Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

** **
| **x** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-------------------------------------------------------------------------------------------------------------|

** **

**For thequarterly period ended SEPTEMBER 30, 2009**

** **

**OR**

 
| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|--------------------------------------------------------------------------------------------------------------|

 

**Commissionfile number 001-06510**

 

**MAUI LAND & PINEAPPLECOMPANY, INC.**

(Exact name of registrant asspecified in its charter)

 

| **HAWAII**                                                      | ** ** | **99-0107542**                     |
|-----------------------------------------------------------------|------------|------------------------------------|
| (State or other jurisdiction  of incorporation or organization) |       | (IRS Employer  Identification No.) |

 

**161 SOUTHWAKEA AVENUE, P. O. BOX 187, KAHULUI, MAUI, HAWAII 96733-6687**

(Address of principalexecutive offices)

 

Registrant’s telephonenumber, including area code: **(808) 877-3351**

 

**NONE**

(Former name, former addressand former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days.  Yes x  No o

 

Indicate by check mark whether the registranthas submitted electronically and posted on its corporate Web site, if any,every Interactive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding12 months (or for such shorter period that the registrant was required tosubmit and post such files).  Yes o  No o

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer, ora smaller reporting company. See the definitions of “large accelerated filer,” “acceleratedfiler,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

| Large accelerated filer o                                              |   | Accelerated filer o         |
|-----------------------------------------------------------------------------|--------|----------------------------------|
|                                                                        |   |                             |
| Non-accelerated filer o

(Do not check if a smaller reporting company) |   | Smaller reporting company x |

 

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

Indicate the number of shares outstanding ofeach of the issuer’s classes of common stock, as of the latest practicabledate.

 

| **Class**                  | ** ** | **Outstanding at November 2, 2009** |
|----------------------------|------------|---------------------------------------------------------|
| Common Stock, no par value |       | 8,537,634 shares                                        |

 

 

 

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Table of Contents

 

**MAUI LAND & PINEAPPLE COMPANY, INC.**

**ANDSUBSIDIARIES**

 

**TABLE OF CONTENTS**

 
| ** **                                                                                                                        | ** ** | **Page** |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|----------|
| PART I. FINANCIAL INFORMATION                                                                                                |       | 2        |
|                                                                                                                              |       |     |
| Item 1. Financial Statements (unaudited)                                                                                     |       | 2        |
|                                                                                                                              |       |     |
| Condensed  Consolidated Statements of Operations,   Three Months Ended September 30, 2009 and 2008                           |       | 2        |
|                                                                                                                              |       |     |
| Condensed  Consolidated Statements of Operations,  Nine Months Ended September 30, 2009 and 2008                             |       | 3        |
|                                                                                                                              |       |     |
| Condensed  Consolidated Balance Sheets, September 30, 2009 and December 31,  2008                                       |       | 4        |
|                                                                                                                              |       |     |
| Condensed  Consolidated Statements of Stockholders’ Equity (Deficiency),  Nine Months Ended September 30, 2009 and 2008 |       | 5        |
|                                                                                                                              |       |     |
| Condensed  Consolidated Statements of Cash Flows,  Nine Months Ended September 30, 2009 and 2008                             |       | 6        |
|                                                                                                                              |       |     |
| Notes to Condensed Consolidated Financial Statements                                                                              |       | 7        |
|                                                                                                                              |       |     |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations                          |       | 16       |
|                                                                                                                              |       |     |
| Forward-Looking Statements and Risks                                                                                              |       | 28       |
|                                                                                                                              |       |     |
| Item 4. Controls and Procedures                                                                                              |       | 29       |
|                                                                                                                              |       |     |
| PART II.  OTHER INFORMATION                                                                                                  |       | 30       |
|                                                                                                                              |       |     |
| Item  1. Legal Proceedings                                                                                                        |       | 30       |
|                                                                                                                              |       |     |
| Item 1A.  Risk Factors                                                                                                       |       | 30       |
|                                                                                                                              |       |     |
| Item 6.  Exhibits                                                                                                            |       | 31       |
|                                                                                                                              |       |     |
| Signature                                                                                                                         |       | 32       |
|                                                                                                                              |       |     |
| EXHIBIT INDEX                                                                                                                     |       |     |
|                                                                                                                              |       |     |
| Exhibit 10.1                                                                                                                 |       |     |
| Exhibit 10.2                                                                                                                 |       |     |
| Exhibit 31.1                                                                                                                 |       |     |
| Exhibit 31.2                                                                                                                 |       |     |
| Exhibit 32.1                                                                                                                 |       |     |

 

1

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**PART I FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements**

 

**MAUI LAND & PINEAPPLE COMPANY, INC. ANDSUBSIDIARIES**

 

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

 

