-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L69aEYZYzgQiJKcXeUQEWqvd9Kj8GNwCTIF4fUgHxKUwa3OMWuAUofwsobXVUI/J 2GIy1dKvPTxGiBn6k1aauw== 0000063330-02-000004.txt : 20020415 0000063330-02-000004.hdr.sgml : 20020415 ACCESSION NUMBER: 0000063330-02-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAUI LAND & PINEAPPLE CO INC CENTRAL INDEX KEY: 0000063330 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FRUITS, VEG & PRESERVES, JAMS & JELLIES [2033] IRS NUMBER: 990107542 STATE OF INCORPORATION: HI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06510 FILM NUMBER: 02582350 BUSINESS ADDRESS: STREET 1: PO BOX 187 STREET 2: 120 KANE ST CITY: KAHULUI MAUI STATE: HI ZIP: 96732 BUSINESS PHONE: 8088773351 MAIL ADDRESS: STREET 1: PO BOX 187 CITY: KAHULUI STATE: HI ZIP: 96732 10-K 1 form10k.txt 2001 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-6510 MAUI LAND & PINEAPPLE COMPANY, INC. (Exact name of registrant as specified in its charter) HAWAII 99-0107542 (State or other jurisdiction (IRS Employer Identification of incorporation or organization) number) 120 KANE STREET, P. O. BOX 187, KAHULUI, MAUI, HAWAII 96733-6687 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (808) 877-3351 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, without Par Value American Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value, as of February 12, 2002, of the voting stock held by non-affiliates of the registrant: $163,704,000. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at February 12, 2002 Common Stock, no par value 7,195,800 shares Documents incorporated by reference: Parts I, II and IV -- Portions of the 2001 Annual Report to Security Holders. Part III - Portions of Proxy Statement dated March 25, 2002. Exhibit Index--pages 17-19. PART I Item 1. BUSINESS (a) General Maui Land & Pineapple Company, Inc. is a Hawaii corporation, the successor to a business organized in 1909. The Company consists of a landholding and operating parent company as well as its principal wholly owned subsidiaries, Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. The "Company," as used herein, refers to the parent and all of its subsidiaries. The Company participates in joint ventures that are accounted for by the equity method. The most significant of these joint ventures is Kaahumanu Center Associates, the owner and operator of a regional shopping center. The industry segments of the Company are as follows: (1) Pineapple - includes growing pineapple, canning pineapple in tinplated steel containers fabricated by the Company, production of pineapple juice and fresh cut pineapple products and marketing of canned pineapple products and fresh whole and fresh cut pineapple. (2) Resort - includes the development and sale of resort real estate, property management and the operation of recreational and retail facilities and utility companies at Kapalua, Maui. (3) Commercial & Property - includes the Company's investment in Kaahumanu Center Associates, the Napili Plaza shopping center, and non-resort real estate development, rentals and sales. It also includes the Company's land entitlement and land management activities. (b) Financial Information About Industry Segments The information set forth under Note 14 to Consolidated Financial Statements on page 18 of the Maui Land & Pineapple Company, Inc. 2001 Annual Report is incorporated herein by reference. (c) Narrative Description of Business (1) Pineapple Maui Pineapple Company, Ltd. is the operating subsidiary for the Company's Pineapple segment. It owns and operates fully integrated facilities for the production of pineapple products. Pineapple is cultivated on two Company-operated plantations on Maui that provided approximately 93% of the fruit processed in 2001. The balance of fruit processed was purchased from an independent Maui grower. Two pineapple crops are normally harvested from each new planting. The first, or plant crop, is harvested approximately 18 to 23 months after planting, and the second, or ratoon crop, is harvested 12 to 14 months later. A third crop, the second ratoon, may be harvested depending on a number of conditions. Harvested pineapple is processed at the Company's cannery in Kahului, Maui, where a full line of canned pineapple products is produced, including solid pineapple in various grades and styles, juice and juice concentrates. The cannery is located in a foreign trade zone and operates most of the year; however, over 40% of production volume takes place during June, July and August. The metal containers used in canning pineapple are produced in a Company-owned can plant on Maui. The metal is imported from manufacturers in Japan. A warehouse is maintained at the cannery site for inventory purposes. The Company sells canned pineapple products as store- brand pineapple with 100% HAWAIIAN U.S.A. stamped on the can lid. Its products are sold principally to large grocery chains, other food processors, wholesale grocers, and to organizations offering a complete buyers' brand program to affiliated chains and wholesalers serving both retail and food service outlets. A substantial volume of the Company's pineapple products is marketed through food brokers. The Company sells fresh whole pineapple and fresh cut pineapple products to retail and wholesale grocers in Hawaii and the continental United States. Research to develop new fresh cut and canned pineapple products is ongoing. In 1999, the Company was granted a U.S. patent on its fresh cut pineapple technology, which enhances the quality of the product while extending the shelf life. The extended shelf life allows the Company to set up local warehouse programs, thereby facilitating distribution to retailers. Royal Coast Tropical Fruit Company, Inc. (a wholly owned subsidiary of Maui Pineapple Company, Ltd.) was established to market pineapple products produced outside of the state of Hawaii. In 1997, Royal Coast Tropical Fruit Company, Inc. (a wholly owned subsidiary of Maui Pineapple Company, Ltd.) entered into a joint venture with an Indonesian pineapple grower and canner. The joint venture, Premium Tropicals International LLC, markets and sells Indonesian canned pineapple in the United States. In 1999, Royal Coast Tropical Fruit Company, Inc. formed a 51%-owned pineapple production subsidiary in Central America. Pineapple cultivated in Central America is sold principally as fresh whole fruit to the Company's customers in the United States and Europe. Sales of the Company's Central American pineapple began in the fourth quarter of 2000. In 2001, approximately 20 domestic customers accounted for about 79% of the Company's pineapple sales. Export sales, primarily to Japan, Canada and Western Europe, amounted to approximately 2.1%, 3.3% and 3.4% of total pineapple sales in 2001, 2000 and 1999, respectively. Sales to the United States government, mainly the Department of Agriculture, amounted to approximately 19.2%, 12.3% and 9.7% of total pineapple sales in 2001, 2000 and 1999, respectively. The Company's pineapple sales office is in Concord, California. As a service to its customers, the Company maintains inventories of its products in public warehouses in the continental U.S. The balance of its products is shipped directly from Hawaii to its customers. The Company's canned pineapple products are shipped from Hawaii by ocean transportation and are then taken by truck or rail to customers or to public warehouses. Fresh whole and fresh cut pineapple is shipped by air or by ocean transportation. The Company sells its products in competition with both foreign and U.S. companies. Its principal competitors are three U.S. companies, Dole Food Company, Inc., Del Monte Food Co., and Del Monte Fresh Produce Company, which produce substantial quantities of pineapple products, a significant portion of which is produced in Central America and Southeast Asia. Other producers of pineapple products in Thailand and Indonesia also are a major source of competition. Foreign production has the advantage of lower labor costs. The Company's principal marketing advantages are the high quality of its fresh and canned pineapple, the relative proximity to the U.S. West Coast fresh fruit market and being the only U.S. canner of pineapple. Other canned fruits and fruit juices also are a source of competition. The price of the Company's products is influenced by supply and demand of pineapple and other fruits and juices. The availability of water for irrigation is critical to the cultivation of pineapple. The Upcountry Maui area is commonly susceptible to drought conditions, which can adversely affect pineapple operations by resulting in poor yields (tons per acre) and lower recoveries (the amount of saleable product per ton of fruit processed). Approximately 83% of the fields in the Company's Upcountry Maui plantation (Haliimaile) are equipped with drip irrigation systems. Fields that are not drip irrigated are in areas that typically receive adequate rainfall. The Company's drip irrigation systems and Company controlled or operated water sources help to mitigate the effects of periodic drought conditions. However, during periods of prolonged drought, the water supply can drop below levels that are necessary to meet all of the Haliimaile plantation's water requirements. For further information regarding Pineapple operations, see Management's Discussion and Analysis of Financial Condition and Results of Operations. (2) Resort Kapalua Resort is a master-planned, golf resort community on Maui's northwest coast. The Resort encompasses 1,650 acres bordering the ocean with three white sand beaches and includes two hotels, eight residential subdivisions, three championship golf courses, two ten-court tennis facilities, a 22,000 square foot shopping center and over ten restaurants. Water and sewer transmission utilities are included in the Resort's operating activities. Approximately 300 acres are available for further development within the Kapalua Resort. Kapalua Land Company, Ltd. is the developing and operating subsidiary of the Company's Resort segment. The Resort segment includes the following wholly owned subsidiaries of the Company: Kapalua Water Company, Ltd. and Kapalua Waste Treatment Company, Ltd., public utilities providing water and waste transmission services for the Kapalua Resort; Kapalua Advertising Company, Ltd., an in- house advertising agency; and Kapalua Realty Company, Ltd. (wholly owned by Kapalua Land Company, Ltd.), a general brokerage real estate company located within the Resort. The Company, through subsidiaries and joint ventures, developed the Kapalua Resort, which opened in 1975 with The Bay Course. At Kapalua, the Company owns three golf courses (The Bay, The Village and The Plantation Courses), one tennis facility (The Tennis Garden), a shopping center (The Kapalua Shops), the land under both hotels (The Ritz- Carlton, Kapalua and Kapalua Bay Hotel), as well as the acreage available for development and various on-site administrative and maintenance facilities. The Company operates the golf and tennis facilities, the shopping center, ten retail shops, a vacation rental program (The Kapalua Villas), and certain services to the Resort, including shuttle, security and maintenance of common areas. The Company is the ground lessor under long- term leases for both hotels and also receives rental income from certain other properties. The Company manages The Kapalua Club, a membership program that provides certain rights benefits and privileges within the Resort for its members. In January 2000, the Kapalua Golf Academy and the Hale Irwin-designed Village Course practice facility opened for business. In August 2000, the Village Clubhouse was opened. The clubhouse and golf academy development include an 18- hole putting course and two commercial retail parcels. This development provides the commercial foundation for the central resort area. The current master plan includes a future commercial Town Center, resort spa and additional residential development. The Company has begun the planning and entitlement process for a proposed expansion of the Kapalua Resort into approximately 925 acres of Company-owned lands located upslope of the Resort. If and when necessary governmental approvals are secured and the development proceeds, this expansion would, under current plans, include a possible expansion to the Resort's Village Golf Course, development of up to 690 single and multifamily residential units, and commercial components. During 2001, the company recognized profit on 20 of the 31 lots in the Pineapple Hill Estates single-family subdivision. Construction of Pineapple Hill Estates subdivision improvements began in the first quarter of 2001 and was substantially completed during the fourth quarter of 2001. In 1997, the Company and YCP Site 29, Inc. (YCP), formed a 50/50 joint venture, Kapalua Coconut Grove LLC, to develop a 12-acre parcel adjacent to the hotel. YCP purchased a one-half interest in the land from the Company prior to formation of the venture. Presales of the 36 luxury beachfront condominiums, called The Coconut Grove on Kapalua Bay, began in August of 1999 and sales contracts on all 36 units were concluded by the second quarter of 2000. Mass grading and site work began in the fourth quarter of 1999 and the units were completed in 2001. In 2001, the sale of all 36 condominium units closed escrow as title was delivered to the buyers upon completion of the individual residencesunits. The Kapalua Resort faces substantial competition from alternative visitor destinations and resort communities in Hawaii and throughout the world. Kapalua's marketing strategies target upscale visitors with an emphasis on golf. In 2001, approximately 20% of the visitors to Maui were international travelers and 80% were domestic. Kapalua's primary resort competitors on Maui are Kaanapali, which is approximately five miles from Kapalua, and Wailea on Maui's south coast. Kapalua's total guestroom inventory accounts for approximately 10% of the units available in West Maui and approximately 6% of the total inventory on Maui. Nationally televised professional golf tournaments have been a major marketing tool for Kapalua. Since January 1999, Kapalua has successfully hosted the Mercedes Championships, the season opening event for the PGA TOUR. Through the non-profit organization, Kapalua Maui Charities, Inc., the Company has agreements with Mercedes-Benz and the PGA TOUR to host and manage this event at Kapalua through January 2006. Advertising placements in key publications are designed to promote Kapalua through the travel trade, consumer, golf and real estate media. For further information regarding Resort operations, see Management's Discussion and Analysis of Financial Condition and Results of Operations. (3) Commercial & Property Queen Ka'ahumanu Center (formerly Kaahumanu Center) is the largest retail and entertainment center on Maui with a gross leasable area (GLA) of approximately 570,000 square feet. Queen Ka'ahumanu Center is owned by Kaahumanu Center Associates (KCA), a 50/50 partnership between the Company, as general partner, and the Employees' Retirement System of the State of Hawaii, as a limited partner. As of December 31, 2001, 131 tenants occupied 96% of the available GLA. Queen Ka'ahumanu Center faces substantial competition from other retail centers in Kahului and other areas of Maui. Kahului has approximately nine major shopping center destinations with a combined GLA of approximately 2.1 million square feet of retail space. Queen Ka'ahumanu Center's primary competitors are the Maui Mall and the Maui Marketplace, both located within three miles of Queen Ka'ahumanu Center. Napili Plaza is a 45,000 square foot retail and commercial office center located in West Maui. As of December 31, 2001, 22 tenants occupied 80% of the GLA. Napili Plaza faces competition from several retail locations in the Napili area, which have approximately 231,000 square feet of retail spaceGLA. The Company's land entitlement and management activities are included in the Commercial & Property segment. Land entitlement is a lengthy process of obtaining the required county, state and federal approvals to proceed with planned development and use of the Company's land and satisfying all conditions and restrictions imposed in connection with such governmental approvals. The Company actively works with the community and with regulatory agencies and legislative bodies at all levels of government to obtain necessary entitlements consistent with the needs of the community. For further information regarding Commercial & Property operations, see Management's Discussion and Analysis of Financial Condition and Results of Operations. (4) Employees In 2001, the Company employed approximately 1,830 employees. Pineapple operations employed approximately 510 full-time and approximately 750 seasonal or intermittent employees. Approximately 57% of the Pineapple operations employees were covered by collective bargaining agreements. Resort operations employed approximately 460 employees, of which approximately 12% were part-time employees and approximately 30% were covered by collective bargaining agreements. The Company's Commercial & Property operations employed approximately 80 employees and approximately 30 employees were engaged in administrative activities. (5) Other Information The Company's Pineapple segment engages in continuous research to develop techniques to reduce costs through crop production and processing innovations and to develop and perfect new products. Improved production systems have resulted in increased productivity by the labor force. Research and development expenses approximated $1,073,000 in 2001, $984,000 in 2000 and $839,000 in 1999. The Company has reviewed its compliance with federal, state and local provisions that regulate the discharge of materials into the environment or otherwise relate to the protection of the environment. The Company does not expect any material future financial impact as a result of compliance with these laws. The Company has a commitment relating to the filtration of water wells, as described in Note 15 to Consolidated Financial Statements. 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. The Company has a commitment relating to the remediation of certain pesticide-contaminated soilexpects to remediate certain soils on a Company-owned development parcel that contain pesticide residues, as described in Note 15 to Consolidated Financial Statements. The cost of remediation will depend on the various alternatives as to use of the property and the method of remediation. Until the Company makes further progress on obtaining the proper entitlements for the parcel, the ultimate use of the property remains uncertain and therefore an estimate of the remediation cost cannot be made. (d) Financial Information About Foreign and Domestic Operations and Export Sales Export sales only arise in the Company's Pineapple segment. Export sales of pineapple products are primarily to Japan, Western Europe and Canada. For the last three years, these sales did not exceed 10% of total consolidated revenues. Executive Officers of Registrant Below is a list of the names and ages of the Company's executive officers, indicating their position with the Company and their principal occupation during the last five years. The current terms of the executive officers expire in May of 2002 or at such time as their successors are elected. Gary L. Gifford (54) President and Chief Executive Officer since 1995 Paul J. Meyer (54) Executive Vice President/Finance since 1984 Douglas R. Schenk (49) Executive Vice President/Pineapple since 1995 Donald A. Young (54) Executive Vice President/Resort & Commercial Property since 2001; Executive Vice President/Resort since 1995 J. Susan Corley (58) Vice President/Human Resourses since 2000; Director/Human Resourses 1998 to 2000; Director/Industrial Relations of Reynolds Metals Co., Inc. 1994 to 1998 Scott A. Crockford (46) Vice President/Retail Property since 1995 Robert M. McNatt (55) Vice President/Land Planning & Development since 2001; Vice President/Development of Kapalua Land Company since 1996 Warren A. Suzuki (49) Vice President/Land & Water Asset Management since 2001; Vice President/Land Management & Development since 1995 Item 2. PROPERTIES The Company owns approximately 28,600 acres of land on Maui. Approximately 30% of the acreage is used directly or indirectly in the Company's operations and the remaining land is primarily in pasture or forest reserve. This land, most of which was acquired from 1911 to 1932, is carried on the Company's balance sheet at cost. The Company believes it has clear and unencumbered marketable title to all such property, except for the following: (a) a perpetual conservation easement granted to the State of Hawaii on a 13-acre parcel at Kapalua; (b) certain easements and rights-of-way that do not materially affect the Company's use of its property; (c) a mortgage on approximately 4,400 acres used in pineapple operations, which secures the Company's $15 million term loan agreement; (d) a mortgage on the three golf courses at Kapalua, which secures the Company's $25 million revolving credit facility; (e) a permanent conservation easement granted to The Nature Conservancy of Hawaii, a non-profit corporation, covering approximately 8,600 acres of forest reserve land; (f) a $4,629,000 mortgage on the fee interest in Napili Plaza shopping center; and (g) a small percentage of the Company's land in various locations on which multiple claims exist, for some of which the Company has initiated quiet title actions. Approximately 22,800 acres of the Company's land are located in West Maui, approximately 5,700 acres are located in East Maui and approximately 28 acres are located in Kahului, Maui. The 22,800 acres in West Maui comprise a largely contiguous parcel that extends from the sea to an elevation of approximately 5,700 feet and includes nine miles of ocean frontage with approximately 3,300 lineal feet along sandy beaches, as well as agricultural and grazing lands, gulches and heavily forested areas. The West Maui acreage includes approximately 3,600 acres comprising the Company's Honolua pineapple plantation and approximately 1,650 acres designated for the Kapalua Resort. The East Maui property is situated at elevations between 1,000 and 3,000 feet above sea level on the slopes of Haleakala and approximately 3,140 acres are in pineapple operations as the Company's Haliimaile plantation. The Kahului acreage includes a can manufacturing plant and a pineapple-processing cannery with interconnected warehouses at the cannery site where finished product is stored and the Company's administrative offices. Approximately 3,500 acres of leased land are used in the Company's pineapple operations. A major operating lease covering approximately 1,500 acres of land expired on December 31, 1999 and is currently being renegotiated for a minimum term of ten years. Thirteen leases expiring at various dates through 2018 cover the balance of the leased property. The aggregate land rental for all leased land was $583,000 in 2001. Item 3. LEGAL PROCEEDINGS On April 5, 2001, the Company filed a lawsuit against Del Monte Fresh Produce Company, Del Monte Fresh Produce (N.A.), and Del Monte Fresh Produce (Hawaii), Inc. (collectively, Del Monte Fresh), Maui Pineapple Company, Ltd., et al. v. Del Monte Fresh Produce (Hawaii), Inc., et al. Civil No. 01-1-0173(1), (Circuit Court of the Second Circuit, State of Hawaii). Del Monte Fresh is one of the Company's principal competitors in the fresh pineapple products business. In this lawsuit, the Company maintains that it co-owns and has the right to grow, develop, market, license and otherwise use two hybrid pineapple varieties that were jointly developed by the Company and the predecessor of Del Monte Fresh through the Pineapple Research Institute of Hawaii. The first hybrid, which the Company refers to as "73-50" and which Del Monte Fresh refers to as "CO-2" is marketed by the Company under its "Hawaiian Gold" registered trademark. The second hybrid, which the Company refers to as "73-114" and which Del Monte Fresh refers to as "MD-2" is marketed by the Company outside the United States under its "Royal Coast" label and is marketed by Del Monte Fresh as "Del Monte Gold - Extra-Sweet Pineapple" registered trademark. Del Monte Fresh disputes the Company's co-ownership of and rights to these hybrids. In the lawsuit, the Company seeks declaratory relief regarding its co-ownership and rights as well as monetary damages, restitution, injunctive relief, legal fees and costs and punitive damages. Del Monte Fresh disputes the Company's co-ownership of and rights to these hybrids and has asserted a counterclaim against the Company seeking declaratory relief as well as damages. Discovery is ongoing in this action and no trial date has been set. On April 12, 2001, the Company filed a separate lawsuit against Del Monte Fresh as well as Fresh Del Monte Produce, Inc. and Del Monte Corporation, Maui Pineapple Company, Ltd., et al. v. Del Monte Corporation, et al., Case No: C 01-01449 CRB, in the United States District Court For the Northern District of California (San Francisco Division). In this lawsuit, the Company maintains that the defendants have, in their marketing of pineapple and other fruit and vegetable products, infringed on and diluted the Company's "Hawaiian Gold" registered trademark in violation of the federal Lanham Act and state and common law prohibitions on unfair competition, dilution, and trademark and advertising infringement. The Company seeks preliminary and permanent injunctive relief, compensatory damages, restitution, attorney's fees, legal costs, treble damages and punitive damages. One of the defendants in this action, Del Monte Fresh Produce N.A., Inc., has filed a counterclaim alleging that the Company has infringed on its patent on one of the pineapple hybrid varieties that is the subject of the Second Circuit Court, State of Hawaii action that is described in the paragraph above. In that counterclaim, Del Monte seeks injunctive relief, damages, treble damages, interest and attorneys' fees. Discovery is ongoing in this action and no trial date has been set. On September 11, 2001, a complaint against the Company, Del Monte Fresh Produce (Hawaii) Inc. v. Maui Pineapple Company, Ltd., Civil No. 01-1-2671-09, was filed in the First Circuit Court of the State of Hawaii. Maui Pineapple Company (defendant) is the owner of trade secrets consisting of a combination of patented and unpatented inventions, technical information, technology, information and expertise required to construct and operate a machine known as the Maui Pine 1960 Ginaca Machine. A Ginaca machine is a device that peels, cores and otherwise prepares pineapples. In 1979, defendant and Del Monte Corporation (an entity unrelated to the plaintiff) entered into a License Agreement whereby under certain conditions and restrictions, Del Monte Corporation was allowed to build and to use defendant's trade secrets. The suit alleges that the defendant is unjustly prohibiting use of the trade secrets by plaintiff. The plaintiff seeks declaratory relief and legal and other costs. On September 24, 2001, defendant filed a counterclaim citing that the plaintiff was not a party to the License Agreement, that the License Agreement prohibited assignment or sub-licensing under any circumstances, and that use of the defendant's trade secrets by plaintiff is wrongful and unauthorized. Defendant seeks declaratory judgment, injunctive relief, damages, punitive and/or exemplary damages and legal costs. At a conference with the trial judge on October 5, 2001, plaintiff agreed not to use the trade secrets outside of the state of Hawaii. The parties have filed cross motions for summary judgment on their claims. No trial date has been set. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information set forth under the caption "Common Stock" on page 20 of the Maui Land & Pineapple Company, Inc. 2001 Annual Report is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA The information set forth under the caption "Selected Financial Data" on page 20 of the Maui Land & Pineapple Company, Inc. 2001 Annual Report is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 21 through 24 of the Maui Land & Pineapple Company, Inc. 2001 Annual Report is incorporated herein by reference. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK "Market Risk" on page 24 of the Maui Land & Pineapple Company, Inc. 2001 Annual Report is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The "Independent Auditors' Report," "Consolidated Financial Statements," "Notes to Consolidated Financial Statements" and "Quarterly Earnings (unaudited)" on pages 7 through 19 of the Maui Land & Pineapple Company, Inc. 2001 Annual Report are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the captions "Security Ownership of Management," "Section 16(a) Beneficial Ownership Reporting Compliance" and "Election of Directors" on pages 6 through 8 of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 25, 2002, is incorporated herein by reference. Information regarding the registrant's executive officers is included in Part I, Item 1. BUSINESS. Item 11. EXECUTIVE COMPENSATION The information set forth under the caption "Executive Compensation" on pages 10 through 14 and under the subcaption "Directors' Meetings and Committees" on page 8 of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 25, 2002, is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" on pages 4 through 6 of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 25, 2002, is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Compensation Committee Interlocks and Insider Participation" on page 14 of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 25, 2002, is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following Financial Statements of Maui Land & Pineapple Company, Inc. and subsidiaries and the Independent Auditors' Report are included in Item 8 of this report: Consolidated Balance Sheets, December 31, 2001 and 2000 Consolidated Statements of Operations and Retained Earnings for the Years Ended December 31, 2001, 2000 and 1999 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2001, 2000 and 1999 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 Notes to Consolidated Financial Statements (a) 2. Financial Statement Schedules The following Financial Statement Schedule of Maui Land & Pineapple Company, Inc. and subsidiaries and the Independent Auditors' Report is filed herewith: II. Valuation and Qualifying Accounts for the Years Ended December 31, 2001, 2000 and 1999. (a) 3. Exhibits Exhibits are listed in the "Index to Exhibits" found on pages 17 to 19 of this Form 10-K. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the last quarter of the period covered by this report. (d) The Financial Statements of Kaahumanu Center Associates for the Years Ended December 31, 2001, 2000 and 1999 are filed as exhibits. The Financial Statements of Kapalua Coconut Grove, LLC for the Years Ended December 31, 2001, 2000 (unaudited) and 1999 (unaudited) are filed as exhibits. INDEPENDENT AUDITORS' REPORT To the Stockholders and Directors of Maui Land & Pineapple Company, Inc.: We have audited the consolidated financial statements of Maui Land & Pineapple Company, Inc. and its subsidiaries as of December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001, and have issued our report thereon, dated February 12, 2002. Such consolidated financial statements and report are included in your 2001 Annual Report and are incorporated herein by reference. Our audits also included the financial statement schedule of Maui Land & Pineapple Company, Inc. listed in Item 14(a)2. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /S/ DELOITTE & TOUCHE LLP Honolulu, Hawaii February 12, 2002 SCHEDULE II MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 ADDITIONS (DEDUCTIONS) ADDITIONS CHARGED BALANCE AT CHARGED TO TO OTHER BALANCE BEGINNING COSTS AND ACCOUNTS DEDUCTIONS AT END DESCRIPTION OF PERIOD EXPENSES (describe)(a) (describe)(b) OF PERIOD (Dollars in Thousands) Allowance for Doubtful Accounts 2001 $1,043 $ 245 $ 6 $(588) $ 706 2000 793 465 (215) 1,043 1999 (c) 504 291 161 (163) 793 (a) Recoveries. (b) Write off of uncollectible accounts. (c) Restated to include allowance for non-current receivables. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MAUI LAND & PINEAPPLE COMPANY, INC. March 22, 2002 By /S/GARY L. GIFFORD Gary L. Gifford President & Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By /S/RICHARD H. CAMERON Date MARCH 22, 2002 Richard H. Cameron Chairman of the Board By /S/PAUL J. MEYER Date MARCH 22, 2002 Paul J. Meyer Executive Vice President/Finance (Principal Financial Officer) By /S/ADELE H. SUMIDA Date MARCH 22, 2002 Adele H. Sumida Controller & Secretary (Principal Accounting Officer) By /S/JOHN H. AGEE Date MARCH 22, 2002 John H. Agee Director By /S/DAVID A. HEENAN Date MARCH 22, 2002 David A. Heenan Director By /S/RANDOLPH G. MOORE Date MARCH 22, 2002 Randolph G. Moore Director By /S/CLAIRE C. SANFORD Date MARCH 22, 2002 Claire C. Sanford Director By /S/FRED E. TROTTER III Date MARCH 22, 2002 Fred E. Trotter III Director INDEX TO EXHIBITS The exhibits designated by an asterisk (*) are filed herewith. The exhibits not so designated are incorporated by reference to the indicated filing. All previous exhibits were filed with the Securities and Exchange Commission in Washington D. C. under file number 0-6510. 3. Articles of Incorporation and By-laws 3 (i) Restated Articles of Association, as of February 24, 2000. 3 (ii) Bylaws (Amended as of March 29, 1999). Exhibit (3ii) to Form 10-Q for the quarter ended March 31, 1999. 4. Instruments Defining the Rights of Security Holders. Instruments defining the rights of holders of long-term debt have not been filed as exhibits where the amount of debt authorized thereunder does not exceed ten percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company hereby undertakes to furnish a copy of any such instrument to the Commission upon request. 