period. Translation adjustments are to be
reported as other comprehensive income and accumulated in
Stockholders' Equity. Transaction gains and losses that arise
from exchange rate changes on transactions denominated in a
currency other than the functional currency are included in
income as incurred. During 1999, these foreign translation and
transaction adjustments were not material.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Future actual amounts could differ from those
estimates.
EARNINGS PER COMMON SHARE
Earnings per common share is computed using the weighted
average number of shares outstanding during the period. The
Company has no dilutive potential common shares outstanding. All
references to shares outstanding and per share amounts for prior
periods have been restated to reflect the four-for-one split of
the Company's common stock that was effected on May 1, 1998.
RECLASSIFICATIONS
Certain amounts for prior years have been reclassified to
conform to the presentation for the current year.
2. INVENTORIES
Pineapple product inventories were comprised of the
following components at December 31, 1999 and 1998:
1999 1998
(Dollars in Thousands)
Finished Goods $ 7,399 $ 5,979
Work In Progress 839 839
Raw Materials 1,476 1,562
Total $ 9,714 $ 8,380
The replacement cost of pineapple product inventories at
year-end approximated $21 million in 1999 and $19 million in
1998. In 1998, there was a partial liquidation of LIFO
inventories; thus, cost of sales included prior years' inventory
costs, which were lower than current costs. Had current costs
been charged to cost of sales, net income for 1998 would have
decreased by $1,360,000 or $.19 per share.
3. INVESTMENTS AND OTHER ASSETS
Investments and Other Assets at December 31, 1999 and 1998
consisted of the following:
1999 1998
(Dollars in Thousands)
Deferred Costs $ 6,657 $ 6,230
Cash Surrender Value of Life
Insurance Policies (net) 633 515
Prepaid pension asset 2,774 2,247
Kapalua Coconut Grove LLC 905 496
Other 1,983 1,207
Total $12,952 $10,695
Deferred costs are primarily intangible predevelopment costs
related to various projects at the Kapalua Resort, which will be
allocated to future development projects.
Cash surrender value of life insurance policies are stated
net of policy loans totaling $597,000 at December 31, 1999 and 1998.
KAPALUA COCONUT GROVE LLC
Kapalua Coconut Grove LLC (KCG) is a Hawaii limited
liability company whose members are the Company and an affiliate
of Lend Lease Real Estate Investments, Inc. KCG was formed in
June of 1997 to own, develop and sell the 12-acre parcel of
property adjacent to The Kapalua Bay Hotel. Each member
contributed to the venture its 50% interest in the land parcel
and $1.1 million in cash. Presales of the 36 luxury residential
condominiums to be constructed on the parcel began in August 1999
and mass grading and site work began in November 1999. Each
member has a 50% interest in KCG and the Company has accounted
for its investment in KCG by the equity method. The Company's
pre-tax share of KCG's net income (loss) was $(172,000) in 1999
and $1,000 in 1998.
KAAHUMANU CENTER ASSOCIATES
In June 1993, Kaahumanu Center Associates (KCA) was formed
to finance the expansion and renovation of and to own and operate
Kaahumanu Center. KCA is a partnership between the Company as
general partner and the Employees' Retirement System of the State
of Hawaii (ERS) as a limited partner. The Company contributed
the then existing shopping center, subject to a first mortgage,
and approximately nine acres of adjacent land. ERS contributed
$312,000 and made a $30.6 million loan to the partnership.
The expansion and renovation were substantially complete by
the end of November 1994. Effective April 30, 1995, the ERS
converted its $30.6 million loan to an additional 49% ownership
in KCA. Effective with conversion of the ERS loan, the Company
and ERS each have a 50% interest in KCA and the Company has
accounted for its investment in KCA by the equity method.
The Company has a long-term agreement with KCA to manage
Kaahumanu Center. The agreement provides for certain performance
tests, which if not met, could result in termination of the
agreement. The tests were not met in 1999, but termination of
the agreement is not presently being considered. KCA does not
have any employees. As manager, the Company provides all
administrative and on-site personnel and incurs other costs and
expenses, primarily insurance, which are reimbursable by KCA.
The Company generates a portion of the electricity used by
Kaahumanu Center. In 1999, 1998 and 1997, reimbursements from
KCA for payroll and other costs and expenses totaled $2,417,000,
$2,303,000, and $2,240,000, respectively, and the Company charged
KCA $2,531,000, $2,402,000, and $2,574,000, respectively, for
electricity and management fees. At December 31, 1999 and 1998,
$1,154,000 and $333,000, respectively, were due to the Company
from KCA for management fees, electricity and reimbursable costs.
Summarized balance sheet information for KCA as of December
31, 1999 and 1998 and operating information for each of the three
years ended December 31, 1999 follows:
1999 1998
(Dollars in Thousands)
Current assets $ 1,188 $ 1,039
Property and equipment, net 72,277 73,861
Other assets, net 1,701 2,311
Total Assets 75,166 77,211
Current liabilities 2,969 2,200
Noncurrent liabilities 60,352 61,366
Total Liabilities 63,321 63,566
Partners' Capital $ 11,845 $13,645
1999 1998 1997
Revenues $ 14,506 $13,625 $ 13,945
Costs and Expenses 16,306 16,104 16,255
Net Loss $ 1,800 $ 2,479 $ 2,310
The Company's share of losses from KCA was $900,000,
$1,240,000 and $1,155,000, respectively, for 1999, 1998 and 1997.
ERS and the Company each have a 9% cumulative, non-compounded
priority right to cash distributions based on their net
contributions to the partnership (preferred return). For the
purpose of calculating preferred returns, each partner's capital
contribution had an agreed upon value of $30.9 million on May 1,
1995. The Company's preferred return is subordinate to the ERS
preferred return. As of December 31, 1999, the accumulated
unpaid preferred return was $11 million each for ERS and the
Company. Pursuant to cash calls, the partners each contributed
$830,000 to the partnership in 1997.
The Company's investment in KCA is a negative $8.9 million
at December 31, 1999. The negative balance is a result of (1)
recording the Company's initial contribution in 1993 at net book
value of the assets contributed, reduced by the related debt and
(2) the Company's share of KCA's accumulated losses since 1995.
PLANTATION CLUB ASSOCIATES
Plantation Club Associates (PCA) was an unincorporated joint
venture in which Kapalua Land Company, Ltd. (Kapalua) was the
managing venturer. Profits and losses of the joint venture were
allocated based on estimated distributions to the partners, which
was 85% to Kapalua and 15% to the other partner. The partnership
agreement required that all major decisions receive unanimous
approval of the partners.
In 1997, the three remaining lots in Plantation Estates
Phase I were sold and the partners concluded an agreement to
liquidate PCA as of December 31, 1997. After distribution of the
joint venture's cash to the partners, Kapalua assumed PCA's
remaining assets of $1.4 million, primarily land and planning
costs for Plantation Estates Phase II.
