-----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, B4AA/otUR5kl8lalsp3jeA7wHpmG8/OI/cPVOsw3rY9dGEtRrh1ZmyN8N4bn3PNs AUJqyLEj2z9drd8i1XV72w== 0000063330-03-000002.txt : 20030326 0000063330-03-000002.hdr.sgml : 20030325 20030326145853 ACCESSION NUMBER: 0000063330-03-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030326 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: 03618073 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 form10k02.txt 2002 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, 2002 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, American Stock Exchange without Par Value 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. [X] The aggregate market value, as of June 28, 2002, of the voting stock held by non-affiliates of the registrant was $34,070,000. This computation assumes that all directors, executive officers and persons known to the Company to be the beneficial owners of more than ten percent of the Company's common stock are affiliates. Such assumption should not be deemed conclusive for any other purpose. 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 7, 2003 Common Stock, no par value 7,195,800 shares Documents incorporated by reference: Parts I, II and IV -- Portions of the 2002 Annual Report to Security Holders. Part III - Portions of Proxy Statement dated March 31, 2003. Exhibit Index--pages 18 to 21 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, pineapple juice products and fresh whole and fresh cut pineapple products. (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 and water asset management activities. (b) Financial Information About Segments The information set forth under Note 13 to Consolidated Financial Statements on page 18 of the Maui Land & Pineapple Company, Inc. 2002 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, Upcountry Maui and West Maui, which provided approximately 92% of the fruit processed in 2002. 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. In 2002, approximately 33% of production volume took 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, the United States government 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 from Hawaii to retail and wholesale grocers in Hawaii and the continental United States. Research to develop new fresh cut and other fresh and processed pineapple products is ongoing. The Company has 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 ship its fresh cut product by ocean vessel in refrigerated containers and set up local warehouse programs, thereby facilitating distribution to retailers. The Company sells pineapple juice and pineapple juice blended with orange juice in plastic polyethyleneteraphthalate (PET) bottles in various sizes to large grocery chains in the continental U.S. The pineapple juice ingredients are shipped in bulk from the Company's cannery on Maui to co-packers on the mainland that bottle the juice to the Company's specifications. 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. In 2002, approximately 20 U.S. customers accounted for about 69% of the Company's pineapple sales from Hawaii. Export sales, primarily to Japan, Canada and Western Europe, amounted to approximately 2.7%, 2.1% and 3.3% of the Company's pineapple sales from Hawaii in 2002, 2001 and 2000, respectively. Sales to the United States government, mainly the Department of Agriculture, amounted to approximately 16.5%, 19.2% and 12.3% of total pineapple sales in 2002, 2001 and 2000, respectively. The Company's pineapple sales office is in Concord, California. Royal Coast Tropical Fruit Company, Inc. (a wholly owned subsidiary of Maui Pineapple Company, Ltd.) markets pineapple products produced outside of the state of Hawaii. Premium Tropicals International LLC, a joint venture between Royal Coast Tropical Fruit Company, Inc. and an Indonesian pineapple grower and canner, markets and sells Indonesian canned pineapple in the United States. Royal Coast Tropical Fruit Company, Inc. has a 51% ownership in a 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 pineapple from the Central American subsidiary began in the fourth quarter of 2000. 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 fresh and 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 of the 1,650 acres are presently undeveloped of which approximately 40 acres are zoned and entitled for resort development. 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 benefits and privileges within the Resort for its members. Pineapple Hill Estates is a 31 half-acre custom lot subdivision in the Kapalua Resort. Substantially all of the lots were sold at the end of 2002. The Coconut Grove on Kapalua Bay, 36 luxury beachfront condominiums, were completed and sold in 2001. This project was developed on the 12-acre parcel adjacent to the Kapalua Bay Hotel by Kapalua Coconut Grove LLC, a 50/50 joint venture between the Company and YCP Site 29, Inc., a subsidiary of Lend Lease Corporation Limited, of Australia. In 2000, the Kapalua Golf Academy, the Hale Irwin-designed Village Course practice facility and the Village Clubhouse opened for business. 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. Design and entitlement work continue for the Central Resort master plan. 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 of the Resort's Village Golf Course, development of up to 690 single and multifamily residential units, and commercial components. Estimating the timing of obtaining the necessary land use entitlement is difficult and it may be several years before construction could start and product is available for sale. Completion of this development could take 10 to 15 years. 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 2002, approximately 9% of the visitors to Maui were international travelers and 91% 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 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, 2002, 135 tenants occupied 98% 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, 2002, 22 tenants occupied 79% of the GLA. Napili Plaza faces competition from several retail locations in the Napili area, which have approximately 231,000 square feet of GLA. The Company's land entitlement and land and asset 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 2002, the Company employed approximately 1,870 employees. Pineapple operations employed approximately 500 full-time and approximately 780 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 11% 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 $1,004,000 in 2002, $1,073,000 in 2001 and $984,000 in 2000. 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 14 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 expects to remediate certain soils on a Company- owned development parcel that contain pesticide residues, as described in Note 14 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 Geographic Areas Revenues and long-lived assets attributable to foreign countries were not material for the last three years. 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 2003 or at such time as their successors are elected. Gary L. Gifford (55) President and Chief Executive Officer since 1995. Mr. Gifford has announced his retirement effective May 27, 2003. Paul J. Meyer (55) Executive Vice President/Finance since 1984 Douglas R. Schenk (50) Executive Vice President/Pineapple since 1995 Donald A. Young (55) Executive Vice President/Resort & Commercial Property since 2001; Executive Vice President/Resort since 1995 J. Susan Corley (59) 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 (47) Vice President/Retail Property since 1995 Robert M. McNatt (56) Vice President/Land Planning & Development since 2001; Vice President/Development of Kapalua Land Company since 1996 Warren A. Suzuki (50) 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 $4,513,000 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 (Upcountry) 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 3,000 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 $573,000 in 2002. The Company's 51% owned subsidiary owns approximately 2,500 acres and leases approximately 235 acres of land in Costa Rica, which is used for pineapple production. The 2,500 acres secures the subsidiary's $1.3 million non-revolving term loan. 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" (registered) label and is marketed by Del Monte Fresh as "Del Monte Gold - Extra-Sweet Pineapple" (registered). 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 trial date has been set for June 16, 2003. 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. In November 2002, the parties to this lawsuit agreed to resolve all disputes and fully settle and compromise the claims related to the Company's allegations that Del Monte's use of the names "Del Monte Hawaiian Gold," "Del Monte Hawaii Gold," and "Del Monte Gold" infringed upon the Company's HAWAIIAN GOLD trademarks and a settlement agreement is in the process of being finalized. 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. On January 31, 2003, Del Monte Fresh Produce N.A., Inc, filed a motion to dismiss its patent counterclaim with prejudice stating that its patent is not valid. The motion is set for hearing on April 4, 2003. 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. 2002 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. 2002 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. 2002 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. 2002 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. 2002 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 "Section 16(a) Beneficial Ownership Reporting Compliance" and "Election of Directors" through the subcaption "Certain Transactions" on pages 7 through 8 of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 31, 2003, 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 31, 2003, 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 7 of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 31,2003, 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 31, 2003, is incorporated herein by reference. Item 14. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. Within the 90-day period prior to the date of this report, the Company's principal executive officer and principal financial officer evaluated the effectiveness of the Company's disclosure controls and procedures. Based on this evaluation, it was concluded that the Company's disclosure controls and procedures are effective in timely identifying material information that should be disclosed in this report. (b) Changes in internal controls. There have been no changes in the Company's internal controls or other factors that could significantly affect the Company's disclosure controls and procedures subsequent to the date the evaluation was undertaken. PART IV Item 15. 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, 2002 and 2001 Consolidated Statements of Operations and Retained Earnings for the Years Ended December 31, 2002, 2001 and 2000 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2002, 2001 and 2000 Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000 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, 2002, 2001 and 2000. (a) 3. Exhibits Exhibits are listed in the "Index to Exhibits" found on pages 18 to 21 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, 2002, 2001 and 2000 are filed as exhibit 99.1. 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, 2002 and 2001 and for each of the three years in the period ended December 31, 2002, and have issued our report thereon, dated February 14, 2003. Such consolidated financial statements and report are included in your 2002 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 15(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 14, 2003 SCHEDULE II MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 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 2002 $ 706 $ 112 $ 5 $(171) $ 652 2001 1,043 245 6 (588) 706 2000 793 465 -- (215) 1,043 (a) Recoveries. (b) Write off of uncollectible accounts. 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 26, 2003 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 26, 2003 Richard H. Cameron Chairman of the Board By /S/ PAUL J. MEYER Date MARCH 26, 2003 Paul J. Meyer Executive Vice President/Finance (Principal Financial Officer) By /S/ ADELE H. SUMIDA Date MARCH 26, 2003 Adele H. Sumida Controller & Secretary (Principal Accounting Officer) By /S/ JOHN H. AGEE Date MARCH 26, 2003 John H. Agee Director By /S/ DAVID A. HEENAN Date MARCH 26, 2003 David A. Heenan Director By /S/ RANDOLPH G. MOORE Date MARCH 26, 2003 Randolph G. Moore Director By /S/ CLAIRE C. SANFORD Date MARCH 26, 2003 Claire C. Sanford Director By /S/ FRED E. TROTTER III Date MARCH 26, 2003 Fred E. Trotter III Director CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Paul J. Meyer, certify that: 1. I have reviewed this annual report on Form 10-K of Maui Land & Pineapple Company, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d- 14 ) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: MARCH 26, 2003 /S/ PAUL J. MEYER Name: Paul J. Meyer Title: Executive Vice President/Finance CERTIFICATION I, Gary L. Gifford, certify that: 1. I have reviewed this annual report on Form 10-K of Maui Land & Pineapple Company, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d- 14 ) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: MARCH 26, 2003 /S/ GARY L. GIFFORD Name: Gary L. Gifford Title: President & Chief Executive Officer 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. Exhibit 4.1(vi) to Form 10-K for the year ended December 31, 2001. (vii) Amended and Third Restated Revolving Credit and Term Loan Agreement, dated as of December 31, 2001. Exhibit 4.1(vii) for Form 10-K for the year ended December 31, 2001. (viii)* Loan Modification Agreement (December 2002), effective as of December 31, 2002. (ix)* Second Loan Modification Agreement, dated March 21, 2003 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. Exhibit 4.2(iii) to Form 10-K for the year ended December 31, 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. Exhibit 4.2(v) for Form 10-K for the year ended December 31, 2001. (vi)* Fifth Amendment to Term Loan Agreement, entered into on March 18, 2003, and effective as of December 31, 2002. 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. (ix)* Amendment No. 2 to Limited Partnership Agreement of Kaahumanu Center Associates, dated December 30, 2002. Portions of the exhibit filed herewith have been omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Exchange Act. 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. Exhibit 10.2(i) to Form 10-K for the year ended December 31, 2000. 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) Supplemental Executive Retirement Plan (effective as of January 1, 1988). Exhibit (10)B to Form 10-K for the year ended December 31, 1988. (iii) 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. (iv) 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. (v) 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. (vi) 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. (vii) 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. (viii) 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. (ix) 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.). Exhibit 10.5(i) to Form 10-K for the year ended December 31, 1999. 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. 2002 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, 2002, 2001 and 2000. 