4.1 (i) Amended and Second Restated Revolving Credit and Term Loan Agreement, dated as of December 4, 1998. Exhibit 4.1(i) to Form 10-K for the year ended December 31, 1998. (ii) 1999 Loan Modification Agreement, dated as of December 30, 1999. (iii) 2000 Loan Modification Agreement, effective as of June 30, 2000. Exhibit 4 to Form 10-Q for the quarter ended June 30, 2000. (iv) Loan Modification Agreement (December 2000), effective as of December 11, 2000. Exhibit 4.1(iv) to Form 10-K for the year ended December 31, 2000. (v) Loan Modification Agreement (June 2001), effective as of June 30, 2001. Exhibit 4.1(v) to Form 10-Q for the quarter ended September 30, 2001. (vi)* Loan Modification Agreement (September 2001), effective as of September 30, 2001. (vii)*Amended and Third Restated Revolving Credit and Term Loan Agreement, dated as of December 31, 2001. 4.2 (i) Bridge Loan Agreement between Pacific Coast Farm Credit Services, ACA and Maui Land & Pineapple Company, Inc., dated December 30, 1998. Exhibit 4.2(i) to Form 10-K for the year ended December 31, 1998. (ii) Term Loan Agreement between Pacific Coast Farm Credit Services and Maui Land & Pineapple Company, Inc., entered into as of June 1, 1999. Exhibit 4(A) to Form 10-Q for the quarter ended June 30, 1999. (iii) Modifications to Term Loan Agreement, dated February 16, 2000. (iv) Amendment to Loan Agreement entered into on March 23, 2001 and effective as of December 31, 2000. Exhibit (4)A to Form 10-Q for the quarter ended March 31, 2001. (v)* Amendment to Loan Agreement, made as of December 31, 2001. 10. Material Contracts 10.1(i) Limited Partnership Agreement of Kaahumanu Center Associates, dated June 23, 1993. Exhibit (10)A to Form 10-Q for the quarter ended June 30, 1993. (ii) Cost Overrun Guaranty Agreement, dated June 28, 1993. Exhibit (10)B of Form 10-Q for the quarter ended June 30, 1993. (iii) Environmental Indemnity Agreement, dated June 28, 1993. Exhibit (10)C to Form 10-Q for the quarter ended June 30, 1993. (iv) Indemnity Agreement, dated June 28, 1993. Exhibit (10)D to Form 10-Q for the quarter ended June 30, 1993. (v) Direct Liability Agreement, dated June 28, 1993. Exhibit (10)E to Form 10-Q for the quarter ended June 30, 1993. (vi) Amendment No. 1 to Limited Partnership Agreement of Kaahumanu Center Associates. Exhibit (10)B to Form 8-K, dated as of April 30, 1995. (vii) Conversion Agreement, dated April 27, 1995. Exhibit (10)C to Form 8-K, dated as of April 30, 1995. (viii)Indemnity Agreement, dated April 27, 1995. Exhibit (10)D to Form 8-K, dated as of April 30, 1995. 10.2(i) Second Amended and Restated Hotel Ground Lease (The Ritz-Carlton, Kapalua) between Maui Land & Pineapple Company, Inc. (Lessor) and RCK Hawaii, LLC dba RCK Hawaii-Maui (Lessee), effective as of January 31, 2001. 10.3 Compensatory plans or arrangements (i) Executive Deferred Compensation Plan (revised as of 8/16/91). Exhibit (10)A to Form 10-Q for the quarter ended September 30, 1994. (ii) Executive Insurance Plan (Amended). Exhibit (10)A to Form 10-K for the year ended December 31, 1980. (iii) Supplemental Executive Retirement Plan (effective as of January 1, 1988). Exhibit (10)B to Form 10-K for the year ended December 31, 1988. (iv) Restated and Amended Executive Change-In-Control Severance Agreement (Gary L. Gifford, President/CEO), dated as of March 16, 1999. Exhibit 10.3 (iv) to Form 10-K for the year ended December 31, 1998. (v) Restated and Amended Executive Change-In-Control Severance Agreement (Paul J. Meyer, Executive Vice President/Finance), dated as of March 17, 1999. Exhibit 10.3 (v) to Form 10-K for the year ended December 31, 1998. (vi) Restated and Amended Executive Change-In-Control Severance Agreement (Donald A. Young, Executive Vice President/Resort), dated as of March 16, 1999. Exhibit 10.3 (vi) to Form 10-K for the year ended December 31, 1998. (vii) Restated and Amended Executive Change-In- Control Severance Agreement (Douglas R. Schenk, Executive Vice President/Pineapple), dated as of March 23, 1999. Exhibit 10.3 (vii) to Form 10-K for the year ended December 31, 1998. (viii)Restated and Amended Change-In-Control Severance Agreement (Warren A. Suzuki, Vice President/Land Management), dated as of March 16, 1999. Exhibit 10.3 (viii) to Form 10-K for the year ended December 31, 1998. (ix) Restated and Amended Change-In-Control Severance Agreement (Scott A. Crockford, Vice President/Retail Property), dated as of March 16, 1999. Exhibit 10.3 (ix) to Form 10-K for the year ended December 31, 1998. (x) Executive Severance Plan, as amended through November 6, 1998. Exhibit 10.3 (x) to Form 10-K for the year ended December 31, 1998. 10.4(i) Hotel Ground Lease between Maui Land & Pineapple Company, Inc. and The KBH Company. Exhibit (10)B to Form 10-Q for the quarter ended September 30, 1985. (ii) Third Amendment of Hotel Ground Lease, dated and effective as of September 5, 1996. Exhibit (10)A to Form 10-Q for the quarter ended September 30, 1996. 10.5(i) Settlement Agreement and Release of All Claims (Board of Water Supply of the County of Maui vs. Shell Oil Company, et al.) 11. Statement re computation of per share earnings: Net Income (Loss) divided by weighted Average Common Shares Outstanding equals Net Income (Loss) Per Common Share. 13.* Annual Report to Security Holders: Maui Land & Pineapple Company, Inc. 2001 Annual Report. 21. Subsidiaries of registrant: All of the following were incorporated in the State of Hawaii: Maui Pineapple Company, Ltd. Kapalua Land Company, Ltd. Kapalua Advertising Company, Ltd. Kapalua Water Company, Ltd. Kapalua Waste Treatment Company, Ltd. Honolua Plantation Land Company, Inc. 99. Additional Exhibits. 99.1* Financial Statements of Kaahumanu Center Associates for the years ended December 31, 2001, 2000 and 1999. 99.2* Financial Statements of Kapalua Coconut Grove, LLC for the years ended December 31, 2001, 2000 (unaudited) and 1999 (unaudited). EX-4 3 loanexhibit41vi.txt LOAN MODIFICATION AGREEMENT (SEPTEMBER 2001) LOAN MODIFICATION AGREEMENT (September 2001) THIS AGREEMENT effective as of September 30, 2001, by and among MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation (the "Borrower"), BANK OF HAWAII, a Hawaii banking corporation ("BOH"), FIRST HAWAIIAN BANK, a Hawaii banking corporation ("FHB"), CENTRAL PACIFIC BANK, a Hawaii banking corporation ("CPB") (BOH, FHB and CPB are each sometimes called a "Lender" and collectively called the "Lenders"), and BANK OF HAWAII, as Agent for the Lenders to the extent and in the manner provided in the Loan Documents described below and in the Agency Agreement described in the Loan Agreement described below (in such capacity, the "Agent"), and KAPALUA LAND COMPANY, LTD., a Hawaii corporation ("Accommodation Party") W I T N E S S E T H: WHEREAS, the Borrower, the Lenders and Bank of America, National Trust and Savings Association ("BOA") (the Lenders and BOA are collectively called the "Original Lenders") and the Agent are parties to that certain Revolving and Term Loan Agreement, dated as of December 31, 1992, as amended by a First Loan Modification Agreement, dated as of March 1, 1993, and supplemented by letter agreements dated April 30, 1993 and June 24, 1993, and further amended by Second Loan Modification Agreement, dated September 8, 1993, by a Third Loan Modification Agreement, dated September 30, 1993, by a Fourth Loan Modification Agreement, dated March 8, 1994, by a Fifth Loan Modification Agreement, dated effective as of December 31, 1994, by a Sixth Loan Modification Agreement, dated effective as of March 31, 1995, and by a Seventh Loan Modification Agreement dated effective as of December 31, 1995, each among the Borrower, the Original Lenders and the Agent (as so amended and supplemented, the "Original Loan Agreement"); WHEREAS, the Original Loan Agreement and the other "Loan Documents" referred to therein, as respectively amended, set forth the terms and conditions upon which the Original Lenders (i) have made available to the Borrower the Revolving Loans in the original aggregate principal amount of up to $40,000,000 at any one time outstanding (subject to mandatory reduction, from time to time, of such aggregate principal amount available) and (ii) shall make available to the Borrower the Term Loans in an amount up to the aggregate principal amount of the Revolving Loans outstanding upon expiration of the Revolving Loan Period, all as more particularly described therein; WHEREAS, the parties hereto entered into that certain Amended and Restated Revolving Credit and Term Loan Agreement dated December 4, 1996, as amended by letter agreement dated February 21, 1997, by First Loan Modification Agreement dated December 31, 1997, and by Second Loan Modification Agreement dated March 17, 1998 (as so amended, the "First Restatement"); WHEREAS, the parties hereto entered into that certain Amended and Second Restated Revolving Credit and Term Loan Agreement dated as of December 4, 1998 ("Second Restatement") to, among other things, establish a development line in the aggregate principal amount of $15,000,000, being the Village Course Facility more particularly described in the Second Restatement; WHEREAS, the Lenders purchased the interests of BOA under the Original Loan Agreement and the other Loan Documents referred to therein; WHEREAS, the parties hereto entered into that certain 1999 Loan Modification Agreement dated as of December 30, 1999, that certain 2000 Loan Modification Agreement dated June 30, 2000, that certain Loan Modification Agreement (December 2000) dated as of December 11, 2000, and that certain Loan Modification Agreement (June 2001) dated as of June 30, 2001; WHEREAS, the performance of Borrower's obligations under the Loan Documents is secured by the following (collectively, the "Mortgages"): (1) Mortgage and Security Agreement dated March 1, 1993, made by Borrower, as Mortgagor, and recorded in the Bureau of Conveyances of the State of Hawaii as Document No. 93-036896, which mortgage was confirmed by instrument dated December 4, 1998, recorded in said Bureau as Document No. 98-185558; (2) Mortgage and Security Agreement dated March 1, 1993, made by Borrower, as Mortgagor, and recorded in the Bureau of Conveyances of the State of Hawaii as Document No. 93-036898, which mortgage was confirmed by instrument dated December 4, 1998, recorded in said Bureau as Document No. 98-185558; and (3) Additional Security Mortgage and Security Agreement dated March 1, 1993, made by KAPALUA LAND COMPANY, LTD., a Hawaii corporation, ("Accommodation Party") and recorded in the Bureau of Conveyances of the State of Hawaii as Document No. 93-036900, which mortgage was amended and confirmed by instrument dated December 4, 1998, recorded in said Bureau as Document No. 98-185559; WHEREAS, Borrower has requested a further modification of the Loan Documents and Lenders are willing to accommodate such modification under the terms of this Agreement; and WHEREAS, the Village Course Facility has been fully drawn and Borrower is not entitled to any further Advances thereunder; NOW, THEREFORE, in consideration of the premises, the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Lenders and the Agent hereby agree as follows: 1. The Loan Documents are amended to conform to the following: (a) Current Ratio. Section 5.1(e)(1) of the Second Restatement is amended to read as follows: (1) A Current Ratio of not less than 1.90; provided, however, that Borrower's Current Ratio for the fiscal quarter ended September 30, 2001, shall be not less than 1.50. 2. Upon execution of this Agreement and in consideration of these amendments: (a) Borrower shall pay to the Agent, on demand, for distribution to the Lenders on a pro rata basis, a $1,000.00 work fee; and (b) Borrower shall reimburse the Agent for attorneys' fee incurred by the Agent for the preparation of this Agreement. 3. Capitalized terms used, but not defined, in this Agreement, shall have the definitions stated in the Loan Agreement. 4. Borrower and Accommodation Party each agrees that to its actual knowledge it has no claims, defenses, or offsets against the Lenders or the Agent with respect to said credit facility or to the enforcement of the Loan Documents arising prior to the date of this Agreement and that all such claims, defenses and offsets are hereby released. 5. The execution of this Agreement by the Borrower constitutes the certification of the persons signing this Agreement on behalf of the Borrower that, to the best of their actual knowledge, the representations and warranties made in Article IV of the Loan Agreement are true and correct as of the date of this Agreement. 6. In all other respects, the Loan Documents, as amended, remain in full force and effect and the provisions of the Loan Documents including, without limitation, all promises, representations, warranties, covenants, and conditions, are ratified and confirmed as of the date of this Agreement by the parties hereto. 7. Borrower and Accommodation Party acknowledge that the Mortgages remain in full force and effect and continue to secure the remaining Loan Documents. 8. This Agreement is binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns. 9. The parties hereto agree that this instrument may be executed in counterparts, each of which shall be deemed an original, and said counterparts shall together constitute one and the same agreement, binding all of the parties hereto, notwithstanding all of the parties are not signatory to the original or the same counterparts. Duplicate unexecuted pages of the counterparts may be discarded and the remaining pages assembled as one document. To signify their agreement, the parties have executed this Agreement as of the date first written above. MAUI LAND & PINEAPPLE COMPANY, BANK OF HAWAII, individually INC. and as Agent By:/S/PAUL J. MEYER By:/S/JOHN P. MCKENNA Paul J. Meyer John P. McKenna Its Executive Vice President/ Its Assistant Vice President Finance By:/S/GARY L. GIFFORD Gary L. Gifford FIRST HAWAIIAN BANK Its President By:/S/LANCE A. MIZUMOTO Lance A. Mizumoto KAPALUA LAND COMPANY, LTD. Its Vice President By:/S/PAUL J. MEYER Paul J. Meyer CENTRAL PACIFIC BANK Its Executive Vice President/ Finance By:/S/ROBERT D. MURAKAMI Robert D. Murakami By:/S/ADELE H. SUMIDA Its Vice President Adele H. Sumida Its Secretary EX-4 4 thirdrestatedrtl.txt AMENDED AND THIRD RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT AMENDED AND THIRD RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT THIS AMENDED AND THIRD RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT (the "Amendment and Restatement"), dated as of December 31, 2001, by and among MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation (the "Borrower"), BANK OF HAWAII, a Hawaii banking corporation ("BOH"), FIRST HAWAIIAN BANK, a Hawaii banking corporation ("FHB"), CENTRAL PACIFIC BANK, a Hawaii banking corporation ("CPB"), AMERICAN AGCREDIT, PCA, a corporation or association organized and existing under the laws of the United States of America ("PCA"), (BOH, FHB, CPB and PCA are each sometimes called a "Lender" and collectively called the "Lenders"), and BANK OF HAWAII, as Agent for the Lenders to the extent and in the manner provided hereinbelow and in the Agency Agreement referred to below (in such capacity, the "Agent"). W I T N E S S E T H: WHEREAS, the Borrower, BOH, FHB, CPB and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BOA") (BOH, FHB, CPB and BOA, collectively, the "Original Lenders") and the Agent entered into that certain Revolving and Term Loan Agreement, dated as of December 31, 1992 (the "Original Loan Agreement"), which Original Loan Agreement established a credit facility (the "Credit Facility") in favor of Borrower in the original principal amount of $40,000,000.00; WHEREAS, the Original Loan Agreement was amended and supplemented by: First Loan Modification Agreement, dated as of March 1, 1993; letter agreements dated April 30, 1993 and June 24, 1993; Second Loan Modification Agreement, dated September 8, 1993; Third Loan Modification Agreement, dated September 30, 1993; Fourth Loan Modification Agreement, dated March 8, 1994; Fifth Loan Modification Agreement, dated effective as of December 31, 1994; Sixth Loan Modification Agreement, dated effective as of March 31, 1995; Seventh Loan Modification Agreement dated effective as of December 31, 1995; each by and among the Borrower, the Original Lenders and the Agent; WHEREAS, BOH, FHB and CPB acquired the interests of BOA under the Original Loan Agreement, as amended, and the other "Loan Documents" referred to therein; WHEREAS, the Original Loan Agreement is further amended by: Amended and Restated Revolving Credit and Term Loan Agreement dated December 4, 1996; letter agreement dated February 21, 1997; First Loan Modification Agreement dated December 31, 1997; Second Loan Modification Agreement dated March 17, 1998; letter agreement dated November 13, 1998; Amended and Second Restated Revolving Credit and Term Loan Agreement dated as of December 4, 1998 ("Second Restatement"); Loan Modification Agreement dated as of December 30, 1999; letter agreement dated February 9, 2000; Loan Modification Agreement dated June 30, 2000; and Loan Modification Agreement effective as of December 11, 2000; Loan Modification effective as of June 30, 2001; Loan Modification effective as of September 30, 2001; each by and among Borrower, BOH, FHB, CPB and Agent and, in the case of said Loan Modification Agreement effective as of December 11, 2000 and June 30, 2001, KAPALUA LAND COMPANY, LTD., a Hawaii corporation; WHEREAS, the Second Restatement, among other things, establishes a development line in favor of Borrower in the principal amount of $15,000,000, being the "Village Course Facility" described in the Second Restatement; WHEREAS, the Aggregate Loan Commitment (as defined in the Original Loan Agreement, as amended) with respect the Credit Facility, exclusive of said Village Course Facility, is $15,000,000; WHEREAS, PCA has acquired interests in the Credit Facility; WHEREAS, the parties hereto wish to terminate said Village Course Facility and, upon such termination, to increase the Aggregate Loan Commitment with respect to the Credit Facility to $25,000,000; WHEREAS, for their mutual convenience, the parties wish to restate the Original Loan Agreement to reflect their agreements as of the date hereof with respect to the Credit Facility, subject to the satisfaction of the conditions precedent set forth in Section 3.2 hereof, all as set forth in this Amendment and Restatement; NOW, THEREFORE, in consideration of the premises, the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Lenders and the Agent hereby agree that effective on the Effective Date (as defined below), the terms and provisions of the Original Loan Agreement are amended and restated to read in their entirety as follows: I. Revolving Credit 1.1 In General. Subject to the terms of the Loan Agreement, the Lenders hereby establish a credit facility in favor of the Borrower (the "Credit Facility") under which the Lenders will severally extend credit to the Borrower as follows: (a) Revolving Loans. On the terms and provisions and subject to the satisfaction of the conditions stated in the Loan Agreement, each Lender hereby severally agrees to make loans ("Revolving Loans") to the Borrower, from time to time and at any time prior to the Expiry Date (the "Revolving Loan Period"), each in a principal amount equal to such Lender's Individual Loan Commitment Percentage of the total amount to be borrowed on any occasion; provided, however, that (1) the aggregate principal amount at any one time outstanding of all Loans under the Credit Facility shall not exceed $25,000,000.00 ("the Aggregate Loan Commitment"), (2) no Lender shall be obligated to make Loans to the Borrower under the Credit Facility which shall exceed, in the aggregate principal amount at any one time outstanding, such Lender's Individual Loan Commitment, (3) each advance of Loan proceeds under the Credit Facility shall be made by the several Lenders ratably, in a principal amount equal to such Lender's Individual Loan Commitment Percentage of the total amount to be borrowed on any occasion, (4) no Lender shall have any obligation or liability to the Borrower or any other Person as a result of the failure of another of the Lenders to observe any of its obligations under the Loan Agreement, and (5) no Lender (in its capacity as such) shall have any obligation or liability to the Borrower or any other Person as a result of the failure of the Agent to observe any of its obligations under the Loan Agreement or the Agency Agreement. During the Revolving Loan Period the Borrower may borrow, repay without penalty or premium and reborrow under the Credit Facility, either the full amount of the Aggregate Loan Commitment or any lesser sum, provided that any borrowing hereunder shall be in an amount not less than $500,000, and an integral multiple of $100,000, and provided that any voluntary prepayment of the Credit Facility during the Revolving Loan Period shall be in an amount not less than $250,000, and an integral multiple of $50,000. Principal of and interest on the Revolving Loans shall be paid by the Borrower at the times and in the manner stated in the Notes and in the Loan Agreement, including, without limitation, Section 1.6 below. (b) Term Loans. Subject to the satisfaction of all terms and conditions of the Loan Agreement, including, without limitation Section 3.3 hereof, each Lender severally agrees to make a term loan ("Term Loan") to the Borrower on the Expiry Date, in an amount equal to the aggregate principal amount of the Revolving Loans then outstanding and owing by the Borrower to such Lender. The proceeds of each Term Loan to be made by each Lender shall be used to repay in full the Revolving Loans outstanding with respect to such Lender on the date of the making of the Term Loan. Term Loans may not be reborrowed. Principal of and interest on the Term Loans shall be paid by the Borrower at the times and in the manner stated in the Term Notes and in the Loan Agreement, including, without limitation, Section 1.6 below. 1.2 Purpose. The proceeds of the Revolving Loans shall be used exclusively for general corporate purposes including working capital. The proceeds of the Term Loans shall be used exclusively to refinance the Revolving Loans. 1.3 Security. The Credit Facility and Loans shall be secuerd by liens on or security interests in the following collateral ("Collateral"), which liens or security interests shall be of first priority unless otherwise approved by the Lenders: the land and improvements, situate at Kapalua, Maui, Hawaii, known as the Village Golf Course, the Plantation Golf Course and the Bay Golf Course. The loan to value ratio with respect to the Collateral shall not exceed 50%, as determined by a limited summary appraisal in form and substance and by an appraiser satisfactory to Agent. 1.4 Requests for Loans or Credit. Subject to the provisions of Articles II and III, Section 1.5 and other terms and conditions of this Agreement, the Borrower shall have the option on any Business Day during the Revolving Loan Period to obtain new Revolving Loans by delivering to the Agent a written and completed "Notice of Loan/Conversion" in the form of Exhibit A attached hereto. A Notice of Loan/Conversion must arrive no later than noon (Hawaii Standard Time) on the date either two (2) or three (3) Business Days prior to the proposed disbursement date in the case of a Base Rate Loan or a LIBOR Loan, respectively. If the Borrower fails to timely notify the Agent of the Borrower's selection of a new Interest Period prior to the expiration of any current Interest Period, such Loan will automatically be converted to a Base Rate Loan upon expiration of the current Interest Period. Unless otherwise directed in writing by the Borrower, all proceeds of Revolving Loans shall be credited to the Borrower's Deposit Account No. 61-058745, maintained with Bank of Hawaii. 1.5 Conversions of Base Rate Loans to LIBOR Loans. Subject to the provisions of Article II and other terms and conditions in this Agreement, the Borrower shall have the option on any Business Day (the "Conversion Date") to convert all or a portion of the outstanding principal amount of Base Rate Loans to a LIBOR Loan by giving Agent a Notice of Loan/Conversion at the Payment Office no later than noon (Hawaii Standard Time) on the date three (3) Business Days prior to the proposed Conversion Date; provided that if an Event of Default is then in existence, the Borrower may not convert a Base Rate Loan to a LIBOR Loan. Although no repayment shall actually be required upon any conversion, the proceeds thereof shall, for bookkeeping purposes, be deemed to be applied directly to repay the outstanding principal amount of the Loans being converted. If the Borrower fails to timely notify Agent of the Borrower's selection of a new Interest Period prior to the expiration of any current Interest Period for an Loan, such Loan will automatically be converted to a Base Rate Loan upon expiration of the current Interest Period. LIBOR Loan amounts shall be in minimums of $500,000 and in multiples of $100,000, with at most six (6) LIBOR Loans outstanding at any one time. 1.6 Interest; Repayment of Loans. (a) Interest Rate. The Borrower agrees to pay interest on the outstanding principal balance of the Loans pursuant to the following interest rate options that the Borrower may select in accordance with the provisions of this Agreement: (1) The Base Rate in effect from time to time; or (2) LIBOR plus the Applicable Margin. The "Applicable Margin" shall be determined based on Borrower's Recourse Debt to Net Worth ratio as follows: Recourse Debt Applicable Margin Applicable Margin Net/Worth for Revolving for Term Loans Loans less than or 1.50 percentage 1.75 percentage equal to 0.20 points points greater than 0.20 1.75 percentage 2.00 percentage but less than or points points equal to 0.40 greater than 0.40 2.00 percentage 2.25 percentage but less than or points points equal to 0.60 greater than 0.60 2.25 percentage 2.50 percentage but less than or points points equal to 0.80 greater than 0.80 2.50 percentage 2.75 percentage points points Any floating rate of interest will increase or decrease during the term of this Agreement if there is an increase or decrease in the rate to which the floating rate is tied. If the rate to which the floating rate is tied is no longer available, the Agent will choose a new rate that is based on comparable information. Any change in the Applicable Margin shall take effect on the first day of the second fiscal quarter following the date as of which such Applicable Margin is determined. For example, the Applicable Margin effective on July 1, shall be based on the Borrower's Recourse Debt to Net Worth ratio as of the fiscal quarter ending March 31. Interest hereunder shall be computed, but not compounded, daily on the basis of the rate of interest then in effect. A change in the Base Rate shall take effect on the date upon which a change in the Base Rate is announced and made effective by Bank of Hawaii, with or without notice to the Borrower. With respect to any LIBOR Loan, interest will be calculated at a fixed rate for the applicable Interest Period. Interest and fees hereunder shall be computed on the basis of the actual number of days elapsed between payments and a 365-day year (or a 366-day year in leap years) in respect of any Base Rate Loan or a 360-day year in respect of any LIBOR Loan. In no event shall the Borrower be obligated to pay any amount under the Loan Agreement that exceeds the maximum amount allowable by law. If any sum is collected in excess of the applicable maximum amount allowable by law, the excess collected shall, at Agent's discretion, be applied to reduce the principal balance of the Loans or returned to the Borrower. (b) Repayment of Loans. (1) Payment Schedule - Revolving Loans. Borrower agrees to repay the Revolving Loans as follows: (i) The Borrower agrees to make quarterly payments of all accrued interest on the outstanding principal balance of each Base Rate Loan on the last day of each of March, June, September and December during the term of the Loan Agreement. (ii) The Borrower agrees to pay interest on the unpaid principal amount of each LIBOR Loan on the earlier of i) the last day of the Interest Period or ii) the last day of each three- month interval occurring during the Interest Period. (iii) On the Expiry Date, the Borrower agrees to pay the amount, if any, by which the aggregate outstanding principal balance of the Revolving Loans exceeds $15,000,000.00. (2) Payment Schedule - Term Loans. Borrower agrees to repay the Term Loans as follows: (i) The Borrower agrees to make quarterly payments of all accrued interest on the outstanding principal balance of each Base Rate Loan on the last day of each of March, June, September and December during the term of this Agreement. (ii) The Borrower agrees to pay interest on the unpaid principal amount of each LIBOR Loan on the earlier of i) the last day of the Interest Period or ii) the last day of each three-month interval occurring during the Interest Period. (iii)Commencing on the last day of June, 2004, and continuing on the last day of every sixth month thereafter until the Term Loans are paid in full, Borrower agrees to pay installments of principal equal to 1/6 of the aggregate principal balance of the Term Loans as of January 1, 2004. (iv) The Borrower agrees to pay in full on or before the Maturity Date all principal and accrued interest then outstanding under the Term Loans. (3) Currency, Place and Dates of Payments. No payment or prepayment of principal under any of the Notes shall be made without a concurrent payment or prepayment of principal under the other Notes, and all principal amounts paid or prepaid on the Notes shall be shared among the Lenders pro rata, in accordance with their respective Individual Loan Commitment Percentages. Payments to be made under the Loan Agreement to the Lenders shall be made in United States money in immediately available funds at the Agent's address stated below, or at such other place as the Agent shall have designated by written notice to the Borrower. Any payment due on a day that is not a Business Day shall be made on the next succeeding Business Day and the extension of time shall be included in the computation of interest. Any payment received by the Agent after 11:00 a.m. shall not be credited until the next Business Day. (4) Evidence of Making and Repayment of Loans. The Agent's records evidencing the date of disbursement and principal amount of each Loan and the amounts of all repayments of principal and payments of interest on each Loan shall constitute prima facie evidence of the making and repayment of such Loans and of the payment of such interest. However, the Agent's making of erroneous notations in its records shall not affect the Borrower's obligation to repay the outstanding balance of principal under a Loan, and accrued interest thereon, as provided in the Loan Agreement. (5) Prepayments. The Borrower may prepay any Base Rate Loan at any time, in whole or in part, without prepayment penalty. Partial prepayments shall be applied against required payments of the most remote maturity, and will not extend the dates or change the amounts of subsequent installment payments. (6) Application of Payments. During the existence of an Event of Default, payments under the Loan Agreement may be applied by the Lenders to the indebtedness evidenced by the Loan Agreement in any manner the Majority of Interest of the Lenders deems appropriate. The priority of application elected by the Lenders on any one occasion shall not determine any such election in the future. Provided that an Event of Default shall not have occurred and be continuing, payments under the Loan Document shall be applied first to payment of sums, other than principal or interest, then payable by Borrower under the Loan Agreement, then to accrued interest then due and payable and then to principal. 1.7 Evidence of Indebtedness; Loan Documents. The Loans and Credit Facility are or are to be evidenced and/or secured by the Loan Agreement, Master Notes, each in the form attached hereto as Exhibit B, payable to each Lender in the original amount of such Lender's Individual Loan Commitment (collectively the "Notes"), the Mortgage, the Additional Security Mortgage, the Environmental Indemnification Agreement and all such other documents as the Bank may require from time to time to effectuate the intent of the Loan Agreement, together with all renewals, extensions and modifications thereto (collectively the "Loan Documents"). 1.8 The Borrower's Obligations. The Borrower's obligations tp pay, observe and perform all indebtedness, liabilities, covenants and other obligations on the part of the Borrower to be paid, observed and performed under the Loan Agreement and the remainder of the Loan Documents are herein collectively called the "Obligations". 