Kapalua's pre-tax share of the joint venture's net loss was
$56,000 for 1997. This amount includes expenses incurred by the
Company related to the investment, primarily amortization of
capitalized interest cost. The Company received a cash
distribution from PCA of $1,460,000 in 1997.
4. BORROWING ARRANGEMENTS
During 1999, 1998 and 1997, the Company had average
borrowings outstanding of $29.5 million, $33 million and $32.8
million, respectively, at average interest rates of 7.8%, 8.9%
and 8.8%, respectively.
Short-term bank lines of credit available to the Company at
December 31, 1999 were $2 million. These lines provide for
interest at the prime rate (8.5% at December 31, 1999) plus 1/4%
to 1/2%. There were no borrowings under these lines at December
31, 1999, but $213,000 in letters of credit were reserved against
these lines to secure the Company's deductible portion of
insurance claims administered by various insurance companies.
The Company has a $900,000 working capital credit facility for
its Central American operations. At December 31, 1999, the
Company had borrowings outstanding of $729,000 under this
facility at 7.55%.
Long-term debt at December 31, 1999 and 1998 consisted of
the following (interest rates represent the rates at December 31):
1999 1998
(Dollars in Thousands)
Term loan, 7.87% to 8.39% $ 15,000 $ --
Bridge loan, 8% -- 15,000
Revolving credit agreement, 8.5% 3,400 --
Mortgage loan, 7.25% and 8.25% 4,807 4,886
Equipment loans, 6.76% to 8.46% 3,932 5,281
Total 27,139 25,167
Less portion classified as current 2,062 2,254
Long-term debt $ 25,077 $22,913
On December 31, 1998, $20 million of 8.86% senior unsecured
notes were retired with a $15 million bridge loan (7.3% at
January 4, 1999) and cash generated by the Company's operations.
Principal payments on the $20 million loan were due from 1999
through 2003. A prepayment penalty of $1.2 million was paid for
early extinguishment of the 8.86% notes and has been accounted
for as an extraordinary loss of $744,000 (net of income tax
credit of $456,000).
In March of 1999, the Company accepted a commitment to
refinance the bridge loan and, accordingly, the $15 million
bridge loan was classified as long-term debt in the December 31,
1998 balance sheet. In June of 1999, the 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.
The Company has a revolving credit agreement with
participating banks under which it may borrow up to $15 million
in revolving loans through December 31, 2001. Amounts
outstanding at that date, at the Company's option, may be
converted to a three-year term loan payable in six equal semi-
annual installments. The agreement also includes a $15 million
development line of credit facility for construction of the new
Village Course Clubhouse and Kapalua Golf Academy. The
development facility reduces to $8 million in December of 2000
and matures in December of 2001.
Commitment fees of 1/4% are payable on the unused portions
of the revolving credit line and the development facility. At
the Company's option, interest on advances under both the
revolving credit line and the development facility is at the
prime rate or based on a LIBOR rate. The loan is collateralized
by the Company's three golf courses at the Kapalua Resort. The
agreement contains certain financial covenants, including the
maintenance of consolidated net worth and working capital at
certain levels and limits on the incurrence of other indebtedness
and capital expenditures. Declaration and payment of cash
dividends is restricted to 30% of prior year's net income. At
December 31, 1999, the Company did not meet the minimum current
ratio required by this credit facility. As of February 9, 2000,
the Company obtained a waiver of the violation with regard to
year-end 1999. The Company believes that the conditions that
caused the violation will be different in the future. The
Company's financial projections for 2000, which reflect the
aforementioned differences in conditions, indicate that the
Company should be in compliance with this working capital
covenant throughout 2000.
The mortgage loan is collateralized by the Napili Plaza
shopping center and matures on December 31, 2005. Payments are
based on a 25-year amortization. Effective January 1, 1999, the
interest rate on the loan was amended to 7.25% until January 1,
2002. The interest rate will be adjusted to the lender's then
prevailing rate of interest for such loans as of January 1, 2002
and January 1, 2005.
The Company has agreements that provide for term loans that
were used to purchase assets for the Company's pineapple and
resort operations. The loans are at fixed interest rates and
mature through June 2004. The agreements include certain
financial covenants that are similar to those in the Company's
revolving credit agreement. One of the agreements also requires
the maintenance of a minimum tangible net worth and debt coverage
ratio (as defined).
Maturities of long-term debt during the next five years,
from 2000 through 2004, are as follows: $2,062,000, $985,000,
$1,927,000, $1,517,000, $1,341,000.
5. MINORITY INTEREST IN SUBSIDIARY
In February of 1999, Royal Coast Tropical Fruit Company,
Inc. (a wholly owned subsidiary of Maui Pineapple Company, Ltd.)
formed a subsidiary in Central America and invested $503,000 for
a 51% ownership interest in a new pineapple production company.
The minority stockholders contributed $460,000. The minority
stockholders' share of the 1999 operating loss was not material.
6. DEFERRED REVENUE
Deferred revenue for 1999 primarily represents proceeds
received on closed sales in Plantation Estates Phase II in excess
of revenue recognized in 1999 on the percentage-of-completion
method. Construction of the subdivision improvements for the 14
single-family lots began in the fourth quarter of 1999 and is
scheduled to be substantially completed during the first quarter
of 2000. In November and December of 1999, 12 of the 14 lots in
Plantation Estates Phase II closed escrow. Revenue on the closed
sales is being recognized as construction is completed.
7. POSTRETIREMENT BENEFITS
The Company has defined benefit pension plans and defined
benefit postretirement health care and life insurance plans.