**(UNAUDITED)**

** **
| ** **                                        | ** ** | **Three Months Ended**    | ** ** |
|---------------------------------------------------|------------|---------------------------|------------|
| ** **                                        | ** ** | **9/30/09**               | ** ** | **9/30/08** | ** ** |
| ** **                                        | ** ** | **(in thousands**         | ** ** |
| ** **                                        | ** ** | **except share amounts)** | ** ** |
| Operating Revenues                                |       |                      |       |   |   |
| Product revenues                                  |       | $                         | 19,605     |   | $ | 10,802 |   |
| Service revenues                                  |       | 7,055                     |       | 8,317 |   |
| Total Operating Revenues                          |       | 26,660                    |       | 19,119 |   |
|                                              |       |                      |       |   |   |
| Operating Costs and Expenses                      |       |                      |       |   |   |
| Cost of product revenues                          |       | 11,602                    |       | 12,173 |   |
| Cost of service revenues                          |       | 9,780                     |       | 10,419 |   |
| Shipping and marketing                            |       | 1,723                     |       | 3,318 |   |
| General and administrative                        |       | 4,612                     |       | 11,046 |   |
| Total Operating Costs and Expenses                |       | 27,717                    |       | 36,956 |   |
|                                              |       |                      |       |   |   |
| Operating Loss                                    |       | (1,057                    | )          | (17,837 | ) |
|                                              |       |                      |       |   |   |
| Equity in income (losses) of affiliates (Note 11) |       | (22,794                   | )          | 5,047 |   |
| Interest expense                                  |       | (2,749                    | )          | (1,381 | ) |
| Interest income                                   |       | 107                       |       | 45 |   |
|                                              |       |                      |       |   |   |
| Loss Before Income Taxes                          |       | (26,493                   | )          | (14,126 | ) |
| Income Tax Benefit                                |       | 1,007                     |       | 5,431 |   |
|                                              |       |                      |       |   |   |
| Net Loss                                          |       | $                         | (25,486    | ) | $ | (8,695 | ) |
|                                              |       |                      |       |   |   |
| Loss Per Common Share                             |       |                      |       |   |   |
| Basic                                             |       | $                         | (3.17      | ) | $ | (1.09 | ) |
| Diluted                                           |       | $                         | (3.17      | ) | $ | (1.09 | ) |

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

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**MAUI LAND &PINEAPPLE COMPANY, INC. AND SUBSIDIARIES**

 

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

 

**(UNAUDITED)**

 
| ** **                                        | ** ** | **Nine Months Ended**     | ** ** |
|---------------------------------------------------|------------|---------------------------|------------|
| ** **                                        | ** ** | **9/30/09**               | ** ** | **9/30/08** | ** ** |
| ** **                                        | ** ** | **(in thousands**         | ** ** |
| ** **                                        | ** ** | **except share amounts)** | ** ** |
| Operating Revenues                                |       |                      |       |   |   |
| Product revenues                                  |       | $                         | 35,423     |   | $ | 36,342 |   |
| Service revenues                                  |       | 20,108                    |       | 25,707 |   |
| Total Operating Revenues                          |       | 55,531                    |       | 62,049 |   |
|                                              |       |                      |       |   |   |
| Operating Costs and Expenses                      |       |                      |       |   |   |
| Cost of product revenues                          |       | 23,539                    |       | 29,751 |   |
| Cost of service revenues                          |       | 28,910                    |       | 30,371 |   |
| Shipping and marketing                            |       | 5,753                     |       | 10,195 |   |
| General and administrative                        |       | 20,314                    |       | 29,398 |   |
| Impairment charges (Note 7)                       |       | 16,156                    |       | — |   |
| Total Operating Costs and Expenses                |       | 94,672                    |       | 99,715 |   |
|                                              |       |                      |       |   |   |
| Operating Loss                                    |       | (39,141                   | )          | (37,666 | ) |
|                                              |       |                      |       |   |   |
| Equity in income (losses) of affiliates (Note 11) |       | (47,187                   | )          | 26,446 |   |
| Interest expense                                  |       | (7,292                    | )          | (3,323 | ) |
| Interest income                                   |       | 485                       |       | 247 |   |
|                                              |       |                      |       |   |   |
| Loss Before Income Taxes                          |       | (93,135                   | )          | (14,296 | ) |
| Income Tax Benefit                                |       | 207                       |       | 5,459 |   |
|                                              |       |                      |       |   |   |
| Net Loss                                          |       | $                         | (92,928    | ) | $ | (8,837 | ) |
|                                              |       |                      |       |   |   |
| Loss Per Common Share                             |       |                      |       |   |   |
| Basic                                             |       | $                         | (11.57     | ) | $ | (1.11 | ) |
| Diluted                                           |       | $                         | (11.57     | ) | $ | (1.11 | ) |

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

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**MAUI LAND &PINEAPPLE COMPANY, INC. AND SUBSIDIARIES**

 

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 

**(UNAUDITED)**

** **
| ** **                                                                                                    | ** ** | **9/30/09**        | ** ** | **12/31/08** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|--------------|------------|
| ** **                                                                                                    | ** ** | **(in thousands)** | ** ** |
| ASSETS                                                                                                        |       |               |       |         |       |
| Current Assets                                                                                                |       |               |       |         |       |
| Cash and cash equivalents                                                                                     |       | $                  | 855        |         | $          | 13,668 |   |
| Accounts and notes receivable                                                                                 |       | 4,006              |       | 5,509        |       |
| Refundable income taxes                                                                                       |       | 1,013              |       | 4,662        |       |
| Inventories                                                                                                   |       | 9,939              |       | 9,737        |       |
| Real estate held for sale (Note 7)                                                                            |       | 16,352             |       | 18,963       |       |
| Other current assets                                                                                          |       | 1,147              |       | 600          |       |
| Total current assets                                                                                          |       | 33,312             |       | 53,139       |       |
|                                                                                                          |       |               |       |         |       |
| Property                                                                                                      |       | 193,441            |       | 212,242      |       |
| Accumulated depreciation                                                                                      |       | (91,319            | )          | (96,002      | )          |
| Property - net                                                                                                |       | 102,122            |       | 116,240      |       |
|                                                                                                          |       |               |       |         |       |
| Investments in affiliates                                                                                     |       | —             |       | 41,683       |       |
| Other assets (Note 7)                                                                                         |       | 14,025             |       | 37,138       |       |
| Total                                                                                                         |       | $                  | 149,459    |         | $          | 248,200 |   |
|                                                                                                          |       |               |       |         |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY (DEFICIENCY)                                                       |       |               |       |         |       |
| Current Liabilities                                                                                           |       |               |       |         |       |
| Current portion of long-term debt and capital lease obligations                                               |       | $                  | 995        |         | $          | 46,050 |   |
| Trade accounts payable                                                                                        |       | 6,917              |       | 8,183        |       |
| Other current liabilities                                                                                     |       | 12,371             |       | 13,351       |       |
| Total current liabilities                                                                                     |       | 20,283             |       | 67,584       |       |
|                                                                                                          |       |               |       |         |       |
| Non-Current Liabilities                                                                                       |       |               |       |         |       |
| Long-term debt and capital lease obligations                                                                  |       | 88,052             |       | 90,941       |       |
| Accrued retirement benefits                                                                                   |       | 41,882             |       | 43,798       |       |
| PGC deferred credit (Note 10)                                                                                 |       | 46,813             |       | —       |       |
| Other non-current liabilities                                                                                 |       | 12,576             |       | 14,189       |       |
| Total non-current liabilities                                                                                 |       | 189,323            |       | 148,928      |       |
|                                                                                                          |       |               |       |         |       |
| Commitments and Contingencies (Note 18)                                                                       |       |               |       |         |       |
|                                                                                                          |       |               |       |         |       |
| Stockholders’ Equity (Deficiency)                                                                        |       |               |       |         |       |
| Common stock, no par value— 23,000,000 shares authorized,8,063,234 and  8,021,248 issued and outstanding |       | 35,276             |       | 34,791       |       |
| Additional paid-in capital                                                                                    |       | 8,971              |       | 8,363        |       |
| Retained earnings (Accumulated deficit)                                                                       |       | (86,370            | )          | 6,558        |       |
| Accumulated other comprehensive loss                                                                          |       | (18,024            | )          | (18,024      | )          |
| Stockholders’ Equity (Deficiency)                                                                        |       | (60,147            | )          | 31,688       |       |
| Total                                                                                                         |       | $                  | 149,459    |         | $          | 248,200 |   |