1.9 Fees. (a) Commitment Fee. The Borrower shall pay to the Agent for pro rata distribution to each Lender, a commitment fee on the average daily unutilized portion of the Aggregate Loan Commitment, computed at the rate of one-quarter of one percent (0.25%) per annum computed on the basis of the actual number of days elapsed over a year of 365 or 366 days (as the actual case may be) and payable quarterly in arrears, on the last day of each March, June, September and December during the Revolving Loan Period, and on the Expiry Date. (b) Commitment Increase Fee. The Borrower shall pay to the Agent, on demand, for distribution to the Lenders the following non-refundable fee: $20,000.00, of which $1,900.00 shall be payable to BOH, $2,000.000 shall be payable to FHB, $4,100.00 shall be payable to CPB and $12,000.00 shall be payable to PCA. (c) Amendment Fee. The Borrower shall pay to the Agent, on demand, for distribution to BOH, FHB and CPB the following non- refundable fee: $9,750.00, of which $5,232.50 shall be payable to BOH, $3,250.00 shall be payable to FHB and $1,267.50 shall be payable to CPB. (d) Agent's Fee. For and in respect of the services of the Agent to be rendered with respect to the Credit Facility under the Loan Agreement and under the Agency Agreement, the Borrower agrees to pay to the Agent the fee established by separate agreement between Agent and Borrower. II. FUNDING LOSS AND YIELD PROTECTION PROVISIONS 2.1 Prepayment. The Borrower may not prepay any LIBOR Loan in full or in part at any time. The Borrower is responsible for managing the allocation of borrowings among the Types of Loans to avoid prepaying a LIBOR Loan to make a mandatory repayment of principal. 2.2 Change in Legality; Additional Costs to Lenders. If after the date of the Loan Agreement any change in applicable law or regulation or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof (whether or not having the force of law) shall, with respect to the Lenders, or any of them, (a) change the basis of taxation of payments to the Lenders, or any of them, or the principal or interest on the Loans under the Loan Agreement, (b) impose, modify or hold applicable any fees, reserve requirements, special deposits or any costs to the Lenders, or any of them, in respect of the Loans, or (c) cause a reduction in the amount of any sum received or receivable under the Loan Agreement; then, and in any such event, the Borrower shall pay to the Agent, on demand, for distribution to such Lender(s), such additional amounts as will compensate such Lender(s) on an after-tax basis for such cost or reduction incurred; provided, however, that the Borrower shall not be obligated directly or indirectly to pay for federal or state income taxes measured or levied generally upon the net income of any Lender. The Lenders may use any reasonable method in calculating their additional costs under this Section, which calculation shall be conclusive absent manifest error. 2.3 Capital Requirements. If the Lenders, or any of them, shall determine that compliance with any law, regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) would result in an increase in the amount of capital required or expected to be maintained by such Lender(s) or any corporation controlling such Lender(s), and that such increase is based upon the existence of such Lender's commitment hereunder and other commitments of this type, then, and in any such event, the Borrower shall pay the Agent as an additional fee, from time to time on demand, for distribution to such Lender(s), such amount(s) as such Lender(s) shall determine to be the amount(s) that will compensate it or them or such other corporation for any reduction in the rate of return on such capital. A certificate as to the amount of compensation, submitted to the Borrower by the affected Lender(s), shall be conclusive and binding for all purposes absent manifest error. 2.4 Lack of Availability or Profitability of Eurodollar Deposits; Illegality. In the event that any Lender shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties) that: (a) on any date for determining LIBOR for any Interest Period, by reason of any change after the date hereof affecting the interbank market or affecting the position of such Lender in such market, adequate and fair means do not exist for ascertaining the applicable interest rate by reference to LIBOR; or (b) at any time, by reason of (i) any change after the date of the Loan Agreement in any applicable law or governmental rule, regulation or order (or any interpretation thereof by any government authority or otherwise (provided that, in the case of an interpretation not by a governmental authority, such interpretation shall be made in good faith and shall have a reasonable basis) and including the introduction of any new law or governmental rule, regulation or order), to the extent not provided for in clause (c) below, or (ii) in the case of LIBOR Loans, other circumstances affecting such Lender or the interbank market or the position of such Lender in such market, LIBOR shall not represent the effective pricing to such Lender for funding or maintaining the affected LIBOR Loan; or (c) at any time, by reason of the requirements of Regulation D or other official reserve requirements, LIBOR shall not represent the effective pricing to such Lender for funding or maintaining the affected LIBOR Loan; or (d) at any time, the making or continuance of any LIBOR loan has become unlawful or compliance by such Lender in good faith with any law, governmental rule, regulation, guideline or order, or would cause severe hardship to such Lender as a result of a contingency occurring after the date hereof which materially and adversely affects the interbank market; then, and in any such event, such Lender shall on such date of determination give notice (by telephone confirmed in writing) to the Agent and the Borrower of such determination. Thereafter, in the case of clause (a), (b) or (c) above, (and without affecting Borrower's obligations to pay interest on the Loans at the rates set forth in Section 1.6 hereof) Borrower shall pay to the Agent for payment to such Lender, upon written demand therefor, such additional amounts deemed in good faith by such Lender to be material (in the form of an increased rate of, or a different method of calculating, interest or otherwise as the Agent or such Lender in its discretion shall determine) as shall be required to cause such Lender to receive interest with respect to its affected LIBOR Loan at a rate per annum equal to the sum of (i) the applicable rate per annum determined in accordance with Section 1.6, hereinabove, plus (ii) the effective pricing to such Lender to make or maintain such LIBOR Loan, and in the case of clause (d), Borrower shall within five (5) Business Days prepay all LIBOR Loans so affected, together with all accrued interest thereon but without penalty for any costs, net losses or overhead pursuant to Section 2.6, subject to the provisions of Section 2.5 hereinbelow. A certificate as to additional amounts owed to any Lender, shown in reasonable detail the basis for the calculation thereof, submitted to Borrower and the Agent by the Lender shall, absent manifest error, be final, conclusive and binding upon all of the parties hereto. 2.5 Borrower's Right to Convert Loans. At any time that any of its Borrowings are affected by the circumstances described in Section 2.4 Borrower may (a) if a LIBOR Loan has been requested but not implemented, cancel such Loan or conversion by giving the Agent notice thereof by telephone (confirmed in writing) pursuant to Section 2.4 or (b) if the affected LIBOR Loan is then outstanding, upon at least three (3) Business Days' written notice to the Agent, require the Lenders to convert such LIBOR Loan into a Base Rate Loan. 2.6 Funding Loss Indemnification. If the Borrower shall (a) pay or convert any LIBOR Loan on any day other than the last day of the applicable Interest Period (whether on account of a scheduled payment, an optional prepayment or conversion, a mandatory prepayment or conversion, a payment upon acceleration or otherwise); or (b) fail to borrow any LIBOR Loan after giving due notice thereof to the Agent pursuant to Section 1.4, or (c) fail to convert any Base Rate Loan into a LIBOR Loan after giving due notice thereof to the Agent pursuant to Section 1.5, the Borrower shall reimburse the Lenders and hold the Lenders harmless for all costs, net losses or administrative overhead incurred as a result of such repayment, prepayment or failure. The Lenders may use any reasonable method in calculating their loss under this Section, which calculation shall be binding and conclusive on the Borrower absent manifest error. III. CONDITIONS PRECEDENT 3.1 Documents Required. The Lenders shall have no several obligations to make disbursements of Loans pursuant to the provisions of the Loan Agreement, unless and until the Lenders (through the Agent) shall have received such executed originals or certified copies of each of the following instruments as the Lenders (through the Agent) may have reasonably requested, in each case in form and substance acceptable to the Lenders and their respective legal counsel: (a) The Loan Agreement, the Notes, the Mortgage, the Additional Security Mortgage, UCC Financing Statements describing the security interests created by the Mortgage and Additional Security Mortgage, and the Environmental Indemnity Agreement; (b) The Agency Agreement; (c) A certificate signed by the Borrower's corporate secretary, certifying to the Lenders and Agent: (1) as to the adoption of Resolutions of the Borrower's Board of Directors authorizing the execution, delivery and performance of the Loan Documents and all other documents to be delivered by the Borrower pursuant to the Loan Agreement; (2) as to the incumbency and signatures of the officers of the Borrower signing the Loan Documents, and each other document to be delivered by the Borrower pursuant to this Loan Agreement; and (3) that the Articles of Incorporation and By-Laws of the Borrower, true copies of which have been attached to such certification, have not been amended since the date of such delivery; (d) A certificate of the Director of Commerce and Consumer Affairs of the State of Hawaii, evidencing the good standing of the Borrower in the State of Hawaii; (e) A written opinion of independent counsel to the Borrower, addressed to the Lenders, stating that: (1) The Borrower and the Subsidiaries are corporations duly organized, validly existing and in good standing under the Laws of the State of Hawaii and are duly qualified and in good standing as foreign corporations in all jurisdictions wherein the nature of their businesses or the properties owned by them make such qualification necessary; (2) The Borrower has the corporate power and authority to execute and deliver the Loan Documents, to borrow money hereunder, and to perform the Obligations; (3) All corporate action required to be taken by the Borrower to enter into the transactions contemplated by the Loan Agreement has been duly taken, and all consents and approvals of all Persons, necessary to the validity of the Loan Documents, and each other document to be delivered by the Borrower hereunder have been duly obtained, and the Loan Documents and such other documents do not conflict with any provision of the Articles of Incorporation or By-Laws of the Borrower, or of any applicable Laws or any other agreement binding upon the Borrower or its property of which such counsel has knowledge and the Borrower's execution, delivery and performance of the Loan Documents do not require the consent or approval of any governmental body or regulatory authority; (4) The Loan Documents and all other documents required to be delivered by the Borrower pursuant to the provisions of the Loan Agreement have been duly executed by, and each is a valid and binding obligation of, the Borrower, enforceable in accordance with its terms; (5) Kapalua Land Company, Ltd. ("KLC") has the corporate power and authority to execute and deliver the Additional Security Mortgage, all corporate action required to be taken by KLC in respect of its execution and delivery of the Additional Security Mortgage has been duly taken, and the Additional Security Mortgage has been duly executed and delivered by KLC and is a valid and binding obligation of KLC, enforceable in accordance with its terms; and (f) Evidence that the Revolving and Term Loan Agreement dated as of December 27, 1990, as amended by instruments dated as of December 31, 1991 and March 31, 1992, among Bank of Hawaii, First Hawaiian Bank and Bank of America National Trust and Savings Association (successor-in-interest to Security Pacific National Bank), as Lenders, Bank of Hawaii, as Agent, and the Borrower, together with the Notes and Agency Agreement therein described, have been terminated, and that all Loans and all other indebtedness of the Borrower thereunder have been repaid or paid in full (or that arrangements, acceptable to the Lenders and Agent thereunder, the Lenders and Agent hereunder, and the Borrower, have been made for the repayment of said Loans and the payment of all such other indebtedness from the proceeds of the initial Loans under this Loan Agreement); and (g) Evidence that the Mortgage and Additional Security Mortgage have been recorded in the Bureau of Conveyances of the State of Hawaii (and, if appropriate, filed in the office of the Assistant Registrar of the Land Court of Hawaii), that the related UCC Financing Statements have been filed in said Bureau, and that the Lenders hold a first mortgage lien on and first security interest in all properties described in and purported to be encumbered by the Mortgage and Additional Security Mortgage, subject to no liens or encumbrances other than those noted in (or authorized by) the Mortgage. In addition to the foregoing conditions precedent, the following conditions shall have been satisfied: (h) At the time of the initial disbursement of Loan proceeds under the Loan Agreement and of each subsequent disbursement of Loan proceeds under the Loan Agreement: (1) No Event of Default under the Loan Agreement shall have occurred and be continuing, and no event shall have occurred and be continuing that, with the giving of notice or passage of time, or both, would become such an Event of Default; (2) The Agent shall have received a request for such disbursement pursuant to Section 1.4 of the Loan Agreement; (3) The representations and warranties contained in Article IV of the Loan Agreement shall be true on and as of the date of such disbursement with the same force and effect as if made on and as of such date; (4) The Lenders shall have remitted to the Agent the Lenders, respective pro rata shares of the disbursement then due; and (5) All legal matters incidental to such disbursement shall be satisfactory to the Agent's counsel. The parties hereto acknowledge that the foregoing conditions precedent set forth in this Section 3.1 have heretofore been satisfied with respect to the initial disbursement of Loan proceeds. 3.2 Conditions Precedent to Effective Date of Amendment and Restatement. Notwithstanding anything herein to the contrary, the effectiveness of the amendment and restatement of the Original Loan Agreement in accordance with the terms of this Amendment and Restatement, is subject to the satisfaction of all of the following conditions, and on the date of the satisfaction of such conditions (the "Effective Date"), the Original Loan Agreement shall be deemed amended and restated as set forth herein: (a) Documents Required. The Agent shall have received, in each case in form and substance satisfactory to the Agent and the Lenders, such fully executed originals or certified copies as the Agent and the Lenders may have requested of each of the following, in each case as amended through the Effective Date: (1) Loan Documents. This Amendment and Restatement and the Notes, each executed by the Borrower and completed in conformity with the provisions of this Amendment and Restatement, the Confirmations of Mortgage and the Agency Agreement; (2) Consents and Authority. Evidence that the Borrower has obtained all necessary and appropriate authority, approvals and consents to execute, deliver and perform the terms of (i) this Amendment and Restatement, the Notes, and the Confirmations of Mortgage (collectively called the "Amending Documents") and (ii) the Loan Documents, as amended and restated by the Amending Documents, including, without limitation, certified resolutions of the Borrower as to such authority; (3) Opinion of Counsel. A written opinion of independent counsel to the Borrower, addressed to the Lenders, stating that: (i) The Borrower, Kapalua Land Company, Ltd. ("KLC") and Maui Pineapple Company, Ltd. are corporations duly organized, validly existing and in good standing under the Laws of the State of Hawaii and are duly qualified and in good standing as foreign corporations in all jurisdictions wherein the nature of their businesses or the properties owned by them make such qualification necessary; (ii) The Borrower has the corporate power and authority to execute and deliver the Loan Documents, to borrow money hereunder, and to perform the Obligations; (iii) All corporate action required to be taken by the Borrower to enter into the transactions contemplated by the Loan Agreement has been duly taken, and all consents and approvals of all Persons, necessary to the validity of the Loan Documents, and each other document to be delivered by the Borrower hereunder have been duly obtained, and the Loan Documents and such other documents do not conflict with any provision of the Articles of Incorporation or By-Laws of the Borrower, or of any applicable Laws or any other agreement binding upon the Borrower or its property of which such counsel has knowledge and the Borrower's execution, delivery and performance of the Loan Documents do not require the consent or approval of any governmental body or regulatory authority; (iv) The Loan Documents and all other documents required to be delivered by the Borrower pursuant to the provisions of the Loan Agreement have been duly executed by, and each is a valid and binding obligation of, the Borrower, enforceable in accordance with its terms; (v) KLC has the corporate power and authority to execute and deliver the Additional Security Mortgage and the Confirmation of Mortgage to which KLC is a party, all corporate action required to be taken by KLC in respect of its execution and delivery of the Additional Security Mortgage has been duly taken and such Confirmation of Mortgage, and the Additional Security Mortgage and such Confirmation of Mortgage have been duly executed and delivered by KLC and is a valid and binding obligation of KLC, enforceable in accordance with their terms; and (4) Title Insurance. An ALTA Form Lender's Title Insurance Policy for not less than $25,000,000.00, assuring to the Lenders the validity and agreed-upon priority of the Mortgage and the Additional Security Mortgage may require. Such Title Insurance Policy may be subject to an exception for survey matters. (b) Certain other Events. On the Effective Date: (1) No event shall have occurred and be continuing that (i) constitutes an Event of Default, or (ii) with the giving of notice or passage of time, or both, would constitute such an Event of Default (a "Default"). (2) The representations and warranties contained in Article IV of the Loan Agreement shall be true on and as of the Effective Date with the same force and effect as if made on the Effective Date, other than as previously disclosed to the Agent with respect to the representations and warranties set forth in Sections 4.6 and 4.9 hereof. (3) No material adverse change shall have occurred in the financial condition of the Borrower since the date of the most recent of the Borrower's Financial Statements submitted to the Agent. (4) All legal matters incidental to the closing shall be satisfactory to legal counsel for the Agent and each Lender. (c) Interest and Other Charges. On the Effective Date, the Borrower shall have paid to the Agent (1) the fees referred to in Sections 1.9(b) and 1.9(c) hereof, and (2) all sums of accrued interest and other fees and charges then outstanding under the Loan Documents. (d) Village Course Facility. The Village Course Facility (as defined in the Second Restatement) shall be paid in full. On the Effective Date, subject to the satisfaction of the foregoing conditions, the Original Loan Agreement shall be deemed amended and restated in accordance with the provisions of this Amendment and Restatement, with the force and effect below in Article X. 3.3 Conditions to Term Loans. The obligation of the Lenders to make their respective Term Loans to the Borrower on the Expiry Date shall be subject to the satisfaction of the following conditions precedent: (a) Defaults and Events of Default. No Default or Event of Default under the Loan Agreement shall have occurred and be continuing; (b) Representations and Warranties. The representations and warranties contained in Article IV of the Loan Agreement shall be true on and as of the Expiry Date with the same force and effect as if made on the Expiry Date; (c) Certificate. The Borrower shall have delivered to the Agent and the Lenders a certificate dated the Expiry Date, signed by the President or an Executive Vice President of the Borrower, certifying to the Agent and the Lenders that: (1) The representations and warranties contained in Article IV of the Loan Agreement are true on and as of such date; and (2) No Event of Default under the Loan Agreement, and no event which, with the giving of notice or passage of time, or both, would become an Event of Default, has occurred on and as of such date; (d) Illegality. The making of the Term Loans shall not have been rendered illegal by any of the Laws applicable thereto. If such conditions shall not have been satisfied on Expiry Date, all outstanding principal together with accrued and theretofore unpaid interest on the Revolving Loans and all other amounts due to the Lenders under the Loan Documents shall be paid in full on the Expiry Date. IV. Representations and Warranties To induce the Lenders to enter into this Amendment and Restatement, the Borrower represents and warrants to the Lenders as follows, which representations and warranties shall survive the execution of this Amendment and Restatement and continue so long as the Borrower is indebted to the Bank under the Loan Documents, and until payment in full of the Credit Facility and Loans. 4.1 Organization. The Borrower and the Subsidiaries are corporations duly organized, validly existing and in good standing under the Laws of the State of Hawaii; the Borrower and the Subsidiaries have the lawful corporate power and adequate authority, rights and franchises to own or lease their respective properties and to engage in the businesses they each conduct, and each is duly qualified and in good standing as a foreign corporation in each jurisdiction, if any, wherein the nature of the business transacted by it or property owned by it makes such qualification necessary. 4.2 No Breach. The execution and performance of the Loan Documents will not immediately, or with the passage of time or the giving of notice, or both: (a) Violate the Articles of Incorporation or By-Laws of the Borrower, or violate any Laws or breach or result in a default under any contract, agreement, or instrument to which the Borrower or any Subsidiary is a party or by which the Borrower or any Subsidiary or its property is bound, or require the consent or approval of any governmental office or official; or (b) Result in the creation (or an obligation to create) or imposition of any security interest in, or lien or encumbrance on, any of the assets of the Borrower or any Subsidiary, other than the liens or security interests intended to be created by the Mortgage and by the Additional Security Mortgage. 4.3 Authorization. The Borrower has the corporate power and authority to execute and deliver the Loan Document and to incur and perform the obligations, and has taken all corporate action necessary to authorize the execution, delivery, and performance of the Loan Documents. 4.4 Regulatory Approval. The Borrower's execution, delivery and performance of the Loan Documents do not require the consent or approval of any governmental body or other regulatory authority. 4.5 Enforceability. The Loan Agreement is, and the remainder of the Loan Documents when executed and delivered will be, the legal, valid and binding obligations of the Borrower, and enforceable in accordance with their respective terms. 4.6 Financial Statements. All Financial Statements heretofore furnished by the Borrower to the Lenders, including any schedules and notes pertaining thereto, were prepared in accordance with generally accepted accounting principles consistently applied ("GAAP"), and fully and fairly presented the financial condition of the Borrower and its Subsidiaries at the dates thereof and the results of operations for the periods covered thereby, and as of the date of this Amendment and Restatement there have been no material adverse changes in the consolidated financial condition or business of the Borrower and its Subsidiaries from the date of the most recent Financial Statements furnished to the Lenders, except as disclosed by Borrower to Agent in writing. 4.7 Taxes. Except as otherwise permitted by the Loan Agreement, the Borrower and its Subsidiaries have filed all federal, state and local tax returns and other reports they were required by Laws to have filed prior to the date of this Amendment and Restatement and which are material to the conduct of their respective businesses, have paid or caused to be paid all taxes, assessments and other governmental charges that were due and payable prior to the date of this Amendment and Restatement, and have made adequate provision for the payment of such taxes, assessments or other charges accruing but not yet payable; and the Borrower has no knowledge of any deficiency or additional assessment in a materially important amount in connection with any taxes, assessments or charges not provided for on its books. 4.8 Compliance with Law. Except to the extent that the failure to comply would not materially interfere with the conduct of the business of the Borrower or any Subsidiary or have a materially adverse effect on the financial condition of the Borrower or any Subsidiary, the Borrower and its Subsidiaries have complied with all applicable Laws in respect of: (1) restrictions, specifications, or other requirements pertaining to products that the Borrower or any Subsidiary grows, manufactures or sells or to the services each performs; (2) the conduct of their respective businesses; and (3) the use, maintenance, and operation of the real and personal properties owned or leased by them in the conduct of their respective businesses. 4.9 Hazardous Materials. There are no chemical substances, pollutants, contaminants or hazardous or toxic substances, materials or wastes (collectively, "hazardous materials") at any premises owned, leased, operated, controlled or used by the Borrower or any of the Subsidiaries where such could reasonably be expected to have a materially adverse effect on the operations or financial condition of the Borrower and the Subsidiaries or the Borrower's ability to repay the Loans, and the Borrower and the Subsidiaries do not manufacture, process, distribute, use, treat, store, dispose of, transport or handle hazardous materials in such a manner as to create expectations of such a materially adverse effect on the operations or financial condition of the Borrower and the Subsidiaries or the Borrower's ability to repay the Loans. 4.10 Subsidiaries. The Borrower has no Subsidiaries other than those listed in Exhibit C, attached hereto. 4.11 Litigation. No litigation or other proceeding is pending or threatened against the Borrower or any of its Subsidiaries or any of their respective properties which if determined adversely to the Borrower or any such Subsidiary, would have a materially adverse effect on the Collateral or on the consolidated financial condition or business prospects of the Borrower and its Subsidiaries, except as disclosed by Borrower to Agent in writing. 4.12 Margin Stock. Neither the execution of the Loan Agreement nor the Borrower's use of proceeds of the Loans will constitute a violation of any of Regulations G, T and U of the Board of Governors of the Federal Reserve System or any interpretations thereof or rulings thereunder. 4.13 Ownership of Assets. The Borrower and its Subsidiaries have good and marketable title to all of their respective assets, subject only to such exceptions or encumbrances as do not materially adversely affect either the consolidated financial conditions of the Borrower and its Subsidiaries as currently reflected in the Financial Statements or the conduct of the businesses of the Borrower and its Subsidiaries. 4.14 ERISA. All Defined Benefit Pension Plans, as defined in the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of the Borrower and each Subsidiary meet the minimum funding standards of ERISA, and no Reportable Event or Prohibited Transaction, as defined in ERISA, has occurred in respect of any such Plan. 4.15 Statements and Omissions. No representation or warranty by the Borrower contained in the Loan Agreement or in any certificate or other document furnished by the Borrower pursuant to the Loan Agreement contains any untrue statement of material fact or omits to state a material fact necessary to make such representation or warranty not misleading in light of the circumstances under which it was made. 4.16 Other Federal Regulations. Neither the Borrower nor any Subsidiary is subject to provisions of the Investment Company Act of 1940, provisions of the Public Utility Holding Company Act of 1935, provisions of the Interstate Commerce Act or provisions of any other statute or regulation which restrict the execution or performance of this Loan Agreement or the Notes by the Borrower. V. Affirmative Covenants For so long as the Commitment or any of the Obligations remains outstanding, the Borrower will, unless otherwise permitted by the Bank in writing: 5.1 Payments. Punctually pay when due all sums which may be due under the Loan Documents. 5.2 Accounting Records. Maintain accounting records and books for Borrower and the Subsidiaries, in accordance with GAAP, provide the Agent with access to such books and accounting records at the Agent's request during the Borrower's normal business hours and furnish to the Lenders (through the Agent) any information regarding the business affairs and financial condition of Borrower and the Subsidiaries within a reasonable time after written request therefor. 5.3 Financial Reporting. Furnish the Lenders, through the Agent, with financial reports, in reasonable detail and form approved by the Agent, as follows: (a) Within 60 days after the close of each quarterly accounting period in each fiscal year: (i) a consolidated statement of Net Worth and a consolidated statement of cash flow of the Borrower and the Subsidiaries for such quarterly period; (ii) a consolidated income statement of the Borrower and the Subsidiaries for such quarterly period; (iii) a consolidated balance sheet of the Borrower and the Subsidiaries as of the end of such quarterly period; (iv) summary schedules of income and cash flow for the Borrower's resort division and pineapple division, Napili Plaza and Kaahumanu Center, subject to year-end audit adjustments and certified by the Borrower's President or chief financial officer to have been prepared in accordance with GAAP by the Borrower and Subsidiaries, except for any inconsistencies explained in such certificate; and (v) a written summary of all projects approved by the Borrower or any of its Subsidiaries during such quarterly period which are reasonably expected to involve Capital Expenditures exceeding $1,000,000.00; (b) Within 90 days after the close of each fiscal year: (i) a consolidated statement of Net Worth and a consolidated statement of cash flow of the Borrower and the Subsidiaries for such fiscal year; (ii) a consolidated income statement of the Borrower and the Subsidiaries for such fiscal year; (iii) a consolidated balance sheet of the Borrower and the Subsidiaries as of the end of such fiscal year (all of the aforementioned financialstatements to be audited and certified to without qualification by independent certified public accountants selected by the Borrower); (iv) summary schedules of income and cash flow for the Borrower's resort division and pineapple division, Napili Plaza and Kaahumanu Center; and (v) detailed statements of Capital Expenditures and Investments made or incurred in such fiscal year, all of the foregoing including all supporting schedules and comments; (c) By November 15 of each year, (i) copies of the Borrower's three-to-five year summary forecast of income and cash flow for the Borrower's resort division and pineapple division, Napili Plaza and Kaahumanu Center, and (ii) a Capital Expenditure and Investment forecast for each such division; (d) Promptly after the sending or making available or filing of the same, copies of all reports, proxy statements and financial statements that the Borrower sends or makes available to its stockholders and all registration statements and reports that the Borrower files with the Securities and Exchange Commission or any successor Person; (e) Within 60 days following the close of each quarterly period, statements of KCA's net worth at the end of such period and cash flow for such period, KCA's income statement for such period, and KCA's balance sheet as of the end of such period, in reasonable detail, certified to by KCA's chief financial officer; (f) The financial statements required pursuant to clauses (a) and (b) shall be accompanied by a compliance certificate from Borrower's chief financial officer, in the form attached as Schedule 5.3 certifying (i) the financial ratios and other requirements referred to in Section 5.10, (ii) the representations and warranties set forth in Article IV as being true and correct on and as of such date, and (iii) that no Event of Default has occurred or is continuing; and (g) From time to time such other information as the Bank may reasonably request. 5.4 Existence. Preserve and maintain the legal existence of Borrower and the subsidiaries, and timely file all necessary and appropriate documents and exhibits and pay all appropriate fees and charges in connection therewith; provided, however, that the Borrower shall have the right to dissolve or liquidate such of its Subsidiaries as its management may determine to dissolve or liquidate in the exercise of sound business judgment. 