Changes in benefit obligations and changes in plan assets
for 1999 and 1998 and the funded status of the plans and amounts
recognized in the balance sheets as of December 31 were as
follows:
Pension Benefits Other Benefits
1999 1998 1999 1998
(Dollars in Thousands)
Change in benefit obligations:
Benefit obligations at
beginning of year $ 35,071 $ 31,015 $ 15,379 $ 14,140
Service cost 1,443 1,240 359 411
Interest Cost 2,396 2,261 895 1,024
Actuarial (gain) loss (897) 2,228 (2,657) 481
Special termination benefits -- 314 -- 29
Benefits paid (2,150) (1,987) (713) (706)
Benefit obligations at
end of year 35,863 35,071 13,263 15,379
Change in plan assets:
Fair value of plan assets at
beginning of year 41,807 37,530 -- --
Actual return on
plan assets 6,367 6,028 -- --
Employer contributions 143 236 713 706
Benefits paid (2,150) (1,987) (713) (706)
Fair value of plan assets at
end of year 46,167 41,807 -- --
Funded status 10,304 6,736 (13,263) (15,379)
Unrecognized actuarial gain (7,548) (3,935) (5,425) (3,082)
Unrecognized net
transition asset (759) (1,295) -- --
Unrecognized prior
service cost 185 244 (1,172) (1,324)
Net Amounts recognized 2,182 1,750 (19,860) (19,785)
Amounts recognized in
balance sheets consist of:
Prepaid benefit cost 2,774 2,247 -- --
Accrued benefit liability (592) (497) (19,860) (19,785)
Net amount recognized $ 2,182 $ 1,750 $(19,860) $(19,785)
Net periodic benefit costs for 1999, 1998 and 1997 included
the following components:
1999 1998 1997
(Dollars in Thousands)
Pension benefits:
Service cost $ 1,443 $ 1,240 $ 1,030
Interest cost 2,396 2,261 2,161
Expected return on
plan assets (3,638) (2,925) (2,576)
Amortization of net
transition asset (535) (535) (535)
Amortization of
prior service cost 59 61 61
Recognized net
actuarial (gain) loss (14) 3 16
Special termination benefits -- 314 --
Net expense (credit) (289) 419 157
Other benefits:
Service cost 359 411 325
Interest cost 895 1,024 991
Amortization of
prior service cost (146) (147) (147)
Recognized net actuarial gain (320) (209) (300)
Special termination benefits -- 29 --
Net expense $ 788 $ 1,108 $ 869
Effective September 1, 1998, in an effort to reduce the size
of its workforce, the Company offered a voluntary, enhanced early
retirement program to employees in the Pineapple and Corporate
divisions based on age and years of service. The projected
benefit obligation for the pension plans and the net pension
expense for 1998 increased by $314,000 and the accumulated
postretirement benefit obligation for other benefits and the
corresponding net expense for 1998 increased by $29,000 as a
result of implementing this program.
The projected benefit obligation, accumulated benefit
obligation and fair value of plan assets for the pension plan
with accumulated benefits in excess of plan assets were
$1,028,000, $578,000 and $-0-, respectively, as of December 31,
1999 and $846,000, $471,000 and -0-, respectively, as of December
31, 1998.
The benefit obligations for pensions and other
postretirement benefits were determined using a discount rate of
7.25% and 7% as of December 31, 1999 and 1998, respectively, and
compensation increases ranging up to 4.5%. The expected long-
term rate of return on assets ranged up to 9% for 1999 and 8% for
1998.
The accumulated postretirement benefit obligation for health
care as of December 31, 1999 and 1998 was determined using a
health care cost trend rate of 10% in 1995, decreasing by .5%
each year from 1995 through 2004 and 5% thereafter. The effect
of a 1% annual increase in these assumed cost trend rates would
increase the accrued postretirement benefit obligation by
approximately $1,629,000 as of December 31, 1999, and the
aggregate of the service and interest cost for 1999 by
approximately $178,000; a 1% annual decrease would reduce the
accrued postretirement benefit obligation by approximately
$1,335,000 as of December 31, 1999, and the aggregate of the
service and interest cost for 1999 by approximately $142,000.
The Company has an Employee Stock Ownership Plan (ESOP) for
non-bargaining salaried employees and for bargaining unit
clerical employees of Maui Pineapple Company, Ltd. All of the
shares originally sold to the ESOP in 1979 have been allocated to
participants since December of 1993. In December of 1999, 7,300
shares of the Company's common stock held by a wholly owned
subsidiary were contributed to the ESOP. The Company recorded a
charge to employee benefit expense of $137,000 and a
corresponding credit to Common Stock. Effective December 31,
1999, the Company's Board of Directors approved a plan amendment
to freeze the ESOP. Accordingly, after 1999 there will be no
further contributions to the ESOP and no additional employees
will become participants of the plan.
On October 1, 1998, deferred compensation plans that
provided for specified payments after retirement for certain
management employees were terminated. At the termination date,
these employees were given credit for existing years of service
and future accruals were discontinued.
8. OTHER INCOME
Revenues attributable to real estate sales other than
inventory held for sale were $223,000, $591,000 and $5.2 million,
respectively, in 1999, 1998 and 1997, and were included in Other
Income.
9. LEASES
LESSEE
The Company has capital leases, primarily on equipment used
in pineapple operations, which expire at various dates through
2002. At December 31, 1999 and 1998, property included capital
leases of $900,000 and $1,699,000, respectively (accumulated
depreciation of $452,000 and $684,000, respectively). Future
minimum rental payments under capital leases aggregate $736,000
(including $52,000 representing interest) and are payable as
follows (2000 to 2002): $300,000, $275,000, $161,000.
The Company has various operating leases, primarily for land
used in pineapple operations, which expire at various dates
through 2012. A major operating lease covering approximately
1,500 acres used primarily for pineapple operations expired on
December 31, 1999. The lease currently is being renegotiated for
a minimum term of ten years. Total rental expense under
operating leases was $801,000 in 1999, $746,000 in 1998, $804,000
in 1997. Future minimum rental payments under operating leases
aggregate $5,592,000 and are payable during the next five years
(2000 to 2004) as follows: $670,000, $591,000, $587,000,
$465,000, $435,000, respectively, and $2,844,000 thereafter.
LESSOR
The Company leases land and land improvements, primarily to
hotels at Kapalua, and buildings, primarily to retail tenants.
The leases generally provide for minimum rents and, in most
cases, percentage rentals based on tenant revenues. In addition,
the leases generally provide for reimbursement of common area
maintenance and other expenses. Total rental income under these
operating leases was as follows:
1999 1998 1997
(Dollars in Thousands)
Minimum rentals $ 1,744 $ 1,694 $ 1,575
Percentage rentals 2,232 1,279 1,140
Total $ 3,976 $ 2,973 $ 2,715
Property at December 31, 1999 and 1998 includes leased
property of $20,473,000 and $20,184,000, respectively
(accumulated depreciation of $10,623,000 and $9,961,000,
respectively).
Future minimum rental income aggregates $8,360,000 and is
receivable during the next five years (2000 to 2004) as follows:
$1,508,000, $1,244,000, $1,041,000, $879,000, $658,000,
respectively, and $3,030,000 thereafter.
10. INCOME TAXES
The components of the income tax provision were as follows:
1999 1998 1997
(Dollars in Thousands)
Current
Federal $ 1,831 $ 1,225 $ 931
State 334 30 (119)
Total 2,165 1,255 812
Deferred
Federal 584 (415) (433)
State (32) (108) 120
Total 552 (523) (313)
Total provision $ 2,717 $ 732 $ 499
Reconciliation between the total provision and the amount
computed using the statutory federal rate of 34% follows:
1999 1998 1997
(Dollars in Thousands)
Federal provision at
statutory rate $ 2,512 $ 1,471 $ 463
Adjusted for
State income taxes,
net of effect on
federal income taxes 200 (91) (5)
Appreciated property donation -- (721) --
Other 5 73 41
Total income tax
provision $ 2,717 $ 732 $ 499
Deferred tax assets and liabilities were comprised of the
following types of temporary differences as of December 31, 1999
and 1998:
1999 1998
(Dollars in Thousands)
Accrued retirement benefits $ 6,921 $ 7,216
Minimum tax credit carryforward 2,567 3,566
Accrued liabilities 1,120 1,279
Inventory 439 230
Allowance for doubtful accounts 216 176
Net operating loss carryforward 70 111
Total deferred tax assets 11,333 12,578
Deferred condemnation proceeds (5,864) (5,998)
Property net book value (2,629) (2,968)
Income from partnerships (1,840) (2,246)
Pineapple marketing costs (583) (409)
Other (120) (108)
Total deferred tax liabilities (11,036) (11,729)
Net deferred tax asset $ 297 $ 849
At December 31, 1999, the Company had federal minimum tax
credit carryforwards of $2.6 million.