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

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** **

**MAUI LAND &PINEAPPLE COMPANY, INC. AND SUBSIDIARIES**

 

**CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(DEFICIENCY)**

 

**(UNAUDITED)**

 

**For theNine Months Ended September 30, 2009 and 2008**

 

**(inthousands)**

** **
| ** **                                                                      | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | **Retained**      | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------------|------------|------------------|------------|-------------|------------|------------------|------------|-------------------|------------|-----------------|------------|------------|------------|
| ** **                                                                      | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional**   | ** ** | **Earnings**      | ** ** | **Other**       | ** ** | ** ** | ** ** |
| ** **                                                                      | ** ** | **Common Stock** | ** ** | **Paid in** | ** ** | **(Accumulated** | ** ** | **Comprehensive** | ** ** | ** **      | ** ** |
| ** **                                                                      | ** ** | **Shares**       | ** ** | **Amount**  | ** ** | **Capital**      | ** ** | **Deficit)**      | ** ** | **Loss**        | ** ** | **Total**  | ** ** |
| ** **                                                                      | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **        | ** ** | ** **      | ** ** | ** ** | ** ** |
| **Balance, January 1, 2009**                                               |       | 8,021            |       | $           | 34,791     |             | $          | 8,363             |       | $               | 6,558      |       | $          | (18,024 | ) | $ | 31,688 |   |
| Stock compensation expense                                                      |       |             |       |        |       | 1,239            |       |              |       |            |       | 1,239      |       |
| Vested restricted stock issued                                                  |       | 61               |       | 631         |       | (631             | )          |              |       |            |       | —     |       |
| Shares cancelled to pay tax liability                                           |       | (19              | )          | (146        | )          |             |       |              |       |            |       | (146       | )          |
| Net loss                                                                        |       |             |       |        |       |             |       | (92,928           | )          |            |       | (92,928    | )          |
| **Balance, September 30, 2009**                                            |       | 8,063            |       | $           | 35,276     |             | $          | 8,971             |       | $               | (86,370    | )          | $          | (18,024 | ) | $ | (60,147 | ) |
|                                                                            |       |             |       |        |       |             |       |              |       |            |       |       |       |
| **Balance, January 1, 2008**                                               |       | 7,959            |       | $           | 34,168     |             | $          | 6,769             |       | $               | 90,576     |       | $          | (1,246 | ) | $ | 130,267 |   |
| Cumulative impact of adoption of ASC Topic 360-20-40-50 through 55,  net of tax |       |             |       |        |       |             |       | (4,622            | )          |            |       | (4,622     | )          |
| Pension benefit adjustment                                                      |       |             |       |        |       |             |       |              |       | (4,668          | )          | (4,668     | )          |
| Stock option exercises                                                          |       | 1                |       | 14          |       |             |       |              |       |            |       | 14         |       |
| Stock compensation expense                                                      |       |             |       |        |       | 1,847            |       |              |       |            |       | 1,847      |       |
| Vested restricted stock issued                                                  |       | 4                |       | 208         |       | (208             | )          |              |       |            |       | —     |       |
| Shares cancelled to pay tax liability                                           |       | (4               | )          | (104        | )          |             |       |              |       |            |       | (104       | )          |
| Net loss                                                                        |       |             |       |        |       |             |       | (8,837            | )          |            |       | (8,837     | )          |
| **Balance, September 30, 2008**                                            |       | 7,960            |       | $           | 34,286     |             | $          | 8,408             |       | $               | 77,117     |       | $          | (5,914 | ) | $ | 113,897 |   |

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

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**MAUI LAND &PINEAPPLE COMPANY, INC. AND SUBSIDIARIES**

 

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

 