99.2* Certification of Paul J. Meyer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 99.3* Certification of Gary L. Gifford Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 EX-4 3 mlprtl1202.txt LOAN MODIFICATION AGREEMENT (DECEMBER 2002) LOAN MODIFICATION AGREEMENT (December 2002) THIS LOAN MODIFICATION AGREEMENT is made as of December 31, 2002 (the "Effective Date"), by and among MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation, hereinafter called the "Borrower", and BANK OF HAWAII, a Hawaii banking corporation ("BOH"), FIRST HAWAIIAN BANK, a Hawaii banking corporation ("FHB"), CENTRAL PACIFIC BANK, a Hawaii banking corporation ("CPB"), and 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 are 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 (in such capacity, the "Agent"), and KAPALUA LAND COMPANY, LTD., a Hawaii corporation (the "Accommodation Party"). Recitals: A. The Lenders (i) have made available to the Borrower Revolving Loans in the aggregate principal amount of up to $25,000,000 at any one time outstanding, and (ii) shall make available to the Borrower Term Loans in an amount up to the aggregate principal amount of the Revolving Loans outstanding upon expiration of the Revolving Loan Period, but not to exceed $15,000,000, all as more particularly described in that certain Amended and Third Restated Revolving Credit and Term Loan Agreement dated December 31, 2001, made by and among the Borrower, Lenders and Agent (the "Loan Agreement"). B. Capitalized terms used, but not defined in this Agreement, shall have the meanings given them in the Loan Agreement. C. The performance of the Borrower under the Loan Documents is secured by the following (as amended and confirmed, collectively, the "Mortgages") made in favor of the Lenders: (1) Mortgage and Security Agreement dated March 1, 1993, made by the Borrower, as Mortgagor, recorded in the Bureau of Conveyances of the State of Hawaii (the "Bureau") as Document No. 93-036896; (2) Mortgage and Security Agreement dated March 1, 1993, made by the Borrower, as Mortgagor, recorded in the Bureau as Document No. 93-036898; and (3) Additional Security Mortgage and Security Agreement dated March 1, 1993, made by the Accommodation Party, recorded in the Bureau as Document No. 93-036900. D. The Borrower has requested certain modifications of the Loan Documents and the Lenders are willing to agree to such modifications under the terms and conditions of this Agreement. Agreements: NOW, THEREFORE, in consideration of the premises, the mutual covenants set forth herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby agree as follows: 1. Amendments to the Loan Agreement: The Loan Agreement is amended as follows: (a) Section 9.17 is amended to read in its entirety as follows: 9.17 Expiry Date means December 31, 2004. (b) Section 9.36 is amended to read in its entirety as follows: 9.36 Maturity Date means December 31, 2007. (c) In Section 1.6, the grid setting forth the Applicable Margin based on the Borrower's Recourse Debt to Net Worth ratio is amended in its entirety to read as follows: Recourse Debt/ Applicable Margin Applicable Margin Net Worth for Revolving Loans for Term Loans Less than or equal 1.50 percentage 1.75 percentage 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 0.75 Greater than 0.75 2.50 percentage 2.75 percentage but less than or points points equal to 0.90 Greater than 0.90 2.75 percentage 3.00 percentage points points (d) Notwithstanding anything to the contrary contained in the Loan Documents, in the event of the sale of any of the Borrower's real estate, other than the Collateral and the lots in the Kapua Village Employee Subdivision, the Aggregate Loan Commitment shall be reduced by an amount equal to 50% of the net cash proceeds received by the Borrower from such sale, provided, however, that the Aggregate Loan Commitment shall not be less than $20,000,000. As used herein "net cash proceeds" shall mean an amount equal to the gross sales price, as and when received, less customary real estate broker's commissions and seller's normal closing costs. (e) Section 5.10(a) is amended so that the Debt Service Coverage Ratio shall be not less than 1.10 for the fiscal year 2003 and shall be not less than 1.20 thereafter. (f) Section 5.10(c) is amended to allow a one-time adjustment which will reduce the Borrower's minimum Net Worth requirement by the non-cash component related to the Borrower's fiscal year 2002 write-down of its pension plan asset in an amount not to exceed $4,150,000. (g) The Borrower's negative covenant in Section 6.5 is amended to read in its entirety as follows: 6.5 Capital Expenditures. Make any Capital Expenditure in excess of $12,000,000 in a fiscal year. However, for the fiscal year 2003, subject to the Agent's satisfactory review of (i) projected monthly financial statements for such fiscal year, which shall be supplied by the Borrower to the Agent no later than January 31, 2003 and which shall be in line with the financial performance indicated in the Borrower's Long Range Plan dated October 2002, and (ii) the Borrower's financial reporting submission for the quarter ended 6/30/03, if the Borrower's financial performance in terms of net income and cash flow (A) through the first 6 months of the year remains in line with the projected performance for that period; and (B) the Borrower remains on track to meet its Long Range Plan forecast for the full year, the Capital Expenditure limitation will be increased to $19,730,000. If, however, following that increase, it is determined that the Borrower will not meet its original forecast, the Borrower must provide written notification of such to the Agent within 24 hours of such determination and further Capital Expenditures exceeding $12,000,000 for fiscal year 2003 shall be subject to the approval of the Lenders. 2. Amendment Fee and Costs: In consideration of, and as a condition to, the amendments herein contained, the Borrower shall pay the Agent, on demand, for distribution to the Lenders on a pro rata basis, a $25,000 amendment fee. The Borrower shall also promptly reimburse the Agent for all costs and expenses, including reasonable attorney's fees, incurred by the Agent in connection with this transaction. 3. Modification: This Agreement is a modification only and not a novation. In all other respects, the terms and conditions of the Loan Documents, as hereby modified, are hereby ratified and confirmed and shall remain in full force and effect. 4. Reaffirmation and Enlargement: The Borrower confirms and reaffirms all of its representations, warranties and covenants in the Loan Documents. 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. All references in the Loan Documents to the Loan Agreement are hereby enlarged and expanded to mean and include the Loan Agreement as hereby modified. 5. Mortgagors: The Borrower and the Accommodation Party confirm the grant, pledge and mortgage of the properties encumbered by the Mortgages, as and for continuing security for the obligations of the Borrower under the Loan Documents. The Borrower and the Accommodation Party warrant that the properties encumbered by the Mortgages are subject to no liens or encumbrances other than those set forth in the Mortgages. 6. No Offsets: The Borrower and the 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 the 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. 7. Successors and Assigns: This Agreement is binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns. 8. Counterparts: This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same document, 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 Loan Modification Agreement as of the Effective Date. MAUI LAND & PINEAPPLE COMPANY, BANK OF HAWAII, individually INC. and as Agent By /S/ PAUL J MEYER By /S/ JAMES C. POLK Name: Paul J. Meyer Name: James C. Polk Title: Executive Vice/ Title: Senior Vice President President/Finance By /S/ JOHN KREAG Name: John Kreag FIRST HAWAIIAN BANK Title: Treasurer Borrower By /S/ NEILL CHAR Name: Neill Char Title: Vice President KAPALUA LAND COMPANY, LTD. By /S/ PAUL J MEYER CENTRAL PACIFIC BANK Name: Paul J. Meyer Title: Executive Vice/ President/Finance By /S/ ROBERT D. MURAKAMI Name: Robert D. Murakami By /S/ JOHN KREAG Title: Vice President Name: John Kreag Title: Treasurer Accommodation Party AMERICAN AGCREDIT, PCA By /S/ GARY VAN SCHUYVER Name: Gary Van Schuyver Title: Vice President Lenders EX-4 4 rtl303mod.txt SECOND LOAN MODIFICATION AGREEMENT DATED MARCH 21, 2003 SECOND LOAN MODIFICATION AGREEMENT (March 2003) THIS SECOND LOAN MODIFICATION AGREEMENT is dated as of March 21, 2003, by and among MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation, hereinafter called the "Borrower", and BANK OF HAWAII, a Hawaii banking corporation ("BOH"), FIRST HAWAIIAN BANK, a Hawaii banking corporation ("FHB"), CENTRAL PACIFIC BANK, a Hawaii banking corporation ("CPB"), and 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 are 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 (in such capacity, the "Agent"), and KAPALUA LAND COMPANY, LTD., a Hawaii corporation (the "Accommodation Party"). Recitals: A. The Lenders (i) have made available to the Borrower Revolving Loans in the aggregate principal amount of up to $25,000,000 at any one time outstanding, and (ii) shall make available to the Borrower Term Loans in an amount up to the aggregate principal amount of the Revolving Loans outstanding upon expiration of the Revolving Loan Period, but not to exceed $15,000,000, all as more particularly described in that certain Amended and Third Restated Revolving Credit and Term Loan Agreement dated December 31, 2001, made by and among the Borrower, Lenders and Agent, as amended by that certain Loan Modification Agreement (the "First Modification") effective as of December 31, 2002 (as amended, the "Loan Agreement"). B. Capitalized terms used, but not defined in this Agreement, shall have the meanings given them in the Loan Agreement. C. The performance of the Borrower under the Loan Documents is secured by the following (as amended and confirmed, collectively, the "Mortgages") made in favor of the Lenders: (1) Mortgage and Security Agreement dated March 1, 1993, made by the Borrower, as Mortgagor, recorded in the Bureau of Conveyances of the State of Hawaii (the "Bureau") as Document No. 93-036896; (2) Mortgage and Security Agreement dated March 1, 1993, made by the Borrower, as Mortgagor, recorded in the Bureau as Document No. 93-036898; and (3) Additional Security Mortgage and Security Agreement dated March 1, 1993, made by the Accommodation Party, recorded in the Bureau as Document No. 93-036900. D. The Borrower has requested certain modifications of the Loan Documents and the Lenders are willing to agree to such modifications under the terms and conditions of this Agreement. Agreements: NOW, THEREFORE, in consideration of the premises, the mutual covenants set forth herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby agree as follows: 1. Amendments to the Loan Agreement: The Loan Agreement is amended as follows: (a) Effective as of the date of this Agreement, Section 1.6(a)(1) relating to the Base Rate of interest is amended to read in its entirety as follows: (1) The Base Rate in effect from time to time plus 0.25%; or (b) Effective as of the date of this Agreement, in Section 1.6, the grid setting forth the Applicable Margin based on the Borrower's Recourse Debt to Net Worth ratio is amended in its entirety to read as follows: Recourse Debt/ Applicable Margin Applicable Margin Net Worth for for Revolving Loans Term Loans Less than or equal 1.75 percentage 2.00 percentage to 0.20 points points Greater than 0.20 2.00 percentage 2.25 percentage but less than or points points equal to 0.40 Greater than 0.40 2.25 percentage 2.50 percentage but less than or points points equal to 0.60 Greater than 0.60 2.50 percentage 2.75 percentage but less than or points points equal to 0.75 Greater than 0.75 2.75 percentage 3.00 percentage but less than or points points equal to 0.90 Greater than 0.90 3.00 percentage 3.25 percentage points points (c) Effective as of December 31, 2002, Section 5.10(a) is amended to read in its entirety as follows: (a) Debt Service Coverage Ratio of (i) not less than 1.10, to be measured at December 31, 2003 for the twelve months preceding such date and (ii) not less than 1.20 thereafter, to be measured quarterly. There shall be no Debt Service Coverage Ratio requirement for the period from December 31, 2002 through September 30, 2003. (d) Effective as of December 31, 2002, Section 5.10(c) is amended to read in its entirety as follows: (c) A Net Worth of not less than $60,000,000.00, plus 50% of cumulative Net Profits (but not net losses) after December 31, 2002; provided, however, that in the event of the Borrower's sale of its investment in Kaahumanu Center Associates ("KCA") or in KCA's sale of the Kaahumanu Center, Net Worth shall be adjusted upward by the amount of the net after tax gain to the Borrower from the sale, so that such sale will have no impact on the difference between the then current Net Worth requirement and the increase in the actual Net Worth resulting from such sale. (e) Effective as of December 31, 2002, the Borrower's negative covenant in Section 6.5 is amended to read in its entirety as follows: 6.5 Capital Expenditures. Make any Capital Expenditures in excess of $10,700,000 in fiscal year 2003 and $12,000,000 in any fiscal year thereafter. (f) Notwithstanding anything to the contrary contained in the First Modification, in the event of the sale of the Kaahumanu Center, the Aggregate Loan Commitment shall be reduced by an amount equal to 50% of the net cash proceeds received by the Borrower from such sale, which are in excess of $3,500,000; provided, however, that the Aggregate Loan Commitment shall not be less than $20,000,000. 2. Amendment Fee and Costs: In consideration of, and as a condition to, the amendments herein contained, the Borrower shall pay the Agent, on demand, for distribution to the Lenders on a pro rata basis, a $37,500 amendment fee. The Borrower shall also promptly reimburse the Agent for all costs and expenses, including reasonable attorney's fees, incurred by the Agent in connection with this transaction. 3. Modification; Conflict: This Agreement is a modification only and not a novation. In all other respects, the terms and conditions of the Loan Documents, as hereby modified, are hereby ratified and confirmed and shall remain in full force and effect. If there is any conflict between the terms of this Agreement and the terms of the First Modification, the terms of this Agreement shall control. 4. Reaffirmation and Enlargement: The Borrower confirms and reaffirms all of its representations, warranties and covenants in the Loan Documents. 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. All references in the Loan Documents to the Loan Agreement are hereby enlarged and expanded to mean and include the Loan Agreement as hereby modified. 5. Mortgagors: The Borrower and the Accommodation Party confirm the grant, pledge and mortgage of the properties encumbered by the Mortgages, as and for continuing security for the obligations of the Borrower under the Loan Documents. The Borrower and the Accommodation Party warrant that the properties encumbered by the Mortgages are subject to no liens or encumbrances other than those set forth in the Mortgages. 6. No Offsets: The Borrower and the 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 the 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. 