In December of 1998, issues regarding the charitable
donation of appreciated property in 1989 and 1990 were settled
with the Internal Revenue Service. Deferred tax liabilities that
would not reverse in the future as a result of the settlement
were recognized in 1998 as a credit in the income tax provision.
The Company's federal income tax returns for 1990 through
1993 are under examination by the Internal Revenue Service. The
revenue agent's report on these years has not yet been issued and
the Company presently cannot predict the outcome of these
examinations.
11. INTEREST CAPITALIZATION
Interest cost incurred in 1999, 1998 and 1997 was
$2,477,000, $3,179,000 and $3,214,000, respectively, of which
$643,000, $140,000 and $169,000, respectively, was capitalized.
12. ADVERTISING AND RESEARCH AND DEVELOPMENT
Advertising expense totaled $1,801,000 in 1999, $1,397,000
in 1998 and $1,592,000 in 1997. Research and development
expenses totaled $839,000 in 1999, $815,000 in 1998 and $601,000
in 1997.
13. SUBSEQUENT EVENT
On February 24, 2000, the Company's Board of Directors
declared a cash dividend of $.125 per share payable on March 31,
2000.
14. CONTINGENCIES AND COMMITMENTS
The County of Maui sued several chemical manufacturers
claiming that they were responsible for the presence of a
nematocide commonly known as DBCP in certain water wells on Maui.
The Company was a Third Party Defendant in the suit as a result
of a 1978 agreement for the sale of DBCP between the Company and
one of the DBCP manufacturers. In August 1999, settlement of the
case was reached. The Company's portion of the cash payment in
1999 to install filtration systems in the existing contaminated
wells was substantially covered by proceeds of a settlement
concluded on this issue with its insurance carrier. The Company
and the other defendants as a group have agreed that until
December 1, 2039, they will pay for 90% of the capital cost to
install filtration systems in any future wells if DBCP
contamination exceeds specified levels and for the ongoing
maintenance and operating cost for filtration systems on existing
and future wells. 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. To secure the
obligations of the defendants under the settlement agreement, the
defendants are required to furnish to the County of Maui an
irrevocable standby letter of credit throughout the entire term
of the agreement. The Company has 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 has recorded a reserve for this liability. Such
amount did not have a material effect on the Company's financial
statements for the year ended December 31, 1999. 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 the
DBCP from the water. 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.
There are various claims and legal actions pending against
the Company. In the opinion of management, after consultation
with legal counsel, the resolution of these matters will not have
a material adverse effect on the Company's financial position or
results of operations.
The Company has guaranteed the payment of up to $10 million
of the $61 million mortgage loan of Kaahumanu Center Associates.
The lender will release the guaranty when Kaahumanu Center
attains a defined level of net operating income.
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.
At December 31, 1999, the Company had commitments under
signed contracts totaling $5,029,000.
15. CONCENTRATIONS OF CREDIT RISK
A substantial portion of the Company's trade receivables
results from sales of pineapple products, primarily to food
distribution customers in the United States. Credit is extended
after evaluating creditworthiness and no collateral generally is
required from customers. Notes receivable result principally
from sales of real estate in Hawaii and are collateralized by the
property sold.
16. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Except as indicated below, the carrying amount is considered
to be the fair value of financial instruments. The following
methods and assumptions were used to estimate the fair value of
certain financial instruments:
Notes Receivable:
The fair value of these assets was estimated based on rates
currently available for similar types of transactions.
Long-Term Debt:
The fair value of these liabilities was estimated based on
rates currently available to the Company for debt with similar
terms and remaining maturities.
The estimated fair values for these financial instruments at
December 31, 1999 and 1998 were as follows:
1999 1998
(Dollars in Thousands)
Carrying Fair Carrying Fair
Amount Value Amount Value
Notes Receivable $ 1,101 $ 1,101 $ 255 $ 272
Long-Term Debt 27,139 26,348 25,167 25,189
17. BUSINESS SEGMENTS
The Company's reportable segments are Pineapple, Resort and
Commercial & Property. Each segment is a line of business
requiring different technical and marketing strategies.
Pineapple includes growing pineapple, canning pineapple in
tin-plated steel containers fabricated by the Company, and
marketing canned and fresh pineapple products.
Resort includes the development and sale of real estate,
property management and the operation of recreational and retail
facilities and utility companies at Kapalua on Maui.
Commercial & Property covers non-resort real estate
activities, including the Company's investment in Kaahumanu
Center Associates, Napili Plaza shopping center and non-resort
real estate development, rentals and sales. It includes the
Company's land entitlement and land management activities.
The accounting policies of the segments are the same as
those described in Note 1, Summary of Significant Accounting
Policies.
Commercial
1999 Pineapple Resort & Property Other Consolidated
(Dollars in Thousands)
Revenues (1)(3) $94,535 $ 47,950 $ 4,381 $ 132 $ 146,998
Operating profit (loss)(2) 6,071 5,702 (454) (2,098) 9,221
Interest expense (919) (443) (133) (339) (1,834)
Income (loss) before
income taxes and
extraordinary loss 5,152 5,259 (587) (2,437) 7,387
Depreciation 5,040 2,796 481 128 8,445
Equity in earnings (losses) of
joint ventures 116 (172) (900) -- (956)
Investment in joint ventures 198 905 (8,944) -- (7,841)
Segment assets (4) 69,733 64,943 7,190 11,521 153,387
Expenditures for
segment assets 8,030 13,750 226 795 22,801
1998
Revenues (1)(3) $97,658 $ 41,929 $ 4,087 $ 37 $ 143,711
Operating profit (loss)(2) 5,480 5,239 (1,085) (1,067) 8,567
Interest expense (1,543) (1,089) (167) (240) (3,039)
Income (loss) before
income taxes and
extraordinary loss 3,937 4,150 (1,252) (1,307) 5,528
Depreciation 4,795 2,743 487 151 8,176
Equity in earnings (losses) of
joint ventures 79 1 (1,240) -- (1,160)
Investment in joint ventures 145 495 (7,969) -- (7,329)
Segment assets (4) 62,384 53,323 6,780 13,760 136,247
Expenditures for
segment assets 6,433 3,930 406 997 11,766
1997
Revenues (1)(3) $90,949 $ 40,338 $ 5,065 $ 146 $ 136,498
Operating profit (loss)(2) 2,079 3,772 (479) (965) 4,407
interest expense (1,479) (1,102) (164) (300) (3,045)
Income (loss) before
income taxes and
extraordinary loss 600 2,670 (643) (1,265) 1,362
Depreciation 4,562 2,898 415 166 8,041
Equity in losses of
joint ventures -- (56) (1,155) -- (1,211)
Investment in joint ventures 100 112 (6,655) -- (6,443)
Segment assets (4) 64,443 52,437 6,922 11,705 135,507
Expenditures for
segment assets 6,485 4,153 1,002 822 12,462
(1) Amounts are principally revenues from external customers.