5.5 Observance of Laws. Conduct the business activities of Borrower and the Subsidiaries in an orderly, efficient and regular manner and in compliance with all requirements of all applicable state, federal and local laws, rules and regulations. 5.6 Insurance. Maintain, or cause to be maintained, commercial general liability insurance and commercial property insurance on all assets owned or leased by Borrower, all in such form and amounts as are consistent with industry practices. The Borrower and its Subsidiaries may procure any such insurance from any insurance company or companies authorized to do business in Hawaii. 5.7 Facilities. Keep all of the Borrower's and the Subsidiaries' property and business premises in a good state of repair and condition, make all necessary repairs, renewals and replacements thereto from time to time so that such property and business premises shall be fully and efficiently preserved and maintained, keep such property and business premises free and clear of all liens, charges or encumbrances except those consented to by the Agent in writing and permit the Lender's authorized representatives to make reasonable inspections of the Borrower's and the Subsidiaries' property and business premises. 5.8 Taxes and Other Liabilities. Pay or cause to be paid when due, all taxes, assessments and charges or levies imposed upon Borrower or the Subsidiaries or on any of their property or which any of them is required to withhold and pay over, except where contested in good faith by appropriate proceedings with adequate reserves therefor having been set aside on their books, and the Borrower will pay all governmental charges or taxes (except income, franchise or similar taxes) at any time payable or ruled to be payable in respect of the existence, execution or delivery of the Loan Agreement and the Notes by reason of any existing or hereafter enacted federal or state statute. 5.9 Notice to the Bank. Promptly give notice to the Agent, in reasonable detail, of (a) the occurrence of any Event of Default or of any fact, condition or event that only with the giving of notice or passage of time, or both, could become such an Event of Default, (b) any change in the name or organizational structure of the Borrower, (c) any uninsured loss through fire, theft, liability or property damage exceeding $500,000.00, (d) any pending or threatened litigation affecting the Borrower or any of the Collateral involving an amount exceeding $1,000,000.00, (e) any event which could have a material adverse effect on the ability of the Borrower to continue its business operations in the ordinary course, (f) any change in the Borrower's principal place of business, and (g) the occurrence of any event in respect of which a report on Form 8-K should be filed by the Borrower with the Securities and Exchange Commission. 5.10 Financial Condition. Maintain the Borrower's financial condition according to the following standards, in each such case determined in accordance with GAAP: The Borrower will maintain as of the end of each fiscal quarter and will provide evidence of the same pursuant to Section 5.3 hereof: (a) Debt Service Coverage Ratio of not less than 1.20; (b) A Recourse Debt to Net Worth ratio of not more than 1.10; and (c) A Net Worth of not less than $60,100,000.00, plus 50% of cumulative Net Profits (but not the net losses) after December 31, 1998. 5.11 ERISA. Fund or cause to be funded all Defined Benefit Pension Plans of Borrower and the Subsidiaries in accordance with no less than the minimum funding standards of ERISA; and (ii) promptly advise the Agent of the occurrence of any Reportable Event or Prohibited Transaction in respect of any such Plan. VI. Negative Covenants For so long as the Commitment or any Obligation remains outstanding, the Borrower will not, without the prior written consent of the Lenders, and will not, without the prior written consent of the Lenders, cause or suffer any Subsidiary to: 6.1 Use of Funds. Use any of the proceeds of the Loans for any purpose except as set forth in Section 1.2 of this Agreement. 6.2 Merger or Consolidation; Business. Enter into any merger, consolidation, reorganization or recapitalization, or reclassify its capital stock, or substantially change the nature of its business as now conducted, except that (1) any wholly-owned Subsidiary may merge with any other Subsidiary provided said wholly-owned Subsidiary is the surviving entity, (2) any Subsidiary may merge with the Borrower provided the Borrower is the surviving entity, and (3) the Borrower and any wholly-owned Subsidiary may make loans to, and contributions to the capital of, and receive loans and dividends from, wholly-owned Subsidiaries. 6.3 Sale of Assets. Sell, transfer, lease or otherwise dispose of all or (except in the ordinary course of business as now conducted) any material part of its assets. 6.4 Distributions. Declare or pay any dividends, or make any other payment or distribution on account of its capital stock, except that, subject to the satisfaction in full of the condition precedent that the Agent and Lenders shall have received, prior to any declaration or payment of cash dividends, the Borrower's audited annual financial statements for the fiscal year, the Borrower may declare and pay cash dividends for and in respect of any fiscal year of the Borrower, in an amount not to exceed 30% of its Net Profits for such fiscal year. 6.5 Capital Expenditures. Make any Capital Expenditure in excess (on a consolidated basis) of: $14,500,000 in fiscal year 2001; and $12,000,000 in each fiscal year thereafter. 6.6 Stock. Redeem, purchase or retire any of its capital stock, except that the Borrower may redeem, purchase or retire shares of its capital stock with funds which could have been, but were not, used for the payment of cash dividends pursuant to the provisions of Section 6.3 of the Loan Agreement (subject to the limitations therein set forth). 6.7 Margin Stock. Directly or indirectly apply any part of the proceeds of any of the Loans to the purchasing or carrying of any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or any regulations, interpretations or rulings thereunder. 6.8 Other Indebtedness. Incur, agree to incur, assume, or in any manner become liable in respect of any Indebtedness for Borrowed Money (recourse or nonrecourse) which shall cause their Total Debt (including indebtedness evidenced by the Notes and the Loan Agreement) to exceed $62,000,000.00. For the purposes of this Section 6.8, any KCA debt which is nonrecourse to the Borrower, including that portion subject to Borrower's Limited Payment Guaranty, shall not be deemed to constitute indebtedness of the Borrower or any Subsidiary. As used herein, "Borrower's Limited Payment Guaranty" means any guaranty of the Borrower guarantying payment of indebtedness of KCA relating to the Kaahumanu Shopping Center. 6.9 Encumbrances. Hypothecate, pledge, mortgage, grant a security interest in or otherwise encumber (or permit to be encumbered) any of its assets now owned or hereafter acquired, otherwise than in the ordinary course of the business of the Borrower or such Subsidiary (for purposes of this Section 6.9, encumbrances incurred or created in the ordinary course of business shall be deemed to include (a) liens for taxes and governmental (or quasi-governmental) assessments or similar charges that are not yet due and payable, (b) pledges or deposits to secure payment of workers' compensation or to participate in any fund established under workers' compensation, unemployment insurance, pensions or similar social security programs, (c) liens of mechanics, materialmen, warehousemen, carriers or other similar liens that are not yet due and payable, (d) good faith pledges or deposits made to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money), leases, statutory obligations, or surety, appeal, indemnity, performance or similar bonds required in the ordinary course of business, not exceeding at any one time outstanding $1,000,000 for all such pledges or deposits in the aggregate for the Borrower and its Subsidiaries, (e) retained liens or security instruments of equipment lessors on equipment leased under equipment leases permitted by the Loan Agreement, and (f) retained liens or security interests of equipment vendors or equipment financing lenders with respect to equipment purchased on time by the Borrower or its Subsidiaries. VII. The Bank's Rights Upon Default 7.1 Events of Default. Each of the following events is an "Event of Default" under this Agreement: (a) The Borrower shall fail to pay when due any principal or interest or fee or other charge payable under the Loan Agreement or any of the Notes and such failure shall continue for a period of five (5) Business Days. (b) The Borrower or any Subsidiary shall fail to observe or perform any other obligation to be observed or performed by it under the Loan Agreement, any of the Notes or other Loan Documents, and such failure shall continue for 30 days after: (1) notice of such failure from the Agent; or (2) the Agent is notified of such failure or should have been so notified pursuant to the provisions of Section 5.9 of the Loan Agreement, whichever is earlier. (c) Any financial statement, other statement, representation, warranty or certificate made or furnished by the Borrower or any Subsidiary to any of the Lenders or the Agent in connection with the Loan Agreement, or as an inducement to the Lenders or the Agent to enter into the Loan Agreement, or in any separate statement or document delivered pursuant to the provisions of the Loan Agreement, shall be materially false, incorrect, or incomplete when made or delivered. (d) The Borrower or any Subsidiary shall admit its inability to pay its debts as they mature, or shall make an assignment for the benefit of any of its creditors. (e) A decree or order for relief shall be entered by a court having jurisdiction in respect of the Borrower or any Subsidiary in an involuntary case under the federal Bankruptcy Code or any other applicable federal or state bankruptcy, insolvency or similar law, or a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) shall be appointed for the Borrower or any Subsidiary or for any substantial part of its property, and any such decree or order shall continue unstayed and in effect for a period of 60 consecutive days. (f) The Borrower or any Subsidiary shall commence a voluntary case under the federal Bankruptcy Code or any other applicable federal or state bankruptcy, insolvency or similar law, or the Borrower or any Subsidiary shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Borrower or any Subsidiary or any substantial part of its property. (g) The Borrower or any Subsidiary (i) shall have failed to pay at its stated due date any Indebtedness for Borrowed Money in excess of $1,000,000 in the aggregate (other than indebtedness evidenced by the Notes) and such failure shall have continued beyond any applicable grace period, or (ii) shall have failed to observe or perform any term, covenant or provision contained in any agreement or instrument (other than the Loan Agreement or the Notes) by which it is bound, evidencing or securing or otherwise relating to any Indebtedness for Borrowed Money in excess of $1,000,000 in the aggregate, and the effect thereof shall have been the acceleration of the maturity of said indebtedness by the holder or holders thereof or of any obligations issued in respect thereof or by a trustee or trustees acting on behalf of such holder or holders. (h) A final judgment which alone or with other outstanding final judgments against the Borrower or any Subsidiary exceeds $3,000,000 in the aggregate and (i) such judgment shall not be discharged or fully bonded against within 60 days, or (ii) within 60 days after entry of such judgment, execution shall not be stayed pending appeal, or (iii) such judgment shall not be discharged within 60 days after expiration of any such stay. (i) Borrower or any Subsidiary fails to pay when due any amount relating to any plan governed by ERISA. 7.2 The Bank's Rights. If an Event of Default shall occur, the Bank shall have, in addition to any and all other rights and remedies, legal or equitable, available to the Bank under any and all of the Loan Documents or at law, the following additional rights and remedies: (a) The absolute right to deny to the Borrower any further Loan or extension of credit (the Lender's obligation to extend and further credit to the Borrower shall immediately terminate); (b) The right, at the option of the Lender, to declare, without notice, the entire principal amount and accrued interest for any Loan or extension of credit outstanding under this Agreement, plus any fees and charges reasonably incurred by the Agent, and/or the Lender, under any of the Loan Documents, immediately due and payable; (c) The right, at the option of the Lender, to charge interest on any principal amount outstanding under this Agreement at the rate one and one-half (1.5%) percentage points above the otherwise applicable interest rate; (d) The right to the ex parte appointment without bond of a receiver, without regard to the value of any Collateral or solvency of any party liable for payment, observance or performance of the Obligations and regardless of whether the Bank has an adequate remedy a law; and (e) The Agent and the Lenders may exercise any and all other rights and remedies, legal or equitable, available to the Agent and/or the Lenders under the Notes and under any and all of the other Loan Documents or at law or in equity. VIII. Miscellaneous 8.1 Further Assurance. From time to time within five Business Days after the Bank's demand, the Borrower will execute and deliver such additional documents and provide such additional information as may be reasonably requested by the Bank to carry out the intent of this Agreement. 8.2 Appraisals. The Lenders reserve the right to obtain at the Borrower's expense (and the Borrower agrees to pay all reasonable costs of) appraisals of the Mortgaged Properties, from any licensed or certified appraiser designated by the Lenders, from time to time, whenever such appraisals may be (a) required by any law, rule or regulation applicable to the conduct of any Lender's business, (b) requested or directed by any governmental authority charged with the administration of such law, rule or regulation or any Lender's compliance therewith, whether or not such request or direction has the force of law, or (c) when reasonably deemed appropriate by the Lenders in their sole discretion (reappraisals referred to in this clause (c) shall not be required more frequently than annually). 8.3 Enforcement and Waiver by the Bank. The Lenders, or the Agent on behalf of the Lenders, shall have the right at all times to enforce the provisions of the Loan Documents, as they may be amended from time to time, in strict accordance with their respective terms, notwithstanding any conduct or custom on the part of any of the Lenders or the Agent in refraining from so doing at any time or times. The failure of the Lenders or the Agent at any time or times to enforce their rights under such provisions, strictly in accordance with the same, shall not be construed as having created a custom in any way or manner contrary to specific provisions of the Loan Documents or as having in any way or manner modified or waived the same. No single or partial exercise of any right by any Lender or the Agent shall preclude the further or other exercise thereof. All rights and remedies of the Lenders and Agent are cumulative and concurrent and the exercise of one right or remedy shall not be deemed a waiver or release of any other right or remedy. 8.4 Expenses of the Lender and Agent. The Borrower will, on demand, reimburse to the Agent all reasonable expenses, including the reasonable fees and expenses of legal counsel for the Agent, incurred by the Agent (whether as Agent or Lender) in connection with the negotiation, preparation, administration, amendment, modification, waiver, and/or enforcement of the Loan Documents and the collection or attempted collection of the indebtedness evidenced by the Loan Documents, or any of them including but not limited to bankruptcy or reorganization proceedings. The Borrower will, on demand, reimburse to the Lenders all reasonable expenses, including the reasonable fees and expenses of legal counsel for the Lenders, incurred by any of the Lenders in connection with the enforcement of the Loan Documents and the collection or attempted collection of the indebtedness evidenced by the Loan Documents, or any of them including but not limited to bankruptcy or reorganization proceedings. 8.5 Notices. Any notices or consents required or permitted by this Loan Agreement or the other Loan Documents shall be in writing and may be delivered in person or sent by United States mail or by telecopy and shall be deemed delivered when delivered in person or when deposited in the United States mail, certified, postage pre-paid, return receipt requested, or when sent during normal business hours at the place of receipt and the receipt of which is confirmed in writing if by telecopy, to the address of the parties as follows, unless such address is changed by written notice hereunder: (A) If to the Borrower: MAUI LAND & PINEAPPLE COMPANY, INC. ATTN: Mr. Paul J. Meyer Executive Vice President/Finance 120 Kane Street Kahului, Hawaii 96732-2232 PHONE: (808) 877-3871 FAX: (808) 871-0953 (B) If to the Lenders, in care of the Agent: BANK OF HAWAII ATTN: Mr. James Polk, Vice President Corporate Banking Division 130 Merchant Street, 20th Floor Honolulu, Hawaii 96813 PHONE: (808) 537-8684 FAX: (808) 537-8301 8.6 Waiver and Release by the Borrower. To the maximum extent permitted by applicable law, the Borrower (and each of them, if more than one): (a) Waives notice and opportunity to be heard, after acceleration of the indebtedness evidenced by the Loan Documents, before exercise by the Bank of the remedy of setoff or of any other remedy or procedure permitted by any applicable law or by any prior agreement with the Borrower, and, except where specifically required by this Agreement or by any applicable law, notice of any other action taken by the Bank; (b) Waives presentment, demand for payment, notice of dishonor, and any and all other notices or demands in connection with the delivery, acceptance, performance, or enforcement of this Agreement, and consents to any extension of time (and even multiple extensions of time for longer than the original term), renewals, releases of any person or organization liable for the payment of the Obligations under this Agreement, and waivers or modifications or other indulgences that may be granted or consented to by the Bank in respect of the Loans and other extensions of credit evidenced by this Agreement; and (c) Releases the Bank and its officers, agents, and employees from all claims for loss or damage caused by any act or omission on the part of any of them except willful misconduct. 8.7 Disclosure of Information. The Borrower consents to the Agent's or any Lender's disclosure to the other Lenders or the Agent of any information held by the disclosing entity from time to time, financial or otherwise, pertaining in any way to the creditworthiness or other condition of the Borrower or any Subsidiary. The Agent and Lenders agree that they shall maintain confidentiality with regard to nonpublic information concerning the Borrower and Subsidiaries obtained from the Borrower, provided that the Agent and Lenders shall not be precluded from making disclosure regarding such information: (a) on a confidential basis, to their own respective counsel, accountants and other professional advisors, (b) in response to a subpoena or order of a court of governmental agency, (c) on a confidential basis, to any entity participating or considering participating in any credit made under this Loan Agreement, (d) on a confidential basis to any guarantor or subordinated lender with respect to this Loan Agreement or (e) as required by law or applicable regulation. 8.8 Applicable Law. The substantive laws of the State of Hawaii shall govern the construction of this Agreement and the Notes and the rights and remedies of the parties hereto and thereto. 8.9 Binding Effect. This Agreement shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and permitted assigns, and shall be binding on the parties hereto and their respective heirs, personal representatives, successors and assigns. 8.10 Merger. This Agreement and the remainder of the Loan Documents constitute the full and complete agreement between the Bank and the Borrower with respect to the Term Loan and Revolving Credit Facility, and all prior oral and written agreements, commitments, and undertakings shall be deemed to have been merged into the Loan Documents and such prior oral and written agreements, commitments, and undertakings shall have no further force or effect except to the extent expressly incorporated in the Loan Documents. 8.11 Amendments; Consents. No amendment, modification, supplement, termination, or waiver or forbearance of any provision of this Loan Agreement or any of the other Loan Documents, and no consent to any departure by the Borrower therefrom, may in any event be effective unless in writing signed (a) by a Majority in Interest of the Lenders and the Agent, or (b) by all of the Lenders and the Agent, in the case of any action that has the effect of: increasing the Aggregate Commitment; changing (except in accordance with the provisions of the Loan Agreement) the Applicable Margin or fees payable to Lenders under the Loan Documents; altering the scheduled maturity or time of payment of principal, interest or fees payable under the Loan Documents; or modifying or releasing any collateral for the Loans, and then only in the specific instance and for the specific purpose given. 8.12 Assignments. (a) The Borrower shall have no right to assign any of its rights or obligations under the Loan Documents without the prior written consent of the Lender. (b) None of the Lenders shall assign any of its rights or obligations under the Loan Documents without the prior written consent of the Borrower, which consent shall not be unreasonably withheld or delayed; provided, however, the foregoing provision to the contrary notwithstanding, (a) any of the Lenders may sell participations in Loans made or to be made by it, to any entity affiliated with such Lender, without Borrower's consent, so long as such Lender remains primarily obligated to the Borrower under this Loan Agreement and so long as the Borrower shall not be obligated in any manner to deal directly with the affiliated purchaser of such participation, and (b) any Lender may negotiate, pledge, transfer or assign the Notes held by it (or the receivable evidenced thereby) to a Federal Reserve Bank or to any other agency or instrumentality of the United States of America to support borrowings of Federal funds by such Lender. (c) Subject to the foregoing restrictions, the Borrower consents to each Lender's negotiation, offer, and sale to third parties ("Participants") of the Credit Facility or participating interests in the Credit Facility, to any and all discussions and agreements heretofore or hereafter made between each Lender and any Participant or prospective Participant regarding the interest rate, fees, and other terms and provisions applicable to the Credit Facility, and to each Lender's disclosure to any Participant or prospective Participant, from time to time, of such financial and other information pertaining to the Borrower and the Credit Facility as any Lender and such Participant or prospective Participant may deem appropriate (whether public or non-public, confidential or non-confidential, and including information relating to any insurance required to be carried by the Borrower and any financial or other information bearing on the Borrower's creditworthiness and the value of any collateral). The Borrower acknowledges that the Lenders' disclosure of such information to any Participant or prospective Participant constitutes an ordinary and necessary part of the process of effectuating and servicing the Credit Facility. 8.13 Severability. If any provision of any of the Loan Documents shall be held invalid under any applicable law, such invalidity shall not affect any other provision of the Loan Documents that can be given effect without the invalid provision, and, to this end, the provisions of the Loan Documents are severable. 8.14 Release of Non-Golf Areas. In view of the fact that the portion of the property subject to the Mortgage and the Additional Security Mortgage, commonly known as the Bay Golf Course (or the Bay Course) and Village Golf Course (or the Village Course), has not been duly subdivided so as to constitute one or more duly subdivided lots, the land descriptions of the Bay Course and Village Course set forth or to be set forth in the Mortgage and Additional Security Mortgage (the "Mortgages"), include lands ("Excess Lands") in excess of the lands commonly known to comprise the Bay Course and Village Course. The Lenders agree that the Borrower shall have the right to subdivide the lands initially described in the Mortgages as comprising the Bay Course and Village Course, and to obtain releases of the Excess Lands from the liens of the Mortgages, upon the following terms and conditions: (a) the lot or lots to be released from the Mortgages, comprising the Excess Lands, as well as the lot or lots which are to remain subject to the Mortgages following the release of the Excess Lands, shall have been designated as specific lots approved by all governmental authorities having jurisdiction over the subdivision thereof; (b) the costs of subdivision and the costs of preparing the releases shall be borne by the Borrower; (c) the form and content of each release shall be acceptable to the Lenders; and (d) in connection with any such release, appropriate provisions shall have been made for access to and from, and utility and similar easements for, any lot or lots not to be released from the Mortgages. Within thirty days after the Lenders' declaration of an Event of Default and of their intention to foreclose the Mortgages, the Borrower shall commence, and thereafter diligently pursue to completion, any subdivision necessary to accomplish the purposes of this Section 8.14, so as to enable the Lenders to foreclose the Mortgages against all the Collateral, while releasing to the Borrower the Excess Lands. In the event the Borrower shall not commence such subdivision within said thirty-day period, or thereafter diligently pursue the subdivision to completion, the Lenders shall be entitled at the Borrower's expense, and are hereby appointed as the duly-appointed attorneys-in-fact of the Borrower (with full power of substitution), to commence and/or complete said subdivision. Said power of attorney is coupled with an interest, and is irrevocable. 8.15 The Bank's Right of Setoff; Security Interest in Accounts. Each Lender may set off obligations owed by the Lender to the Borrower (such as balances in checking and savings accounts) against the Obligations, without first resorting to other Collateral, if an Event of Default shall have occurred or shall have been declared or if any such obligations owed by the Lender to the Borrower shall be seized or levied upon under any legal process or under any claim of legal right. To secure the Obligations, the Borrower grants to the Agent or Lender a security interest in all checking, savings, and other deposit accounts now or hereafter maintained by the Borrower with the Agent or Lender. 8.16 Time is of the Essence. Time is of the essence under and in respect of this Agreement. 8.17 Joint and Several Liability. If more than one Borrower has signed this Agreement, all Borrowers shall be liable under this Agreement jointly, and each of them severally, for the payment, observance, and performance of all of the Obligations. 8.18 Headings. The headings of the various provisions of this Agreement are inserted for convenience of reference only and shall not affect the meaning or construction of any provision. 8.19 Survival of Certain Payment Obligations. The obligations of the Borrower to indemnify the Lenders against, and pay and reimburse to the Lenders, the costs and expenses referred to in Section 8.4 of the Loan Agreement (a) shall survive the repayment of the Loans and termination of the Loan Agreement to the extent such losses, costs and expenses are specifically billed to the Borrower within 60 days after full repayment of the Loans and termination of this Agreement, and (b) shall not survive the repayment of the Loans and termination of the Loan Agreement to the extent of any such costs or expenses which are not specifically billed to the Borrower within 60 days after full repayment of the Loans and termination of the Loan Agreement. 8.20 Counterparts. This Agreement may be executed in counterparts, each of which shall be an original instrument and all of which shall together constitute one and the same agreement. 8.21 Dispute Resolution. Any controversy or claim arising out of or relating to the Loan Agreement or any of the other Loan Documents shall, at the request of either party, be decided by binding arbitration conducted in the State of Hawaii without a judge or jury, under the auspices of the Commercial Arbitration Rules of the American Arbitration Association in accordance with Chapter 658 of the Hawaii Revised Statutes and the applicable rules of the aforementioned organization. The arbitrator will apply any applicable statute of limitations and will determine any controversy concerning whether an issue is arbitrable. Judgment upon the arbitration award may be entered in any court having jurisdiction. The prevailing party will be entitled to recover its reasonable attorneys' fees and costs as determined by the arbitrator. This agreement to arbitrate shall not limit or restrict the right, if any, of any party to exercise before, during or following any arbitration proceeding, with respect to any claim or controversy, self-help remedies such as setoff, to foreclose a mortgage or lien or other security interest in any Collateral judicially or by power of sale, or to obtain provisional or ancillary remedies such as injunctive relief from a court having jurisdiction. Either party may seek those remedies without waiving its right to submit the controversy or claim in question to arbitration. 8.22 Termination of Village Course Facility. The Village Course Facility (as defined in the Second Restatement) is hereby terminated. 8.23 Consent to Assignment to PCA. Borrower consents to the assignment of interests in the Credit Facility and under the Loan Document, including, without limitation, the Environmental Indemnity, to PCA. IX. Definitions 9.1 Additional Security Mortgage means the Additional Security Mortgage and Security Agreement dated March 1, 1993, made by Kapalua Land Company, Ltd. and recorded in the Bureau of Conveyances of the State of Hawaii as Document No. 93-036900, as originally executed or thereafter modified. 9.2 Agency Agreement means the Agency Agreement dated as of March 1, 1993, among Original Lenders and the Agent, authorizing the Agent to act as agent in respect of the Loans, as amended and restated by Amended and Second Restated Agency Agreement of even date herewith by and among Lenders and Agent, as the same may be further amended from time to time. 9.3 Aggregate Loan Commitment shall have the meaning given in Section 1.1(a) 9.4 Applicable Margin shall have the meaning given in Section 1.6(a). 9.5 Base Rate means the primary index rate established from time to time by Bank of Hawaii in the ordinary course of its business and with due consideration of the money market, and published by intrabank memoranda for the guidance of its loan officers in pricing all of its loans which float with the Base Rate. 9.6 Base Rate Loan means any Loan for which interest is calculated on the basis of the Base Rate. 9.7 Business Day means any day on which the main branch of Bank of Hawaii, in Honolulu, Hawaii, is open for business and, with respect to any LIBOR Loan, a day on which the main branch of Bank of Hawaii, in Honolulu, Hawaii, and commercial banks in New York City are open for business. 9.8 Capital Expenditures means all expenditures that, in accordance with GAAP, should be capitalized on the accounting records of the Borrower and its Subsidiaries. 9.9 Collateral shall have the meaning given in Section 1.3 9.10 Confirmations of Mortgage means the confirmation of the Mortgage of even date herewith by and between Borrower and Lenders and the confirmation of the Additional Security Mortgage of even date herewith by and between Kapalua Land Company, Ltd. and Lenders. 9.11 Conversion Date shall have the meaning provided in Section 1.5. 9.12 Debt Service means, for the applicable period, the sum of interest expense and scheduled principal payments made, exclusive of payments made in connection with the Village Course Facility (as defined in the Second Restatement). 9.13 Debt Service Coverage Ratio shall mean the ratio of Operating Cash Flow to Debt Service, in each case for the 12 months preceding the date of determination. 9.14 Effective Date shall have the meaning assigned thereto in Section 3.2 hereof. 9.15 Environmental Indemnification Agreement means the Environmental Indemnification Agreement, dated March 1, 1993, made by the Borrower in favor of Original Lenders, as amended from time to time. 9.16 Event of Default shall have the meaning given in Section 7.1. 9.17 Expiry Date means December 31, 2003. 9.18 Financial Statements means the consolidated balance sheets of the Borrower and its Subsidiaries and consolidated statements of income and retained earnings of the Borrower and its Subsidiaries and other financial statements (a) heretofore furnished to the Lenders, or any of them, and (b) to be furnished to the Lenders pursuant to the provisions of this Loan Agreement. 