**(UNAUDITED)**

 
| ** **                                               | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------------------|------------|-----------------------|------------|
| ** **                                               | ** ** | **9/30/09**           | ** ** | **9/30/08** | ** ** |
| ** **                                               | ** ** | **(in thousands)**    | ** ** |
|                                                     |       |                  |       |   |   |
| Net Cash Used in Operating Activities                    |       | $                     | (19,626    | ) | $ | (40,825 | ) |
|                                                     |       |                  |       |   |   |
| Investing Activities                                     |       |                  |       |   |   |
| Purchases of property                                    |       | (1,063                | )          | (12,389 | ) |
| Contributions to affiliates                              |       | —                |       | (7,855 | ) |
| Proceeds from disposal of property                       |       | 11,709                |       | 7,932 |   |
| Other                                                    |       | 1,313                 |       | (1,326 | ) |
| Net Cash Provided by (Used in) Investing Activities      |       | 11,959                |       | (13,638 | ) |
|                                                     |       |                  |       |   |   |
| Financing Activities                                     |       |                  |       |   |   |
| Payments of long-term debt and capital lease obligations |       | (64,407               | )          | (54,954 | ) |
| Proceeds from long-term debt                             |       | 13,500                |       | 113,700 |   |
| Net proceeds from PGC (Note 10)                          |       | 48,520                |       | — |   |
| Reduction of PGC deferred credit                         |       | (1,521                | )          | — |   |
| Debt issuance cost and other                             |       | (1,238                | )          | (1,497 | ) |
| Stock compensation exercises                             |       | —                |       | 14 |   |
| Net Cash Provided by (Used in) Financing Activities      |       | (5,146                | )          | 57,263 |   |
|                                                     |       |                  |       |   |   |
| Net Increase (Decrease) in Cash and Cash Equivalents     |       | (12,813               | )          | 2,800 |   |
|                                                     |       |                  |       |   |   |
| Cash and Cash Equivalents at Beginning of Period         |       | 13,668                |       | 1,991 |   |
|                                                     |       |                  |       |   |   |
| Cash and Cash Equivalents at End of Period               |       | $                     | 855        |   | $ | 4,791 |   |

 

Supplemental Disclosures of Cash FlowInformation—Interest (net of amounts capitalized) of $7,034,000 and $3,582,000was paid during the nine months ended September 30, 2009 and 2008,respectively. Income tax refunds of 4,143,000 and $4,052,000 were receivedduring the nine months ended September 30, 2009 and 2008, respectively.

 

Supplemental Non-Cash Investing and FinancingActivities—

 

·                  Property acquired undercapital leases was $698,000 and $1,697,000 during the nine months ended September 30,2009 and 2008, respectively.

 

·                  Amounts included in tradeaccounts payable for additions to property and for other investing activitiestotaled $1,398,000 and $2,039,000 at September 30, 2009 and 2008,respectively.

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

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**MAUI LAND &PINEAPPLE COMPANY, INC. AND SUBSIDIARIES**

 

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**(UNAUDITED)**

 

**1.**                                      Theaccompanying unaudited condensed consolidated financial statements have beenprepared by Maui Land & Pineapple Company, Inc. (together withits subsidiaries, the “Company”) in accordance with generally acceptedaccounting principles for interim financial information that are consistent in allmaterial respects with those applied in the Company’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2008, and pursuant to theinstructions to Form 10-Q and Article 10 promulgated byRegulation S-X of the Securities and Exchange Commission (the “SEC”).Accordingly, they do not include all of the information and notes to financialstatements required by U.S. generally accepted accounting principles forcomplete financial statements. In the opinion of management, the accompanyingcondensed consolidated financial statements contain all normal and recurringadjustments necessary to fairly present the financial position, results ofoperations and cash flows for the interim periods ended September 30, 2009and 2008. The financial statements and notes should be read in conjunction withthe consolidated financial statements and notes thereto included in the Company’sForm 10-K for the fiscal year ended December 31, 2008. Subsequentevents were evaluated through November 3, 2009, the date these condensedconsolidated financial statements were issued.

 

LIQUIDITY

 

For the nine months ended September 30,2009, the Company incurred a net loss of $92.9 million and had negative cashflows from operations of $19.6 million. At September 30, 2009, theCompany had amounts outstanding under borrowing agreements of approximately$92.8 million; and approximately $15.6 million available underexisting lines of credit and $855,000 in cash and cash equivalents; and adeficiency in stockholders’ equity (total liabilities exceeded total assets) of$60.1 million.

 

At September 30, 2009,the Company had $52.8 million of borrowings outstanding under agreements thatwere scheduled to mature in March 2010, with financial covenants requiringamong other things, a minimum of $10 million in liquidity and a limitation onnew indebtedness.  Failure to satisfy theminimum liquidity covenants or to otherwise default under one credit agreementcould result in a default under both credit agreements as well as a defaultunder the $40 million senior secured convertible notes. Defaults under thecredit agreements could result in all outstanding borrowings becomingimmediately due and payable. A default under the senior secured convertiblenotes could require the Company to redeem the notes at 115% of the outstandingamount of principal and accrued interest.

 

The Company’s cash outlookfor the next twelve months and ability to continue to meet its financialcovenants is highly dependent on selling certain real estate assets in adifficult market.If the Companyis unable to meet its financial covenants resulting in the borrowings becomingimmediately due, the Company would not have sufficient liquidity to repay suchoutstanding borrowings. In addition, the Company has an obligation to purchasethe spa, beach club improvements and the sundry store from Kapalua BayHoldings, LLC (Bay Holdings) at actual construction costs of approximately$35 million.  The Company isnegotiating with the other members of Bay Holdings to restructure the purchaseand sale of the assets and avoid immediate cash requirements.  The Companydoes not currently have the cash resources to complete the sale.  The Company is also subjectto other commitments and contingencies that could negatively impact its futurecash flows as described in Note 18. These circumstances raise substantial doubt about the Company’s abilityto continue as a going concern and there can be no assurance that the Companywill be able to successfully achieve its initiatives discussed below in orderto continue as a going concern. The accompanying condensed consolidatedfinancial statements do not include any adjustments that might result shouldthe Company be unable to continue as a going concern.