Intersegment revenues and interest revenues were insignificant.
Sales to any single customer did not exceed 10% of consolidated
revenues. Revenues attributed to foreign countries were $3.1
million, $4.3 million and $3.4 million, respectively, in 1999,
1998 and 1997. Foreign sales are attributed to countries based
on the location of the customer.
(2) "Operating profit (loss)" is total revenues less all
expenses except allocated interest expenses and income taxes.
Operating profit (loss) included in "Other" is primarily
unallocated corporate expenses.
(3) Resort includes gains on land sales of $370,000 in 1998 and
$4.2 million in 1997. Commercial & Property includes gains on
land sales of $223,000 in 1999, $221,000 in 1998 and $1 million
in 1997.
(4) Segment assets are located in the United States, primarily
Maui. Other assets are corporate and non-segment assets.
COMMON STOCK
A dividend of $.125 per share was paid in March of 1999.
The Company did not declare any dividends in 1998. The
declaration and payment of cash dividends are restricted by the
terms of borrowing arrangements to 30% of prior year's net
income.
At February 3, 2000, there were 357 shareholders of record.
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. Also on May 1, 1998, the Company's common stock was
listed and began trading on the American Stock Exchange under the
symbol "MLP."
Prior to May 1, 1998, the stock was traded over the counter
nationally. The following chart reflects high and low sales
prices after April 1998 and high and low bid prices as supplied
by the National Quotation Bureau Incorporated for periods before
May 1998. The quotes from the National Quotation Bureau reflect
inter-dealer prices and do not include retail markup, markdown or
commission and may not necessarily represent actual transactions.
First Second Third Fourth
Quarter Quarter Quarter Quarter
1999 High $ 10 $ 15 7/8 $ 30 3/4 $ 21 3/4
Low 9 9 7/8 15 17 3/8
1998 High 11 1/4 21 5/8 14 7/8 10 3/8
Low 10 15/16 10 7/8 9 1/4 8 13/16
SELECTED FINANCIAL DATA
1999 1998 1997 1996 1995
(Dollars in Thousands Except Per Share Amounts)
FOR THE YEAR
Summary of Operations
Revenues $ 146,998 $ 143,711 $ 136,498 $ 136,335 $ 125,577
Cost of goods sold 74,494 76,049 72,200 75,279 69,314
Operating expenses 27,440 26,168 26,027 24,030 24,315
Shipping and marketing 18,479 16,673 18,053 19,185 16,793
General and
administrative 16,408 15,094 14,600 14,507 15,160
Equity in (earnings) losses
of joint ventures 956 1,160 1,211 882 (4,001)
Interest expense 1,834 3,039 3,045 3,575 7,021
Income tax expense
(credit) 2,717 1,188 499 (376) (1,466)
Income (loss) before
extraordinary loss 4,670 4,340 863 (747) (1,559)
Extraordinary loss, net of
income tax credit -- (744) -- -- --
Net income (loss) 4,670 3,596 863 (747) (1,559)
Per Common Share (1)
Income (loss) before
extraordinary loss .65 .60 .12 (.10) (.22)
Extraordinary loss, net of
income tax credit -- (.10) -- -- --
Net income (loss) .65 .50 .12 (.10) (.22)
Other Data
Cash dividends
Amount 899 -- -- 90 --
Per common share (1) .125 -- -- .01 --
Depreciation $ 8,445 $ 8,176 $ 8,041 $ 8,606 $ 10,202
Return on beginning
stockholders' equity 7.5% 6.1% 1.5% (1.3%) (2.6%)
Percent of net income (loss)
to revenues 3.2% 2.5% .6% (.5%) (1.2%)
AT YEAR END
Current assets less
current liabilities (2) $12,924 $ 18,985 $ 20,283 $ 19,467 $ 23,428
Ratio of current assets
to current liabilities (2) 1.5 2.1 2.2 2.2 2.8
Property, net of
depreciation $100,976 $ 89,921 $ 88,047 $ 86,610 $ 88,557
Total assets 153,387 136,247 135,507 132,851 137,085
Long-term debt and
capital leases 25,497 23,592 29,435 28,898 36,227
Stockholders' equity
Amount 66,400 62,492 58,896 58,033 58,870
Per common share (1) $ 9.23 $ 8.69 $ 8.19 $ 8.07 $ 8.19
Common shares
outstanding (1) 7,195,800 7,188,500 7,188,500 7,188,500 7,188,500
(1) All references to the number of shares of common stock and
per share amounts have been restated to reflect the four-for-one
common stock split as of May 1, 1998.
(2) Current assets less current liabilities and ratio of current
assets to current liabilities for 1999 decreased primarily
because of increased accounts payable resulting from the high
level of construction in progress at year-end.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1999 vs. 1998
CONSOLIDATED
The Company reported consolidated net income of $4.7 million
for 1999 compared to $3.6 million for 1998. Higher net income in
1999 was due to improved results from all of the Company's
business segments and to lower interest expense. In addition,
net income for 1998 included an extraordinary loss of $744,000
(net of taxes) for the prepayment of $20 million of debt.
General and administrative expenses for 1999 were higher
than 1998 by 9% or $1.3 million. Included in 1999 are $1.1
million of deferred cost write-offs for consultants who were
engaged to analyze and develop potential strategic plans for the
Company. These costs were charged to expense in the second
quarter of 1999 because of the then pending sale (now completed)
of approximately 41% of the Company's outstanding shares by
certain shareholders. Other components of the increased expense
in 1999 were increased accruals for bonus incentives for the
Company's non-bargaining personnel and a reserve for the
Company's portion of costs of filtration of certain water wells
on Maui (see Note 14 to Consolidated Financial Statements).
Partially offsetting these increases were lower pension expense
as a result of favorable investment experiences and lower expense
for postretirement health and life insurance because of lower
premium cost and a reduction in the number of covered employees.
Interest expense was lower in 1999 by 40% compared to 1998
as a result of lower average borrowings and interest rates, and
because of a greater amount of interest capitalized in 1999.
Borrowings were lower in 1999 because a large part of the 1999
capital expenditures and other cash outflows for investing
activities were funded by cash flows from operating activities.
The higher amount of interest capitalized was largely due to
commencing construction during 1999 of the Village Course
Clubhouse and Kapalua Golf Academy.