9.19 GAAP shall have the meaning given in Section 4.6. 9.20 Indebtedness for Borrowed Money means any indebtedness or obligation or liability to repay borrowed monies, whether matured or unmatured, liquidated or unliquidated, direct or contingent, joint or several, including, without limitation, all such indebtedness guaranteed, directly or indirectly, in any manner, or endorsed (other than for collection or deposit in the ordinary course of business) or discounted with recourse. 9.21 Individual Loan Commitment means: (a) In respect of BOH, $9,000,000; (b) In respect of FHB, $6,000,000; (c) In respect of CPB, $4,000,000; and (d) In respect of PCA, $6,000,000. 9.22 Individual Loan Commitment Percentage means, in respect of BOH, 36.0000000%; in respect of FHB 24.0000000%; in respect of CPB 16.0000000%; and in respect of PCA 24.0000000%. 9.23 Interest Period means the period commencing on the Business Day on which a LIBOR Loan is disbursed, rolled over or converted from another pricing option, and ending on the date one, two, three or six months thereafter, as selected by the Borrower in its Notice of Loan/Conversion in respect of LIBOR Loans; provided that if such ending date is not a Business Day, such ending date shall be deemed to be the next succeeding Business Day unless such next succeeding Business Day falls in a new calendar month, in which case the ending date shall be the next preceding Business Day. No Interest Period for a Revolving Loan shall extend beyond the Expiry Date. No Interest Period for a Term Loan shall extend beyond the Maturity Date. 9.24 Investments means all expenditures by the Borrower and its Subsidiaries, not reflected as Capital Expenditures in the Financial Statements, made for the purpose of acquiring, increasing or supplementing equity interests of any nature in partnerships, joint ventures, corporations, trusts, associations or other business entities, or in real property of any kind, and reflected as Investments in the Financial Statements. 9.25 KCA means Kaahumanu Center Associates, a Hawaii limited partnership which is organized between the Borrower, as general partner, and the State of Hawaii Employee Retirement System, as limited partner, for the purpose of acquiring, expanding and operating the Kaahumanu Shopping Center complex. 9.26 Laws means all ordinances, statutes, rules, regulations, orders, injunctions, writs or decrees of any government or political subdivision or agency thereof, or any court or similar entity established by any thereof. 9.27 Lenders is defined in the preamble of this Amendment and Restatement. 9.28 LIBOR means the reserve-adjusted rate of interest per annum, rounded upward if necessary, to the nearest four decimal places, at which U.S. dollar deposits in immediately available funds are offered to major banks in the interbank market at 11:00 a.m. New York time three Business Days prior to the commencement of an Interest Period. The Bank shall establish LIBOR for each Interest Period based on offered rates as reported by reporting services generally used by the Bank. Rates are quoted based on both the Interest Period and the amount of Loan requested by the Borrower. Such rate shall incorporate the following adjustment for any reserve requirements relative to dollar deposits, placed on the Bank by any regulatory body: LIBOR (Unadjusted) LIBOR (Reserve Adjusted) = (100% - LIBOR Reserve Requirement) The Bank's determination of LIBOR shall be binding and conclusive upon the Borrower absent manifest error. 9.29 LIBOR Loan means any Loan for which interest is calculated on the basis of LIBOR. 9.30 LIBOR Reserve Requirement means the then maximum effective rate per annum (expressed as a percentage), as determined solely by the Bank, of reserve requirements imposed by any regulatory body (such as those pursuant to Regulation D of the Board of Governors of the Federal Reserve System) on eurocurrency liabilities of U.S. banks having a term to maturity equal to the applicable Interest Period; and as adjusted by the Bank for changes or scheduled changes in such percentage during the applicable Interest Period. 9.31 Loan Agreement means the Original Loan Agreement, as amended aforesaid and by this Amendment and Restatement and any further amendments, modifications, extensions or renewals thereof. 9.32 Loans means the Revolving Loans and the Term Loans. 9.33 Loan Documents shall have the meaning given in Section 1.7. 9.34 Maintenance Capital Expenditures shall mean Capital Expenditures made to replace worn out or obsolete assets used by Borrower and the Subsidiaries in the normal course of their business. 9.35 Majority in Interest of the Lenders means Lenders holding 66.67% of the aggregate principal amount of the Loans then outstanding hereunder (or if no Loans are at the time outstanding, Lenders having 66.67% of the Aggregate Loan Commitment). 9.36 Maturity Date means December 31, 2006. 9.37 Mortgage means, collectively, the Mortgage and Security Agreement dated March 1, 1993, made by the Borrower, as Mortgagor, in favor of the Lenders, as Mortgagees, recorded in said Bureau as Document No. 93-036896 and that certain Mortgage and Security Agreement made by Borrower, as Mortgagor, in favor of Lenders, as Mortgagees, recorded in said Bureau as Document No. 93-036898, as the same were originally executed and as thereafter amended or modified. 9.38 Net Profits means, for any fiscal year, the consolidated, after-tax net profits of the Borrower and its Subsidiaries for such year, determined in accordance with GAAP. 9.39 Net Worth means the consolidated net worth of Borrower and the Subsidiaries, as shown in their most recent Financial Statements, less any goodwill or debt discounts carried as assets on such Financial Statements, trademarks, patents, copyrights, organizational expenses and other similar intangible items, exclusive of predevelopment costs which will be allocated to future projects. 9.40 Notes shall have the meaning given in Section 1.7 and shall include any modifications, renewals or modifications thereof. 9.41 Notice of Loan/Conversion shall mean a written notice in the form attached as Exhibit A. 9.42 Obligations shall have the meaning given in Section 1.8. 9.43 Operating Cash Flow shall mean the consolidated net income of the Borrower and its Subsidiaries plus the sum of (i) depreciation and amortization, (ii) interest expense, (iii) equity losses in joint ventures, and (iv) losses on asset dispositions; less the sum of (v) equity earning in joint ventures, (vi) Maintenance Capital Expenditures, and (vii) dividends paid; plus (viii) the net sum of actual distributions and contributions from or to joint ventures (without duplication). 9.44 Participants shall have the meaning given in Section 8.12. 9.45 Payment Office shall mean Bank of Hawaii, Corporate Banking Division, 130 Merchant Street, 20th Floor, Honolulu HI 96813. 9.46 Person means any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, joint venture, court or government or political subdivision or agency thereof. 9.47 Recourse Debt means, as to the Borrower or any Subsidiary, all items of indebtedness, obligation or liability for borrowed funds, whether now existing or hereafter incurred, matured or unmatured, direct or contingent, joint or several, including, but without limitation: (a) All indebtedness for borrowed money guaranteed, directly or indirectly, in any manner, or endorsed (other than for collection or deposit in the ordinary course of business) or discounted with recourse; (b) All indebtedness for borrowed money in effect guaranteed, directly or indirectly, through agreements, contingent or otherwise: (1) to purchase such indebtedness; or (2) to purchase, sell or lease (as lessee or lessor) property, products, materials or supplies or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such indebtedness or to assure the owner of the indebtedness against loss; or (3) to supply funds to or in any other manner invest in the debtor; and (c) All indebtedness for borrowed money secured by (or for which the holder of such indebtedness has a right, contingent or otherwise, to be secured by) any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance on property owned or acquired subject thereto, whether or not the liabilities secured thereby have been assumed; provided, however, the foregoing provisions to the contrary notwithstanding, Nonrecourse Secured Debt shall not be considered Recourse Debt. For this purpose "Nonrecourse Secured Debt" means all items of indebtedness incurred by the Borrower or a Subsidiary for borrowed money, now existing or hereafter arising, secured by real or personal collateral and in respect of which the sole recourse of the holder of the debt instrument for payment of the indebtedness evidenced thereby is against the collateral for such indebtedness, and not against the obligor individually or the obligor's other assets. 9.48 Revolving Loans shall have the meaning given in Section 1.1(a). 9.49 Revolving Loan Period shall have the meaning given in Section 1.1(a). 9.50 Subsidiary means any corporation of which more than 50% of the outstanding voting securities having ordinary voting power to elect a majority of the Board of Directors of such corporation shall, at the time of determination, be owned directly, or indirectly through one or more Subsidiaries, by the Borrower. A list of the currently-existing Subsidiaries is attached hereto as Exhibit C. 9.51 Term Loan has the meaning given to it in Section 1.1(b). 9.52 Total Debt means, as to the Borrower and all Subsidiaries, on a consolidated basis, all Indebtedness for Borrowed Money, including, without limitation, all Recourse Debt and Nonrecourse Secured Debt, plus all lease obligations which are capitalized on the Borrower's and/or Subsidiaries, balance sheets in accordance with generally accepted accounting principles. 9.53 Type of Loan shall refer either to a Base Rate Loan or a LIBOR Loan, as defined herein. X. Amendment and Restatement; Amendment of Loan Documents 10.1 Effect of Amendment. On and as of the Effective Date, the Original Loan Agreement shall be deemed amended and restated in its entirety by this Amendment and Restatement, which shall supercede the terms and provisions of the Original Loan Agreement, as previously amended, with respect to all obligations from and after the date of this Amendment and Restatement and the other Loan Documents shall be deemed amended to conform to the amendments effected by this Amendment and Restatement. The Borrower, the Lenders and the Agent acknowledge and agree that this Amendment and Restatement constitutes only an amendment and restatement of the Original Loan Agreement, and in connection therewith, (1) nothing herein is intended, nor shall it be construed, to constitute a refinancing of the indebtedness under the Original Loan Agreement, (2) all outstanding obligations under the Original Loan Agreement and the "Loan Documents" referred to therein, as amended, shall continue to be outstanding under this Amendment and Restatement and the Loan Documents referred to herein and (3) all Obligations owing from and after the Effective Date shall be paid, performed and observed in accordance with the terms of this Amendment and Restatement and the other Loan Documents, as so amended restated and as may be further amended from time to time. 10.2 Amendment of Loan Documents. The Borrower, the Lenders and the Agent agree that from and after the Effective Date, all references to (1) the Original Loan Agreement (including, without limitation, references to "Revolving and Term Loan Agreement", the "Loan Agreement" or "Agreement" or other defined terms) set forth in the Notes, the Mortgage, the Environmental Indemnity Agreement, the Additional Security Mortgage and any other Loan Documents, as amended, shall mean the Original Loan Agreement, as amended and restated aforesaid and by this Amendment and Restatement and as may be further amended from time to time, and (2) the Notes, or any of them, shall mean the Note, and (3) any of the other Loan Documents shall mean such Loan Documents, as heretofore amended, as amended and restated by this Amendment and Restatement and as may be further amended from time to time. 10.3 Confirmation of Loan Documents. In all other respects, the Loan Documents, as amended, remain in full force and effect and the provisions of the Loan Documents including, without limitation, all promises, representations, warranties, covenants, and conditions, are ratified and confirmed as of the date of this Amendment and Restatement by the parties hereto. IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have duly executed this Amendment and Restatement, the execution of this Amendment and Restatement by the Borrower constituting (a) the personal certification of the persons signing this Amendment and Restatement on behalf of the Borrower that, to the best of their knowledge, the representations and warranties made in Article IV of the Loan Agreement are true and correct as of the date of this Amendment and Restatement, and (b) the undertaking of such persons and of the Borrower that each request for a disbursement of Loan proceeds, made pursuant to Section 1.4 of the Loan Agreement, shall constitute the Borrower's affirmation and the personal affirmation on the part of the persons making such request that, to the best of their knowledge at the time of the making of any such request, (i) the representations and warranties stated in Article IV of the Loan Agreement are true and correct, (ii) no Event of Default under the Loan Agreement has occurred and is continuing, and (iii) no event has occurred and is continuing that, with the giving of notice or passage of time, or both, would become such an Event of Default. MAUI LAND & PINEAPPLE BANK OF HAWAII COMPANY, INC. By/S/JAMES C. POLK By/S/PAUL J. MEYER James C. Polk Paul J. Meyer Its Vice President Its Executive Vice President/ Finance By/S/ADELE H. SUMIDA FIRST HAWAIIAN BANK Adele H. Sumida Its Controller By:/S/LANCE A. MIZUMOTO (Borrower) Lance A. Mizumoto Its Senior Vice President BANK OF HAWAII By/S/JAMES C. POLK CENTRAL PACIFIC BANK James C. Polk Its Vice President By:/S/ROBERT D. MURAKAMI (Agent) Robert D. Murakami Its Vice President AMERICAN AGCREDIT, PCA By/S/GARY VAN SCHUYVER Gary Van Schuyver Its Vice President (Lenders) EXHIBIT A Notice of Loan/Conversion DATE: ________________________ TO: Mr. James Polk, Vice President Bank of Hawaii Corporate Banking Division 130 Merchant Street Honolulu, Hawaii 96813 FAX: (808) 537-8301 SUBJECT: Revolving and Term Loan Agreement, dated as of December 31, 1992, by and among MAUI LAND & PINEAPPLE COMPANY, INC. ("Borrower"), Bank of Hawaii, First Hawaiian Bank, Central Pacific Bank and Bank of America National Trust and Savings Association, as amended, inter alia, by Amended and Third Restated Revolving Credit and Term Loan Agreement by and among Borrower, Bank of Hawaii, First Hawaiian Bank, Central Pacific Bank and American AgCredit, PCA (the "Agreement") Pursuant to Section 1.4 or Section 1.5 of the Agreement, the Borrower hereby requests a Loan under the Credit Facility or a conversion of an existing Loan under the Credit Facility and confirms the following instructions therefor (capitalized terms not defined herein shall have the respective meanings assigned in the Agreement): Requested Date: Principal Amount: Base Rate Loan New Revolving Loan LIBOR Loan LIBOR Rollover Conversion from Base Rate to LIBOR Loan Conversion from LIBOR to Base Rate Loan Interest Period (LIBOR Loans): ____One ___Two ___Three ___Six months METHOD OF DRAWING (New Revolving Loan) Credit to the Borrower's Deposit Account No. 61058745 maintained with Bank of Hawaii. The Borrower hereby certifies as follows: 1. The representations and warranties set forth in Section IV of the Agreement are true and correct on and as of the date hereto, provided that the representations and warranties set forth in Section 4.6 of the Agreement shall be deemed to be made with respect to the Financial Statements most recently delivered to the Bank pursuant to the Agreement. 2. As of the date hereof, no event has occurred and is continuing that (a) constitutes an Event of Default under the Agreement, or (b) with the giving of notice or passage of time, or both, would constitute an Event of Default. 3. The Borrower has observed and performed all of the Borrower's covenants and other agreements, and satisfied every condition, contained in the Agreement and in the other Loan Documents, to be observed, performed or satisfied by the Borrower. MAUI LAND & PINEAPPLE COMPANY, INC. By_____________________________ ___ Its BORROWER Exhibit B Master Note $________ Honolulu, Hawaii December ____, 2001 The undersigned ("Borrower") promises to pay to the order of _________ ("Lender") the principal amount of $_________ or so much thereof as shall have been disbursed by Lender under the Credit Facility (to which reference is hereinafter made) and may remain outstanding, together with interest on outstanding balances of principal in accordance with and under the terms of that certain Revolving and Term Loan Agreement, dated as of December 31, 1992 (the "Original Loan Agreement"), by and among Borrower, Bank of Hawaii, First Hawaiian Bank, Central Pacific Bank and Bank of America National Trust and Savings Association, which Original Loan Agreement established a credit facility (the "Credit Facility") in the original principal amount of $40,000,000.00, as amended by, among other instruments, that certain Amended and Third Restated Revolving Credit and Term Loan Agreement of even date, by and among Borrower, Bank of Hawaii, First Hawaiian Bank, Central Pacific Bank and American AgCredit, PCA, and as the same may from time to time be further amended. MAUI LAND & PINEAPPLE COMPANY, INC. By_____________________________ ___ Its By_____________________________ ___ Its BORROWER EXHIBIT C SUBSIDIARY LISTING Maui Pineapple Company, Ltd. Kapalua Land Company, Ltd. Kapalua Water Company, Ltd. Kapalua Waste Treatment Company, Ltd. Honolua Plantation Land Company, Inc. Kapalua Advertising Company, Ltd. Kapalua Investment Company, Ltd. Kapalua Realty Company, Ltd. Royal Coast Tropical Fruit Company, Inc. Costa Royal De Frutas Tropicales SA Costa Royal De Panama SA Pineapple Hill Estates LLC Schedule 5.3 Compliance Certificate DATE: __________________________ TO: Bank of Hawaii Attn: Mr. James Polk, Vice President 130 Merchant Street Honolulu, Hawaii 968113 Telecopier No.: (808) 537-8301 SUBJECT: Revolving and Term Loan Agreement, dated as of December 31, 1992, by and among MAUI LAND & PINEAPPLE COMPANY, INC. ("Borrower"), Bank of Hawaii, First Hawaiian Bank, Central Pacific Bank and Bank of America National Trust and Savings Association, as amended, inter alia, by Amended and Third Restated Revolving Credit and Term Loan Agreement by and among Borrower, Bank of Hawaii, First Hawaiian Bank, Central Pacific Bank and American AgCredit, PCA (the "Agreement") Pursuant to Section 5.3(f) of the Agreement, the undersigned hereby certifies as follows (capitalized terms not defined herein shall have the respective meanings assigned in the Agreement): 1. The undersigned is the President/ chief financial officer of Borrower. 2. The information furnished in Attachment A hereto is true and correct as the last day of the fiscal quarter preceding the date of this Compliance Certificate. 3. The representations and warranties set forth in Section IV of the Agreement are true and correct on and as of the date hereto, provided that the representations and warranties set forth in Section 4.6 of the Agreement shall be deemed to be made with respect to the financial statements delivered to the Bank concurrently herewith pursuant to the Agreement. 4. As of the date hereof, no event has occurred and is continuing that (a) constitutes an Event of Default under the Agreement, or (b) with the giving of notice or passage of time, or both, would constitute an Event of Default. The Borrower has observed and performed all of the Borrower's covenants and other agreements, and satisfied every condition, contained in the Agreement and in the other Loan Documents, to be observed, performed or satisfied by the Borrower. _______________________________ Attachment A To Compliance Certificate Dated ___________ DEBT SERVICE COVERAGE RATIO Required Minimum: 1.20 RECOURSE DEBT $ NET WORTH $ Required Minimum: $60,100,000 plus $___________ (50% of cumulative Net Profits (but not net losses) after December 31, 1998) RECOURSE DEBT TO NET WORTH RATIO Permitted Maximum: 1.10 EX-4 5 ameragcredit.txt AMENDMENT TO LOAN AGREEMENT AMENDMENT TO LOAN AGREEMENT This Amendment to loan Agreement ("Agreement") is made as of December 31, 2001, by and between American AgCredit, FlCA successor in interest to Pacific Coast Farm Credit Services, FlCA successor in interest to Pacific Coast Farm Services, ACA ("FlCA") and American AgCredit, PCA successor in interest to Pacific Coast Farm Credit Services, PCA successor in interest to Pacific Coast Farm Credit Services, ACA ("PCA") and Maui Land & Pineapple Company, Inc., a Hawaii corporation ("Borrower"). RECITALS A. Borrower and PCA entered into a loan agreement dated April 18, 1997 (the "Equipment Loan Agreement") whereby PCA made available to Borrower a revolving line of credit and term loan ("Loan") pursuant to the terms and conditions set forth in the Equipment Loan Agreement and evidenced by a promissory note dated April 18, 1997 in the amount of Five Million Dollars ($5,000,000.00). The Equipment Loan Agreement was amended on October 5, 1998, February 16, 2000, May 16, 2000, March 23, 2001, May 4, 2001 and August 10, 2001. B. Borrower and FLCA entered into a loan agreement dated June 1 I 1999 (the "Term Loan Agreement") which was amended on February 16, 2000, May 16, 2000 and March 23, 2001. C. Borrower, PCA and FLCA now wish to amend the Equipment Loan Agreement and the Term Loan Agreement to revise the definition of Consolidated Cash Flow to include cash distributions from and contributions to joint ventures. Additionally, Borrower and PCA wish to amend the Equipment Loan Agreement provision on Capital Expenditures to exclude Investments so that the provision is consistent with Borrower's other loans. ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS: 1. The definition of "Consolidated Cash Flow" contained in Section 1 of both the Equipment Loan Agreement and the Term Loan Agreement is amended to read as follows: "Consolidated Cash Flow" shall mean, for any period, for Borrower and its Subsidiaries on a consolidated basis, the sum (without duplication) of: (a) Consolidated Net Income; plus (b) the sum of (i) Equity in Losses of Joint Ventures, (ii) extraordinary non- cash losses, (iii) interest expense (including the interest portion of any capitalized lease obligations); (iv) depletion, depreciation, and amortization, (v) losses on assets sales and (vi) actual cash distributions from joint ventures; minus (c) the sum of (i) Equity in Earnings of Joint Ventures, (ii) extraordinary gains, (iii) non-cash amounts resulting from Adjusted Gains on Asset Sales, (iv) Maintenance Capital Expenditures, (v) actual cash distribution to joint ventures, (vi) expenditures for other investments, (vii) partner advances to related entities, and (viii) Restricted Payments made during such period, other than Restricted Payments referred to in clause (iii) of the definition of Restricted Payments. 3. Section 14(f) of the Equipment Loan Agreement is amended to read as follows: Make Capital Expenditures, other than Capital Expenditures for or Investments in Borrower's "Kaahumanu Center Associates" Subsidiary, in excess of the following amounts: Year In Excess of 2000 $18,500,000 2001 $13,500,000 2002 $12,500,000 4. The Recitals are acknowledged as true and correct. 5. Any capitalized term herein not otherwise defined shall have the meaning set forth in the Equipment Loan Agreement and the Term Loan Agreement. 6. The Borrower represents and warrants that, after giving effect to this Agreement, it is in compliance with the terms and conditions of the Equipment Loan Agreement and the Term Loan Agreement. 7. Except as expressly modified or changed by this Agreement, the terms of the original Equipment Loan Agreement, the Term Loan Agreement as previously amended and modified, and all other related loan documents remain unchanged and in full force and effect. Consent by PCA and FLCA to the changes described herein does not waive their right to strict performance of the terms and conditions contained in the Equipment Loan Agreement and Term Loan Agreement as amended, nor obligate them to make future changes in terms. Nothing in this Agreement will constitute a satisfaction of the Indebtedness. It is the intention of PCA and FLCA to retain as liable parties all makers, guarantors, endorsers of the original Indebtedness, unless such party is expressly released by PCA and FLCA in writing. 8. The amendments set forth herein shall be binding when this Agreement has been signed and returned to the PCA and the FLCA. IN WITNESS WHEREOF the parties have executed this Agreement on the date first above written. BORROWER: MAUl LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation By: /S/ PAUL J. MEYER Paul J. Meyer Title: Executive Vice President/Finance By: /S/DARRYL Y.H. CHAI Darryl Y.H. Chai Title: Treasurer PCA and FLCA AMERICAN AGCREDIT, FLCA and AMERICAN AGCREDIT, PCA By: /S/GARY VAN SCHUYVER Gary Van Schuyver Title: Vice President EX-13 6 annualreport01.txt 2001 ANNUAL REPORT TO SHAREHOLDERS MAUI LAND & PINEAPPLE COMPANY, INC ANNUAL REPORT 2001 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 Comprehensive Income 10 Consolidated Statements of Cash Flows 11 Notes to Consolidated Financial Statements 12 Quarterly Earnings 19 Common Stock 20 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, the successor to a business 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 1,830 people in 2001 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 Queen Ka'ahumanu Center, the largest retail and entertainment center on Maui. It also includes the Company's land entitlement and management activities and land sales and development activities that are not part of the Kapalua Resort. On the cover: Maui Pineapple's newest products. 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: 925-798-0240 Fax: 808-871-0953 Fax: 925-798-0252 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 Queen Ka'ahumanu Center 275 Kaahumanu Avenue Kahului, Hawaii 96732-1612 Telephone: 808-877-3369 Fax: 808-877-5992 www.kaahumanu.net Transfer Agent & Registrar Independent Auditors Mellon Investor Services LLC Deloitte & Touche LLP P. O. Box 3315 1132 Bishop Street, Suite 1200 South Hackensack, Honolulu, Hawaii 96813-2870 New Jersy 07606-1915 Telephone: 808-543-0700 Telephone: 800-356-2017 www.melloninvestor.com MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES FINANCIAL HIGHLIGHTS
2001 2000 1999 (Dollars in Thousands Except Per Share Amounts) REVENUES Pineapple $ 97,426 $ 85,892 $ 94,535 Resort 70,078 50,262 47,950 Commercial & Property 5,029 5,043 4,381 Corporate 47 286 132 Total 172,580 141,483 146,998 NET INCOME 7,568 452 4,670 NET INCOME PER COMMON SHARE $ 1.05 $ .06 $ .65 AVERAGE COMMON SHARES OUTSTANDING 7,195,800 7,195,800 7,188,840 TOTAL ASSETS $ 176,433 $ 169,951 $153,387 CURRENT RATIO 2.1 1.7 1.5 LONG-TERM DEBT and CAPITAL LEASES $ 39,581 $ 41,012 $ 25,497 STOCKHOLDERS' EQUITY 73,419 65,922 66,400 STOCKHOLDERS' EQUITY PER COMMON SHARE $ 10.20 $ 9.16 $ 9.23 EMPLOYEES 1,830 1,890 2,040
TO OUR SHAREHOLDERS and EMPLOYEES: We are pleased to report that net income increased from $452,000 or $0.06 per share in 2000 to $7.6 million or $1.05 per share in 2001. The increased net income for the year was due entirely to real estate sales at the Kapalua Resort. In 2001, all 36 condominium units in the Coconut Grove on Kapalua Bay closed escrow, with 18 closings taking place in the fourth quarter. This luxury condominium project is a joint venture in which the Company owns a 50 percent interest. Also in 2001, the Kapalua Resort division recognized profit on sales of 20 of the 31 single-family lots at Pineapple Hill Estates subdivision. We also believe we have made substantial progress in the transformation of our pineapple business. The Pineapple division substantially increased revenue and contribution from non-canned pineapple products, further reducing the Company's reliance on the highly cyclical canned pineapple product category. The tragic terrorist attacks on the New York World Trade Center and on the Pentagon on September 11, 2001 had significant, immediate and longer-term negative impact on all of the Company's operations. The cessation of commercial air transportation in the U.S. immediately after September 11 stopped air freight fresh pineapple shipments and sales, and also resulted in an almost 40 percent reduction in occupancy at the Kapalua Resort. The U.S. economy, which was already experiencing lower consumer confidence levels and a general slowdown in business activity, turned for the worse. In particular, vacation travel from the U.S. and Japan to Hawaii slowed dramatically. The combination of uncertainty posed by the ensuing war on terrorism, the possibility of further terrorist attacks, the general shock with the magnitude of the attacks, the ensuing fighting in Afghanistan and the worsening level of economic activity in Japan, the U.S. and Europe, has had a lingering negative effect on the Company's operations which is expected to persist through 2002. The impacts of the above events of September 11 on the Company's business segments are more fully described in the attached additional sections of this report. We expect these impacts to limit our progress toward our goal of a 10 to 15 percent return on equity in 2002, and possibly into 2003. Revenues of $173 million for 2001 were an all-time record and were higher by 22 percent than 2000. Net income for 2001 includes a $12 million profit contribution from real estate projects and land sales. The largest profit contribution was from the Coconut Grove project, which was responsible for about 60 percent of the development contribution. The sale of lots in the Pineapple Hill Estates project was responsible for approximately 30 percent of the development contribution. Lastly, sale of an undeveloped parcel at the Kapalua Resort for conservation purposes was responsible for about 5 percent of the contribution from development activities. Land sales and development activity, by comparison, contributed approximately $1.3 million to net income in 2000 and $1.5 million in 1999. Cash provided by operating activities increased substantially from $1.5 million in 2000 to $16 million in 2001. This increase in cash flow from operations is primarily attributable to improved results from development activities. Investment in property, plant and equipment was $13.4 million in 2001, a reduction of $4.8 million from 2000 levels. The Company's total debt, including capital leases, decreased $1.2 million from $44.5 million to $43.3 million. Due to lower average interest rates experienced in 2001, partially offset by a lower level of interest capitalized during the year, interest expense declined to $2.9 million from $3.1 million in the year 2000. The Company's Pineapple division reported an operating loss of $3.2 million in 2001, an increase from the $2.9 million operating loss incurred in 2000. Revenues of $97.4 million were up 13 percent over 2000 due to higher average sales prices for canned pineapple, increased case volume of sales and increased sales of non-canned products. These increases were more than offset by increased production costs, legal costs, pension and other expenses. The Company continued to experience highly competitive market conditions for canned pineapple products in the United States throughout the year. According to the Food Industry Press, indications are that canned pineapple production in Thailand was down in the second half of 2001 and is expected to be lower in the first half of 2002 compared to prior periods. In addition, the volume of canned pineapple imported from Thailand and the Philippines appears to have declined through the first eleven months of 2001 compared to prior periods. Despite a 6 percent reduction in number of tons of fruit processed in the Company's cannery, the total number of cases packed increased by approximately 4 percent. Included in the Pineapple division results for 2001 is receipt of a $1.8 million distribution from the U.S. Customs Service pursuant to the Continued Dumping and Subsidy Offset Act of 2000. This law, which provides for distribution of anti-dumping duties collected by the U.S. Customs Service to the injured domestic industries, could result in payment in 2002. The Pineapple division continued to make good progress in diversifying its revenues by development of new and higher margin products. Sales of the newest product line, Maui Fresh (trademark) fresh-cut pineapple products, increased by 119 percent over 2000. In addition, fresh whole pineapple sales increased by 31 percent over last year due primarily to the increased sales of Hawaiian Gold (trademark) hybrid pineapple. Sales of fresh whole pineapple from the Company's Central American activities increased by 118 percent from 2000. Further market penetration and sales volume of non-canned products are key to the Company's future success. These products are expected to consistently provide higher margins than canned pineapple and to be less susceptible to the cyclical oversupply of canned pineapple products experienced during the past decade. As mentioned earlier, contribution from the Resort division increased substantially due to real estate development profit. Contribution from Resort operations, however, was significantly and negatively affected by the