 

In response to thesecircumstances, the Company is undertaking several financial and strategicinitiatives to reduce cash commitments and generate cash flow from a variety ofsources, including the sale of several real estate assets. In the third quarterof 2009, the Company concluded the sale of two properties that resulted intotal cash proceeds (net of selling costs) of $11.5 million, and in October 2009,the Company entered into revised revolving credit agreements (see Note12).  The Company’s $45 million line ofcredit was increased to $50 million, the maturity extended from March 2010to March 2011, and the minimum liquidity requirement was reduced from $10million to $8 million.  The maturity andliquidity covenant of the Company’s $25 million line of credit was similarlyamended.  In March 2009, the Companysold the Plantation Golf Course (PGC) and repaid $45 million of debt (Note10).  The Company has renegotiatedagreements to eliminate approximately $6 million of 2009 cash commitments(net of cancellation fees); and is currently in the process of negotiatingadditional deferrals of 2009 payments into 2010 and later. In addition, theCompany has taken several other actions to reduce cash outflows includingreducing its total number of employees by approximately 183, or 23%, in thefirst 

 

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nine months of 2009, as well as othermeasures to reduce operating expenses. The Company is actively in the processof attempting to sell several selected real estate assets to provide additionalliquidity and to further reduce debt. The Company is also working on engaging third parties to operate certainof its operations in order to reduce overhead and cash requirements and mayconclude an equity financing transaction.

 

There can be no assurancethat the Company will be able to sell real estate assets at acceptable prices,or at all, or that it will be able to maintain compliance with financialcovenants or to continue as a going concern. Failure to sell real estate assets or to maintain compliance withfinancial covenants would have a material adverse impact on its financialcondition and results of operations and raises substantial doubt about theCompany’s ability to continue as a going concern.

 

**2.**                                      The Company’sreports for interim periods utilize numerous estimates of production cost,general and administrative expenses, and other costs for the full year. Futureactual amounts may differ from the estimates. Amounts in the interim reportsare not necessarily indicative of results for the full year.

 

**3.**                                      Net loss wasequal to comprehensive loss for the interim periods ended September 30,2009 and 2008.

 

**4.**                                      The effectivetax rate for 2009 reflects the recognition of expected federal alternativeminimum tax liabilities and interim period tax benefits and additions to thetax valuation allowance. The effective tax rate for 2008 differs from thestatutory federal rate primarily because of the state tax provision and statetax credits.

 

**5.**                                      Accounts andnotes receivable are reflected net of allowance for doubtful accounts of$435,000 and $658,000 at September 30, 2009 and December 31, 2008,respectively.

 

**6.**                                      Inventories asof September 30, 2009 and December 31, 2008 were as follows:

 
| ** **                             | ** ** | **9/30/09**        | ** ** | **12/31/08** | ** ** |
|----------------------------------------|------------|--------------------|------------|--------------|------------|
| ** **                             | ** ** | **(in thousands)** | ** ** |
| Pineapple products—finished goods |       | $                  | 1,221      |         | $          | 807 |   |
| Real estate                            |       | 4,141              |       | 3,254        |       |
| Merchandise, materials and supplies    |       | 4,577              |       | 5,676        |       |
| Total Inventories                      |       | $                  | 9,939      |         | $          | 9,737 |   |

 

**7.****                                     ****Impairment Charges**

 

In June 2009, theCompany recorded a charge of $1.9 million representing the adjustment ofits real estate held for sale to its estimated fair value less cost to sell.The impairment relates to the Company’s Kahului property on which improvementsfor the fresh fruit processing plant were constructed. Also in June 2009,the Company wrote off $14.2 million of deferred development costs. Due tochanging market conditions, several project development plans have been writtenoff because the projects, as currently designed, are no longer feasible. Inaddition, projects that are no longer compatible with the Company’s future realestate development expectations have been abandoned and all relatedpredevelopment costs have been written off.

 

**8.****                                     ****Average Common Shares Outstanding Used to Compute Earnings Per Share**

** **
| ** **           | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|----------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **           | ** ** | **2009**                                  | ** ** | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
|                 |       |                                      |       |                                     |       |   |   |   |   |
| Basic                |       | 8,047,228                                 |       | 7,959,850                                |       | 8,034,045 |   | 7,961,516 |   |
| Diluted              |       | 8,047,228                                 |       | 7,959,850                                |       | 8,034,045 |   | 7,961,516 |   |
| Potentially Dilutive |       | 1,336,052                                 |       | 883,104                                  |       | 1,333,333 |   | 324,727 |   |

 

Potentially dilutive sharesarising from non-qualified stock options to purchase common stock, non-vestedrestricted stock, and common stock issuable upon assumed conversion ofconvertible debt, are not included in the number of diluted common sharesbecause to do so would have an antidilutive effect on the loss per shareamounts (i.e., decrease loss per common share).

 

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**9.****                                     ****Recently Issued Accounting Pronouncements**

 

In December 2008, the FinancialAccounting Standards Board (FASB) issued FASB Accounting Standards Codification(ASC) Topic 715-20-65-2, effective for fiscal years ending after December 15,2009, to require an employer to disclose investment policies and strategies,categories, fair value measurements, and significant concentrations of riskamong its postretirement benefit plan assets. The Company is currently evaluating the effect that this amendment willhave on the consolidated financial statements.

 

In June 2009, the FASB issued FASBStatement No. 167, *Amendments to FASBInterpretation No. 46R* (not yet incorporated into ASC). FASBStatement No. 167 amends the consolidation guidance applicable to variableinterest entities and requires enhanced disclosures about an enterprise’sinvolvement in a variable interest entity. FASB Statement No. 167 alsorequires ongoing assessments of whether an enterprise is the primarybeneficiary of a variable interest entity. FASB Statement No. 167 iseffective beginning January 1, 2010. The Company is currently reviewingthe effect of FASB Statement No. 167 will have******on its consolidated financialstatements.