7. Successors and Assigns: This Agreement is binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns. 8. Counterparts: This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same document, 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. [The following page is the signature page.] To signify their agreement, the parties have executed this Second Loan Modification Agreement as of the date above written. MAUI LAND & PINEAPPLE BANK OF HAWAII, individually COMPANY, INC. and as Agent By /S/ PAUL J. MEYER By /S/ DOUG SPOTTSWOOD Name: Paul J. Meyer Name: Doug Spottswood Title: Executive Vice Title: Assistant Vice President/Finance President By /S/ ADELE H. SUMIDA Name: Adele H. Sumida FIRST HAWAIIAN BANK Title: Secretary Borrower By /S/ ALAN H. ARIZUMI Name: Alan H. Arizumi Title: Vice President KAPALUA LAND COMPANY, LTD. CENTRAL PACIFIC BANK By /S/ PAUL J. MEYER Name: Paul J. Meyer Title: Executive Vice By /S/ ROBERT D. MURAKAMI President/Finance Name: Robert D. Murakami Title: Vice President By /S/ ADELE H. SUMIDA Name: Adele H. Sumida Title: Secretary AMERICAN AGCREDIT, PCA Accommodation Party By /S/ GARY VAN SCHUYVER Name: Gary Van Schuyver Title: Vice President Lenders EX-4 5 pcfcsamend.txt FIFTH AMENDMENT TO TERM LOAN AGREEMENT DATED MARCH 18, 2003 FIFTH AMENDMENT TO TERM LOAN AGREEMENT This Amendment to Term Loan Agreement ("Amendment") is entered into this 18th day of March, 2003, and is effective as of December 31, 2002, by and between American AgCredit, FLCA successor in interest to Pacific Coast Farm Credit Services, ACA ("Lender") and Maui Land & Pineapple Company, Inc., a Hawaii corporation (the "Borrower"). RECITALS A. Borrower and Lender executed a Term Loan Agreement dated June 1, 1999 ( the "Agreement") which was amended on February 16, 2000, May 16, 2000, March 23, 2001 and December 31, 2001. B. Borrower and Lender now wish to amend the Agreement to revise the provisions relating to the Debt Coverage Ratio, Tangible Net Worth, Capital Expenditures and Base Rate determination. ACCORDINGLY THE PARTIES AGREE AS FOLLOWS: 1. Definitions; References; Interpretation. (a) Unless otherwise specifically defined herein, each term used herein (including the Recitals hereof) which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. (b) Each reference to "this Amendment", "hereof", "hereunder", "herein" and "hereby" and each other similar reference contained in the Agreement and each reference to "the Agreement" or "the Term Loan Agreement" and each other similar reference in the other Loan Documents, shall from and after the date of this Amendment refer to the Agreement as amended hereby. (c) The rules of interpretation set forth in Section 1(b) of the Agreement shall be applicable to this Amendment. 2. Amendment to Term Loan Agreement. Subject to the terms and conditions hereof, the Agreement is amended as follows: (a) The grid setting forth the Applicable Spread in Section 4(c)(2) of the Agreement shall be amended and restated as follows: "Consolidated Funded Debt/ Applicable Spread Consolidated EBITDA Tier Ratio 6 Month 1 Year 3 Year 1 > 2.75:1 3.00% 3.00% 3.05% 2 <=2.75:1>=2.25:1 2.85% 2.85% 2.90% 3 < 2.25:1 2.70% 2.70% 2.75% (b) Section 12(e) shall be and is hereby amended by decreasing the amount of Capital Expenditures allowed in 2003 to $10,700,000.00 and decreasing Capital Expenditures in all future years to an amount not to exceed $12,000,000.00 in any such year. (c) Section 12(i)(1) shall be amended and restated to read as follows: "(1) Minimum Tangible Net Worth. Borrower shall not permit its Consolidated Tangible Net Worth, as of the last day of each Fiscal Quarter, commencing with the Fiscal Quarter ending March 31, 2002, to be less than the sum of (i) Fifty Six Million Dollars ($56,000,000.00), plus (ii) fifty percent (50%) of the aggregate amount of Borrower's Consolidated Net Income, to the extent positive, for Fiscal Year 2003 and each Fiscal Year thereafter (on a cumulative basis). In the event of the Borrower's sale of its interest in the KCA Partnership, or the KCA Partnership's sale of the Queen Kaahumanu Center, the Borrower's Minimum Tangible Net Worth shall be adjusted upward by the amount of the net after tax gain such that the sale will have no impact on the difference between the then current Consolidated Tangible Net Worth requirement and the increase in actual Consolidated Tangible Net Worth resulting from such sale." (d) Section 12(i)(3) shall be amended and restated to read as follows: "(3) Debt Coverage Ratio. Borrower shall not permit its Consolidated Debt Coverage Ratio to be less than .69 to 1.00 for the Fiscal Year ending December 31, 2002, and 1.10 to 1.00 for the Fiscal Year ending December 31, 2003. Commencing with the Fiscal Year ending December 31, 2004 and continuing for each Fiscal Year thereafter through the Term Loan Maturity Date, Borrower shall not permit the Consolidated Debt Coverage Ratio to be less than 1.25 to 1.00. 3. Conditions of Effectiveness. The effectiveness of this Amendment shall be subject to the satisfaction of each of the following conditions precedent: (a) Lender shall have received from Borrower a duly executed original of this Amendment. (b) Borrower shall have paid to Lender an amendment fee in the sum of $22,500.00. 4. Continuing Validity. Except as expressly modified or changed by this Amendment, the terms of the original Agreement and all other related loan documents remain unchanged and in full force and effect. Consent by the Lender to the changes described herein does not waive Lender's right to strict performance of the terms and conditions contained in the Agreement as amended. Nothing in this Amendment will constitute a satisfaction of the Indebtedness. It is the Lender's intention to retain as liable parties all makers, guarantors, endorsers of the original Indebtedness, unless such party is expressly released by Lender in writing. 5. Miscellaneous. (a) The Borrower acknowledges and agrees that the execution and delivery by the Lender of this Amendment shall not be deemed to create a course of dealing or an obligation to execute similar amendments or waivers under the same or similar circumstances in the future. (b) This Amendment shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and assigns. (c) This Amendment shall be governed by and construed in accordance with the laws of the State of California, provided that the Lender shall retain all rights arising under federal law. (d) This Amendment may be executed in counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Lender of a facsimile transmitted document purportedly bearing the signature of the Borrower shall bind the Borrower with the same force and effect as the delivery of a hard copy original. Any failure of the Lender to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Lender. (e) This Amendment contains the entire agreement of the parties hereto with reference to the matters discussed herein. (f) If any term or provision of this Amendment shall be deemed prohibited or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment or the Loan Documents. IN WITNESS WHEREOF the parties have signed this Amendment as of the date first above written. Borrower: MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation By: /S/ PAUL J. MEYER Title: Executive Vice President/Finance By: /S/ GARY L. GIFFORD Title: President Lender: AMERICAN AGCREDIT, FLCA By: /S/ GARY VAN SCHUYVER Title: Vice President EX-10 6 kcaamend2.txt AMENDMENT NO 2 TO LIMITED PARTNERSHIP AGREEMENT OF KAAHUMANU CENTER ASSOCIATES xxxxxxx indicates material that has been omitted pursuant to a request for confidential treatment. Such material has been filed separately with the Securities and Exchange Commission. The omitted material consists of approximately two pages. AMENDMENT NO. 2 TO LIMITED PARTNERSHIP AGREEMENT OF KAAHUMANU CENTER ASSOCIATES THIS AMENDMENT is made this 30th day of December, 2002, between MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation ("MLP") and the EMPLOYEES' RETIREMENT SYSTEM OF THE STATE OF HAWAII, a quasi-governmental agency ("ERS"): WITNESSETH THAT: WHEREAS, MLP and ERS entered into that certain LIMITED PARTNERSHIP AGREEMENT OF KAAHUMANU CENTER ASSOCIATES (as amended, the "L. P. Agreement") dated June 23, 1993, forming a limited partnership ("KCA") to expand, own and operate Kaahumanu Shopping Center ("Center") in Kahului, Maui, Hawaii; and WHEREAS, MLP and ERS entered into that certain AMENDMENT NO. 1 TO LIMITED PARTNERSHIP AGREEMENT OF KAAHUMANU CENTER ASSOCIATES dated April 27, 1995, and have now agreed to further amend the L. P. Agreement; NOW, THEREFORE, in consideration of the premises, the mutual promises, obligations and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, MLP and ERS, intending to be legally bound, do hereby agree as follows: The L. P. Agreement shall be and is hereby amended in the following respects: A. xxxxxxx B. Contribution of Artwork. MLP shall contribute to the Partnership, the artwork (statue and mural) displayed at the Property and owned by MLP without payment of any kind for the cost of such artwork. C. xxxxxxx xxxxxxx indicates material that has been omitted pursuant to a request for confidential treatment. Such material has been filed separately with the Securities and Exchange Commission. The omitted material consists of approximately two pages. D. xxxxxxx E. xxxxxxx F. xxxxxxx G. Expiration. This Amendment shall remain in effect until December 31, 2003, whereupon it shall terminate and be of no further force and effect; xxxxxxx In all other respects the L. P. Agreement shall remain in full force and effect and unchanged except as expressly set forth herein. Capitalized terms herein shall have the meaning set forth in the L. P. Agreement except as otherwise provided herein. Unless expressly modified by this Amendment, the provisions of the L. P. Agreement shall remain unchanged and the provisions hereof shall supplement such unchanged provisions. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized officers and representatives, each on the day and year first above written. MAUI LAND & PINEAPPLE COMPANY, EMPLOYEES' RETIREMENT SYSTEM INC. OF THE STATE OF HAWAII By /S/ DON YOUNG By /S/ DAVID SHIMABUKURO Its Executive Vice President Its Administrator By /S/ PAUL J. MEYER By /S/ DARWIN HAMAMOTO Its Executive Vice President Its Trustee EX-13 7 annrpt2002.txt 2002 ANNUAL REPORT TO SHAREHOLDERS MAUI LAND & PINEAPPLE COMPANY, INC ANNUAL REPORT 2002 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 1,870 people in 2002 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. Front cover: Eke Crater, Pu'u Kukui Preserve. Kapalua Village Course in the foreground. Back cover: Detail of Pu'u Kukui Watershed The Company's Pu'u Kukui Preserve Watershed, the largest private nature preserve in the State of Hawaii, provides an average of 26 million gallons of water per day for the Company's Honolua pineapple plantation, Kapalua Resort and parts of West Maui. 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 Telephone: 808-877-3351 94524-4003 Fax: 808-871-0953 Telephone: 925-798-0240 www.mauiland.com Fax: 925-798-0252 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, South Hackensack, New Jersey Suite 1200 07606-1915 Honolulu, Hawaii Telephone: 800-356-2017 96813-2870 www.melloninvestor.com Telephone: 808-543-0700 MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES FINANCIAL HIGHLIGHTS
2002 2001 2000 (Dollars in Thousands Except Per Share Amounts) REVENUES Pineapple $ 99,153 $ 97,426 $ 85,892 Resort 49,757 70,078 50,262 Commercial & Property 6,520 5,029 5,043 Corporate 35 47 286 Total 155,465 172,580 141,483 NET INCOME (LOSS) (5,709) 7,568 452 NET INCOME (LOSS) PER COMMON SHARE $ (.79) $ 1.05 $ .06 AVERAGE COMMON SHARES OUTSTANDING 7,195,800 7,195,800 7,195,800 TOTAL ASSETS $ 184,195 $ 176,433 $169,951 CURRENT RATIO 1.9 2.1 1.7 LONG-TERM DEBT and CAPITAL LEASES $ 43,252 $ 39,581 $ 41,012 STOCKHOLDERS' EQUITY 62,739 73,419 65,922 STOCKHOLDERS' EQUITY PER COMMON SHARE $ 8.72 $ 10.20 $ 9.16 EMPLOYEES 1,870 1,830 1,890
TO OUR SHAREHOLDERS and EMPLOYEES: 2002 was a very challenging year for the Company, resulting in disappointing financial results and the second largest loss in the history of ML&P. In 2002, the Company had a net loss of $5.7 million, which was a significant decline from the net income of $7.6 million in 2001. Both of the Company's major business segments, Pineapple and Resort, realized a significant decline in 2002 operating results as compared to 2001. Although the Company's third business segment, Commercial & Property, showed improved results in 2002, it still incurred an operating loss for the year. Our Pineapple operations produced a $7.9 million operating loss. The increase in canned pineapple prices that we anticipated early in the year from prices experienced in 2001 did not materialize in 2002. We were unable to take advantage of the strong demand for our Hawaiian Gold (trademark) hybrid pineapple in 2002, partially as a result of not expanding plantings to the extent we were capable of in prior years. Litigation to defend our right to grow certain hybrid pineapple varieties represented a large expense and cash drain in 2002. The West Coast dockworkers dispute in the fourth quarter of 2002 increased the operating loss from Pineapple operations by over $800,000 and limited our ability to ship fresh pineapple products efficiently by ocean transportation. Although the loss from Pineapple operations increased by $4.7 million in 2002, further progress was made in the transition away from dependency on canned pineapple to higher margined non-canned pineapple products. Net sales from non-canned products increased to 30% of pineapple net sales in 2002, from 25% in 2001 and 17% in 2000. Revenues from Pineapple operations for 2002 were $99.2 million or 2% higher than 2001 and our total gross margin increased in 2002. However, increased revenues and gross margins were overshadowed by higher general and administrative expenses, in particular increased charges for professional services, pension, insurance and medical premiums. We expect most of the legal costs will not continue after 2003, but it is more difficult to find an acceptable method to control the rising costs of pension, insurance and medical premiums. In 2003, we have been working closely with a highly regarded consultant to produce a linear optimization model to analyze and develop a product mix optimization plan. We believe this model will facilitate our efforts to reshape pineapple operations. Overall, the Resort division produced a total operating profit of $2.8 million in 2002, compared to an operating profit of $19.8 million in 2001. Our resort operations managed to remain profitable in 2002, although far short of the peak year of 2000 when the resort produced an operating profit from operations (excluding real estate development) of $7.2 million. Recovery for Hawaii's visitor industry from the events of September 11, 2001 has been much slower than expected with continued challenges from a weak U.S. economy, difficult air travel and the threat of a U.S. military conflict. In 2002, Kapalua experienced a sustained decline in resort occupancy and golf play, which are the primary financial drivers for resort operations. In spite of these challenges, we continue to maintain the highest quality of the Kapalua experience and our position as one of the world's finest resort communities. Demand for luxury