dramatic reduction in business in Hawaii's visitor industry as a result of the events of September 11. The Hawaii visitor industry was already experiencing lower levels of occupancy through the first nine months of last year. The events of September 11 and the resulting drop in occupancies in the second half of September and in the fourth quarter were severe. As a result, the contribution from Resort operations declined by 196 percent from the record levels of 2000 and, for the full year, Resort occupancy declined by 16 percent from 2000. In addition to the decline in occupancy, the events of September 11 resulted in a severe slowdown in the pace of resort real estate sales in Hawaii; no new sales contracts were written last year for sale of lots in the Pineapple Hill Estates project after September 11. We believe the reduction in occupancy arising from economic downturn and the events of September 11 will moderate as the U.S. economy improves and that the level of real estate sales of resort properties similarly will improve. The strategic positioning of the Kapalua Resort is highly oriented toward golf. 2001 was the first full year of operation for the new Village Course Clubhouse, practice facility and Kapalua Golf Academy. These new facilities place the Kapalua Resort in a leadership position of golf resorts in Hawaii. In addition, the January 2002 Mercedes Championships event brought considerable attention to the Resort and its golf facilities. The worldwide television coverage and the dramatic victory by Sergio Garcia brought additional media attention to Kapalua. We believe the Resort is well positioned to take advantage of an increasing demand for residential home and second home product in a resort environment in the next several years. The Company's Commercial & Property operations recorded an operating loss of $1.4 million last year compared to a loss of $441,000 in the year 2000. Before September 11, retail trends on Maui were showing weakness compared to the year 2000, which was due to the substantial increase in retail commercial property in 2001 and the slowing economy compared to 2000. After September 11, Maui retail sales were negatively affected by the decrease in visitor occupancy and further reduced level of economic activity. This translated directly to lower sales by retail tenants in the fourth quarter and lower full year retail sales for Queen Ka'ahumanu Center and Napili Plaza. As a result of the economic downturn and difficult business environment, several national tenants either filed for bankruptcy or reduced their number of stores. Queen Ka'ahumanu Center was negatively affected by store closings and experienced lower average occupancy in 2001 compared to the year 2000. The management of our Commercial & Property business segment was reorganized to strengthen our development planning and to more closely align division resources. Don Young has assumed additional duties as Executive Vice President/Resort & Commercial Properties, including the Queen Ka'ahumanu Center and Napili Plaza. Bob McNatt, promoted to Vice President/Land Planning & Development, is now responsible for Company-wide development activities. These changes allow greater focus on the retail opportunities available at the Kapalua Resort and also provide greater focus and attention on the Company's strategic goal of efficient use of the Company's land assets. The overall business climate for the Company's Resort and commercial property activities will continue to be difficult in 2002. We expect that the oversupply of commercial retail property and the lower level of visitor activity due to the national economic slowdown will continue to be a drag on Resort operations and commercial property performance. We are hopeful that the oversupply of canned pineapple products will moderate somewhat in 2002, allowing the Company to obtain fair pricing on its canned pineapple products. We will continue to aggressively expand our market penetration in fresh pineapple products. While not demonstrated by 2001 operating contributions, we believe substantial progress has been made in enhancing the value of the Company's assets and in moving toward a higher, consistent level of operating profit. Thank you for your continued support and commitment to the Company. /S/ RICHARD H. CAMERON Richard H. Cameron Chairman /S/ GARY L. GIFFORD Gary L. Gifford President & CEO March 6, 2002 PINEAPPLE The Company's Pineapple division reported an operating loss, before allocated interest and income taxes, of $3.2 million for the year 2001 compared to an operating loss of $2.9 million for 2000. In 2001, higher average sales prices for canned pineapple products and increased case volume of sales were more than offset by increased production costs, legal costs, pension expense and other general administrative expenses. Pineapple revenues for 2001 were $97.4 million, up 13% from 2000. All major business categories, canned pineapple, Maui Fresh (trademark) fresh-cut pineapple, Hawaiian Gold (trademark) hybrid pineapple, and Royal Coast Tropical Fruit Company, Inc. (primarily Central American fresh pineapple), had increased net sales. Canned pineapple, the Pineapple division's largest product line, had an 8% increase in overall case sales volume. Case sales volume of concentrate, a relatively small product line, increased 26%. Pineapple juice case sales volume, including both canned 46- ounce and the new 64-ounce juice in plastic bottles (PET), was down less than 1% versus 2000. Within the canned pineapple category, grocery case sales declined 7% and institutional sales declined 14%. These declines can be partially attributed to the lingering economic impact of the events of September 11 and general economic weakness throughout the year. This contributed to fewer and lower cost meals eaten away from home. In addition, hotels, resorts and cruise ships experienced lower occupancy rates, which in turn led to a decline in institutional food sales. Despite declines in Thailand's pineapple imports, the U.S. market continued to have depressed grocery pricing for canned pineapple throughout 2001. The lower retail prices were partially caused by Thailand's inventory surpluses carried over from 2000 production. These surpluses were larger than usual due to weak international markets. The total average unit value for U.S. imports of canned pineapple declined 5% for the eleven months through November 2001 versus 2000. U.S. imports of canned pineapple from the Philippines had an even more significant 13% decline in average unit value for the eleven months through November 2001 versus 2000. Offsetting these declines in price and volume in the grocery and institutional fruit categories was a 73% increase in case sales of canned pineapple to the government and a 119% increase in Maui Pineapple's newest product line of Maui Fresh (trademark) fresh-cut pineapple. The increase in sales to the U.S. government resulted from additional purchases by the U.S. Department of Agriculture. Although we expect the government fruit business in the future to be strong, we do not expect to match the sales volume of 2001. The large increase in Maui Fresh (trademark) fresh-cut sales following the 73% gain in 2000 is an indication that Maui Fresh (trademark) fresh-cut pineapple is being well received by retailers and consumers on the West Coast. Revenues from fresh fruit sales represented about 16% of the Pineapple division revenues in 2001. Fresh whole pineapple net sales for 2001 were 31% higher than 2000 sales. Tons of fresh fruit sold in 2001 increased 22% from 2000 levels, mainly due to increased production of Hawaiian Gold (trademark) hybrid pineapple. Within this product line, sales to customers on the mainland increased and tons sold were up 62% in 2001 versus 2000, in part due to a new warehouse account on the West Coast. Sales of fresh whole pineapple in Hawaii declined 19% in 2001 compared to 2000. Much of this decline in local sales reflects the reduced numbers of visitors to Hawaii in 2001, especially following September 11. Total net sales for our subsidiary Royal Coast Tropical Fruit Company, Inc. in 2001 increased 118% from 2000. 2001 was the first full year of operation and sales from our Central American subsidiary. We anticipate that improvement in product quality from strict quality control procedures, increased hybrid production and a recovery in the East Coast fresh pineapple market will allow us to improve the contribution from this product line. In 2001, the overall weather conditions on Maui for growing pineapple improved over the previous year. However, rainfall at every key rain gauge station on the Company's lands was below the five-year average, with the exception of two stations in the Makawao and Pukalani area of east Maui. The Company's irrigation systems continued to provide adequate water to produce a high quality, reliable fruit supply. Total tonnage of pineapple harvested in 2001 was higher than expected due to the favorable growing conditions, yet below 2000 levels due to a planned reduction in acreage under cultivation. Fruit and juice recovery in terms of cases per ton of fruit improved in 2001 over 2000 levels. This was due to better growing conditions and a higher percentage of plant crop fruit. In 2001, the Company continued its plan to consolidate and streamline its production operations. This plan includes purchasing or leasing farmland in central or east Maui and partially phasing out of more remote farmland in west Maui. This will substantially reduce the cost of transporting fruit from our Honolua plantation to the cannery or to Kahului airport. Antidumping duties on canned pineapple from Thailand were in effect throughout 2001. In October 2001, the U.S. Department of Commerce concluded the fifth annual administrative review process resulting in lower antidumping assessment rates for certain Thai pineapple producers. The "all others" rate, which covers exporters who have not been included in a previous part of the proceeding, remains at its original level. In December 2001, the Company received a $1.8 million cash distribution from the U.S. Customs Service. The distribution was made pursuant to the Continued Dumping and Subsidy Offset Act of 2000, which provides for distribution of antidumping duties to injured domestic producers. A "Sunset Review" of antidumping duties was concluded in 2001 by the U.S. Department of Commerce, which determined that revocation of the antidumping order on canned pineapple fruit from Thailand would likely lead to a continuation or a reoccurrence of dumping at the original weighted average margins. Subsequently, the U.S. International Trade Commission determined that revoking the existing antidumping duty orders on imports of canned pineapple from Thailand would likely lead to continuation or reoccurrence of material injury within a reasonably foreseeable time. As a result of the Commission's affirmative determination, the existing antidumping duty order on imports of canned pineapple fruit from Thailand will remain in place for another five years. In 2001, substantial progress was made in developing PET pineapple juice products as well as products sold under the Hawaiian Gold (trademark) label and the Maui Fresh (trademark) brand. These product categories have been well received by retailers and consumers. They represent areas of growth and opportunity that will continue to be the main focus of our strategic plan. We expect 2002 to be another challenging year as we continue to transform our Company to produce more fresh and higher margin products. RESORT The resort division had a record year in 2001 with total operating profit, before allocated interest and taxes, of $19.8 million compared to $7.8 million in 2000. This was the fifth consecutive year of increased total operating profit. Development accounted for most of the profit, which more than offset the unexpected decline in profit from ongoing operations resulting from the economic impact of the events of September 11. Almost all of the development profit came from two projects - Coconut Grove on Kapalua Bay and Pineapple Hill Estates. Coconut Grove, which was developed through a 50/50 partnership with YCP Site 29, Inc., contributed a profit of $11.5 million on total sales of $70.3 million. Construction of the 36 luxury beachfront condominiums was completed in December and all of the profit was recognized in 2001 as title was delivered to the buyers upon completion of the individual residences. Construction of subdivision improvements for the 31 half-acre custom lots of Pineapple Hill Estates was completed late in 2001. Profit was recorded in 2001 on 20 lots (12 had closed escrow in 2000), which were sold for a total of $12.8 million. At current list prices, the remaining 11 lots represent a total sales value of almost $7 million, with one lot presently under contract of sale. The resort development profit for 2001 also included the sale of a one-acre parcel adjacent to The Ironwoods condominiums. Two other lots, located next to the entrance to Plantation Estates were subdivided in early 2001 and the sale of both parcels closed escrow in early 2002. Resort real estate activity on Maui declined sharply after September 11, resulting in a decrease in the number of sales transactions for the year compared to 2000. Although Kapalua's resale volume declined, total value of 2001 real estate sales for the resort, including both resales and new product, increased to over $116 million. Kapalua Realty, which participated in over 80% of this total volume, continues to play an important role for both development and resort operations. Progress continues to be made with the planning and entitlements of future resort development. In addition to the Central Resort master plan, which includes the new Village Clubhouse and Golf Academy, we have moved forward with seeking entitlements for longer-term development, including Kapalua Mauka. Kapalua Mauka would expand the Resort into approximately 925 acres surrounding the Village Course that are currently zoned for agricultural use. If rezoning and other necessary governmental approvals are received and this development proceeds, the expanded Resort area could, as currently contemplated, include up to 690 residential units, commercial components, and an expansion of the Village Course. The Central Resort master plan includes a commercial Town Center, resort spa and additional residential development. These additional projects are not scheduled to be completed in 2002. In 2001, Hawaii's visitor industry suffered a dramatic reduction in business, similar to what occurred throughout the travel and hospitality industry worldwide. Prior to September 11, Hawaii was already experiencing a decline in visitors due mostly to the weakening U.S. economy and weak Japanese economy. The events of September 11 created heightened concerns regarding travel safety and added to economic problems as consumer spending declined. Statewide hotel occupancy declined 25% in September 2001 compared to the prior year, followed by similar declines for October and November, before recovering slightly with a 13% drop in December. For the full-year, Hawaii's hotel occupancy declined 8% to 71.9% with all islands showing similar occupancy decreases. Maui continued to maintain the highest occupancy at 74.5% and was the only island to show an increase in revenues per available room due to higher average room rates. Kapalua resort occupancy for 2001 reflected a decrease of almost 16%, mostly from a reduction in group business after the events of September 11. The resort operations profit decreased $4.8 million from the record 2000 level due mostly to the dramatic reduction in resort revenues following September 11. Gross revenues for September through December of 2001 dropped 26% from the prior year with all major revenue segments of golf, villas, retail and leasing showing significant decreases. As a result, gross revenues for the full- year were down 10% while operating costs increased about $1.8 million, partly due to the full-year operation of the new Village Clubhouse, which opened in August 2000. The Mercedes Championships highlight our commitment to positioning Kapalua as one of the world's finest golf resort communities. The January 2002 event again brought the world's best golfers and international media attention to Kapalua for the PGA TOUR season-opening tournament. Sergio Garcia's dramatic victory on the final hole provided another exciting finish at the Plantation Course. Most importantly, we recently concluded an agreement with the PGA TOUR and Mercedes-Benz to host this prestigious event at Kapalua through the year 2006. In 2002, we expect to continue extensive marketing efforts to sell the remaining inventory of Pineapple Hill Estates lots. Overall, it looks as though 2002 will be a difficult year for resort operations as Hawaii's visitor industry continues to recover from the events of September 11. Most visitor industry projections assume this economic recovery will be gradual and take at least until 2003. Despite the near-term challenges, we continue to believe Kapalua remains well positioned for the future. COMMERCIAL & PROPERTY The Commercial & Property business segment recorded an operating loss, before allocated interest and taxes, of $1.4 million in 2001 compared to a loss of $441,000 in 2000. Total revenues of $5 million for the segment in 2001 remained the same as the prior year. Most of this increased operating loss was from shopping center operations, which continues to be faced with a very difficult competitive market on Maui. During this past year, the oversupply of retail commercial inventory on the island increased significantly with the addition of approximately 665,000 sq.ft. gross leasable area (GLA) of retail space, an increase of over 21%. Major additions include the Piilani Shopping Center in Kihei, the expanded Shops at Wailea and Home Depot and Wal-Mart at the Maui Marketplace in Kahului. Prior to September 11, retail trends were beginning to show weakness on Maui due to a slowdown in the visitor industry and the increased inventory of commercial retail space. After September 11, Maui retail sales followed the national trend of reduced consumer spending and were further impacted by a dramatic decrease from Maui's visitor market. As a result of decreased sales over the last four months of 2001, full-year retail sales declined by 5.1% at Queen Ka'ahumanu Center and by 9.8% at Napili Plaza. In total, commercial property operations had an operating loss of $846,000 compared to a break-even performance in 2000. Queen Ka'ahumanu Center, the 570,000 sq.ft. GLA regional mall in Kahului, which the Company manages as part of its joint venture with the Employees' Retirement System of the State of Hawaii, accounted for most of these results. The Company's share of joint venture losses, net of management fees and other related revenues and expenses, was a loss of $908,000 in 2001 compared to a loss of $207,000 in 2000. Total joint venture losses at Queen Ka'ahumanu Center increased to $2.9 million in 2001 compared to $1.9 million in 2000. Increased administrative expenses, mostly related to store closings, accounted for the majority of the increased loss. Total revenues decreased only 2.9% as lower minimum and percentage lease revenues were partially offset by cancellation fees. In addition to the decrease in retail sales, higher vacancies during 2001 contributed to the full-year decrease in lease revenues. Partially offsetting the 50% joint venture loss allocation are revenues received from the joint venture for management and other services. These revenues, however, also declined in 2001 from 2000 levels. Operating profit for Napili Plaza, the Company's 45,000 sq.ft. GLA community shopping center, decreased from $200,000 in 2000 to $60,000 in 2001. Most of this profit reduction is related to the decrease in lease revenues from lower retail sales and higher administrative expenses. Management of the Commercial & Property business segment was reorganized last year in an effort to strengthen our development planning and more closely align our divisional resources. Robert McNatt was promoted to Vice President/Land Planning & Development for the Company reporting to Gary Gifford, and is now responsible for overall development activity for the divisions, including Kapalua Land Company. Also reporting to Mr. Gifford is Warren Suzuki as Vice President/Land & Water Asset Management with continued responsibilities for these Company assets. Scott Crockford, Vice President/Retail Property has assumed responsibility for the Kapalua commercial property and now reports to Don Young, whose duties as Executive Vice President/Resort & Commercial Property for the Company have been expanded to include all Resort and non-resort commercial properties. In addition to the land planning and development activity in 2001 for the Kapalua Resort division, significant progress was made outside of the resort. Design and environmental analysis continues on the proposed Upcountry Town Center. As part of the entitlement process, we expect to present this 40-acre mixed-use residential and commercial project to the Maui Planning Commission for its review later this year. In August 2001, the County of Maui approved construction plans for infrastructure improvements for the Company's Kapua Village employee housing subdivision in West Maui. Due to delays in the approval process, construction did not begin in 2001 as planned. Construction of the improvements and sale of the 45 single-family lots is expected to be completed in 2002. Also in 2001, the State of Hawaii approved a permit for construction of a new well in Upcountry Maui to supplement the Company's water resources. We anticipate that drilling of the well will commence in 2002. We expect 2002 will continue to present a difficult competitive market for commercial properties. In addition, we foresee limited near-term opportunities for non-resort development and land sales. We will continue to pursue the land planning and entitlements necessary for future development opportunities consistent with the needs of our community. 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, 2001 and 2000, and the related consolidated statements of operations and retained earnings, comprehensive income, and cash flows for each of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted in the United States of America. 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 Maui Land & Pineapple Company, Inc. and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. /S/DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Honolulu, Hawaii February 12, 2002 MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2001 and 2000
2001 2000 (Dollars in Thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,173 $ 351 Accounts and notes receivable, less allowance of $689 and $1,028 for doubtful accounts 15,992 16,032 Inventories Pineapple products 15,822 15,332 Real estate held for sale 3,709 1,592 Merchandise, materials and supplies 6,894 7,332 Prepaid expenses and other assets 4,510 5,498 Total Current Assets 49,100 46,137 INVESTMENTS AND OTHER ASSETS 14,287 14,089 PROPERTY Land 5,384 4,940 Land improvements 59,503 56,013 Buildings 59,244 58,529 Machinery and equipment 125,573 115,950 Construction in progress 5,602 6,745 Total Property 255,306 242,177 Less accumulated depreciation 142,260 132,452 Net Property 113,046 109,725 TOTAL $176,433 $169,951 2001 2000 (Dollars in Thousands) LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable and current portion of long-term debt $ 3,287 $ 3,120 Current portion of capital lease obligations 472 388 Trade accounts payable 10,534 8,476 Payroll and employee benefits 4,640 4,484 Income taxes payable 1,635 298 Customers' deposits 1,240 1,460 Deferred revenue 988 8,102 Other accrued liabilities 841 505 Total Current Liabilities 23,637 26,833 LONG-TERM LIABILITIES Long-term debt 38,295 40,330 Capital lease obligations 1,286 682 Accrued retirement benefits 24,072 23,575 Accumulated losses of joint venture in excess of investment 11,518 9,990 Other noncurrent liabilities 3,636 2,215 Total Long-Term Liabilities 78,807 76,792 MINORITY INTEREST IN SUBSIDIARY 570 404 CONTINGENCIES AND COMMITMENTS STOCKHOLDERS' EQUITY Common stock--no par value, 7,200,000 shares authorized, 7,195,800 shares issued and outstanding 12,455 12,455 Retained earnings 61,066 53,498 Accumulated other comprehensive loss (102) (31) Stockholders' Equity 73,419 65,922 TOTAL $176,433 $169,951 See Notes to Consolidated Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999 (Dollars in Thousands Except Per Share Amounts) REVENUES Net sales $124,720 $103,194 $112,191 Operating revenues 36,864 36,908 33,982 Equity in earnings of joint ventures 6,996 -- -- Other income 4,000 1,381 825 Total Revenues 172,580 141,483 146,998 COSTS AND EXPENSES Cost of goods sold 85,014 72,803 74,494 Operating expenses 33,677 30,169 27,440 Shipping and marketing 19,095 18,289 18,479 General and administrative 19,430 15,825 16,408 Equity in losses of joint ventures 1,453 972 956 Interest 2,903 3,061 1,834 Total Costs and Expenses 161,572 141,119 139,611 INCOME BEFORE INCOME TAXES 11,008 364 7,387 INCOME TAX EXPENSE (CREDIT) 3,440 (88) 2,717 NET INCOME 7,568 452 4,670 RETAINED EARNINGS, BEGINNING OF YEAR 53,498 53,945 50,174 CASH DIVIDENDS -- 899 899 RETAINED EARNINGS, END OF YEAR 61,066 53,498 53,945 PER COMMON SHARE Net Income 1.05 .06 .65 Cash Dividends $ -- $ .125 $ .125 Average Common Shares Outstanding 7,195,800 7,195,800 7,188,840
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999 (Dollars in Thousands) NET INCOME $ 7,568 $ 452 $ 4,670 Other comprehensive loss - Foreign currency translation adjustment (71) (31) -- COMPREHENSIVE INCOME $ 7,497 $ 421 $ 4,670 See Notes to Consolidated Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999 (Dollars in Thousands) OPERATING ACTIVITIES Net income $ 7,568 $ 452 $ 4,670 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 10,226 9,002 8,445 Undistributed equity in losses of joint ventures 1,452 1,025 1,019 Gain on property disposals (1,201) (113) (49) Deferred income taxes 1,792 (776) 552 (Increase) decrease in accounts receivable 835 (1,094) (1,700) Increase in inventories (2,169) (6,660) (2,360) Increase (decrease) in trade payables 2,304 (3,345) 3,798 Net change in other operating assets and liabilities (4,854) 2,987 4,094 NET CASH PROVIDED BY OPERATING ACTIVITIES 15,953 1,478 18,469 INVESTING ACTIVITIES Purchases of property (13,356) (18,179) (18,213) Proceeds from sale of property 1,019 371 509 Distributions from joint ventures 857 -- -- Contributions to joint ventures -- -- (575) Payments for other investments (1,252) (1,048) (2,735) NET CASH USED IN INVESTING ACTIVITIES (12,732) (18,856) (21,014) FINANCING ACTIVITIES Proceeds from long-term debt 38,367 34,196 15,632 Payments of long-term debt (40,248) (18,720) (13,659) Proceeds from short-term debt 13 105 729 Payments on capital lease obligations (472) (318) (494) Dividends paid -- (899) (899) Other 941 708 446 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,399) 15,072 1,755 NET INCREASE (DECREASE) IN CASH 1,822 (2,306) (790) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 351 2,657 3,447 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,173 $ 351 $ 2,657
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) $ 2,994 $ 2,952 $ 1,711 Income taxes 39 1,490 1,842 2. Amounts included in accounts payable for additions to property and other investments totaled $1,003,000, $2,024,000 and $3,445,000, respectively, at December 31, 2001, 2000 and 1999. 3. In December 1999, 7,300 shares of Company stock, which were held by a wholly owned subsidiary of the Company, were contributed to the Company's Employee Stock Ownership Plan (see Note 5 to Consolidated Financial Statements). 4. Capital lease obligations incurred for new equipment in 2001 and 2000 were $1,160,000 and $704,000, respectively. 5. In 2000, the Company received land, including two water reservoirs, in satisfaction of $486,000 of trade receivables. See Notes to Consolidated Financial Statements. 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 is 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. LONG-LIVED ASSETS Long-lived assets and certain intangibles held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When such events or changes occur, an estimate of the future cash flows expected to result from the use of the assets and their eventual disposition is made. If the sum of such expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized in an amount by which the assets' net book values exceed fair values. 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 was accrued over the period of active employment. On October 1, 1998, these plans were terminated (see Note 5 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 Revenues from the sale of pineapple are recognized when title to the product is transferred to the customer. The timing of 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. Revenues from other activities are recognized when delivery has occurred or services have been rendered, the sales price is fixed or determinable and collectibility is reasonably assured. 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 tax rates enacted by law or regulation. 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 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 2001, 2000 and 1999, such transaction gains and losses were not material. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. NEW ACCOUNTING PRONOUNCEMENTS In August 2001, the FASB issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The statement provides a single accounting model for impairment of long-lived assets, including discontinued operations. The provisions of this statement are effective for years beginning after December 15, 2001, with early adoption permitted and, in general, are to be applied prospectively. Although the Company has not fully assessed the implications of SFAS No. 144, management does not believe adoption of this statement will have a material impact on the Company's financial statements. On January 1, 2001, the Company adopted FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes the accounting and reporting standards for derivative instruments and hedging activities. The adoption of this standard did not have a material effect on the Company's financial statements. 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 securities outstanding that would potentially dilute common shares outstanding. 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, 2001 and 2000: 2001 2000 (Dollars in Thousands) Finished Goods $ 13,968 $12,855 Work In Progress 663 1,030 Raw Materials 1,191 1,447 Total $ 15,822 $15,332 The replacement cost of pineapple product inventories at year end approximated $26 million in 2001 and $27 million in 2000. 3. INVESTMENTS AND OTHER ASSETS Investments and Other Assets at December 31, 2001 and 2000 consisted of the following: 2001 2000 (Dollars in Thousands) Deferred Costs $ 6,791 $ 5,922 Cash Surrender Value of Life Insurance Policies (net) 944 798 Prepaid Pension Asset 4,154 4,068 Kapalua Coconut Grove LLC 9 1,058 Other 2,389 2,243 Total $14,287 $14,089 Deferred costs are primarily intangible predevelopment costs related to various projects at the Kapalua Resort that will be allocated to future development projects. Cash surrender value of life insurance policies is stated net of policy loans, totaling $597,000 at December 31, 2001 and 2000. KAPALUA COCONUT GROVE LLC Kapalua Coconut Grove LLC (KCG) is a Hawaii limited liability company whose members are the Company and YCP Site 29, Inc. KCG was formed in June 1997 to own, develop and sell luxury condominiums on the 12-acre parcel of beachfront 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. At the end of 2000, all 36 luxury residential condominiums were under binding sales contracts, but construction was not completed. In 2001, sales of all units closed escrow as title was delivered to the buyers upon completion of the individual residences. 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 $6,993,000 in 2001, $(62,000) in 2000 and $(172,000) in 1999. In 2001, the Company also recognized income of $3.9 million representing its pre-contribution gain on the land parcel contributed to the venture. Summarized balance sheet information for KCG as of December 31, 2001 and 2000 and operating information for each of the three years ended December 31, 2001 follows: (Unaudited) 2001 2000 (Dollars in Thousands) Other current assets $ 1,559 $ 262 Work in progress -- 35,405 Total Assets 1,559 35,667 Total Liabilities 1,540 24,934 Members' Equity $ 19 $10,733 (Unaudited)(Unaudited) 2001 2000 1999 Revenues $ 70,265 $ 237 $ 5 Cost and Expenses 56,279 361 350 Net Income (Loss) $ 13,986 $ (124) $ (345) KAAHUMANU CENTER ASSOCIATES In June 1993, Kaahumanu Center Associates (KCA) was formed to finance the expansion and renovation of and to own and operate Queen Ka'ahumanu 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 Queen Ka'ahumanu Center. The agreement provides for certain performance tests that, if not met, could result in termination of the agreement. The tests were not met in 2001, 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 Queen Ka'ahumanu Center. In accordance with the limited partnership agreement, the partners may make cash advances to KCA in order to avoid a cash flow deficit. The advances bear interest at one percent above the interest rate on KCA's first mortgage loan. In 2001 and 2000, cash advances from the Company to KCA totaled $482,000 and $586,000, respectively, and interest on the advances at 9.57% totaled $54,000 and $34,000, respectively. In 2001, 2000 and 1999, reimbursements from KCA for payroll and other costs and expenses totaled $2,634,000, $2,637,000 and $2,417,000, respectively, and the Company charged KCA $3,203,000, $3,328,000 and $2,531,000, respectively, for electricity and management fees. At December 31, 2001 and 2000, $1,667,000 and $1,216,000, respectively, were due to the Company from KCA for cash advances, management fees, electricity and reimbursable costs. Summarized balance sheet information for KCA as of December 31, 2001 and 2000 and operating information for each of the three years ended December 31, 2001 follows: 2001 2000 (Dollars in Thousands) Current assets $ 764 $ 1,197 Property and equipment, net 66,352 69,200 Other assets, net 1,274 1,710 Total Assets 68,390 72,107 Current liabilities 3,392 2,978 Noncurrent liabilities 58,001 59,226 Total Liabilities 61,393 62,204 Partners' Capital $ 6,997 $ 9,903 2001 2000 1999 Revenues $15,206 $15,654 $ 14,506 Costs and Expenses 18,112 17,596 16,306 Net Loss $(2,906) $(1,942) $ (1,800) The Company's pre-tax share of losses from KCA was $1,453,000, $971,000 and $900,000, respectively, for 2001, 2000 and 1999. 