 

**10.****                              ****Real Estate Sales**

 

In September 2009, theCompany sold approximately 128 acres of land including a portion of the KapaluaMauka planned project and a residential property in Upcountry Maui andrecognized revenues of $11.7 million and a pre-tax gain of approximately $6.8million.

 

On March 27, 2009, theCompany sold the land, improvements, structures and fixtures comprising the PGCfor $50 million in cash. Concurrent with the closing of the sale, theCompany entered into an agreement (Ground Lease) to leaseback the PGC for aninitial period of two years for an annual net rental payment of$4 million, payable monthly in advance. The Company also entered into anagreement to leaseback the portion of the Plantation Clubhouse comprising theretail shop for a period of five years, which will commence when the GroundLease expires or is otherwise terminated. The Ground Lease requires the Companyto replace the irrigation system at the PGC at its own cost and expense,subject to a cap of $5 million. Because of the Company’s continuinginvolvement associated with the obligation to replace the irrigation system,the sale and leaseback of the PGC has been accounted for as a financingtransaction and, accordingly, the net proceeds received have been recorded as anon-current liability on the consolidated balance sheet and no gain will berecognized until the irrigation system replacement project has been completed.Expected date of completion is August 2010. In consideration for therelease of the PGC from the collateral for the Company’s $90 millionrevolving line of credit with Wells Fargo Bank and certain other lenders, uponclosing of the sale, $45 million of the net proceeds were used topartially repay borrowings under this line and the credit limit available underthis facility was reduced to $45 million.

 

**11.****                              ****Investments in Affiliates**

 

KAPALUA BAY HOLDINGS, LLC

 

In September 2009, BayHoldings recorded impairment losses totaling $208.8 million to reflect animpairment of the carrying value of its real estate inventories (whole andfractional condominium units) held for sale. The impairment losses reflect higher default rates on actual whole andfractional unit closings than was anticipated once construction was completedin June 2009, and also reflects a change in forecasted sales revenue onthe unsold whole and fractional units that substantially reduces expectedmargins for those remaining units. The Company’s equity in income (losses) ofBay Holdings for the third quarter of 2009 and 2008 was $(22.8) million and $5.1million, respectively.  For the ninemonths ended September 30, 2009 and 2008, the Company’s equity in theincome (losses) of Bay Holdings was $(47.2) million (including an impairmentcharge of $21.3 million recorded by the Company in June 2009) and $26.5million, respectively.  The equity in thelosses of Bay Holdings recorded by the Company was limited to the remaininginvestment carrying value on the Company’s consolidated balance sheet includingits unsecured loan to Bay Holdings of $3.6 million and also included theCompany’s estimated share of its completion and recourse guarantees whichresulted in the Company recording a liability for $2.5 million.  The Company has no funding commitmentsrelating to Bay Holdings beyond this amount. As a result, the Company’s carrying value of its investment in BayHoldings and its $3.6 million loan due from Bay Holdings were written down tozero and, accordingly, the Company does not expect to recover any amounts fromits investment in Bay Holdings.  As of September 30,2009, unrecognized losses attributable to Bay Holdings totaled $89.5 million.

 

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In June 2009, theCompany recorded an impairment charge of $21.3 million to reflect whatmanagement believed to be an impairment in the carrying value of its investmentin Bay Holdings. The six residential buildings comprised of 146 units in theproject were substantially complete in June 2009, and through September 30,2009, 19 (84 total) of the whole ownership condominium units and 62 (744 total)fractional units have closed escrow. The beachclub facility and the spa openedin early July 2009.

 

Upon formation of BayHoldings in 2004, the Company’s non-monetary contributions to Bay Holdings,including a 21-acre land parcel, were valued at $25 million by the membersthrough arms-length negotiations. The land contribution was recorded by theCompany in its investment carrying value in Bay Holdings at historical cost,which was nominal, and Bay Holdings recorded the contribution at its fair valueof $25 million. In 2007, Bay Holdings began to recognize revenues andprofit from binding sales contracts on the whole and fractional ownershipcondominiums on the percentage-of-completion method. As Bay Holdings recognizedrevenues, the Company recognized a proportionate amount of the unrealizedappreciation of the fair value of the land and other non-monetary contributionsand other deferred costs related to the joint venture.  As a result of the reduction of the Company’sinvestment to zero in September 2009, amounts previously deferred for thevalue of the land and other non-monetary contributions have also been reducedto zero and the Company does not anticipate that it will be able to recognizethe value of these contributions.

 

Through September 30,2009, the Company has made cash contributions to Bay Holdings of$53.2 million and an uncollateralized loan of $3.6 million thataccrued interest at 16%.  These amountsare not expected to be realized by the Company and have been reduced to zerodue to the impairment charges and equity in losses from Bay Holdings recordedthrough September 2009 as discussed above.

 

As of January 1, 2008,Bay Holdings adopted FASB ASC Topic 360-20-40-50 through ASC Topic360-20-40-55, (formerly, Emerging Issues Task Force (EITF) Issue No. 06-8,*Applicability of the Assessment of a Buyer’sContinuing Investment under FASB Statement No. 66, Accounting for Sales ofReal Estate*,*for Sales of Condominiums)*. Thecumulative effect of adopting the Topic of $12.5 million was recorded as a reduction to Bay Holdings’ January 1,2008 retained earnings, and the Company recorded its proportionate share ofthis adjustment of $4,622,000 (net of income tax effect) to its openingretained earnings for 2008.