resort residential property strengthened in 2002. Our development profit, however, was limited due to low inventory of new product compared to 2001 when we closed the sale of all 36-luxury condominiums in the Coconut Grove at Kapalua Bay and 20 of the 31 lots in Pineapple Hill Estates. In 2002, we sold nine of the remaining 11 Pineapple Hill Estates lots and the last two lots at Plantation Estates. We are actively pursuing entitlements for future resort development and anticipate having a new large-lot agricultural subdivision at Kapalua available for sale before the end of 2003. The Commercial & Property division loss was reduced in 2002 to $91,000 from $1.4 million in 2001. Queen Ka'ahumanu Center produced better results in 2002 largely as a result of less tenant turnover. In December 2002, J.C. Penney announced it was closing its store and, after producing very good sales results for Christmas, J.C. Penney vacated the premises at the end of January 2003. Macy's West, Inc. purchased the J.C. Penney leasehold position and building and we anticipate an exciting new store will open by fourth quarter 2003. As of December 31, 2002, the sale of 13 of 45 lots in the long awaited Kapua Village employee subdivision closed escrow and we expect the remaining lots to close in the first half of 2003. In early 2002, the Commercial & Property division recorded the sale of a land parcel in Upcountry Maui, which helped to reduce the 2002 operating loss by $624,000. The Company ended 2002 with a debt level of $50.1 million or $6.8 million higher than the prior year. Aside from the net loss and certain timing variations in cash flows, the debt level increased because the Company incurred over $10 million of capital expenditures in 2002. We did not feel that it was prudent to delay necessary replacement of equipment and facilities or to forego investing in property, plant and equipment to expand growing areas of our businesses. Included in 2002 capital expenditures was approximately $2.8 million for completion of the integrated accounting system that began over two years ago. Part of the system "went live" on January 1, 2002 and the remainder "went live" on January 1, 2003. We anticipate producing more timely and thorough reporting in the near future as well as improving service to our customers with the new system. In 2002, we began installation of a new fresh fruit packing facility for our Hali'imaile division. We expect this will be completed in early 2003 and should greatly facilitate our ability to consistently deliver high quality, fresh pineapple to our customers, allow for greater efficiency and accommodate higher production volume. Capital expenditures in 2002 included almost $2 million for the purchase of additional land and equipment in Costa Rica as part of expanding our Central America pineapple plantation. The successful expansion of this business is an important part of our business plan. In January 2003, the Company again hosted the Mercedes Championships, the PGA Tour season-opening event. This prestigious golf tournament, which provides invaluable marketing exposure for the resort, was another great success highlighted by the spectacular beauty of Kapalua and the record-setting performance of Ernie Els. On January 31, 2003, the Company's pineapple employees' collective bargaining contract with the International Longshore and Warehouse Union (ILWU) expired. On February 7, 2003, an agreement was reached with the ILWU to extend the existing contract to February 7, 2004. We believe union members will ratify the agreement. On January 31, 2003, the Company's labor contract with groundskeepers for the Kapalua Resort expired and the Company has been in negotiations with the ILWU group that represents about 100 employees. On February 14, 2003, the union members voted to authorize a strike. The Company and union negotiators participated in a Federal mediation session on February 25 and, as of the date of this letter, differences between the Company and the union remain unresolved. In early March 2003, we announced my retirement from the Company and Richard's stepping down as Chairman of the Board, both effective as of May 27, 2003. Director David Heenan will assume the position of Chairman of the Board and, in the interim, Mr. Heenan has begun the search process to identify a new chief executive officer. As displayed on the front and back covers of this annual report, Maui Land & Pineapple Company proudly continues to practice prudent stewardship of our water and land resources. Our beautiful, world-class resort and very attractive commercial properties are enjoyed and appreciated by visitors and residents alike. While the market for canned pineapple is diminishing, there is a core level of demand for 100% Hawaiian USA canned pineapple and our Hawaiian Gold (trademark) hybrid pineapple is a growing market. With the support of our dedicated and conscientious employees, the Company will succeed in the long term by balancing our responsibilities to shareholders, employees, customers and community. We extend our sincere appreciation to everyone who works at Maui Land & Pineapple Company for your loyalty and commitment over the years. /S/RICHARD H. CAMERON Richard H. Cameron Chairman /S/GARY L. GIFFORD Gary L. Gifford President & CEO March 14, 2003 PINEAPPLE The Company's Pineapple division reported an operating loss, before allocated interest and income taxes, of $7.9 million for the year 2002, compared to an operating loss of $3.2 million for 2001. Pineapple revenues for 2002 were $99 million, up 2% from 2001. Total gross margin also increased by 17% over the previous year. Increased operating losses were principally attributable to higher general and administrative expenses, which increased by $4.9 million in 2002 compared to 2001. The most significant increases in general and administrative expenses were from higher legal fees, pension expense and insurance costs. The Company also experienced lower average pricing for its processed products and higher shipping and marketing costs. A portion of the increase in shipping and marketing was attributable to the labor dispute that affected West Coast ports in the fourth quarter of 2002. During the year, we made steady progress in the transformation of the company away from canned product and toward our higher margin fresh whole and fresh cut pineapple and juice products packed in polyethyleneteraphthalate bottles (PET). These products comprised 30% of net sales in 2002 compared to 25% in 2001. While revenue from canned pineapple declined, all of our other business categories, Hawaiian Gold (trademark) hybrid pineapple, Maui Fresh (trademark) fresh-cut products, PET juice and Royal Coast (registered) Gold extra sweet hybrid pineapple produced higher total revenue in 2002. Canned pineapple fruit and juice products, still the Pineapple division's largest product line, had a 1% drop in case sales volume and a 3% drop in average pricing per case. The company continued to face competitive market conditions throughout 2002. For the eleven months ended November 2002, total imports of canned pineapple fruit into the United States increased by 5% and average unit value of imports increased by 7% over the same period for 2001. Total canned fruit case volume was down 6% and average prices were lower by 2%. Within the grocery fruit category, case volume was up 4%, however, average prices were lower by 2%. Case volume of canned fruit sold to the U. S. government was 25% lower in 2002 compared to 2001 and average pricing was down 1%. Canned juice revenue for 2002 was ahead of 2001 by 5%, primarily on the strength of government purchases. PET juice case volume increased 6% while average prices declined 1%. Case sales volume and the average price for pineapple concentrate increased by 54% and 10%, respectively, as the market firmed throughout the year. The Hawaiian fresh whole pineapple business increased 33% in volume and had a 36% increase in revenue over 2001. These increases reflected a higher production volume of Hawaiian Gold (trademark) hybrid pineapple. Additionally, sales of the traditional Champaka fruit grew in 2002 as demand was relatively strong. The tonnage of fresh whole pineapple sold in Hawaii in 2002 declined by 10%, largely reflecting decreased tourism in the wake of events on September 11, 2001. Sales of fresh cut pineapple products in 2002 under the Maui Fresh (trademark) label increased 17% in case volume and 23% in revenue over 2001. The fresh cut fruit category continues to be a major growth opportunity for the Company. Revenue from the Royal Coast fresh whole pineapple business in Central America increased 18% in 2002 compared to 2001, while the number of tons sold remained about the same. These results reflect a greater percentage of the higher-priced, extra sweet hybrid fruit being sold in 2002 as well as overall improved fruit quality, commanding higher market prices in both the U.S. and Europe. Total tonnage of pineapple processed at the cannery in 2002 decreased by 8% from 2001 due to a planned reduction in acreage under cultivation. This planned reduction in acres planted primarily occurred on the company's West Maui plantation where heavy highway traffic often results in delayed fruit deliveries and high transportation costs. Some of these acres will be replaced with land in East Maui. Fruit recovery (salable product per ton of fruit processed) was 3% higher than in 2001 while juice recovery was 4% lower. The higher fruit recovery is attributed to improved harvest control while the lower juice recovery is largely due to drier weather conditions. In 2002, the overall rainfall pattern on Maui was close to the latest five-year averages. During the summer, however, conditions were particularly hot and dry, resulting in some fruit quality issues. Antidumping duties on canned pineapple from Thailand were in effect throughout 2002. In December, the U.S. Department of Commerce announced the final results of the sixth annual review. As a result, duties for certain Thai pineapple producers were reduced, but all canned pineapple producers except one remain under the antidumping order. In December, the company received a $530,000 cash distribution from the U.S. Customs Service. This 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. As we enter 2003, growing and managing the fresh whole Hawaiian Gold (trademark) hybrid pineapple, Maui Fresh (trademark) fresh-cut products, PET juice and Royal Coast (registered) Gold extra sweet hybrid pineapple will be the priority as we continue our efforts to transition our Company toward the production of higher margin fresh products. RESORT As expected, profits for the Resort division decreased significantly from the record level in 2001. Total operating profit, before allocated interest and taxes, was $2.8 million in 2002 compared to $19.8 million for the prior year. Most of the profit reduction was attributable to the limited inventory of new real estate product available for sale in 2002. Development profit in 2002 was limited to the sale of 11 single-family residential lots -- nine in Pineapple Hill Estates and two in Plantation Estates. In 2001, we recorded profit on the sale of 57 development properties -- 20 Pineapple Hill Estates lots, 36 luxury beachfront condominiums in Coconut Grove on Kapalua Bay and a one-acre parcel next to the Ironwoods condominiums. Coconut Grove, which was developed through a 50/50 partnership with YCP Site 29, Inc., had the most significant impact on 2001 results with a profit contribution of $11.5 million on total sales of $70.3 million. In February 2003, another Pineapple Hill Estates lot closed escrow leaving one remaining lot unsold of the 31 half-acre lots in this second and last phase of Pineapple Hill subdivision. The remaining lot was invested in a joint venture in 2002 for the purpose of building a completed residence for sale. Construction should be completed in March 2003 and the home is listed for sale with Kapalua Realty at $3.3 million. Overall, the demand for resort real estate increased during 2002 due to limited inventory, low interest rates and improved real estate market conditions. Excluding new product, total resale dollar volume of Kapalua real estate increased 47% in 2002 to $61 million. Kapalua Realty participated in 57% of all resort real estate transactions and made a significant contribution to both development and resort operations. In addition to the Pineapple Hill Estates home, the only new real estate product presently available for sale is a unique 6.5- acre oceanfront parcel at Kalaepiha Point, situated between Mokuleia Beach and Honolua Bay. A conservation district use application (CDUA) was approved in 2002, subdividing the property from a larger parcel. This property is currently being marketed for sale, but will require a second CDUA to allow a potential buyer to build a home on this site. Although we do not have other new projects presently available for sale, there has been important progress on planning and entitlements for future resort development. In 2002, we were granted preliminary approval for a new large- lot agricultural subdivision next to Plantation Estates. Final subdivision approval for the 25 lots in Phase I is required before these lots will be available for sale. Design and entitlement work continues on our Central Resort master plan, which features new residential development, a resort spa and a commercial town center. The Village Clubhouse and Golf Academy, completed in 2001, and the unique Honolua Store are important elements of this master plan. During 2002, an environmental impact statement was completed and accepted for Kapalua Mauka. The rezoning process for this 925- acre site surrounding the Village Golf Course can now begin with current plans providing for up to 690 residential units and some commercial components. Estimating the timing of obtaining the necessary land use entitlement is always difficult and it may be several years before construction could start and product is available for sale. Completion of this development could take 10 to 15 years. For resort operations, 2002 was even more difficult than expected, due mostly to a much slower recovery for Hawaii's visitor industry from the events of September 11, 2001. Although there was a positive trend for much of the year, overall hotel occupancy statewide increased only about 1% to 72%, while Maui's occupancy decreased 4% to 72%. In general, Hawaii's visitor industry continues to face concerns related to a weak U.S. economy, difficult air travel and the threat of a U.S. military conflict. Kapalua resort occupancy fell by 8% from prior year levels, reflecting a decline in group business and an increasingly competitive vacation market. Occupancy for Maui and Kapalua largely drives our resort operations revenue and profits. As a result of the occupancy decline, 2002 profit from resort operations decreased $1.1 million. Gross revenue decreased 3% from 2001 with all major revenue segments (golf, villas, retail and leasing) showing declines. Excluding revenue-related expenses, total operating costs for 2002 increased less than 1%. As part of our commitment to provide one of the world's finest resort golf experiences, we completed installation of a new irrigation system and cart paths on the Bay Course in 2002. This, coupled with increased attention to our Plantation and Village courses, has resulted in improvements in the condition of all three courses that were highlighted during the 2003 Mercedes Championships