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, 2001, the accumulated unpaid preferred return was $15.7 million each for ERS and the Company. The Company's investment in KCA is a negative $11.5 million at December 31, 2001. 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. The Company has guaranteed the payment of up to $10 million of the $60 million mortgage loan of Kaahumanu Center Associates. The lender will release the guaranty when Queen Ka'ahumanu Center attains a defined level of net operating income. 4. BORROWING ARRANGEMENTS During 2001, 2000 and 1999, the Company had average borrowings outstanding of $46.4 million, $43.5 million and $29.5 million, respectively, at average interest rates of 6.9%, 8.5% and 7.8%, respectively. Short-term bank lines of credit available to the Company at December 31, 2001 were $3.0 million. These lines provide for interest at the prime rate (4.75% at December 31, 2001) plus 1/4% to 1/2%. There were no borrowings under these lines at December 31, 2001, but $561,000 in letters of credit was reserved against these lines to secure the Company's deductible portion of insurance claims administered by various insurance companies. The Company has a $1,200,000 working capital credit facility for its Central American operations. At December 31, 2001 and 2000, the Company had borrowings outstanding of $847,000 and $834,000 under this facility at 2.75% and 7.15%, respectively. Long-term debt at December 31, 2001 and 2000 consisted of the following (interest rates represent the rates at December 31): 2001 2000 (Dollars in Thousands) Term loan, 4.43% to 6.60% and 7.87% to 8.39% $ 15,000 $ 15,000 Revolving credit agreement, 4.15% to 4.75% and 8.5% 14,000 10,850 Development line of credit, 8.62% to 9.03% -- 8,800 Mortgage loan, 7.25% 4,629 4,721 Equipment loans, 4.16% to 8.46% and 6.76% to 8.46% 5,606 3,245 Non-revolving term loan, 4.75% to 4.94% 1,500 -- Total 40,735 42,616 Less portion classified as current 2,440 2,286 Long-term debt $ 38,295 $ 40,330 The Company has a $15 million term loan that is 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 based on six-month and one-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 and the payment of dividends. The Company has a revolving credit agreement with participating banks under which it may borrow up to $25 million in revolving loans through December 31, 2003. On December 31, 2003, the commitment reduces to $15 million and amounts outstanding at that date, at the Company's option, may be converted to a three-year term loan of up to $15 million repayable in six equal semi-annual installments. Commitment fees of 1/4% are payable on the unused portion of the revolving credit line. At the Company's option, interest on advances is at the prime rate or based on the London Interbank Offered Rate (LIBOR). 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 at certain levels, minimum debt coverage ratio 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. 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, 2002, the interest rate on the loan was amended to 6.25% until January 1, 2005. The interest rate will be adjusted to the lender's then prevailing rate of interest for such loans as of January 1, 2005. The Company has agreements that provide for term loans that were used to purchase equipment for the Company's pineapple and resort operations. At December 31, 2001, $4.5 million of these term loans had interest rates that were adjustable based on one to six-month LIBOR. The balance of these loans is at fixed interest rates. The loans mature through December 2006. 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 (as defined). The Company's majority owned Central American subsidiary has a non-revolving term loan that was used to repay intercompany loans initially granted for investments in infrastructure, buildings and operations. The Company guarantees the loan. Monthly principal and interest payments begin in 2002 with the final payment due in 2006. Interest on the loan is adjustable based on six-month LIBOR. Maturities of long-term debt during the next five years, from 2002 through 2006, are as follows: $2,440,000, $2,199,000, $6,941,000, $11,299,000 and $6,508,000. 5. POSTRETIREMENT BENEFITS The Company has defined benefit pension plans covering substantially all regular employees. Pension benefits are based primarily on years of service and compensation levels. The Company has defined benefit postretirement health and life insurance plans that cover primarily non-bargaining salaried employees and certain bargaining unit employees. Postretirement health and life insurance benefits are principally based on the employee's job classification at the time of retirement and on years of service. Changes in benefit obligations and changes in plan assets for 2001 and 2000 and the funded status of the plans and amounts recognized in the balance sheets as of December 31, 2001 and 2000 were as follows:
Pension Benefits Other Benefits 2001 2000 2001 2000 (Dollars in Thousands) Change in benefit obligations: Benefit obligations at beginning of year $ 37,892 $ 35,863 $ 13,619 $ 13,263 Service cost 1,728 1,501 410 358 Interest Cost 2,701 2,535 986 920 Actuarial (gain) loss (85) (127) 1,946 (400) Amendments 216 265 48 194 Benefits paid (2,371) (2,145) (761) (716) Benefit obligations at end of year 40,081 37,892 16,248 13,619 Change in plan assets: Fair value of plan assets at beginning of year 42,235 46,167 -- -- Actual return on plan assets (2,435) (2,133) -- -- Employer contributions 262 346 761 716 Benefits paid (2,371) (2,145) (761) (716) Fair value of plan assets at end of year 37,691 42,235 -- -- Funded status (2,390) 4,343 (16,248) (13,619) Unrecognized actuarial (gain) loss 4,823 (1,186) (3,189) (5,469) Unrecognized net transition (asset) obligation 282 (224) -- -- Unrecognized prior service cost 516 376 (674) (845) Net amounts recognized 3,231 3,309 (20,111) (19,933) Amounts recognized in balance sheets consist of: Prepaid benefit cost 4,154 4,068 -- -- Accrued benefit liability (923) (759) (20,111) (19,933) Net amounts recognized $ 3,231 $ 3,309 $(20,111) $(19,933)
Net periodic benefit costs for 2001, 2000 and 1999 included the following components:
2001 2000 1999 (Dollars in Thousands) Pension benefits: Service cost $ 1,728 $ 1,501 $ 1,443 Interest cost 2,701 2,535 2,396 Expected return on plan assets (3,673) (4,036) (3,638) Amortization of net transition asset (505) (535) (535) Amortization of prior service cost 74 74 59 Recognized net actuarial (gain) loss 13 (319) (14) Net expense (credit) 338 (780) (289) Other benefits: Service cost 410 358 359 Interest cost 986 920 895 Amortization of prior service cost (134) (133) (146) Recognized net actuarial gain (323) (356) (320) Net expense $ 939 $ 789 $ 788
Effective December 31, 2001, three of the Company's defined benefit pension plans covering bargaining unit employees and certain hourly employees were merged into a single plan. The Company estimates that the merger of the plans will reduce future administrative costs while maintaining the benefits and provisions of each plan. 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 $1,246,000, $698,000 and $-0-, respectively, as of December 31, 2001 and $1,328,000, $744,000 and -0-, respectively, as of December 31, 2000. The benefit obligations for pensions and other postretirement benefits were determined using a discount rate of 7.25% as of December 31, 2001 and 2000, and compensation increases ranging up to 4.5%. The expected long-term rate of return on assets ranged up to 9% for 2001 and 2000. The accumulated postretirement benefit obligation for health care as of December 31, 2001 and 2000 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 $2,009,000 as of December 31, 2001, and the aggregate of the service and interest cost for 2001 by approximately $189,000; a 1% annual decrease would reduce the accrued postretirement benefit obligation by approximately $1,649,000 as of December 31, 2001, and the aggregate of the service and interest cost for 2001 by approximately $153,000. The Company has investment and savings plans that allow eligible employees on a voluntary basis to make pre-tax contributions of their cash compensation. Substantially all employees are eligible to participate in one or more plans. The Company can elect to make contributions to the plans and, in 2000, the Company's cost for contribution to one of the plans was $107,000. 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 1993. In December 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 were no further contributions to the ESOP and no additional employees became 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. 6. MINORITY INTEREST IN SUBSIDIARY In February 1999, Royal Coast Tropical Fruit Company, Inc. (a wholly owned subsidiary of Maui Pineapple Company, Ltd.) formed a subsidiary company in Central America and invested $503,000 for a 51% ownership interest in a new pineapple production company. The minority stockholders contributed $460,000. In 2001, the Company contributed $153,000 to the capital of the Central American subsidiary and the minority shareholders contributed proportionately, thus maintaining the ownership interest percentages. The minority stockholders' share of the 2001, 2000 and 1999 operating losses was not material. 7. DEFERRED REVENUE Deferred revenue at December 31, 2000 primarily represented proceeds received on closed lot sales at the Kapalua Resort in excess of revenues recognized on the percentage-of-completion method. In December 2000, 12 of the 31 lots in Pineapple Hill Estates closed escrow. No revenues were recognized on these sales in 2000. Construction of the Pineapple Hill Estates subdivision improvements began in the first quarter of 2001 and was completed in the fourth quarter of 2001. 8. LEASES LESSEE The Company has capital leases, primarily on equipment used in pineapple operations, which expire at various dates through 2006. At December 31, 2001 and 2000, property included capital leases of $2,028,000 and $1,615,000, respectively (accumulated depreciation of $422,000 and $506,000, respectively). Future minimum rental payments under capital leases aggregate $1,924,000 (including $166,000 representing interest) and are payable as follows (2002 to 2006): $541,000, $339,000, $330,000, $392,000 and $322,000. The Company has various operating leases, primarily for land used in pineapple operations, which expire at various dates through 2018. 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 $811,000 in 2001, $821,000 in 2000 and $801,000 in 1999. Future minimum rental payments under operating leases aggregate $4,585,000 and are payable during the next five years (2002 to 2006) as follows: $619,000, $451,000, $435,000, $431,000, $440,000, respectively, and $2,209,000 thereafter. LESSOR The Company leases land and land improvements, primarily to hotels at Kapalua, and space in 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: 2001 2000 1999 (Dollars in Thousands) Minimum rentals $ 1,835 $ 1,832 $ 1,744 Percentage rentals 2,572 3,140 2,232 Total $ 4,407 $ 4,972 $ 3,976 Property at December 31, 2001 and 2000 includes leased property of $20,659,000 and $20,519,000, respectively (accumulated depreciation of $11,789,000 and $11,279,000, respectively). Future minimum rental income aggregates $6,966,000 and is receivable during the next five years (2002 to 2006) as follows: $1,449,000, $1,195,000, $941,000, $868,000, $539,000, respectively, and $1,974,000 thereafter. 9. INCOME TAXES The components of the income tax provision (credit) were as follows: 2001 2000 1999 (Dollars in Thousands) Current Federal $ 1,904 $ 984 $ 1,831 State (256) (296) 334 Total 1,648 688 2,165 Deferred Federal 1,594 (777) 584 State 198 1 (32) Total 1,792 (776) 552 Total provision (credit) $ 3,440 $ (88) $ 2,717 Reconciliation between the total provision and the amount computed using the statutory federal rate of 34% follows: 2001 2000 1999 (Dollars in Thousands) Federal provision at statutory rate $ 3,743 $ 124 $ 2,512 Adjusted for State income taxes, net of effect on federal income taxes (50) (210) 200 Federal research credits (177) -- -- Other (76) (2) 5 Total provision (credit) $ 3,440 $ (88) $ 2,717 Deferred tax assets and liabilities were comprised of the following types of temporary differences as of December 31, 2001 and 2000: 2001 2000 (Dollars in Thousands) Accrued retirement benefits $ 7,388 $ 6,789 Minimum tax credit carryforward 3,975 3,379 Accrued liabilities 1,926 1,491 Inventory -- 468 Allowance for doubtful accounts 260 359 Net operating loss and tax credit carryforwards 393 85 Total deferred tax assets 13,942 12,571 Deferred condemnation proceeds (6,297) (5,891) Property net book value (4,849) (2,923) Income from partnerships (1,835) (1,847) Pineapple marketing costs (756) (691) Inventory (722) -- Other (202) (146) Total deferred tax liabilities (14,661) (11,498) Net deferred tax (liability) asset $ (719) $ 1,073 A valuation allowance against deferred tax assets as of December 31, 2001 and 2000 is not considered necessary as the Company believes that it is more likely than not the deferred tax assets will be fully realized. At December 31, 2001, the Company had federal minimum tax credit carryforwards of $4.0 million. The Company's federal income tax return for 1995 is under examination by the Internal Revenue Service. The Company has consented to keep federal income tax returns for 1993 and 1994 open because the returns for an entity in which the Company was previously a 25% general partner is under examination by the Internal Revenue Service. The revenue agent's reports on these examinations have not been issued and the Company presently cannot predict the outcome of these examinations. 10. INTEREST CAPITALIZATION Interest cost incurred in 2001, 2000 and 1999 was $3,502,000, $3,901,000 and $2,477,000, respectively, of which $599,000, $840,000 and $643,000, respectively, was capitalized. 11. ADVERTISING AND RESEARCH AND DEVELOPMENT Advertising expense totaled $1,901,000 in 2001, $2,000,000 in 2000 and $1,801,000 in 1999. Research and development expenses totaled $1,073,000 in 2001, $984,000 in 2000 and $839,000 in 1999. 12. 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. 13. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS Except for certain long-term debt, the carrying amount of the Company's financial instruments is considered to be the fair value. The fair value of long-term debt was estimated based on rates currently available to the Company for debt with similar terms and remaining maturities. The carrying amount of long-term debt at December 31, 2001 and 2000 was $40,735,000 and $42,616,000, respectively, and the fair value was $40,874,000 and $42,302,000, respectively. 14. 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 includes 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 2001 Pineapple Resort & Property Other Consolidated (Dollars in Thousands) Revenues (1) $97,426 $ 70,078 $ 5,029 $ 47 $ 172,580 Operating profit (loss)(2) (3,233) 19,757 (1,414) (1,199) 13,911 Interest expense (1,765) (801) (211) (126) (2,903) Income (loss) before income taxes (4,998) 18,956 (1,625) (1,325) 11,008 Depreciation 5,582 3,690 479 475 10,226 Equity in earnings (losses) of joint ventures 3 6,993 (1,453) -- 5,543 Investment in joint ventures 207 9 (11,518) -- (11,302) Segment assets (3) 79,068 72,198 8,051 17,116 176,433 Expenditures for segment assets 4,794 5,415 411 4,599 15,219 2000 Revenues (1) $85,892 $ 50,262 $ 5,043 $ 286 $ 141,483 Operating profit (loss)(2) (2,891) 7,752 (441) (995) 3,425 Interest expense (1,572) (992) (164) (333) (3,061) Income (loss) before income taxes (4,463) 6,760 (605) (1,328) 364 Depreciation 5,106 3,222 498 176 9,002 Equity in earnings (losses) of joint ventures 61 (62) (971) -- (972) Investment in joint ventures 206 1,058 (9,990) -- (8,726) Segment assets (3) 81,294 69,227 7,169 12,261 169,951 Expenditures for segment assets 8,346 8,965 279 2,225 19,815 1999 Revenues (1) $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 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 (3) 69,733 64,943 7,190 11,521 153,387 Expenditures for segment assets 7,921 13,282 164 795 22,162 (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 $1.7 million, $2.6 million and $3.1 million, respectively, in 2001, 2000 and 1999. 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) Segment assets are located in the United States, primarily Maui. Other assets are corporate and non-segment assets. 15. CONTINGENCIES AND COMMITMENTS In 1996, 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 to the Company from 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 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 had 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 recorded a reserve for this liability in 1999. The reserve recorded in 1999 and adjustments thereto in 2000 and 2001 did not have a material effect on the Company's financial statements. 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 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. In connection with pre-development planning for a land parcel in Upcountry Maui, pesticide residues in the parcel's soil were discovered in levels that are in excess of Federal and Hawaii State limits. Studies by environmental consultants, in consultation with the State Department of Health, indicate that remediation probably will be necessary. The cost of remediation will depend on the various alternatives as to the use of the property and the method of remediation. Until the Company makes further progress on obtaining proper entitlements for the parcel, the ultimate use of the property remains uncertain and, therefore, an estimate of the remediation cost cannot be made. 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. 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 and a $1 million line of credit used for working capital purposes. The Company, as a partner in various partnerships, may under particular circumstances be called upon to make additional capital contributions. At December 31, 2001, the Company had purchase commitments under signed contracts totaling $903,000, which primarily relate to real estate projects. QUARTERLY EARNINGS (unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter (Dollars in Thousands Except Per Share Amounts) 2001 Total revenues* $38,739 $39,453 $45,943 $48,445 (a) Net sales 27,417 29,367 31,959 35,977 (a) Cost of sales 18,917 19,705 23,456 22,936 Net income 779 265 1,974 4,550 Net income per common share .11 .04 .27 .63 2000 Total revenues $34,775 $30,921 $37,195 $38,592 Net sales 24,138 21,135 28,279 29,642 Cost of sales 15,719 14,341 19,675 23,068 (b) Net income (loss) 1,945 300 556 (2,349) (b) Net income (loss) per common share .27 .04 .08 (.33)
(a) Total revenues and net sales for the fourth quarter of 2001 were higher primarily due to real estate sales at the Kapalua Resort. In the fourth quarter of 2001, the sale of 18 units in the Coconut Grove on Kapalua Bay closed escrow. (b) In the fourth quarter of 2000, the per unit cost of sales for pineapple products increased primarily as a result of a decrease in the planned production tonnage for the year. In addition, the Pineapple segment incurred increased fourth quarter 2000 charges for marketing and bad debt. * Total revenues for the first and second quarters of 2001 have been restated to conform to the full year presentation. COMMON STOCK The Company's common stock is traded on the American Stock Exchange under the symbol "MLP." A dividend of $.125 per share was paid in March of 2000. 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 12, 2002, there were 432 shareholders of record. The following chart reflects high and low sales prices during each of the quarters in 2001 and 2000: First Second Third Fourth Quarter Quarter Quarter Quarter 2001 High $ 24.00 $ 27.53 $ 26.60 $ 25.10 Low 18.00 17.00 19.75 19.99 2000 High $ 17.50 $ 23.50 $ 26.63 $ 26.75 Low 14.00 14.75 22.13 21.00 SELECTED FINANCIAL DATA
2001 2000 1999 1998 1997 (Dollars in Thousands Except Per Share Amounts) FOR THE YEAR Summary of Operations Revenues $ 172,580 $ 141,483 $ 146,998 $ 143,711 $ 136,498 Cost of goods sold 85,014 72,803 74,494 76,049 72,200 Operating expenses 33,677 30,169 27,440 26,168 26,027 Shipping and marketing 19,095 18,289 18,479 16,673 18,053 General and administrative 19,430 15,825 16,408 15,094 14,600 Equity in losses of joint ventures 1,453 972 956 1,160 1,211 Interest expense 2,903 3,061 1,834 3,039 3,045 Income tax expense (credit) 3,440 (88) 2,717 1,188 499 Income before extraordinary loss 7,568 452 4,670 4,340 863 Extraordinary loss, net of income tax credit (1) -- -- -- (744) -- Net income 7,568 452 4,670 3,596 863 Per Common Share (2) Income before extraordinary loss 1.05 .06 .65 .60 .12 Extraordinary loss, net of income tax credit -- -- -- (.10) -- Net income 1.05 .06 .65 .50 .12 Other Data Cash dividends Amount -- 899 899 -- -- Per common share (2) -- .125 .125 -- -- Depreciation $10,226 $ 9,002 $ 8,445 $ 8,176 $ 8,041 Return on beginning stockholders' equity 11.5% .7% 7.5% 6.1% 1.5% Percent of net income to revenues 4.4% .3% 3.2% 2.5% .6% AT YEAR END Current assets less current liabilities (3) $25,463 $ 19,304 $ 12,924 $ 18,985 $ 20,283 Ratio of current assets to current liabilities (3) 2.1 1.7 1.5 2.1 2.2 Property, net of depreciation $113,046 $ 109,725 $ 100,976 $ 89,921 $ 88,047 Total assets 176,433 169,951 153,387 136,247 135,507 Long-term debt and capital leases 39,581 41,012 25,497 23,592 29,435 Stockholders' equity Amount 73,419 65,922 66,400 62,492 58,896 Per common share (2) $ 10.20 $ 9.16 $ 9.23 $ 8.69 $ 8.19 Common shares outstanding (2) 7,195,800 7,195,800 7,195,800 7,188,500 7,188,500
(1) In 1998, the Company incurred an extraordinary loss of $744,000 (net of taxes) for prepayment of $20 million of debt. (2) All references to the number of shares of common stock and per share amounts prior to 1999 have been restated to reflect the four-for-one common stock split as of May 1, 1998. (3) 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 2001 vs. 2000 CONSOLIDATED The Company reported consolidated net income of $7.6 million for 2001 compared to net income of $452,000 for 2000. The increase in net income was due to real estate sales at the Kapalua Resort, which more than offset the reduced profit contribution from Resort operations and increased operating losses from the Pineapple, Commercial & Property and other operations. General and administrative expenses for 2001 (including amounts allocated to the business segments) exceeded the prior year by $3.6 million or 23%. The operating results reported for all of the Company's business segments were negatively affected by increases in general and administrative expenses. The net periodic cost for the Company's defined benefit pension plans increased by $1.1 million in 2001 compared to 2000 primarily because of decreased investment returns in 2000. These expenses are expected to increase further in 2002 as a result of lower investment results in 2001 and because the transition assets realized upon adoption of FASB Statement No. 87 in 1987 were fully amortized as of the end of 2001. Fees paid to outside consultants increased by over $1 million in 2001 compared to 2000. A large part of this increase was due to lawsuits related to Pineapple operations, which the Company filed in 2001. General and administrative expenses were also higher in 2001 because of expenses for employment-related litigation, increased salaries and wages and other employment related expenses. Interest expense of $2.9 million for 2001 was 5% lower than 2000. The decrease was the result of lower average interest rates, partially offset by higher average borrowings and a reduced amount of capitalized interest. Higher debt balances resulted primarily from borrowings in 2000 to finance negative operating cash flows from the Pineapple operations and construction activity at Kapalua Resort. The Company's total debt balance remained relatively high in 2001 as cash from operating activities was used to finance a large portion of the Company's capital expenditures. PINEAPPLE Pineapple revenues increased to $97.4 million in 2001 as compared to $85.9 million in 2000. The segment produced an operating loss of $3.2 million in 2001 compared to an operating loss of $2.9 million in 2000. The average sales price for canned pineapple products and the case volume of canned pineapple sales were higher in 2001 as compared to 2000. Contribution to revenues from fresh cut and fresh whole pineapple products grew substantially in 2001; however, these product lines represent less than 17% of net sales from the Pineapple segment. The operating loss from the Pineapple segment increased in 2001 because of higher per unit production costs and shipping and selling expenses as well as increased general and administrative expenses. Higher production costs in 2001 were primarily the result of increased cost for petroleum products and supplies and scheduled collective bargaining wage increases. Mitigating the loss from Pineapple operations in 2001 was the receipt of $1.8 million in December 2001 from the U.S. Customs Service. The cash distribution was made pursuant to the Continued Dumping and Subsidy Offset Act of 2000, which provided for an annual distribution of antidumping duties to injured domestic producers. The Company currently expects to receive a distribution of antidumping duties in 2002, but anticipates that it may be less than the 2001 distribution. For the first eleven months of 2001, the case volume of imports of canned pineapple into the United States was lower and the average unit value of these imports was higher than the same period in 2000. These results are in part due to a tightening supply of pineapple from Thailand, one of the world's largest pineapple suppliers, as well as lower supplies from certain other pineapple producing countries. The reduction in supply of foreign pineapple is considered to be a reaction to low prices; therefore, as prices rise, plantings and canned pineapple production are expected to increase. Antidumping duties were in effect on canned pineapple fruit imported from Thailand since mid-1995 as a result of an antidumping petition filed in 1994 in which the Company was a party as petitioner. The amount of duties on pineapple imports from Thailand is subject to annual administrative reviews by the U. S. Department of Commerce. Either the Company or the Thai producers may request these reviews. As a result of the annual reviews, the duties can 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 from Thailand range from less than 1% up to 51%. In 2000, the U. S. Department of Commerce and the U. S. International Trade Commission initiated proceedings for the "Sunset Review" of antidumping duties on imports of canned pineapple fruit from Thailand. In April 2001, the U. S. International Trade Commission announced its unanimous decision that the existing antidumping duty on imports of canned pineapple fruit from Thailand would remain in place. Pursuant to its investigation under the five-year "Sunset Review," the U. S. International Trade Commission determined that revocation of the antidumping duty order would likely result in continuation or recurrence of material injury to the domestic industry. In October 2001, the U. S. Department of Commerce released final antidumping margins pursuant to the fifth annual administrative review of antidumping duties on canned pineapple fruit imports from Thailand. As a result of this review, the dumping margin for one of the larger importers was ruled to be de minimis and, therefore, no deposit of duties is currently required from that importer. The Company is appealing this decision. If the dumping margin for an importer is determined to be de minimis for three consecutive years, the importer is exempt from the duty order. Preliminary results of the sixth annual administrative review covering the period July 1, 2000 through June 30, 2001 are scheduled to be released by July 31, 2002. The Company manufactures all of the cans it uses to can pineapple at its Kahului cannery with tin-coated steel imported from Japan. In October 2001, the U.S. International Trade Commission by a 3 to 3 vote ruled that the domestic steel industry has been injured by the importation of foreign steel into the United States. On March 5, 2002, President George W. Bush, by executive order, imposed three-year tariffs on imported steel products, including the tin-coated steel the Company uses. The Company has filed for exemptions from the tariff. If it is not granted exemption from the tariff, the Company's cost of canning pineapple is expected to increase by approximately $800,000 in 2002 and up to $1.0 million in 2003. RESORT Kapalua Resort revenues, including operations and development, increased to $70.1 million in 2001 from $50.3 million in 2000. The operating profit from this segment was $19.8 million in 2001 compared to $7.8 million in 2000. The increase in revenues and operating profit in 2001 was attributable to development activity related to real estate sales, which contributed $18.2 million to Resort operating profit in 2001 compared to $1.4 million in 2000. In 2001, the sales of all 36-luxury condominium units in the Coconut Grove on Kapalua Bay closed escrow and title passed to the buyers. At the end of 2000, all of the units were under binding sales contract, but construction had not been completed. The Company's equity in earnings of Kapalua Coconut Grove LLC, the developer of the project, was $7.0 million in 2001. In 1997, the Company had contributed to the venture its 50% interest in the 12-acre parcel for the development. In 2001, the Company recognized income of $3.9 million representing the pre- contribution gain on sale of this land parcel. In 2001, the Resort segment recognized profit on sales of 20 of the 31 single-family lots at the Pineapple Hill Estates subdivision. In 2000, 12 of the lots had closed escrow and all of the proceeds received were recorded as deferred revenue. Revenues were recognized throughout 2001 on the percentage-of- completion method. Construction of the subdivision improvements was completed in November 2001. In 2000, the Company recognized profit on the percentage-of- completion method for sale of 14 single-family lots in Plantation Estates Phase II. Construction of the subdivision improvements and all of the sales were completed by the end of second quarter 2000. Resort real estate development and Resort real estate sales are cyclical and depend on a number of factors. Results of real estate sales activity for 2001 are not necessarily indicative of future performance trends for this segment. Revenues and operating profit from Resort operations (excluding real estate development activity) were lower in 2001 compared to 2000 due primarily to lower resort occupancy. Occupancy is responsible for much of the activity at the Resort and revenues from operations. Revenues from golf operations decreased by 3%, merchandise sales declined by 7% and income from lease rents were lower by 14% in 2001 compared to 2000. Revenues from The Kapalua Villa operations decreased by 17% in 2001 compared to 2000. While occupancies at The Kapalua Villas were lower in 2001 compared to 2000, average room rates increased slightly. Partially offsetting the reduction in revenues from these operations was a 46% increase in commission income from Kapalua Realty, largely reflecting the real estate sales mentioned above. Room occupancies in 2001 at Kapalua and for the state of Hawaii were lower than 2000 for every month, but the economic impact of the events of September 11 resulted in a further decline in visitors. The rate of room reservations rebounded somewhat in the last quarter of 2001 and early 2002. Resort marketing initiatives to increase visitors to Kapalua is an ongoing focus and challenge for the Company. In February 2002, contracts were completed for a four-year extension for Kapalua to host the Mercedes Championships golf tournament. This is a major marketing event for the Resort. COMMERCIAL & PROPERTY Revenues from the Commercial & Property segment totaled $5 million in 2001 or approximately the same as in 2000. Revenues for 2001 include $189,000 from land sales compared to $75,000 for 2000. The operating loss from this segment increased to $1.4 million in 2001 from $441,000 in 2000. The increased operating loss was largely attributable to lower results from Queen Ka'ahumanu Center. However, increased land management expenses, primarily as a result of additional personnel, and lower profit contribution from Napili Plaza added to the increased loss from this segment. The Company's equity in the losses of Queen Ka'ahumanu Center was $1.5 million in 2001 compared to $971,000 in 2000. The increased losses largely related to store closures and rent concessions, which resulted in reduced rental income, write-off of tenant improvement allowances and increases in reserves for uncollectible accounts. Partially offsetting these losses in 2001 was an increase in lease cancellation fees received. The Company, as manager of Queen Ka'ahumanu Center for Kaahumanu Center Associates, has realigned management personnel in 2001 to place increased focus on improving the operation. Management presently anticipates that cash advances from the partners of approximately $1.7 million may be required to cover cash deficits of the partnership in 2002. 