 

In July 2006, BayHoldings entered into a syndicated construction loan agreement with LehmanBrothers Holdings Inc. (Lehman) for the lesser of $370 million or61.6% of the total projected cost of the project. Lehman’s commitment under theloan agreement was approximately 78% of the total. The loan is collateralizedby the project assets, including the fee simple interest in the land owned byBay Holdings, the adjacent spa parcel owned by the Company, and all of thesales contracts. On September 15, 2008 Lehman filed a petition underChapter 11 of the U.S. Bankruptcy Code with the United States BankruptcyCourt, and on February 11, 2009, Bay Holdings, Lehman, other lenders underthe loan agreement, Swedbank and MH Kapalua Venture, LLC, an affiliate ofMarriott, entered into an Amended and Restated Construction Loan Agreement.Pursuant to the amended loan agreement, the aggregate amount that Bay Holdingsmay borrow, including amounts previously funded under the loan agreement isapproximately $354.5 million.

 

The Company and the othermembers of the joint venture continue to guarantee to the lenders completion ofthe project and each member’s pro rata share of costs and losses incurred bythe lender as a result of the occurrence of specified triggering events duringthe term of the Amended Loan Agreement. The members’ guarantee to the lenderdoes not include payment in full of the loan. The Company has recognized aliability of $2.5 million as of September 30, 2009, representing theestimated fair value of its obligation under these provisions.

 

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Summarized operatinginformation for Bay Holdings is as follows:

 
| ** **         | ** ** | **Three Months Ended**  | ** ** | **Nine Months Ended**  | ** ** |
|--------------------|------------|-------------------------|------------|------------------------|------------|
| ** **         | ** ** | **September 30,**  | ** ** | **September 30,** | ** ** |
| ** **         | ** ** | **2009**                | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **         | ** ** | **(in thousands)** | ** ** |
|               |       |                    |       |                   |       |   |   |   |   |
| Revenues           |       | $                       | (10,969    | )                      | $          | 39,758 |   | $ | (20,076 | ) | $ | 164,200 |   |
|               |       |                    |       |                   |       |   |   |   |   |
| Expenses           |       | (77                     | )          | 31,672                 |       | (3,411 | ) | 120,842 |   |
|               |       |                    |       |                   |       |   |   |   |   |
| Impairment loss    |       | 208,768                 |       | —                 |       | 208,768 |   | — |   |
|               |       |                    |       |                   |       |   |   |   |   |
| Net Income  (Loss) |       | $                       | (219,660   | )                      | $          | 8,086 |   | $ | (225,433 | ) | $ | 43,358 |   |

 

**12.****                              ****Debt**

 

In October 2009, theCompany entered into an amended and restated line of credit agreement withWells Fargo.  The agreement principallyincreases the secured revolving line of credit from $45 million to $50 million,extends the maturity date of the credit agreement from March 2010 to March 2011,and re-sets financial covenants.  Asamended, the agreement provides that interest on loan draws accrue interestbased on the LIBOR market index or applicable LIBOR rate, plus 4.25%, subjectto a minimum interest rate of 5.5%.  Thefinancial covenants include a minimum liquidity (as defined in the agreement)of $8 million and maximum total liabilities of $240 million.  In connection with the sale of PGC, the Companyapplied $45 million of proceeds against outstanding borrowings under thisline of credit, which was partially collateralized by the PGC, and theavailable credit was reduced from $90 million to $45 million.

 

Also in October 2009,the Company entered into an amendment of its $25 million secured revolvingcredit line with American AgCredit, FLCA. The amendment principally extends the maturity of the credit agreementfrom March 2010 to March 2011, increases the interest rate onborrowings by 75 to 200 basis points, subject to a minimum interest rate of5.5%, and re-sets financial covenants. The financial covenants include a minimum liquidity (as defined in theagreement) of $8 million, maximum total liabilities of $240 million, andlimitations on capital expenditures.

 

**13.****                              ****Stock-Based Compensation**

 

The total compensationexpense recognized for stock-based compensation was $1,239,000 and $1,786,000for the nine months ended September 30, 2009 and 2008, respectively, and$270,000 and $544,000 for the three months ended September 30, 2009 and2008, respectively. The total tax benefit related thereto was $445,000 and$643,000 for the nine months ended September 30, 2009 and 2008,respectively, and $97,000 and $196,000 for the three months ended September 30,2009 and 2008, respectively. Recognized stock compensation was reduced forestimated forfeitures prior to vesting primarily based on historical annualforfeiture rates of approximately 4.0% and 4.1%, as of September 30, 2009and 2008, respectively. Estimated forfeitures will be reassessed in subsequentperiods and may change based on new facts and circumstances.

 

*Stock Options*

 

A summary of stock optionaward activity as of and for the nine months ended September 30, 2009 ispresented below:

 
| ** **                                           | ** ** | ** ** | ** ** | ** **   | ** ** | ** **     | ** ** | **Weighted**     | ** ** | ** **        | ** ** |
|------------------------------------------------------|------------|------------|------------|--------------|------------|----------------|------------|------------------|------------|-------------------|------------|
| ** **                                           | ** ** | ** ** | ** ** | **Weighted** | ** ** | **Weighted**   | ** ** | **Average**      | ** ** | **Aggregate**     | ** ** |
| ** **                                           | ** ** | ** ** | ** ** | **Average**  | ** ** | **Average**    | ** ** | **Remaining**    | ** ** | **Intrinsic**     | ** ** |
| ** **                                           | ** ** | ** ** | ** ** | **Exercise** | ** ** | **Grant-Date** | ** ** | **Contractual**  | ** ** | **Value**         | ** ** |
| ** **                                           | ** ** | **Shares** | ** ** | **Price**    | ** ** | **Fair Value** | ** ** | **Term (years)** | ** ** | **$(000)****(1)** | ** ** |
| Outstanding at December 31, 2008                |       | 901,833    |       | $            | 29.20      |           |       |             |       |              |       |   |
| Granted                                              |       | 45,000     |       | $            | 6.35       |           | $          | 3.11             |       |              |       |   |   |
| Exercised                                            |       | —     |       | $            | —     |           |       |             |       |              |       |   |
| Forfeited or Expired                                 |       | (486,033   | )          | $            | 30.97      |           | $          | 13.33            |       |              |       |   |   |
| Outstanding at September 30, 2009               |       | 460,800    |       | $            | 25.10      |           | $          | 9.75             |       | 4.2               |       | $ | 27 |   |
| Exercisable at September 30, 2009               |       | 296,800    |       | $            | 28.25      |           | $          | 10.70            |       | 2.2               |       | $ | — |   |
| Expected to Vest at September 30, 2009 (2) |       | 126,526    |       | $            | 19.38      |           | $          | 8.02             |       | 7.8               |       | $ | 21 |   |