and Ernie Els' record-setting victory. This prestigious event continues to provide Kapalua with invaluable marketing exposure throughout the world. The outlook for 2003 is for modest improvement from both development and resort operations. Development opportunities will be limited by the lack of new product inventory while projections for our resort operations depend on continued recovery of Hawaii's visitor industry and increased occupancy. We continue to believe Kapalua remains well positioned for the future. COMMERCIAL & PROPERTY The Commercial & Property business segment showed significant improvement in 2002 with an operating loss, before allocated interest and taxes, of $91,000 in 2002 compared to a loss of $1.4 million in 2001. Total 2002 revenues for the segment increased 30% to $6.5 million. Most of the 2002 improvement came from non-resort real estate sales. The sale of an 8.9-acre parcel in Upcountry Maui contributed $624,000 to revenues and operating profit in the first quarter of 2002. Work on construction of infrastructure improvements for the 45-lot Kapua Village employee subdivision in West Maui commenced in May of 2002 and was substantially completed by December 2002. Sale of 13 lots closed in 2002 and the remaining lots are expected to close in the first half of 2003. The planning and entitlement process continued for properties outside of the Kapalua Resort. The Environmental Impact Statement (EIS) was completed for the 40- acre mixed use Upcountry Town Center development in Pukalani. While the EIS was challenged, we hope to have County of Maui Planning Commission hearings in 2003 and gain final project approval in 2004. Tenant interest in the proposed shopping center component of the development remains strong. Conceptual planning has begun on our non-resort West Maui lands and our Hali'imaile lands, which are centered around 11 acres and currently zoned for commercial and light industrial use. These plans will be included in General Plan and Community Plan updates soon to be reviewed by the County of Maui. Drilling of a new well in Upcountry Maui did not commence as planned in 2002 due to delays in reaching an agreement with the County of Maui Department of Water Supply on dedication of the well and improvements and granting of water source credits to the Company. The well drilling permit approved by the State of Hawaii in 2001 expired in 2002. Another application will be submitted when an acceptable location for the new well is agreed upon with the County. The Company's commercial property operations showed improvement in 2002 with an operating loss of $416,000 compared to $744,000 in 2001. Maui retail trends have been similar to the visitor industry with improvement in the second half of 2002, but full-year declines compared to 2001. Despite strong December sales, full-year retail sales for our two commercial properties declined for the second consecutive year -- by 3% at Queen Ka'ahumanu Center and 5% at Napili Plaza. Total joint venture losses at Queen Ka'ahumanu Center, the 570,000 sq. ft. regional mall in Kahului that we manage as part of a joint venture with the State of Hawaii Employee Retirement System, was $2.5 million in 2002 compared to $2.9 million in 2001. The Company's share of joint venture losses, net of management fees and other related revenues and expenses, showed a reduced loss of $596,000 in 2002 compared to $932,000 in 2001. Most of this improvement was due to lower administrative expenses that were mostly related to reduced store closing expenses. In 2002, there was a net increase in tenant leasing at Queen Ka'ahumanu Center of 14,000 sq. ft. bringing the year-end occupancy for the mall to 98%. In late 2002, Macy's West, Inc. purchased the lease and store improvements from J.C. Penney and announced plans to expand its Macy's operation into the 83,000 sq. ft. J.C. Penney space. J.C. Penney officially closed its Queen Ka'ahumanu Center store in January 2003 and the renovation for Macy's is scheduled for completion in the third fourth quarter of 2003. We do not expect any significant improvement in 2003 for the Maui retail market due to the slow recovery of the visitor industry and uncertain economic environment. Although we expect continued strong demand for residential real estate on Maui, we have limited non-resort opportunity due to the lack of entitled development property. Emphasis will continue to be given to land planning and entitlements for future development 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, 2002 and 2001, 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, 2002. 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, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. /S/DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Honolulu, Hawaii February 14, 2003 MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2002 and 2001
2002 2001 (Dollars in Thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 658 $ 2,173 Accounts and notes receivable, less allowance of $572 and $689 for doubtful accounts 22,315 15,992 Refundable income taxes 3,031 322 Inventories Pineapple products 14,488 15,822 Real estate held for sale 2,134 3,709 Merchandise, materials and supplies 6,743 6,894 Prepaid expenses and other assets 5,354 4,188 Total Current Assets 54,723 49,100 OTHER ASSETS 17,274 14,287 PROPERTY Land 6,411 5,384 Land improvements 60,214 59,503 Buildings 59,852 59,244 Machinery and equipment 130,337 125,573 Construction in progress 7,833 5,602 Total Property 264,647 255,306 Less accumulated depreciation 152,449 142,260 Net Property 112,198 113,046 TOTAL $184,195 $176,433 2002 2001 (Dollars in Thousands) LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable and current portion of long-term debt $ 6,579 $ 3,287 Current portion of capital lease obligations 267 472 Trade accounts payable 13,057 10,534 Payroll and employee benefits 4,241 4,640 Income taxes payable 418 1,635 Customers' deposits 1,213 1,240 Other accrued liabilities 3,446 1,829 Total Current Liabilities 29,221 23,637 LONG-TERM LIABILITIES Long-term debt 42,256 38,295 Capital lease obligations 996 1,286 Accrued retirement benefits 33,089 24,072 Accumulated losses of joint venture in excess of investment 12,840 11,518 Other noncurrent liabilities 1,867 3,636 Total Long-Term Liabilities 91,048 78,807 MINORITY INTEREST IN SUBSIDIARY 1,187 570 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 55,357 61,066 Accumulated other comprehensive loss (5,073) (102) Stockholders' Equity 62,739 73,419 TOTAL $184,195 $176,433 See Notes to Consolidated Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS Years Ended December 31, 2002, 2001 and 2000
2002 2001 2000 (Dollars in Thousands Except Per Share Amounts) REVENUES Net sales $118,505 $124,720 $103,194 Operating revenues 34,702 36,864 36,908 Equity in earnings of joint ventures -- 6,996 -- Other income 2,258 4,000 1,381 Total Revenues 155,465 172,580 141,483 COSTS AND EXPENSES Cost of goods sold 83,272 85,014 72,803 Operating expenses 33,307 33,677 30,169 Shipping and marketing 20,510 19,095 18,289 General and administrative 23,902 19,430 15,825 Equity in losses of joint ventures 1,178 1,453 972 Interest 2,511 2,903 3,061 Total Costs and Expenses 164,680 161,572 141,119 INCOME (LOSS) BEFORE INCOME TAXES (9,215) 11,008 364 INCOME TAX EXPENSE (BENEFIT) (3,506) 3,440 (88) NET INCOME (LOSS) (5,709) 7,568 452 RETAINED EARNINGS, BEGINNING OF YEAR 61,066 53,498 53,945 CASH DIVIDENDS -- -- 899 RETAINED EARNINGS, END OF YEAR 55,357 61,066 53,498 PER COMMON SHARE Net Income (Loss) (.79) 1.05 .06 Cash Dividends $ -- $ -- $ .125 Average Common Shares Outstanding 7,195,800 7,195,800 7,195,800
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, 2002, 2001 and 2000
2002 2001 2000 (Dollars in Thousands) Net Income (Loss) $ (5,709) $ 7,568 $ 452 Minimum pension liability, net of deferred income tax benefit (5,039) -- -- Foreign currency translations 68 (71) (31) Comprehensive Income (Loss) $(10,680) $ 7,497 $ 421 See Notes to Consolidated Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2002, 2001 and 2000
2002 2001 2000 (Dollars in Thousands) OPERATING ACTIVITIES Net income (loss) $ (5,709) $ 7,568 $ 452 Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation 11,072 10,226 9,002 Undistributed equity in losses of joint ventures 1,178 1,452 1,025 Gain on property disposals (648) (1,201) (113) Deferred income taxes (349) 1,792 (776) (Increase) decrease in accounts receivable (5,568) 835 (1,094) (Increase) decrease in refundable income taxes (2,709) (166) 258 (Increase) decrease in inventories 3,015 (2,169) (6,660) Increase (decrease) in trade payables 2,906 2,304 (3,345) Increase (decrease) in income taxes payable (1,217) 1,773 (1,060) Net change in other operating assets and liabilities 1,030 (6,461) 3,789 NET CASH PROVIDED BY OPERATING ACTIVITIES 3,001 15,953 1,478 INVESTING ACTIVITIES Purchases of property (10,401) (13,356) (18,179) Proceeds from sale of property 687 1,019 371 Distributions from joint ventures -- 857 -- Payments for other assets (2,177) (1,252) (1,048) NET CASH USED IN INVESTING ACTIVITIES (11,891) (12,732) (18,856) FINANCING ACTIVITIES Proceeds from long-term debt 26,129 38,367 34,196 Payments of long-term debt (20,926) (40,248) (18,720) Proceeds from short-term debt 2,050 13 105 Payments on capital lease obligations (495) (472) (318) Dividends paid -- -- (899) Other 617 941 708 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,375 (1,399) 15,072 NET INCREASE (DECREASE) IN CASH (1,515) 1,822 (2,306) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,173 351 2,657 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 658 $ 2,173 $ 351
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) $ 2,477 $ 2,994 $ 2,952 Income taxes 767 39 1,490 2. Amounts included in accounts payable for additions to property and other investments totaled $620,000, $1,003,000 and $2,024,000, respectively, at December 31, 2002, 2001 and 2000. 3. Capital lease obligations incurred for new equipment in 2001 and 2000 were $1,160,000 and $704,000, respectively. 4. 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. In accordance with Hawaii industry practice, 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. 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 6 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 (loss) and accumulated in Stockholders' Equity, and totaled $68,000, $(71,000) and $(31,000) in 2002, 2001 and 2000, respectively. 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 2002, 2001 and 2000, 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 On January 1, 2002, the Company adopted FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The adoption of this Statement did not have a material effect on the Company's financial statements. In June 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, and not at the date of an entity's commitment to an exit plan, as was previously required. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The Interpretation requires an entity to disclose in its financial statement footnotes many of the guarantees or indemnification agreements that it issues. In addition, under certain circumstances, an entity will have to recognize a liability at the time it enters into the guarantee. The provisions of this Interpretation relating to footnote disclosures are effective beginning in interim and year-end financial statements ending after December 15, 2002. The Interpretation's liability recognition provision applies prospectively to guarantees issued from January 1, 2003. Although the Company has not fully assessed the implication of Interpretation No. 45, management does not believe that its adoption will have a material impact 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. 2. INVENTORIES Pineapple product inventories were comprised of the following components at December 31, 2002 and 2001: 2002 2001 (Dollars in Thousands) Finished Goods $ 11,829 $13,968 Work In Progress 963 663 Raw Materials 1,696 1,191 Total $ 14,488 $15,822 The replacement cost of pineapple product inventories at year end approximated $23 million in 2002 and $26 million in 2001. 3. OTHER ASSETS Investments and Other Assets at December 31, 2002 and 2001 consisted of the following: 2002 2001 (Dollars in Thousands) Deferred Costs $ 7,077 $ 6,791 Cash Surrender Value of Life Insurance Policies (net) 1,094 944 Pension Asset 3,895 4,154 Deferred Income Taxes 2,192 -- Other 3,016 2,398 Total $17,274 $14,287 Deferred costs are primarily 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, 2002 and 2001. 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 was $6,993,000 in 2001. Also in 2001, the Company recognized income of $3.9 million representing its pre-contribution gain on the land parcel contributed to the venture. At December 31, 2001, total assets of the venture were $1,559,000, total liabilities were $1,540,000 and members' equity was $19,000. At December 31, 2002, total assets, liabilities and members' equity were minimal. 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, 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 2002, but to the best of the Company's knowledge, 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 2002, 2001 and 2000, cash advances from the Company to KCA totaled $977,000, $482,000 and $586,000, respectively, and interest on the advances at 9.57% totaled $113,000, $54,000 and $34,000, respectively. In 2002, 2001 and 2000, reimbursements from KCA for payroll and other costs and expenses totaled $2,259,000, $2,634,000 and $2,637,000, respectively, and the Company charged KCA $2,908,000, $3,203,000 and $3,328,000, respectively, for electricity and management fees. At December 31, 2002 and 2001, $2,488,000 and $1,667,000, respectively, were due to the Company from KCA for cash advances, management fees, electricity and reimbursable costs. The Company's pre-tax share of losses from KCA was $1,248,000, $1,453,000 and $971,000, respectively, for 2002, 2001 and 2000. 