PINEAPPLE
Pineapple revenues decreased in 1999 by 3% or $3.1 million
compared to 1998. Operating profit was $6.1 million in 1999
compared to $5.5 million in 1998. Lower revenues were due
largely to a decline in case sales volume (the number of cases
sold) of canned pineapple. Lower case sales volume can be
attributed in part to a planned reduction in the acreage planted
to eliminate planting in unreliable fields with a history of low
yields. The decrease in case volume also is attributable to a
substantial increase in imports of canned pineapple into the
United States during the second half of 1999. The decrease in
revenues caused by lower sales volume was partially offset by
higher average prices. Higher average prices in 1999 were
largely the result of low inventories of imports at the beginning
of the year, which kept prices firm through the first half of
1999. Competitive pressure on prices increased in the second
half of 1999, reflecting the large increase in imports after May.
Pineapple cost of sales decreased in 1999 by 4% or $2.8
million, largely as a function of the decrease in case sales
volume. Average cost of sales per case of pineapple sold was
higher in 1999, primarily because in 1998 there was a partial
liquidation of LIFO inventories resulting in lower costs from
prior years being included in cost of sales. Cost of sales for
1998 would have been higher by $1.6 million based on current
production costs for 1998. Unit production cost in 1999 and 1998
were approximately the same.
Lower shipping and selling costs in 1999, as a result of the
reduction in case sales volume and decreased general and
administrative costs, more than offset increased marketing
expenses.
Over the past several years companies in Central America and
Southeast Asia have increased their plantings. Therefore,
competition is expected to continue to intensify as more of these
plantings reach maturity. Accordingly, case volume of imports of
canned pineapple products into the U.S. is expected to increase
in 2000.
Antidumping duties were in effect on canned pineapple fruit
imported from Thailand since mid-1995 as a result of an
antidumping petition in 1994 to which the Company was a party.
In 1997, both the Company and the U.S. Department of Commerce
(DOC) appealed a November 1996 decision by the United States
Court of International Trade (USCIT) regarding the appropriate
method to allocate cost to canned pineapple. The USCIT decision
required the DOC to recalculate the antidumping duties using
accounting methods not normally used by Thai producers. The
Company and the DOC believe this method understated the magnitude
of canned pineapple dumping by Thai producers. In July 1999, the
United States Court of Appeals for the Federal Circuit reversed
the decision of the USCIT.
The amount of duties on pineapple imports from Thailand is
subject to annual administrative reviews by the DOC. Either the
Company or the Thai producers may request these reviews. If the
cost of production changes relative to the selling price of the
product in the U.S., the duties would be adjusted. Some of the
Thai pineapple companies have significantly reduced their
antidumping duties through the annual review process. Present
antidumping duties on imports of canned pineapple fruit from
Thailand range from less than 1% up to 51%. The DOC has begun
its fourth annual review and preliminary margins are expected to
be announced in April 2000. A "Sunset Review" of the duties is
scheduled to begin in summer 2000. The Company is not currently
able to estimate when results of the Sunset Review will be
available. For a continuation of existing duties, the Company
must convince the U.S. International Trade Commission during the
Sunset Review that elimination of the duties will potentially
cause injury to the domestic industry. Elimination of the import
duties could have a material adverse effect on the Company.
The Company manufactures all of the cans that it uses to can
pineapple at its Kahului cannery with tin-coated steel imported
from Japan. During the last quarter of 1999, a United States
steel company and certain labor unions filed an antidumping
petition with the U.S. International Trade Commission claiming
that the U.S. industry is materially injured by reason of imports
of tin-coated and chromium-coated steel sheet from Japan that are
allegedly sold in the United States at less than fair value. The
U.S. Department of Commerce is presently conducting an
antidumping investigation of imports of this product from Japan
and a preliminary antidumping determination is expected in April
2000. The results of this investigation could potentially
increase the Company's cost of canned pineapple production.
RESORT
Kapalua Resort revenues (including operations and
development) increased in 1999 by 14% or $6 million compared to
1998. Resort operating profit was $5.7 million in 1999 compared
to $5.2 million in 1998. Approximately 30% of the revenue
increase in 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 1999. In 1998, Kapalua did not host a
major golf tournament; thus, the 1999 tournament expenses were
the primary reason for the increase in Resort marketing expense
in 1999.
Revenue from the sale of real estate inventories increased
by 3% in 1999 and the contribution to operating profit was $2.2
million in 1999 compared to $2.8 million in 1998. In the fourth
quarter of 1999, construction and sale of fourteen single-family
lots in Plantation Estates Phase II began. Construction is
expected to be substantially completed in the first quarter of
2000 and, in 1999, the Company recognized profit on the
percentage-of-completion method for the sales that closed prior
to year-end. Sale of Resort real estate inventories in 1998
included a December 1998 sale of a 75-acre parcel in Plantation
Estates Phase II.
Revenues from the Resort golf operations increased by 8%,
merchandise sales increased by 16%, income from The Kapalua
Villas rental program increased by 20% and income from lease
rents increased by 58%. A large part of the increase in lease
rent income is attributable to recognizing lease rents from The
Ritz Carlton, Kapalua Hotel as of January 1, 1999. The Company
did not recognize revenue from that ground lease since December
31, 1995, as a result of an agreement to offset lease rents
against a previous loan from the partnership that originally
owned the hotel. As of January 1, 1999, the remaining loan
balance was canceled. For accounting purposes, the loan was
written off against the related off site improvements in 1995.
In addition to these lease rents, revenue increased in 1999
because of increased hotel room occupancies throughout the Resort
and at The Kapalua Villas, as well as higher room rates at The
Kapalua Villas, an increase in paid rounds of golf and higher
green fees and cart fees.
COMMERCIAL & PROPERTY
Revenue from Commercial & Property was $4.4 million in 1999
compared to $4.1 million in 1998. Gains from land sales of
$223,000 in 1999 were comparable to 1998. The segment produced
an operating loss of $454,000 in 1999 compared to $1.1 million in
1998. The primary reason for the lower operating loss was a
reduction in the loss from Kaahumanu Center. The Company's
equity in losses of Kaahumanu Center Associates was $900,000 in
1999 or $340,000 less than 1998. Improved results from Kaahumanu
Center primarily reflect increased rental revenues because of an
increase in the percentage of space occupied and higher sales
reported by the tenants, higher recoveries of common area costs
and lower expense for bad debts.
1998 vs. 1997
CONSOLIDATED
The Company reported consolidated net income of $3.6 million
for 1998 compared to $863,000 for 1997. The increase in net
income for 1998 resulted from higher operating profits from
Pineapple and Kapalua Resort operations that more than offset
lower results from the Commercial & Property segment. In
December of 1998, the Company retired $20 million of 8.86% senior
unsecured notes. The prepayment penalty of $1.2 million was
accounted for as an extraordinary loss of $744,000 (net of income
tax credit of $456,000).