2000 vs. 1999 CONSOLIDATED The Company reported consolidated net income of $452,000 for 2000 compared to $4.7 million for 1999. The lower net income in 2000 was attributable to losses from the Pineapple segment and increased interest expense, which more than offset substantially increased operating profit from the Resort segment. General and administrative expenses for 2000 of $15.8 million were lower than 1999 by 4%. In 2000, the Company's payroll related costs decreased compared to 1999 primarily because there were no accruals for incentive compensation for 2000. The cost for outside consultants was lower in 2000 because in 1999 the Company wrote off $1.1 million of deferred costs for consultants who were engaged to analyze and assist in developing strategic plans for the Company. This reduction in outside consultant costs was partially offset by increased expenses in 2000 for consultants related to the selection of an integrated accounting and information technology system, which the Company is in the process of implementing. Pension expense was lower in 2000 compared to 1999 primarily because of an increase in discount rate as of year-end 1999 and because of favorable investment returns in 1999. Expenses for medical and general insurance, workers compensation and vacation accruals increased in 2000 compared to 1999. Interest expense increased by 67% in 2000 compared to 1999 because of higher average borrowings and higher interest rates. Average borrowings were higher in 2000 as a result of lower cash flows from operating activities combined with a large amount of capital expenditures, in particular construction related expenditures at the Kapalua Resort. An increase in the amount of interest capitalized in 2000, primarily because of construction of the Village Course Clubhouse, partially offset the increase in interest expense. PINEAPPLE Pineapple revenues of $85.9 million for 2000 were lower by 9% as compared to 1999. The segment produced an operating loss of $2.9 million in 2000 compared to operating profit of $6.1 million in 1999. The reduction in revenues was a result of lower case volume of canned pineapple sales as well as lower prices in 2000. These results reflect the highly competitive market conditions for canned pineapple products that the Company was faced with throughout 2000. Revenues from fresh whole and fresh cut pineapple products increased in 2000. The increased operating loss in 2000 also was due to higher marketing and bad debt expense and higher per case cost of sales primarily because of processing fewer tons of fruit in 2000. The average unit value of imported canned pineapple products declined significantly in 2000 compared to 1999, which put severe downward pressure on market prices in the U.S. In addition, market prices were suppressed in 2000 as a result of much of the 1999 imports entering the U.S. retail stores in 2000. In 1999, imports of canned pineapple products into the U.S. increased by 39%. Total imports of canned pineapple into the United States decreased by 9% in 2000 compared to 1999 primarily reflecting reduced import volume from Thailand. The reduced case volume of imports appeared to be a result of antidumping duties on canned pineapple fruit from Thailand. RESORT Kapalua Resort revenues, including operations and development, of $50.2 million for 2000 were 5% higher than 1999. Resort operating profit was $7.8 million in 2000 compared to $5.7 million in 1999. Higher revenues and operating profit generated by resort operations more than offset lower results from the sale of real estate inventories. Revenues from golf operations increased 11%, merchandise sales increased 12% and income from lease rents increased 26%. These improved results were largely due to higher average green fees, increased room occupancies at the hotels and increased ground lease percentages from the hotels. Revenues from The Kapalua Villas operations increased 12% in 2000 as a result of increased room occupancies and higher average room rates. Commissions from Kapalua Realty operations increased 71% in 2000, reflecting increased activity in the resale of Resort real estate. In addition to these revenue increases, improved operating results in 2000 also were due to general excise tax refunds related to prior years. Revenues from real estate sales decreased 21% in 2000 compared to 1999. Contribution to operating profit from sale of real estate inventory was $2 million in 2000 compared to $2.2 million in 1999. In the fourth quarter of 1999, the Company began the construction and sale of Plantation Estates Phase II, a fourteen single-family lot subdivision at Kapalua. Twelve of the fourteen lots closed escrow in 1999 and the Company recognized profit on the percentage-of-completion method. The last two lots closed escrow in the first quarter of 2000 and construction of improvements was substantially complete in the second quarter of 2000. In December 2000, the Company began selling lots in Pineapple Hill Estates, a 31 single-family lot subdivision in the Kapalua Resort. Twelve sales closed escrow in 2000 and all proceeds were recorded as deferred revenues. COMMERCIAL & PROPERTY Revenues from Commercial & Property were $5 million in 2000 compared to $4.4 million in 1999. These revenues include gains from land sales of $75,000 in 2000 and $223,000 in 1999. The operating loss from this segment was $441,000 in 2000 or 3% lower than 1999. The reduced loss in 2000 from the Commercial & Property segment was primarily due to improved recoveries of expenses from the tenants. The Company's equity in the losses of Kaahumanu Center Associates was $971,000 in 2000, or $71,000 higher than the loss in 1999. Although Queen Ka'ahumanu Center minimum and percentage rents increased in 2000, increased operating expenses, in particular repairs and maintenance, professional fees and payroll related expenses, more than offset the higher rental revenues. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2001, the Company's total debt, including capital leases, was $43.3 million, a decrease of $1.2 million from year-end 2000. In 2001, cash distributions from Kapalua Coconut Grove LLC totaled $12.4 million, which was used primarily to retire long-term debt. During 2001, the Company incurred new debt of $6.8 million in the form of equipment loans, capital leases and other long-term debt to finance capital expenditures. In 2001, the Company's debt level declined by only $1.2 million due to income levels and cash flows from operations being negatively affected by the events of September 11 and the downturn in economic activity. Part of the reduced cash flow was caused by the higher than usual level of ripe pineapple in December, which required additional costs to be incurred to process this fruit to inventory. Also, the Company had a relatively high level of unsold real estate inventory consisting of eleven lots in the Pineapple Hill Estates project. The sale of real estate inventories will be a significant variable in the projection of operating cash flows for 2002. While the level of real estate sales that have closed escrow through early 2002 is a positive indication that the market conditions for resort real estate may be improving, if the Company does not sell a significant portion of its real estate inventories in 2002, the Company may elect to reduce capital expenditures and take additional measures to control operating expenses. Unused short- and long-term credit lines available to the Company at December 31, 2001 totaled $13.5 million. As of December 31, 2001, the commitment under the Company's revolving credit agreement was increased from $15 million to $25 million for 2002 and 2003 and short-term bank lines of credit available to the Company were increased from $2 million to $3 million for 2002. The increase in the availability under these facilities was deemed appropriate to fund the seasonal working capital needs of the Company's operations and capital expenditures in 2002 and to provide an appropriate reserve of credit availability. The Company anticipates that it may finance some 2002 capital expenditures with new equipment loans or capital leases. Pineapple capital expenditures are expected to be $5 million in 2002, of which approximately $1.5 million is for the replacement of existing equipment and facilities. A majority of new capital expenditures for the Pineapple segment relates to equipment and facilities for fresh pineapple products. Resort capital expenditures and planning and entitlement expenditures are expected to be approximately $3.9 million in 2002, which includes approximately $1.7 million for replacements. Other capital expenditures and planning and entitlement costs are anticipated to be approximately $3.2 million in 2002, which includes approximately $2 million for completion of the implementation of an integrated accounting and information system and for other computer-related equipment and facilities. A portion of these capital expenditures could be deferred into future periods. Following are summaries of the Company's contractual obligations and other commercial commitments as of December 31, 2001 (in thousands): Payment due by period (years) Contractual Less Obligations Total Than 1 1-3 4-5 After 5 Long-term debt $40,735 $ 2,440 $9,140 $ 17,807 $11,348 Capital lease Obligations 1,924 541 669 714 -- Operating leases 4,585 619 886 871 2,209 Total Contractual Cash Obligations $47,244 $ 3,600 $10,695 $ 19,392 $13,557 Commitment expiration period (years) Other Commercial Less Commitments Total Than 1 1-3 4-5 After 5 Lines of Credit $14,639 $ 1,200 $13,439 $ -- $ -- Guarantees 14,000 4,000 -- -- 10,000 Commitments Under Signed Contracts 903 903 -- -- -- Standby Letters of Credit 561 561 -- -- -- Total Other Commercial Commitments $30,103 $ 6,664 $13,439 $ -- $10,000 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 $26.5 million at December 31, 2001, which is $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 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. 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, 2001, 90% 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 10% carried interest at fixed rates. Based on debt outstanding at the end of 2001, a hypothetical decrease in interest rates of 100 basis points would increase the fair value of the Company's long-term debt by approximately $386,000. At December 31, 2001, the fair value of the Company's long-term debt exceeded the carrying value by approximately $140,000 as a result of a general decrease 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 success of non- canned pineapple products, future sales of canned pineapple to the U.S. government, receipt of distribution of antidumping duties in 2002, sale of the remaining lots in Pineapple Hill Estates, construction and sale of Kapua Village employee housing subdivision, commencement of drilling of a new Upcountry Maui well and 2002 expectations as to cash flow. 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 international or domestic 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; (4) events in the airline industry affecting passenger or freight capacity or cost; (5) possible shifts in market demand; (6) the possibility of tariffs or import quotas on imported steel products; and (7) the impact of competing products, competing resort destinations and competitors' pricing. 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 & Commercial Property Donald A. Young Vice President/Human Resources J. Susan Corley Vice President/Retail Property Scott A. Crockford Vice President/Land Planning & Development Robert M. McNatt Vice President/Land & Water Asset Management Warren A. Suzuki Treasurer Darryl Y. H. Chai Controller & Secretary Adele H. Sumida Directors Richard H. Cameron--Chairman Assistant Manager Waldenbooks John H. Agee President and Chief Executive Officer Ka Po'e Hana LLC David A. Heenan Trustee The Estate of James Campbell Randolph G. Moore Teacher, Department of Education State of Hawaii Claire C. Sanford Co-owner Top Dog Studio Fred E. Trotter III President F. E. Trotter, Inc. Daniel H. Case-Director Emeritus Chairman of the Board Case Bigelow & Lombardi Mary C. Sanford-Director Emeritus Retired Chairman of the Board Maui Publishing Company, Ltd. Compensation Committee Fred E. Trotter III-Chairman John H. Agee 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/Operations Eduardo E. Chenchin Vice President/Agricultural Business Development L. Douglas MacCluer Vice President/Grocery Sales Renata E. Muller Treasurer Darryl Y. H. Chai Secretary Adele H. Sumida Controller Stacey M. Jio Directors Richard H. Cameron-- Chairman John H. Agee Gary L. Gifford David A. Heenan Paul J. Meyer Randolph G. Moore Claire C. Sanford Douglas R. Schenk Fred E. Trotter III Daniel H. Case-Director Emeritus 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/Land Planning & Development Robert M. McNatt Vice President/Resort Operations Gary M. Planos Vice President/Kapalua Club & Villas David M. Sosner Treasurer Darryl Y. H. Chai Secretary Adele H. Sumida Controller Russell E. Johnson Directors Richard H. Cameron-- Chairman John H. Agee Gary L. Gifford David A. Heenan Paul J. Meyer Randolph G. Moore Claire C. Sanford Fred E. Trotter III Donald A. Young Daniel H. Case-Director Emeritus Mary C. Sanford--Director Emeritus EX-99 7 kcaauditreport.txt 2001 KAAHUMANU CENTER ASSOCIATES FINANCIAL STATEMENTS Kaahumanu Center Associates (A Hawaii Limited Partnership) Financial Statements for Each of the Three Years Ended December 31, 2001, 2000 and 1999 and Independent Auditors' Report INDEPENDENT AUDITORS' REPORT To the Partners of Kaahumanu Center Associates: We have audited the accompanying balance sheets of Kaahumanu Center Associates (a Hawaii limited partnership) as of December 31, 2001 and 2000, and the related statements of operations, changes in partners' capital (deficit), and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit 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 financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. /S/DELOITTE & TOUCHE LLP Honolulu, Hawaii February 12, 2002 KAAHUMANU CENTER ASSOCIATES BALANCE SHEETS DECEMBER 31, 2001 AND 2000 ASSETS 2001 2000 CURRENT ASSETS: Cash $ 33,960 $ 32,578 Accounts receivable - less allowance of $250,073 and $95,298 for doubtful accounts 699,626 1,093,832 Prepaid expenses 31,023 70,905 Total current assets 764,609 1,197,315 PROPERTY: Land and land improvements 6,068,132 6,054,330 Building 83,724,161 83,580,660 Furniture, fixtures and equipment 5,147,455 5,182,690 Construction in process 261,380 65,071 Total property 95,201,128 94,882,751 Accumulated depreciation (28,849,489) (25,682,580) Property - net 66,351,639 69,200,171 OTHER ASSETS 1,274,227 1,710,131 TOTAL $68,390,475 $72,107,617 LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Bank overdraft $ -- $ 39,637 Current portion of long-term debt 1,228,322 1,126,451 Accounts payable 457,015 473,094 Due to Maui Land & Pineapple Company, Inc. 1,667,283 1,216,086 Other current liabilities 39,453 122,556 Total current liabilities 3,392,073 2,977,824 LONG-TERM DEBT - Less current portion 57,911,022 59,139,567 OTHER LONG-TERM LIABILITIES 90,726 87,175 Total liabilities 61,393,821 62,204,566 CONTINGENCIES AND COMMITMENTS PARTNERS' CAPITAL 6,996,654 9,903,051 TOTAL $68,390,475 $72,107,617 See notes to financial statements. KAAHUMANU CENTER ASSOCIATES STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 2001 2000 1999 REVENUES: Rental income - minimum $7,023,484 $7,552,188 $7,472,086 Rental income - percentage 1,009,772 1,372,884 1,112,419 Other operating income - primarily recoveries from tenants 7,172,942 6,728,646 5,921,174 Total revenues 15,206,198 15,653,718 14,505,679 COSTS AND EXPENSES: Interest 5,245,434 5,332,655 5,369,013 Depreciation and amortization 3,693,930 3,685,323 3,539,544 Utilities 3,301,571 3,400,142 2,668,013 Payroll and related costs 2,343,025 2,282,740 2,087,090 Repairs and maintenance 647,124 701,391 570,175 General excise taxes 594,008 616,644 566,518 Write down/loss on disposal of assets 364,646 - 88,074 Real property taxes 348,689 327,190 315,005 Insurance 303,817 333,704 366,253 Provision for doubtful accounts 302,613 44,497 57,349 Advertising and promotions 278,036 241,379 204,328 Management fee 251,038 278,907 268,264 Professional fees 194,613 207,240 143,646 Other expenses 244,051 143,992 62,677 Total costs and expenses 18,112,595 17,595,804 16,305,949 NET LOSS $(2,906,397) $(1,942,086)$(1,800,270) See notes to financial statements. KAAHUMANU CENTER ASSOCIATES STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 State of Hawaii Maui Land & Employees' Pineapple Retirement Company, Inc. System Total PARTNERS' CAPITAL (DEFICIT), DECEMBER 31, 1998 $(8,690,243) $22,335,650 $13,645,407 Net loss - 1999 (900,135) (900,135) (1,800,270) PARTNERS' CAPITAL (DEFICIT), DECEMBER 31, 1999 (9,590,378) 21,435,515 11,845,137 Net loss - 2000 (971,043) (971,043) (1,942,086) PARTNERS' CAPITAL (DEFICIT), DECEMBER 31, 2000 (10,561,421) 20,464,472 9,903,051 Net loss - 2001 (1,453,199) (1,453,198) (2,906,397) PARTNERS' CAPITAL (DEFICIT), DECEMBER 31, 2001 $(12,014,620) $19,011,274 $ 6,996,654 See notes to financial statements. KAAHUMANU CENTER ASSOCIATES STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 2001 2000 1999 OPERATING ACTIVITIES: Net loss $(2,906,397) $(1,942,086) $(1,800,270) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 3,693,930 3,685,323 3,539,544 Loss on property disposals 364,646 - 88,074 Decrease (increase) in accounts receivable 394,206 (474,932) (60,628) Decrease (increase) in noncurrent accounts receivable 288,927 (146,295) (285,546) (Decrease) increase in accounts payable (39,768) (702,026) 609,583 Net change in other operating assets and liabilities (11,026) 11,165 30,747 Net cash provided by operating activities 1,784,518 431,149 2,121,504 INVESTING ACTIVITIES: Purchases of property (1,099,123) (460,224) (1,831,275) Decrease in restricted cash - - 758,398 Net cash used in investing activities (1,099,123) (460,224) (1,072,877) FINANCING ACTIVITIES: Payments of long-term debt (1,126,674) (1,018,774) (948,603) Proceeds from Partner Advances, net of repayments 482,298 536,078 - (Decrease) increase in bank overdraft (39,637) 39,637 - Net cash used in financing activities (684,013) (443,059) (948,603) NET INCREASE (DECREASE) IN CASH 1,382 (472,134) 100,024 CASH, BEGINNING OF YEAR 32,578 504,712 404,688 CASH, END OF YEAR $ 33,960 $ 32,578 $ 504,712 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - Cash paid during the year for interest $5,242,000 $5,328,000 $5,369,000 SUPPLEMENTAL INFORMATION RELATING TO NONCASH INVESTING ACTIVITIES - Amounts included in accounts payable for additions to property totaled $8,000, $11,000, and $75,000 at December 31, 2001, 2000, and 1999, respectively. See notes to financial statements. KAAHUMANU CENTER ASSOCIATES NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 1. ORGANIZATION Kaahumanu Center Associates (Partnership) was formed on June 23, 1993 as a limited partnership between Maui Land & Pineapple Company, Inc. (ML&P), as general partner, and the Employees' Retirement System of the State of Hawaii (ERS), as limited partner. The purpose of the Partnership is to finance the expansion and renovation of and to own and operate Queen Ka'ahumanu Center (Center). The Center is a regional shopping mall located in Kahului, Maui, and currently consists of 570,000 square feet of gross leasable area. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting - The Partnership's policy is to prepare its financial statements using the accrual basis of accounting. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. Future actual amounts could differ from those estimates. Restricted Cash - Restricted cash is a percentage of revenues retained for capital improvements as set forth in the Partnership Operating Agreement, as well as proceeds from the mortgage loan that were reserved for additional expansion costs. The partners agreed to waive the required capital improvement reserve for the years ended December 31, 2001 and 2000. Property - Property that was contributed to the Partnership by ML&P is stated at ML&P's net book value at the date of contribution; subsequent additions are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Advertising and Promotion - The costs of advertising and sales promotion activities are expensed as incurred. Income Taxes - The Partnership is not subject to federal and state income taxes. The distributive shares of income or loss and other tax attributes from the Partnership are reportable by the individual partners. Concentration of Credit Risk - The Partnership extends credit to its tenants in the course of its leasing operations. The creditworthiness of existing and potential tenants is evaluated and, under certain circumstances, a security deposit is required. Reclassifications - Certain amounts in the 1999 and 2000 financial statements have been reclassified to conform to the 2001 presentation. 3. PARTNERSHIP AGREEMENTS Capital Contributions - ML&P contributed the land and the shopping center improvements as they existed prior to the expansion and renovation project, subject to the existing first mortgage, together with approximately nine acres of adjacent land which became part of the expanded shopping center, for a 99% interest in the Partnership. ERS originally contributed $312,000 for a 1% interest in the Partnership and made a loan of $30.6 million to the Partnership. Effective April 30, 1995, after completion of the expansion and renovation and the satisfaction of certain conditions, ERS converted its loan to capital for an additional 49% interest and became a 50% partner with ML&P. Allocations and Distributions - Profit and loss allocations and cash distributions of the Partnership are based on the ownership interests of the partners. ERS and ML&P each have a 9% cumulative, non-compounded priority right to cash distributions based on their net contributions to the Partnership (preferred return). The ML&P preferred return is subordinate to the ERS preferred return. For the purpose of calculating the preferred returns, each partner's capital contribution had an agreed upon value of $30.9 million on April 30, 1995. The accumulated unpaid preferred returns at December 31, 2001 were $15.7 million each for ML&P and ERS. Management and Operations - The Partnership has an Operating Agreement with ML&P for the operation of the Center. The Operating Agreement has an initial term of 15 years, which commenced when ERS became a 50% partner, with options to renew for four additional 10-year periods. It provides for certain performance tests, which if not met, could result in termination of the Agreement. The tests were not met in 2001, but termination of the Agreement is not presently being considered. ML&P, as managing partner, is responsible for the day-to-day management of the Partnership's business affairs. Major decisions, as defined in the partnership agreement, require the unanimous approval of the partners. 4. RELATED PARTY TRANSACTIONS Pursuant to the Partnership Operating Agreement, the Partnership pays to ML&P an operator's fee equal to 3% of gross revenues, as defined. In 2001, 2000 and 1999, ML&P charged the Partnership $251,000, $279,000 and $268,000, respectively, for management fees. In accordance with the Limited Partnership Agreement, the Managing Partner may make cash advances to the Partnership as necessary in order to avoid a cash flow deficit. Such advances bear interest at 1% above the rate being charged the Partnership under the mortgage loan (see Borrowing Arrangements). Partner Advances totaled $1,018,000 and $536,000 at December 31, 2001 and 2000, respectively. Interest expense on the advances at 9.57% totaled $54,000 and $34,000 for 2001 and 2000, respectively. The Partnership does not have any employees. As such, ML&P provides all on-site and administrative personnel and also incurs other costs and expenses, primarily insurance, which are reimbursable by the Partnership. In 2001, 2000 and 1999, ML&P charged the Partnership $2,634,000, $2,637,000, and $2,417,000, respectively, for payroll and other costs and expenses. ML&P generates the majority of the electricity that is used by the Center. In 2001, 2000 and 1999, ML&P charged the Partnership $2,952,000, $3,049,000 and $2,263,000, respectively, for electricity. Amounts due to ML&P for management fees, electricity, Partner Advances, and reimbursable costs were $1,667,000 and $1,216,000 as of December 31, 2001 and 2000, respectively. 5. OTHER ASSETS Other assets at December 31, 2001 and 2000 consisted of the following: 2001 2000 Deferred costs $435,033 $582,010 Noncurrent accounts receivable 839,194 1,128,121 Total other assets $1,274,227 $1,710,131 Deferred costs are primarily leasing consultation costs and are net of accumulated amortization of $1,130,000 and $983,000, respectively, at December 31, 2001 and 2000. Noncurrent accounts receivable represents the excess of minimum rental income recognized on a straight-line basis, over the life of the lease, over amounts receivable according to the provisions of the lease, after deducting an estimated amount for amounts not recoverable. 6. BORROWING ARRANGEMENTS The Partnership has a mortgage loan which bears interest at 8.57% and is payable in monthly installments of $526,000, including interest, through 2005 when the entire balance is payable. The loan is collateralized by the Center and is nonrecourse except for the first $10 million, which is guaranteed by ML&P until the Center attains a defined level of net operating income. Scheduled principal maturities for the next four years from 2002 through 2005 are as follows: $1,228,000, $1,339,000, $1,446,000, and $55,126,000, respectively. 7. LEASES Tenant leases of the Center provide for monthly base rent plus percentage rents and reimbursement for common area maintenance and other costs. Future minimum rental income to be received under non-cancelable operating leases aggregates $44,213,000 and is receivable during the next five years (2002 through 2006) as follows: $5,975,000, $5,764,000, $5,024,000, $3,666,000, $2,980,000, respectively, and $20,804,000 thereafter. 8. CONTINGENCIES AND COMMITMENTS The Partnership had commitments under signed contracts totaling $305,000 at December 31, 2001. ****** EX-99 8 kcgauditreport.txt 2001 KAPALUA COCONUT GROVE FINANCIAL STATEMENTS Kapalua Coconut Grove LLC Financial Statements for the Years Ended December 31, 2001, 2000 and 1999 and Independent Accountants' Report INDEPENDENT ACCOUNTANTS' REPORT To the Owners of Kapalua Coconut Grove LLC: We have audited the accompanying statement of financial position of Kapalua Coconut Grove LLC as of December 31, 2001, and the related statements of operations, changes in members' equity, and cash flows for the year then ended. 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Kapalua Coconut Grove LLC at December 31, 2001, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying statement of financial position of Kapalua Coconut Grove LLC as of December 31, 2000, and the related statements of operations, changes in members' equity, and cash flows for each of the two years in the period ended December 31, 2000 were not audited by us and, accordingly, we do not express an opinion on them. /S/DELOITTE & TOUCHE LLP Honolulu, Hawaii February 12, 2002 KAPALUA COCONUT GROVE LLC STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2001 AND 2000 ASSETS 2001 2000 (Unaudited) CASH AND CASH EQUIVALENTS $1,559,250 $ 24,691 ACCOUNTS RECEIVABLE 237,141 WORK IN PROGRESS 35,405,234 TOTAL $1,559,250 $35,667,066 LIABILITIES AND MEMBERS' EQUITY 2001 2000 (Unaudited) LIABILITIES: Customer deposits $14,617,028 Notes payable 3,313,865 Accounts payable and accrued liabilities $ 787,113 5,320,618 Contractors' retention payable 753,243 1,682,981 Total liabilities 1,540,356 24,934,492 MEMBERS' EQUITY 18,894 10,732,574 TOTAL $1,559,250 $35,667,066 See notes to financial statements. KAPALUA COCONUT GROVE LLC STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 2001 2000 1999 (Unaudited) (Unaudited) REVENUES: Real estate sales $70,250,191 Other 15,222 $ 237,236 $ 4,532 Total revenues 70,265,413 237,236 4,532 COSTS AND EXPENSES: Cost of real estate sales 54,419,251 Selling and marketing 1,756,750 General and administrative 103,092 361,622 349,992 Total costs and expenses 56,279,093 361,622 349,992 NET INCOME (LOSS) $13,986,320 $(124,386) $(345,460) See notes to financial statements. KAPALUA COCONUT GROVE LLC STATEMENTS OF CHANGES IN MEMBERS' EQUITY YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 Kapalua YCP Site Land Co. 29, Inc. Total BALANCE, JANUARY 1, 1999 (Unaudited) $ 5,026,210 $ 5,026,21 $10,052,420 Net loss (172,730) (172,730) (345,460) Cash contributions 575,000 575,000 1,150,000 BALANCE, DECEMBER 31, 1999 (Unaudited) 5,428,480 5,428,480 10,856,960 Net loss (62,193) (62,193) (124,386) BALANCE, DECEMBER 31, 2000 (Unaudited) 5,366,287 5,366,287 10,732,574 Net income 6,993,160 6,993,160 13,986,320 Cash distributions (12,350,000) (12,350,000) (24,700,000) BALANCE, DECEMBER 31, 2001 $ 9,447 $ 9,447 $ 18,894 See notes to financial statements. KAPALUA COCONUT GROVE LLC STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 2001 2000 1999 (Unaudited) (Unaudited) OPERATING ACTIVITIES: Net income (loss) $13,986,320 $(124,386) $(345,460) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Changes in assets and liabilities: Accounts receivable 237,141 (237,141) Work in progress 35,405,234 (23,135,748) (2,439,303) Customer deposits (14,617,028) 14,617,028 Accounts payable, accrued liabilities and retentions payable (5,463,243) 6,133,831 830,644 Net cash provided by (used in) operating activities 29,548,424 (2,746,416) (1,954,119) FINANCING ACTIVITIES: Repayments on notes payable (33,889,817) Borrowings on notes payable 30,575,952 2,747,711 566,155 Contributions from owners 1,150,000 Distributions to owners (24,700,000) Net cash provided by (used in) financing activities (28,013,865) 2,747,711 1,716,155 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,534,559 1,295 (237,964) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 24,691 23,396 261,360 CASH AND CASH EQUIVALENTS, END OF YEAR $1,559,250 $ 24,691 $ 23,396 See notes to financial statements. KAPALUA COCONUT GROVE LLC NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2001, 2000 (UNAUDITED) AND 1999 (UNAUDITED) 1. ORGANIZATION Kapalua Coconut Grove LLC ("KCG") is a Hawaii limited liability company whose members are Kapalua Land Company, Ltd., a subsidiary of Maui Land & Pineapple Company, Inc., and YCP Site 29, Inc. KCG was formed in June 1997 to own, develop, and sell luxury condominiums on the 12-acre parcel of beachfront property adjacent to the Kapalua Bay Hotel. Each member has a 50% interest in KCG. Kapalua Land Company, Ltd. previously owned the land and sold 50% of the parcel at fair market value to YCP Site 29, Inc. Each member contributed to the company its 50% interest in the land parcel for a total of $9.0 million and $1.1 million in cash. Neither member is personally liable for any debt, obligation or liability of KCG. The KCG operating agreement expires on December 31, 2095, unless sooner dissolved as allowed for in the agreement. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents - KCG considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Work in Progress - Work in progress is stated at the lower of cost or fair value, and includes all direct and indirect development costs and interest charges. Income Taxes - The net income of KCG for federal and state income tax purposes is reported by the members in their separate tax returns; accordingly, the KCG financial statements do not include any provision for income taxes. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Actual amounts could differ from those estimates. 3. WORK IN PROGRESS Work in progress as of December 31, 2000 consisted of: Site construction $22,086,000 Land 9,000,000 Project management and administration 1,997,000 Design, engineering, and planning 1,440,000 Financing 464,000 Marketing 418,000 Total $35,405,000 4. NOTES PAYABLE The $33,000,000 revolving construction loan was collateralized by the land and improvements, and interest was at the bank's base rate. At December 31, 2000, the balance outstanding was $3,314,000, and the notes were paid in full during 2001. 5. REAL ESTATE SALES Presales of the 36 luxury, residential condominiums constructed on the parcel began in 1999 and construction of all units were completed during the year ended December 31, 2001. As of December 31, 2001, sales of all units have been closed, title has been delivered to the buyers, and proceeds have been received by KCG. 6. COST OF REAL ESTATE SALES Cost of real estate sales for the year ended December 31, 2001 includes all costs related to the project as follows: Site construction $39,447,000 Land 9,000,000 Project management and administration 2,692,000 Design, engineering, and planning 1,496,000 Financing 1,103,000 Marketing 681,000 Total $54,419,000 7. RELATED PARTY TRANSACTIONS Kapalua Land Company, Ltd. was the managing member of KCG and provided services at $10,000 per month from July 1997 through June 2001, which was capitalized to the project. Kapalua Realty Company, Ltd., an affiliate of Kapalua Land Company, Ltd., provided real estate services and was paid $1,334,000 in sales commissions for the year ended December 31, 2001. Such amounts have been included in selling and marketing expenses in the statements of operations. ****** -----END PRIVACY-ENHANCED MESSAGE-----