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, 2002, the accumulated unpaid preferred return was $18.0 million each for ERS and the Company. Summarized balance sheet information for KCA as of December 31, 2002 and 2001 and operating information for each of the three years ended December 31, 2002 follows: 2002 2001 (Dollars in Thousands) Current assets $ 1,101 $ 764 Property and equipment, net 63,447 66,352 Other assets, net 1,183 1,274 Total Assets 65,731 68,390 Current liabilities 4,542 3,392 Noncurrent liabilities 56,688 58,001 Total Liabilities 61,230 61,393 Partners' Capital $ 4,501 $ 6,997 2002 2001 2000 Revenues $ 14,849 $15,206 $ 15,654 Costs and Expenses 17,344 18,112 17,596 Net Loss $(2,495) $(2,906) $(1,942) The Company's investment in KCA was a negative $12.8 million at December 31, 2002. The negative balance is a result of recording the Company's initial contribution in 1993 at net book value of the assets contributed, reduced by the related debt and the Company's share of KCA's accumulated losses since 1995. The Company has guaranteed the payment of up to $10 million of all principal and interest of the $58 million mortgage loan of KCA. The lender agreed to release the guaranty when Queen Ka'ahumanu Center attains a defined level of net operating income. This level has not been met. 4. BORROWING ARRANGEMENTS During 2002, 2001 and 2000, the Company had average borrowings outstanding of $47.9 million, $46.4 million and $43.5 million, respectively, at average interest rates of 4.9%, 6.9% and 8.5%, respectively. Short-term bank lines of credit available to the Company at December 31, 2002 were $3 million. These lines provide for interest at the prime rate (4.25% at December 31, 2002) plus 1/4% to 1/2%. There was $1 million in borrowings under these lines at December 31, 2002 and $561,000 in letters of credit reserved against these lines to secure the Company's deductible portion of insurance claims administered by various insurance companies. The Company has a $1,897,000 working capital credit facility for its Central American operations. At December 31, 2002 and 2001, the Company had borrowings outstanding of $1,897,000 and $847,000, respectively, under this facility at rates of 2.81% to 3.0% and 2.75%, respectively. Long-term debt at December 31, 2002 and 2001 consisted of the following (interest rates represent the rates at December 31): 2002 2001 (Dollars in Thousands) Term loan, 3.72% to 5.38% and 4.43% to 6.60% $ 15,000 $ 15,000 Revolving credit agreement, 4.17% to 4.25% and 4.15% to 4.75% 17,050 14,000 Mortgage loan, 6.25% and 7.25% 4,513 4,629 Equipment loans, 4.23% to 7.48% and 4.16% to 8.46% 8,030 5,606 Non-revolving term loan, 4.17% and 4.75% to 4.94% 1,344 1,500 Total 45,937 40,735 Less portion classified as current 3,681 2,440 Long-term debt $ 42,256 $38,295 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, one- year and three-year rates made available by the Federal Farm Credit Bank. The agreement includes certain financial covenants, including the maintenance of a minimum tangible net worth and debt coverage ratio, maximum funded debt to capitalization ratio, and limits on capital expenditures 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, 2004. In the event of a sale of certain parcels of the Company's real estate, the commitment reduces by 50% of the net sales proceeds, but not below $20 million. On December 31, 2004, 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 based on the prime rate or on one- to six- month 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. 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, 2002, $3.1 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 2007. Some of the agreements include financial covenants that are similar to those in the Company's revolving credit agreement. 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 loan is secured by approximately 2,500 acres of land in Central America and the Company guarantees the loan. Monthly principal and interest payments are due through 2006. Interest on the loan is adjustable based on one- month LIBOR. Maturities of long-term debt during the next five years, from 2003 through 2007, are as follows: $3,681,000, $3,932,000, $13,200,000, $7,907,000 and $7,418,000. 5. LEASES LESSEE The Company has capital leases, primarily on equipment used in pineapple operations, which expire at various dates through 2006. At December 31, 2002 and 2001, property included capital leases of $1,711,000 and $2,028,000, respectively (accumulated depreciation of $398,000 and $422,000, respectively). Future minimum rental payments under capital leases aggregate $1,356,000 (including $93,000 representing interest) and are payable as follows (2003 to 2006): $311,000, $330,000, $393,000 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 $792,000 in 2002, $811,000 in 2001 and $821,000 in 2000. Future minimum rental payments under operating leases aggregate $4,930,000 and are payable during the next five years (2003 to 2007) as follows: $635,000, $624,000, $630,000, $644,000, $659,000, respectively, and $1,738,000 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: 2002 2001 2000 (Dollars in Thousands) Minimum rentals $ 2,010 $ 1,835 $ 1,832 Percentage rentals 2,183 2,572 3,140 Total $ 4,193 $ 4,407 $ 4,972 Property at December 31, 2002 and 2001 includes leased property of $19,960,000 and $20,659,000, respectively (before accumulated depreciation of $11,642,000 and $11,789,000, respectively). Future minimum rental income aggregates $6,617,000 and is receivable during the next five years (2003 to 2007) as follows: $1,467,000, $1,236,000, $1,177,000, $661,000, $451,000, respectively, and $1,625,000 thereafter. 6. POSTRETIREMENT BENEFITS The Company has defined benefit pension plans covering substantially all full-time, part-time and intermittent 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. The benefit obligations for pensions and other postretirement benefits were determined using a discount rate of 6.75% as of December 31, 2002 and 7.25% as of December 31, 2001, and compensation increases ranging up to 4.5%. The expected long- term rate of return on assets was 9% for 2002 and 2001. At December 31, 2002, the accumulated benefit obligation for the Company's defined benefit pension plans exceeded the fair value of pension plan assets. In accordance with FASB Statement No. 87, the Company recognized an additional minimum pension liability of $8,552,000, which is included in Accrued Retirement Benefits and a charge to Accumulated Other Comprehensive Loss of $7,875,000, which reduced Stockholders' Equity by $5,039,000 after recognition of a deferred tax asset of $2,836,000. The Company also recorded an intangible asset of $677,000 representing unrecognized prior service cost. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefits in excess of plan assets were $43,012,000, $38,372,000 and $31,953,000, respectively, as of December 31, 2002 and $1,246,000, $698,000 and -0-, respectively, as of December 31, 2001. The accumulated postretirement benefit obligation for health care as of December 31, 2002 and 2001 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 $2,250,000 as of December 31, 2002, and the aggregate of the service and interest cost for 2002 by approximately $188,000; a 1% annual decrease would reduce the accrued postretirement benefit obligation by approximately $1,802,000 as of December 31, 2002, and the aggregate of the service and interest cost for 2002 by approximately $149,000. Changes in benefit obligations and changes in plan assets for 2002 and 2001 and the funded status of the plans and amounts recognized in the balance sheets as of December 31, 2002 and 2001 were as follows:
Pension Benefits Other Benefits 2002 2001 2002 2001 (Dollars in Thousands) Change in benefit obligations: Benefit obligations at beginning of year $ 40,081 $ 37,892 $ 16,248 $ 13,619 Service cost 1,770 1,728 356 410 Interest Cost 2,695 2,701 902 986 Actuarial (gain) loss 953 (85) (2,650) 1,946 Amendments -- 216 -- 48 Benefits paid (2,487) (2,371) (626) (761) Benefit obligations at end of year 43,012 40,081 14,230 16,248 Change in plan assets: Fair value of plan assets at beginning of year 37,691 42,235 -- -- Actual return on plan assets (3,508) (2,435) -- -- Employer contributions 257 262 626 761 Benefits paid (2,487) (2,371) (626) (761) Fair value of plan assets at end of year 31,953 37,691 -- -- Funded status (11,059) (2,390) (14,230) (16,248) Unrecognized actuarial (gain) loss 12,515 4,823 (5,383) (3,189) Unrecognized net transition obligation 254 282 -- -- Unrecognized prior service cost 423 516 (545) (674) Net amounts recognized 2,133 3,231 (20,158) (20,111) Amounts recognized in balance sheets consist of: Pension asset before minimum liability adjustment 3,218 4,154 -- -- Accrued benefit liability (1,085) (923) (20,158) (20,111) Intangible asset 677 -- -- -- Minimum liability adjustment (8,552) -- -- -- Accumulated other Comprehensive loss 7,875 -- -- -- Net amounts recognized $ 2,133 $ 3,231 $(20,158) $(20,111)
At December 31, 2002, the accumulated benefit obligation for the Company's defined benefit pension plans exceeded the fair value of pension plan assets. In accordance with FASB Statement No. 87, the Company recognized an additional minimum pension liability of $8,552,000, which is included in Accrued Retirement Benefits and a charge to Accumulated Other Comprehensive Loss of $7,875,000, which reduced Stockholders' Equity by $5,039,000 after recognition of a deferred tax asset of $2,836,000. The Company also recorded an intangible asset of $677,000 representing unrecognized prior service cost. Net periodic benefit costs for 2002, 2001 and 2000 included the following components:
2002 2001 2000 (Dollars in Thousands) Pension benefits: Service cost $ 1,770 $ 1,728 $ 1,501 Interest cost 2,694 2,701 2,535 Expected return on plan assets (3,307) (3,673) (4,036) Amortization of net transition obligation (asset) 28 (505) (535) Amortization of prior service cost 94 74 74 Recognized net actuarial (gain) loss 77 13 (319) Net expense (credit) 1,356 338 (780) Other benefits: Service cost 356 410 358 Interest cost 901 986 920 Amortization of prior service cost (128) (134) (133) Recognized net actuarial gain (456) (323) (356) Net expense $ 673 $ 939 $ 789
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 pension plans with accumulated benefits in excess of plan assets were $43,012,000, $38,372,000 and $31,953,000, respectively, as of December 31, 2002 and $1,246,000, $698,000 and -0-, respectively, as of December 31, 2001. The benefit obligations for pensions and other postretirement benefits were determined using a discount rate of 6.75% as of December 31, 2002 and 7.25% as of December 31, 2001, and compensation increases ranging up to 4.5%. The expected long- term rate of return on assets was 9% for 2002 and 2001. The accumulated postretirement benefit obligation for health care as of December 31, 2002 and 2001 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 $2,250,000 as of December 31, 2002, and the aggregate of the service and interest cost for 2002 by approximately $188,000; a 1% annual decrease would reduce the accrued postretirement benefit obligation by approximately $1,802,000 as of December 31, 2002, and the aggregate of the service and interest cost for 2002 by approximately $149,000. 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 2002 and 2001, the Company's contributed $92,000 and $107,000, respectively, to one of the plans. 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. The shares originally sold to the ESOP in 1979 have been allocated to participants since December 1993 and, Eeffective 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. As of December 31, 2002 and 2001, deferred compensation plan liabilities totaled $2,027,000 and $2,164,000, respectively. 7. 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 2002 and 2001, the Company contributed $357,000 and $153,000, respectively, 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 2002 income and the 2001 and 2000 operating losses were not material. 8. INCOME TAXES The components of the income tax provision (benefit) were as follows: 2002 2001 2000 (Dollars in Thousands) Current Federal $ (2,589) $ 1,904 $ 984 State (694) (256) (296) Foreign 126 -- -- Total (3,157) 1,648 688 Deferred Federal (252) 1,594 (777) State (97) 198 1 Total (349) 1,792 (776) Total provision (benefit) $ (3,506) $ 3,440 $ (88) Reconciliation between the total provision and the amount computed using the statutory federal rate of 34% follows: 2002 2001 2000 (Dollars in Thousands) Federal provision (benefit) at statutory rate $(3,133) $ 3,743 $ 124 Adjusted for State income taxes, net of effect on federal income taxes (497) (50) (210) Federal research credits (90) (177) -- Other 214 (76) (2) Total provision (benefit) $(3,506) $ 3,440 $ (88) Deferred tax assets and liabilities were comprised of the following types of temporary differences as of December 31, 2002 and 2001: 2002 2001 (Dollars in Thousands) Accrued retirement benefits $ 10,696 $ 7,388 Minimum tax credit carryforwards 6,314 3,975 Accrued liabilities 1,937 1,926 Allowance for doubtful accounts 250 260 Net operating loss and tax credit carryforwards 1,125 393 Total deferred tax assets 20,322 13,942 Deferred condemnation proceeds (6,523) (6,297) Property net book value (6,706) (4,849) Income from partnerships (1,790) (1,835) Pineapple marketing costs (837) (756) Inventory (1,049) (722) Other (951) (202) Total deferred tax liabilities (17,856) (14,661) Net deferred tax asset (liability) $ 2,466 $ (719) A valuation allowance against deferred tax assets as of December 31, 2002 and 2001 is not considered necessary as the Company believes it is more likely than not the deferred tax assets will be fully realized. At December 31, 2002, the Company had federal minimum tax credit carryforwards of $6.3 million. The Company also had state net operating loss carryforwards of approximately $7 million expiring in 2022 and other state and federal tax credit carryforwards totaling $447,000, of which $267,000 expires through 2022. The Company's federal income tax returns for 1998, 1999 and 2000 are 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. 9. INTEREST CAPITALIZATION Interest cost incurred in 2002, 2001 and 2000 was $2,651,000, $3,502,000 and $3,901,000, respectively, of which $140,000, $599,000 and $840,000, respectively, was capitalized. 10. ADVERTISING AND RESEARCH AND DEVELOPMENT Advertising expense totaled $1,662,000 in 2002, $1,901,000 in 2001 and $2,000,000 in 2000. Research and development expenses totaled $1,004,000 in 2002, $1,073,000 in 2001 and $984,000 in 2000. 11. 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. 12. 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, 2002 and 2001 was $45,937,000 and $40,735,000, respectively, and the fair value was $45,367,000 and $40,874,000, respectively. 13. 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 2002 Pineapple Resort & Property Other Consolidated (Dollars in Thousands) Revenues (1) $99,153 $ 49,757 $ 6,520 $ 35 $ 155,465 Operating profit (loss) (2) (7,935) 2,830 (91) (1,508) (6,704) Interest expense (1,478) (554) (170) (309) (2,511) Income (loss) before income taxes (9,413) 2,276 (261) (1,817) (9,215) Depreciation 5,733 4,077 441 821 11,072 Equity in earnings (losses) of joint ventures 62 8 (1,248) -- (1,178) Investment in joint ventures 269 320 (12,840) -- (12,251) Segment assets (3) 83,021 67,426 10,284 23,464 184,195 Expenditures for segment assets 5,224 2,656 282 3,476 11,638 2001 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 (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 $2.2 million, $1.7 million and $2.6 million, respectively, in 2002, 2001 and 2000. 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. 14. 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 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. Adjustments to the reserve in 2000, 2001 and 2002 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. Cost of remediation will depend on various alternatives as to 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. In addition to the matters noted above, there are various other claims and legal actions pending against the Company. In the opinion of management, after consultation with legal counsel, the resolution of these other 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. Both lines expire on August 31, 2003. At December 31, 2002, there were no amounts drawn under the lines of credit and payment for shipments totaling $1.3 million were secured by the letters of credit. The Company, as a partner in various partnerships, may under particular circumstances be called upon to make additional capital contributions. At December 31, 2002, the Company had purchase commitments under signed contracts totaling $1,020,000, which primarily relate to equipment for the Central American operations and to real estate projects. QUARTERLY EARNINGS (unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter (Dollars in Thousands Except Per Share Amounts) 2002 Total revenues $36,285 $33,561 $38,481 $47,138 Net sales 25,110 25,227 29,622 38,546 Cost of sales 16,056 16,814 21,489 28,913 Net income (loss) 776 (2,066) (2,199) (2,220) Net income (loss) per common share .11 (.29) (.31) (.31) 2001 Total revenues* $38,739 $39,453 $45,943 $48,445 Net sales 27,417 29,367 31,959 35,977 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