General and administrative expenses increased by 3% in 1998
compared to 1997. The increase primarily was due to higher
expense for postretirement health and life insurance benefits
because of a .5% discount rate reduction as of December 31, 1997,
accruals for incentive awards for the Company's non-bargaining
salaried personnel and charges for an enhanced early retirement
package offered to employees in the Pineapple and Corporate
divisions. The increase in expense in these categories was
partially offset by lower expenses in the land management area
and reductions in insurance costs.
Interest expense in 1998 was comparable to 1997.
PINEAPPLE
Pineapple revenues of $97.7 million in 1998 increased $6.8
million over 1997. This increase was due to higher case sales
volume (the number of cases sold) of canned pineapple and to
higher average prices. Higher prices and case sales volume was
attributed to a reduction in the volume of imports of canned
pineapple into the United States that began during the fourth
quarter of 1998. A change in the product mix sold (fruit, juice,
concentrate) and a higher volume of fresh product sales accounted
for most of the remaining revenue increase. Operating profit was
$5.5 million in 1998 compared to $2.1 million in 1997.
Pineapple cost of sales increased as a result of higher
sales volume. However, the average cost per case decreased in
1998 compared to 1997. In 1998, a partial liquidation of LIFO
inventories resulted in lower costs from prior years being
included in cost of sales. Cost of sales would have been higher
by $1,636,000 based on current production costs for 1998. Per
unit production costs were slightly lower in 1998 compared to
1997 as a result of improved recoveries (the amount of saleable
product per ton of fruit processed), reduction of personnel costs
through an early retirement program, job consolidations and other
production efficiencies.
Shipping and selling costs were higher in 1998 compared to
1997 due to higher volume of cases sold and increases in
warehousing and transportation costs.
RESORT
Revenues from the Kapalua Resort (including operations and
development) were $41.9 million in 1998 compared to $40.3 million
in 1997. Resort operating profit was $5.2 million in 1998
compared to $3.8 million in 1997. Operating profit for 1998
included $3.2 million from the sale of real estate inventory and
gain from land sales at the Resort. In December of 1998, a 75-
acre parcel in Plantation Estates Phase II was sold, which
contributed $5.3 million to revenues and $2.8 million to Resort
operating profit. This large parcel, originally planned for 26
lots, was consolidated by the buyer into a single lot for family
use that may be subdivided into a maximum of eight lots. In
1997, the sale of a 50% interest in a 12-acre beachfront parcel
at Kapalua contributed $4.2 million to Resort revenues and
operating profit.
Excluding sales of real estate inventory and gains from land
sales, Resort operating profit was $2 million in 1998 compared to
an operating loss of $452,000 in 1997. The improved results were
partially due to the re-opening of The Kapalua Bay Hotel, which
was closed during part of 1997. Ground rents for the hotel were
suspended until September of 1997 while restoration work took
place. In 1998, revenues from commercial leases increased by
23%.
Revenues from Resort golf operations increased by 6% in 1998
due to an increase in the number of paid rounds and higher
average rates for green and cart fees. Gross rental income and
management fees from The Kapalua Villas rental program increased
by 12% in 1998 as a result of higher occupancies and higher
average room rates. Kapalua Realty contributed a 62% increase in
commission revenues. Merchandise sales declined in 1998 by 2%
compared to 1997.
Marketing expenses were lower in 1998 compared to 1997
primarily because Kapalua did not host a major golf tournament in
1998. Cost of sales was lower in 1998 as a result of the lower
volume of merchandise sales. Increases in other operating and
administrative expenses offset these reductions. However,
overall expenses for 1998 exceeded 1997 by less than 1%.
COMMERCIAL & PROPERTY
Revenues from Commercial & Property were $4.1 million in
1998 compared to $5.1 million in 1997. This segment produced an
operating loss of $1.1 million in 1998 compared to $479,000 in
1997. The reduction in revenue and the increase in operating
loss were principally due to a decrease in land sales
attributable to this segment. Land sales contributed gains of
$221,000 in 1998 compared to $1 million in 1997.
Costs and expenses for this segment were $5.2 million in
1998 compared to $5.5 million in 1997. Lower expense in 1998 was
due primarily to lower insurance and other costs for land
management. The Company's equity in losses of Kaahumanu Center
Associates was $1,240,000 in 1998 compared to $1,155,000 in 1997.
The increase in the loss reflects reductions in minimum rents and
lower recoveries of common area costs from tenants.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company's total debt, including
capital leases, was $28.6 million, an increase of $2.2 million
from year-end 1998. Unused short- and long-term credit lines
available to the Company at December 31, 1999 totaled $31.7
million. Due to the seasonal nature of the Company's pineapple
operations, the timing of construction and sales of Resort real
estate projects and the level of planned capital expenditures for
2000, the debt level is expected to increase and peak during the
third quarter of 2000. The credit facilities currently available
to the Company are estimated to be adequate to cover the planned
capital expenditures and seasonal cash requirements.
Resort capital expenditures are expected to be $9.8 million
in 2000. This amount includes $6.3 million for completion of The
Village Course Clubhouse and Kapalua Golf Academy and
approximately $2.5 million for replacement of existing equipment
and facilities. Pineapple capital expenditures are expected to
be $13.4 million in 2000 of which approximately $5.2 million is
for the replacement of existing equipment and facilities.
Approximately $3.9 million has been allocated to secure
additional land and water resources on Maui for farming and $1.5
million is budgeted to be spent in 2000 on a project to replace
the information systems used by the pineapple and corporate
divisions. Approximately $700,000 will be expended in 2000 to
complete a new water well for the Company's Haliimaile
plantation.
At December 31, 1999, the Company was in violation of the
minimum current ratio requirement for its $30 million revolving
credit line and development facility. The lenders subsequently
waived the violation with respect to year-end 1999. The Company
believes that the conditions that caused the violation will be
different in the future. For example, at year-end 1999 accounts
payable related to capital expenditures were exceptionally high.
The Company's credit facilities available at year-end 1999 were
more than adequate to liquidate these current liabilities with
long-term debt; however, the timing of the progress billings did
not allow for payment prior to year-end. In 2000, the Company
expects progress billings to be submitted on a more timely basis
and to be paid with long-term debt. In addition, at year-end
1999, the Company's current liabilities included approximately
$3.3 million of deferred revenue, primarily representing proceeds
received on closed sales in Plantation Estates Phase II, in
excess of revenue recognized in 1999 on the percentage-of-
completion method. The cash proceeds from such sales, which were
not immediately required to complete the improvements were used
to reduce long-term debt. The deferred revenue relating to this
project is expected to be realized as income in the first quarter
of 2000. The Company's financial projections for 2000, which
reflect the aforementioned differences in conditions, indicate
that the Company should be in compliance with this working
capital covenant throughout 2000.
The Company, as a partner in various partnerships, may under
particular circumstances be called upon to make additional
capital contributions (see Note 3 to Consolidated Financial
Statements).
IMPACT OF INFLATION AND CHANGING PRICES
The Company uses the LIFO method of accounting for its
pineapple inventories. Under this method, the cost of products
sold approximates current cost and during periods of rising
prices the ending inventory is reflected at an amount below
current cost. The replacement cost of pineapple inventory was
$21 million at December 31, 1999, which was $11 million more than
the amount reflected in the financial statements.
Most of the land owned by the Company was acquired from 1911
to 1932 and is carried at cost. A small portion of "Real Estate
Held for Sale" represents land cost. Replacements and additions
to the Pineapple operations occur every year and some of the
assets presently in use were placed in service in 1934. At
Kapalua, some of the fixed assets were constructed and placed in
service in the mid-to-late 1970s. Depreciation expense would be
considerably higher if fixed assets were stated at current cost.
YEAR 2000
The Company encountered no significant date-related problems
when the year 2000 began. The Company anticipates that its
Information Services personnel will spend approximately 5% of
their time in 2000 to monitor business critical systems for any
date-related problems that may occur during the year and through
year-end 2000. No material future expenditures have been
identified.
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. At December
31, 1999, 80% of the Company's short- and long-term borrowing
commitments carried interest rates that were periodically
adjustable to the prime rate, a Federal Farm Credit Bank index
rate or to a LIBOR rate and 20% carried interest at fixed rates.
Based on debt outstanding at the end of 1999, a hypothetical 100
basis point increase in interest rates would result in a
reduction to annual pretax income of approximately $120,000. A
hypothetical decrease in interest rates of 100 basis points would
increase the fair value of the Company's long-term debt by
approximately $319,000. At December 31, 1999, the carrying value
of the Company's long-term debt exceeded the fair value by
approximately $792,000 as a result of a general increase in
quoted interest rates.
FORWARD-LOOKING STATEMENTS
The Company's Annual Report to Shareholders contains forward-
looking statements (within the meaning of Private Securities
Litigation Reform Act of 1995) as to the future of new products
and new business development, distribution of pineapple under the
Royal Coast label, future cost reductions in pineapple
operations, the volume of imports of canned pineapple into the
United States, results of the Department of Commerce fourth
annual review of antidumping duties on canned pineapple fruit,
success of The Village Course Clubhouse and Kapalua Golf Academy,
and development and sale of condominiums comprising The Coconut
Grove on Kapalua Bay, completion of development of Plantation
Estates Phase II, obtaining final subdivision approval, zoning
change and Community Plan amendment for and presales of Site 19,
and 2000 projections of working capital. In addition, from time
to time, the Company may publish forward-looking statements as to
those matters or other aspects of the Company's anticipated
financial performance, business prospects, new products,
marketing initiatives, or similar matters.
Forward-looking statements contained in the Annual Report to
Shareholders or otherwise made by the Company are subject to
numerous factors (in addition to those otherwise noted in the
Company's Annual Report or in its filings with the Securities and
Exchange Commission) that could cause the Company's actual
results and experience to differ materially from expectations
expressed by the Company. Factors that might cause such
differences, among others, include (1) changes in domestic,
foreign or local economic conditions that affect availability or
cost of funds, or the number, length of stay or expenditure
levels of eastbound or westbound visitors, or agricultural
production and transportation costs of the Company and its
competitors, or Maui retail or real estate activity; (2) the
effect of weather conditions on agricultural operations of the
Company and its competitors; (3) the success of the Company in
obtaining land use entitlements and timely resolution of
contested case proceedings or other actions that could delay or
prevent the Company's development activities or public projects
that may affect its operations; (4) the possibility of an
unfavorable outcome in the "Sunset Review" of antidumping duties;
(5) events in the airline industry affecting passenger or freight
capacity or cost; (6) possible shifts in market demand; (7) the
impact of competing products, competing resort destinations, and
competitors' pricing; and (8) the possibility of an unfavorable
outcome in the antidumping investigation of imports of tin-coated
steel from Japan.
MAUI LAND & PINEAPPLE COMPANY, INC.
Officers
President & Chief Executive Officer
Gary L. Gifford
Executive Vice President/Finance
Paul J. Meyer
Executive Vice President/Pineapple
Douglas R. Schenk
Executive Vice President/Resort
Donald A. Young
Vice President/Retail Property
Scott A. Crockford
Vice President/Land Management & Development
Warren A. Suzuki
Treasurer
Darryl Y. H. Chai
Secretary
Adele H. Sumida
Controller & Assistant Treasurer
Ted L. Proctor
Directors
Richard H. Cameron--Chairman
Private Investor
Daniel H. Case
Chairman of the Board
Case Bigelow & Lombardi
David A. Heenan
Trustee
The Estate of James Campbell
Randolph G. Moore
Chief Executive Officer
Kaneohe Ranch
Claire C. Sanford
Co-owner
Top Dog Studio
Fred E. Trotter III
President
F. E. Trotter, Inc.
Mary C. Sanford-Director Emeritus
Retired Chairman of the Board
Maui Publishing Company, Ltd.
Compensation Committee
Fred E. Trotter III--Chairman
Richard H. Cameron
Daniel H. Case
David A. Heenan
Randolph G. Moore
Claire C. Sanford
Mary C. Sanford
Audit Committee
Randolph G. Moore-Chairman
David A. Heenan
Fred E. Trotter III
PRINCIPAL SUBSIDIARIES
MAUI PINEAPPLE COMPANY, LTD.
Officers
President & Chief Executive Officer
Douglas R. Schenk
Executive Vice President/Sales & Marketing
James B. McCann
Executive Vice President/Finance
Paul J. Meyer
Vice President/Cannery
Eduardo E. Chenchin
Vice President/Plantations
L. Douglas MacCluer
Treasurer
Darryl Y. H. Chai
Secretary
Adele H. Sumida
Controller
Stacey M. Jio
Assistant Treasurer
Ted L. Proctor
Directors
Richard H. Cameron-- Chairman
Daniel H. Case
Gary L. Gifford
David A. Heenan
Paul J. Meyer
Randolph G. Moore
Claire C. Sanford
Douglas R. Schenk
Fred E. Trotter III
Mary C. Sanford-Director Emeritus
KAPALUA LAND COMPANY, LTD.
Officers
President & Chief Executive Officer
Donald A. Young
Executive Vice President/Finance
Paul J. Meyer
Vice President/Marketing
Kim D. Carpenter
Vice President/Administration
Caroline P. Egli
Vice President/Development
Robert M. McNatt
Vice President/Resort Operations
Gary M. Planos
Treasurer
Darryl Y. H. Chai
Secretary
Adele H. Sumida
Controller
Russell E. Johnson
Assistant Treasurer
Ted L. Proctor
Directors
Richard H. Cameron-- Chairman
Daniel H. Case
Gary L. Gifford
David A. Heenan
Paul J. Meyer
Randolph G. Moore
Claire C. Sanford
Fred E. Trotter III
Donald A. Young
Mary C. Sanford--Director Emeritus