* Total revenues for the first and second quarters of 2001 were 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." The Company did not declare any dividends in 2002 and 2001. 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 7, 2003, there were 421 shareholders of record. The following chart reflects high and low sales prices during each of the quarters in 2002 and 2001: First Second Third Fourth Quarter Quarter Quarter Quarter 2002 High $ 25.00 $ 22.75 $ 20.35 $ 18.25 Low 20.00 19.00 16.50 13.75 2001 High $ 24.00 $ 27.53 $ 26.60 $ 25.10 Low 18.00 17.00 19.75 19.99 SELECTED FINANCIAL DATA
2002 2001 2000 1999 1998 (Dollars in Thousands Except Per Share Amounts) FOR THE YEAR Summary of Operations Revenues $ 155,465 $ 172,580 $ 141,483 $ 146,998 $ 143,711 Cost of goods sold 83,272 85,014 72,803 74,494 76,049 Operating expenses 33,307 33,677 30,169 27,440 26,168 Shipping and marketing 20,510 19,095 18,289 18,479 16,673 General and administrative 23,902 19,430 15,825 16,408 15,094 Equity in losses of joint ventures 1,178 1,453 972 956 1,160 Interest expense 2,511 2,903 3,061 1,834 3,039 Income tax expense (benefit) (3,506) 3,440 (88) 2,717 1,188 Income (loss) before extraordinary loss (5,709) 7,568 452 4,670 4,340 Extraordinary loss, net of income tax benefit (1) -- -- -- -- (744) Net income (loss) (5,709) 7,568 452 4,670 3,596 Per Common Share Income (loss) before extraordinary loss (.79) 1.05 .06 .65 .60 Extraordinary loss, net of income tax benefit -- -- -- -- (.10) Net income (loss) (.79) 1.05 .06 .65 .50 Other Data Cash dividends Amount -- -- 899 899 -- Per common share -- -- .125 .125 -- Depreciation $11,072 $10,226 $ 9,002 $ 8,445 $ 8,176 Return on beginning stockholders' equity (7.8)% 11.5% .7% 7.5% 6.1% Percent of net income to revenues (3.7)% 4.4% .3% 3.2% 2.5% AT YEAR END Current assets less current liabilities (2) $25,502 $ 25,463 $ 19,304 $ 12,924 $ 18,985 Ratio of current assets to current liabilities (2) 1.9 2.1 1.7 1.5 2.1 Property, net of depreciation $112,198 $ 113,046 $ 109,725 $ 100,976 $ 89,921 Total assets 184,195 176,433 169,951 153,387 136,247 Long-term debt and capital leases 43,252 39,581 41,012 25,497 23,592 Stockholders' equity Amount 62,739 73,419 65,922 66,400 62,492 Per common share $ 8.72 $ 10.20 $ 9.16 $ 9.23 $ 8.69 Common shares outstanding 7,195,800 7,195,800 7,195,800 7,195,800 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) 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 2002 vs. 2001 CONSOLIDATED The Company reported a net loss of $5.7 million for 2002 compared to net income of $7.6 million for 2001. The decline in results primarily reflects increased operating losses from the Pineapple segment coupled with lower operating profit from the Resort segment. General and administrative expenses for 2002 (including amounts allocated to the business segments) increased by $4.5 million or 23% as compared to 2001. Fees paid to outside consultants increased by approximately $2.2 million in 2002 compared to 2001. Increases in consultant fees due to lawsuits related to Pineapple operations were partially offset by reductions in fees paid for other professional services. The net periodic cost for defined benefit pension plans increased by approximately $1 million in 2002 primarily because of decreased investment returns in 2000 and 2001. In addition, depreciation, medical, and general insurance expenses increased by $1.8 million in 2002 as compared to 2001. The increased level of legal fees is expected to continue through part of 2003. In 2003, nNet periodic cost for defined benefit pension plans is expected to increase by approximately $1.4 million in 2003 as a result of continued reductions in investment returns in 2002 and a reduction in the discount rate used to determine pension obligations from 7.25% at December 31, 2001 to 6.75% at December 31, 2002. Interest expense decreased by 14% in 2002 compared to 2001 due to lower average interest rates. Average interest rates on Company borrowings in 2002 were 2 percentage points lower than 2001. The reduction in interest expense due to lower rates was partially offset by 3% higher average borrowings in 2002. PINEAPPLE Pineapple revenues of $99.2 million in 2002 were 2% higher than 2001. However, the operating loss attributable to this segment was $7.9 million in 2002 compared to $3.2 million in 2001. The increased loss was largely attributable to higher general and administrative costs as discussed above. General and administrative expenses attributable to the Pineapple segment increased by $4.9 million in 2002 compared to 2001. Shipping and marketing costs were higher in 2002 primarily because of increased use of air freight to ship fresh whole and fresh cut pineapple, increased fuel surcharges affecting ocean freight and trucking rates and additional transportation, warehousing, labeling and casing costs incurred as a result of the West Coast dock dispute in the fourth quarter of 2002. Pineapple cost of sales as a percentage of sales for 2002 was lower than 2001, primarily due to a shift in sales toward fresh whole and fresh cut pineapple products, which generally yield a higher gross margin. In 2003, the Company is working with an outside consultant to produce a linear optimization model to analyze and develop a product mix optimization plan. In the fourth quarter of 2002, the labor dispute between the West Coast longshoremen and shipping companies resulted in a temporary shutdown of the West Coast shipping ports followed by a backlog at the ports through most of December 2002. During that period, the Company incurred additional air freight costs and inter-modal rerouting costs to make timely deliveries to its customers and additional warehousing, labeling and casing costs to meet estimated orders for its customers for the remainder of 2002 and the first quarter of 2003. Losses and additional expenditures incurred by the Company during this period due to the labor dispute, as well as the additional expenditures to label, case, warehouse and transport product to the West Cost Coast and to its customers totaled approximately $843,000. At year-end 2002, a portion of these expenditures was deferred as prepaid shipping and selling costs. Case volume of canned pineapple sales was higher in 2002 compared to 2001, but average sales prices were slightly lower in 2002. Contribution to Pineapple segment revenues from non-canned product sales (pineapple juice in PET bottles, fresh cut and fresh whole pineapple) increased by 5% to approximately 30% of net sales in 2002 compared to 2001. The volume and pricing of canned pineapple imported into the United States directly affects the marketplace for the Company's products. Through the first 11 months of 2002, the volume of canned pineapple imports increased by 5% as the tightening of supply of pineapple from Thailand late in 2001 did not continue consistently into 2002. and However, the average unit value of these imports increased by 7%. While the increase in average unit values declared on these imports could reflect a tightening of supplies, the increase in the volume of imports continued to keep downward pressure on the marketplace in 2002. In 2002, revenues included a distribution of antidumping duties by the U. S. Customs Service of $530,000, a decrease of $1.3 million as compared to 2001. These distributions were made pursuant to the Continued Dumping and Subsidy Offset Act of 2000, which allows for distribution of antidumping duties to injured domestic producers. The Company currently expects that it will receive a distribution of antidumping duties in 2003; however, complaints by 11 foreign countries to the World Trade Organization may result in a repeal of the law. Antidumping duties have been in effect on canned pineapple fruit imported from Thailand since mid-1995. The U. S. Department of Commerce and the U. S. International Trade Commission will review the duties again in 2005 as a scheduled five-year review. At either the request of the Company or a Thai producer, the amount of duties on pineapple imports from Thailand is subject to annual administrative reviews by the U. S. Department of Commerce. As a result of annual reviews, duties can be adjusted. Certain 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 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. This review resulted in the dumping margin for one of the larger Thai producers being ruled as de minimis and, therefore, no deposit of duties is currently required from that importer. The Company appealed that result. In December 2002, results of the sixth annual administrative review were released and duties for some of the Thai producers were reduced. Also, the dumping margin for the same large producer was again found to be de minimis. If the dumping margin for an importer is determined to be de minimis for three consecutive years, the importer will be exempt from the duty order. The Company's appeal of the results of the fifth annual administrative review continues and it is estimated that the court will render a decision sometime in mid-2003. RESORT Revenues from the Kapalua Resort segment were $49.8 million in 2002 compared to $70.1 million in 2001. The operating profit from this segment was $2.8 million in 2002 compared to $19.8 million in 2001. The decrease in revenues and operating profit is primarily due to reduced inventory in the Company's real estate development projects, which contributed $2.5 million to operating profit in 2002 compared to $18.2 million in 2001. 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, resulting in profit contribution to the Company of $11.5 million. In 2001, the Resort segment recognized profit on sales of 20 of the 31 single-family lots at the Pineapple Hill Estates subdivision and the sale of a one-acre land parcel next to the Ironwoods condominiums. In 2002, nine of the remaining 11 lots in the Pineapple Hill Estates subdivision and the two final lots in Plantation Estates were sold. One of the two Pineapple Hill Estates lots in inventory at year-end 2002 closed escrow in February 2003 and the final lot has been contributed to a joint venture for construction of a home that is expected to be available for sale in March 2003. Resort real estate development and Resort real estate sales are cyclical and depend on a number of factors. Results for one period are, therefore, not necessarily indicative of future performance trends for this segment. A key factor in the financial results of Resort real estate sales is the availability of new product inventory. In 2003, aside from the two lots in Pineapple Hill Estates mentioned above, the Company has a 6.5- acre ocean front parcel that is currently being marketed for sale. This parcel is located in a conservation district and additional approvals are being sought to allow a potential buyer to build a home on the site. In 2002, the Company was granted preliminary approval for a new large-lot agricultural subdivision next to Plantation Estates. Final subdivision approval for the 25 lots in Phase I is required before these lots will be available for sale. Marketing efforts for this project may begin in late 2003. The Company is in the planning and entitlement stage of other Kapalua Resort real estate projects, but at this time does not anticipate that any other projects will be available for sale in 2003. Revenues and operating profit from Resort operations (excluding real estate development activity) were lower in 2002 compared to 2001. Much of the activity at Kapalua Resort is related to hotel and condominium occupancies on Maui and, for 2002, hotel and villa occupancies at Kapalua decreased by 8% and, for the island of Maui, occupancies decreased by 3% compared to 2001. For the State of Hawaii, hotel and condominium occupancies were about 1% higher in 2002 compared to 2001. The recovery of Hawaii's visitor industry from the terrorist attacks of September 11, 2001 has been slow with continued challenges from a weak U.S. economy, difficult air travel and the threat of a U.S. military conflict. In 2002, paid rounds of golf at the Resort declined and revenues from golf operations decreased by 3%;, merchandise sales decreased by 6% and revenues from The Kapalua Villas decreased by 9%. Partially offsetting these declines were commission income from Kapalua Realty, which increased by 80% in 2002 compared to 2001, primarily reflecting resale activity. 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, which is a major marketing event for the Resort. COMMERCIAL & PROPERTY Revenues of $6.5 million attributable to the Commercial & Property segment increased by 30% in 2002 compared to 2001. The segment produced an operating loss of $91,000 in 2002 compared to $1.4 million in 2001. The improved results were principally due to land sales in 2002. In the fourth quarter of 2002, the Company closed sales on 13 of 45 lots in the Kapua Village employee subdivision in West Maui. Revenues for 2002 also included other land sales totaling $624,000 compared to land sales of $189,000 in 2001. The Company's equity in the losses of Kaahumanu Center Associates was $1.3 million in 2002 compared to $1.5 million in 2001. The reduction in losses was primarily due to lower expense in 2002 for write-off of tenant improvement allowances and reserves for uncollectible accounts. The gross leasable area occupied by tenants in 2002 increased, but sales reported by the tenants decreased in 2002 as compared to 2001. The Company made cash advances to Kaahumanu Center Associates of $977,000 in 2002 and management presently anticipates that cash advances from the partners in 2003 will approximate $300,000. 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. 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 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 segmentnon-canned product sales increased by 8% in 2001 to approximately 25% of net sales. 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. 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 sale of all 36-luxury condominium units in the Coconut Grove on Kapalua Bay closed escrow and title passed to the buyers. The Company's equity in earnings of Kapalua Coconut Grove LLC, developer of the project, was $7.0 million in 2001. In 1997, the Company 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 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. Also in 2001, the Company sold a one-acre parcel next to the Ironwoods condominiums. In 2000, the Company recognized profit on the percentage-of- completion method for sales of 14 single-family lots in Plantation Estates Phase II. Construction of subdivision improvements and all of the sales were completed by the end of second quarter 2000. 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, and the economic impact of the events of September 11, 2001 resulted in a further decline in visitors. The rate of room reservations rebounded somewhat in the last quarter of 2001 and early 2002. 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. In addition, 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 Kaahumanu Center Associates 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. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2002, the Company's total debt, including capital leases, was $50.1 million, an increase of $6.8 million from year-end 2001. The increase in debt was the result of insufficient cash provided by operating activities, in particular from the Pineapple segment operations. While the net use of cash by Pineapple operations in 2002 is largely a result of the operating loss of $7.9 million for 2002, part of the deficit in cash flows is due to normal variations in the timing of receipts and disbursements. A significant cash timing variation in 2002 was that trade receivables for the Pineapple segment were $5.6 million higher at year-end 2002 as compared to 2001 because of sales later in the year that were not collected until January 2003. In 2003, cash flows from the Pineapple segment are expected to improve primarily because of a decrease in total expenditures for production of canned inventory as the Company continues to reduce its emphasis on canned product. The increased debt level was also the result of over $10 million of capital expenditures in 2002. Included in the capital expenditures were necessary replacement of equipment and facilities, over $2 million for assets related to the Company's fresh whole pineapple operations at Hali'imaile and in Central America and approximately $2.8 million for completion of the integrated accounting system that began in August 2000. At December 31, 2002, unused long- and short-term credit lines totaled $9.4 million. Existing credit facilities and cash flows from operating activities are expected to be adequate to fund the Company's operations in 2003. The Company anticipates that it may finance some of its 2003 capital expenditures with new equipment loans or capital leases. Should additional funds become necessary, the Company anticipates that it would seek additional debt financing. Pineapple capital expenditures are expected to be $4.3 million in 2003, of which $2.6 million is for replacement of existing equipment and facilities. Other than replacements, Pineapple capital expenditures are for completion of a new fresh fruit packing facility at the Company's Hali'imaile Plantation, additional equipment for fresh cut operations at the Kahului cannery and for the Company's Central American operations. Resort capital expenditures for 2003 are expected to be $2.1 million in 2003, a majority of which is for replacement of existing equipment and facilities. Other capital expenditures in 2003 are expected to total $1.4 million and land planning and entitlement costs are expected to total $1.1 million. The Company's minimum pension plan contribution for its defined benefit pension plans for plan year 2002 totals $1,036,000 and is payable in September 2003. Minimum pension plan contributions for the 2003 plan year are presently estimated at $1.9 million and will be payable in September 2004. These expected cash outflows compare to actual contributions made in 2002 of $257,000. The increase in minimum contributions is due to the excess of pension obligations over plan assets as reflected in the minimum liability adjustment required as of December 31, 2002 (see Note 6 to Consolidated Financial Statements). The increase in minimum contributions is due to the excess of pension obligations over plan assets as reflected in the minimum liability adjustment required as of December 31, 2002 (see Note 5 to Consolidated Financial Statements). Following are summaries of the Company's contractual obligations and other commercial commitments as of December 31, 2002 (in thousands): Payment due by period (years) Contractual Less Obligations Total Than 1 1-3 4-5 After 5 Long-term debt $45,937 $ 3,681 $17,132 $15,324 $ 9,800 Notes payable- current 2,898 2,898 -- -- -- Capital lease Obligations 1,356 311 723 322 -- Operating leases 4,930 635 1,254 1,303 1,738 Total Contractual Cash Obligations $55,121 $ 7,525 $19,109 $16,949 $11,538 Commitment expiration period (years) Other Commercial Less Commitments Total Than 1 1-3 4-5 After 5 Lines of Credit $ 9,389 $ -- $ 9,389 $ -- $ -- Guarantees 14,000 4,000 10,000 -- -- Commitments Under Signed Contracts 1,020 1,020 -- -- -- Standby Letters of Credit 561 561 -- -- -- Total Other Commercial Commitments $24,970 $ 5,581 $ 19,389 $ -- $ -- 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 $23.2 million at December 31, 2002, which is $8.7 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, 2002, 75% 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 25% carried interest at fixed rates. Based on debt outstanding at the end of 2002, a hypothetical decrease in interest rates of 100 basis points would increase the fair value of the Company's long-term debt by approximately $354,000. At December 31, 2002, the fair value of the Company's long-term debt exceeded the carrying value by approximately $575,000 as a result of a general decrease in quoted interest rates. The Company does not believe that the market risk exposure due to foreign exchange transactions would have a material impact on the Company's financial statements. 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 a variety of matters, including the future success of non-canned pineapple products, the completion and sale of the Pineapple Hill Estates residence, the sale of the oceanfront parcel at Kalaepiha Point, sales of the remaining lots at Kapua Village employee subdivision, receipt of distribution of antidumping duties in 2003, the potential marketing of a new large-lot agricultural subdivision at Kapalua in late 2003, the integrated accounting system effect on reporting and customer service, the completion and success of the new fresh fruit facility at Hali'imaile and 2003 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; and (6) 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 John P. Kreag 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 John P. Kreag 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/Retail Property Scott A. Crockford Vice President/Land Planning & Development Robert M. McNatt Vice President/Resort Operations Gary M. Planos Vice President/Kapalua Club & Villas David M. Sosner Treasurer John P. Kreag 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 *Effective May 27, 2003 Gary L. Gifford - retired from all positions; replacement not selected. Richard H. Cameron - resigned as Chairman; will continue as Director. David A. Heenan - replaces Mr. Cameron as Chairman. EX-99 8 kcaaudit02.txt 2002 KAAHUMANU CENTER ASSOCIATES FINANCIAL STATEMENTS Kaahumanu Center Associates (A Hawaii Limited Partnership) Financial Statements for Each of the Three Years Ended December 31, 2002, 2001 and 2000 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, 2002 and 2001, 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, 2002. 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, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. /S/ DELOITTE & TOUCHE LLP February 14, 2003 KAAHUMANU CENTER ASSOCIATES BALANCE SHEETS DECEMBER 31, 2002 AND 2001 ASSETS 2002 2001 CURRENT ASSETS: Cash $ 34,424 $ 33,960 Accounts receivable - less allowance of $390,250 and $250,073 for doubtful accounts 985,845 699,626 Prepaid expenses 80,518 31,023 Total current assets 1,100,787 764,609 PROPERTY: Land and land improvements 6,075,618 6,068,132 Building 84,163,258 83,724,161 Furniture, fixtures and equipment 5,317,157 5,147,455 Construction in process 273,314 261,380 Total property 95,829,347 95,201,128 Less accumulated depreciation (32,381,614) (28,849,489) Property - net 63,447,733 66,351,639 OTHER ASSETS 1,182,878 1,274,227 TOTAL $65,731,398 $68,390,475 LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Current portion of long-term debt $ 1,339,432 $ 1,228,322 Accounts payable 661,311 457,015 Due to Maui Land & Pineapple Company, Inc. 2,487,836 1,667,283 Other current liabilities 53,508 39,453 Total current liabilities 4,542,087 3,392,073 LONG-TERM DEBT 56,571,347 57,911,022 OTHER LONG-TERM LIABILITIES 116,611 90,726 Total liabilities 61,230,045 61,393,821 CONTINGENCIES AND COMMITMENTS PARTNERS' CAPITAL 4,501,353 6,996,654 TOTAL $65,731,398 $68,390,475 See notes to financial statements. KAAHUMANU CENTER ASSOCIATES STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 2002 2001 2000 REVENUES: Rental income - minimum $6,889,397 $7,023,484 $ 7,552,188 Rental income - percentage 1,204,622 1,009,772 1,372,884 Other operating income - primarily recoveries from tenants 6,755,260 7,172,942 6,728,646 Total revenues 14,849,279 15,206,198 15,653,718 COSTS AND EXPENSES: Interest 5,202,495 5,245,434 5,332,655 Depreciation and amortization 3,689,228 3,693,930 3,685,323 Utilities 3,128,503 3,301,571 3,400,142 Payroll and related costs 2,245,133 2,343,025 2,282,740 Repairs and maintenance 617,771 647,124 701,391 General excise taxes 591,145 594,008 616,644 Insurance 495,307 303,817 333,704 Real property taxes 360,222 348,689 327,190 Advertising and promotions 287,903 278,036 241,379 Management fee 252,936 251,038 278,907 Provision for doubtful accounts 160,933 302,613 44,497 Professional fees 150,428 194,613 207,240 Loss on disposal of assets 4,170 364,646 -- Other expenses 158,406 244,051 143,992 Total costs and expenses 17,344,580 18,112,595 17,595,804 NET LOSS $(2,495,301) $(2,906,397) $(1,942,086) See notes to financial statements. KAAHUMANU CENTER ASSOCIATES STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 State of Hawaii Maui Land & Employees' Pineapple Retirement Company, Inc. System Total 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 Net loss - 2002 (1,247,651) (1,247,650) (2,495,301) PARTNERS' CAPITAL (DEFICIT), DECEMBER 31, 2002 $(13,262,271) $17,763,624 $ 4,501,353 See notes to financial statements. KAAHUMANU CENTER ASSOCIATES STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 2002 2001 2000 OPERATING ACTIVITIES: Net loss $(2,495,301) $(2,906,397) $(1,942,086) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 3,689,228 3,693,930 3,685,323 Loss on property disposals 4,170 364,646 -- Decrease (increase) in accounts receivable (286,219) 394,206 (474,932) Decrease (increase) in noncurrent accounts receivable (55,627) 288,927 (146,295) (Decrease) increase in accounts payable and due to Maui Land & Pineapple Company, Inc. 35,344 (39,768) (702,026) Net change in other operating assets and liabilities (9,555) (11,026) 11,165 Net cash provided by operating activities 882,040 1,784,518 431,149 INVESTING ACTIVITIES - Purchases of property (630,112) (1,099,123) (460,224) FINANCING ACTIVITIES: Payments of long-term debt (1,228,565) (1,126,674) (1,018,774) Proceeds from Partner Advances, net of repayments 977,101 482,298 536,078 (Decrease) increase in bank overdraft -- (39,637) 39,637 Net cash used in financing activities (251,464) (684,013) (443,059) NET INCREASE (DECREASE) IN CASH 464 1,382 (472,134) CASH, BEGINNING OF YEAR 33,960 32,578 504,712 CASH, END OF YEAR $ 34,424 $33,960 $ 32,578 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - Cash paid during the year for interest $5,202,000 $5,242,000 $5,328,000 SUPPLEMENTAL INFORMATION RELATING TO NONCASH INVESTING ACTIVITIES - Amounts included in accounts payable for additions to property totaled approximately $12,000, $8,000, and $11,000 at December 31, 2002, 2001, and 2000, respectively. See notes to financial statements. KAAHUMANU CENTER ASSOCIATES NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 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 was to finance the expansion and renovation of Queen Ka'ahumanu Center (Center), which was substantially completed in 1994. The Partnership currently owns and operates the 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. 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. New Accounting Pronouncement - On January 1, 2002, the Partnership adopted Financial Accounting Standards Board (FASB) Statement No. 144, Accounting for the Impairment of Long-lived Assets. FASB Statement No. 144 provides a single accounting model for impairment of long-lived assets, including discontinued operations. The adoption of FASB Statement No. 144 did not have a material impact on the Partnership's financial statements. 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, 2002 were $18 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. Although the tests were not met in 2002, the Partnership has not notified ML&P that it intends to terminate the Agreement. 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. The Partnership Operating Agreement sets forth that a percentage of revenues be retained for capital improvements. The partners agreed to waive the required capital improvement reserve for the years ended December 31, 2002 and 2001. 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 2002, 2001, and 2000, ML&P charged the Partnership $253,000, $251,000, and $279,000, respectively, for management fees. In accordance with the Limited Partnership Agreement, the partners 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 $1,995,000 and $1,018,000 at December 31, 2002 and 2001, respectively. Interest expense on the advances at 9.57% totaled $113,000, $54,000, and $34,000 for 2002, 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 2002, 2001, and 2000, ML&P charged the Partnership $2,259,000, $2,634,000, and $2,637,000, respectively, for payroll and other costs and expenses. ML&P generates the majority of the electricity that is used by the Center. In 2002, 2001, and 2000, ML&P charged the Partnership $2,655,000, $2,952,000, and $3,049,000, respectively, for electricity. Amounts due to ML&P for management fees, electricity, Partner Advances, and reimbursable costs were approximately $2,488,000 and $1,667,000 as of December 31, 2002 and 2001, respectively. 5. OTHER ASSETS Other assets at December 31, 2002 and 2001 consisted of the following: 2002 2001 Deferred costs $ 288,059 $ 435,033 Noncurrent accounts receivable 894,819 839,194 Total other assets $1,182,878 $1,274,227 Deferred costs are primarily leasing consultation costs and are net of accumulated amortization of $1,277,000 and $1,130,000, respectively, at December 31, 2002 and 2001. 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 June 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 three years from 2003 through 2005 are as follows: $1,339,000, $1,446,000, and $55,125,000, 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 $30,626,000 and is receivable during the next five years (2003 through 2007) as follows: $6,036,000, $4,984,000, $3,644,000, $2,945,000, $1,703,000, respectively, and $11,312,000 thereafter. 8. CONTINGENCIES AND COMMITMENTS The Partnership had commitments under signed contracts totaling $129,000 at December 31, 2002. ****** EX-99 9 seccertpjm.txt SECTION 906 CERTIFICATION - PJM Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Maui Land & Pineapple Company, Inc. (the "Company") on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Paul J. Meyer, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /S/ PAUL J. MEYER Paul J. Meyer Executive Vice President/Finance (Chief Financial Officer) March 26, 2003 EX-99 10 seccertglg.txt SECTION 906 CERTIFICATION - GLG Exhibit 99.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Maui Land & Pineapple Company, Inc. (the "Company") on Form 10-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gary L. Gifford, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /S/ GARY L. GIFFORD Gary L. Gifford President & Chief Executive Officer March 26, 2003 -----END PRIVACY-ENHANCED MESSAGE-----