 

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(1)                                  Forin-the-money options

 

(2)                                  Optionsexpected to vest reflect estimated forfeitures

 

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Additional stock optioninformation for the nine months ended September 30, 2009 and 2008 is asfollows:

 
| ** **                                           | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------------------------|------------|----------|------------|----------|------------|
| Weighted Average Grant-Date Fair Value               |       |     |       |     |       |
| For Options Granted During the Period                |       | $        | 3.11       |     | $          | 10.80 |   |
| Intrinsic Value of Options Exercised $(000)          |       | —   |       | 4        |       |
| Cash Received From Option Exercises $(000)           |       | —   |       | 14       |       |
| Tax Benefit From Option Exercises $(000)             |       | —   |       | —   |       |
| Fair Value of Shares Vested During the Period $(000) |       | 1,125    |       | 1,575    |       |
|                                                      |            |          |            |          |            |  |  |

 

For the nine months ended September 30,2009 and 2008, the fair value of the Company’s stock options awarded wasestimated using the Black-Scholes option pricing model and the followingweighted average assumptions:

 
| ** **                        | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| Expected Life of Options in Years |       | 6.5      |       | 6.5      |       |
| Expected Volatility               |       | 46.1     | %          | 33.8     | %          |
| Risk-free interest rate           |       | 2.4      | %          | 3.4      | %          |
| Expected dividend yield           |       | —   |       | —   |       |

 

As of September 30,2009, there was $888,000 of total unrecognized compensation expense for awardsgranted under the stock option plans that is expected to be recognized over aweighted average period of 2.0 years.

 

*Restricted Stock*

 

In the nine months ended September 30,2009, 444,250 shares of restricted stock that vest as service requirements aremet were granted to certain directors and management; and 15,000 shares ofrestricted stock that will vest as performance measures are met were granted toone management employee. In the first nine months of 2009, 23,006 shares (netof shares withheld for payment of income taxes) of restricted stock vested asdirectors’ and management service requirements were met; and 19,785 shares (netof shares withheld for payment of income taxes) of previously grantedrestricted stock vested in connection with the termination of the Company’sformer President and Chief Executive Officer in May 2009. The weightedaverage grant-date fair value of restricted stock granted during the ninemonths ended September 30, 2009 and 2008 was $6.31 and $24.42 per share,respectively.

 

A summary of the activityfor restricted stock awards as of and for the nine months ended September 30,2009 is presented below:

 
| ** **                                    | ** ** | ** ** | ** ** | **Weighted**   | ** ** |
|-----------------------------------------------|------------|------------|------------|----------------|------------|
| ** **                                    | ** ** | ** ** | ** ** | **Average**    | ** ** |
| ** **                                    | ** ** | ** ** | ** ** | **Grant-Date** | ** ** |
| ** **                                    | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Nonvested balance at December 31, 2008   |       | 121,295    |       | $              | 26.70      |   |
| Granted                                       |       | 459,250    |       | $              | 6.31       |   |
| Vested                                        |       | (42,791    | )          | $              | 10.84      |   |
| Forfeited or Cancelled                        |       | (55,260    | )          | $              | 31.57      |   |
| Nonvested balance at September 30,  2009 |       | 482,494    |       | $              | 8.19       |   |

 

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**14.****                              ****Components of Net Periodic Benefit Cost**

 

The net periodic benefitcosts for pension and other post-retirement benefits for the three months andnine months ended September 30, 2009 and 2008 were as follows:

 
| ** **                           | ** ** | **Three Months**             | ** ** | **Nine Months**              | ** ** |
|--------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                           | ** ** | **Ended September 30,** | ** ** | **Ended September 30,** | ** ** |
| ** **                           | ** ** | **2009**                     | ** ** | **2008**                     | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                           | ** ** | **(in thousands)**           | ** ** |
| **Pension Benefits**                 |       |                         |       |                         |       |   |   |   |   |
| Service cost                         |       | $                            | 127        |                         | $          | 255 |   | $ | 883 |   | $ | 1,205 |   |
| Interest cost                        |       | 821                          |       | 935                          |       | 2,632 |   | 2,647 |   |
| Expected return on plan assets       |       | (593                         | )          | (806                         | )          | (1,838 | ) | (2,694 | ) |
| Amortization of prior service cost   |       | 12                           |       | 11                           |       | 34 |   | 37 |   |
| Amortization of transition liability |       | 4                            |       | 4                            |       | 12 |   | 14 |   |
| Recognized actuarial loss            |       | 351                          |       | 111                          |       | 1,319 |   | 223 |   |
| Curtailment loss                     |       | —                       |       | 102                          |       | — |   | 102 |   |
| Contractual termination benefits     |       | —                       |       | 33                           |       | — |   | 33 |   |
|                                 |       |                         |       |                         |       |   |   |   |   |
| Net expense                          |       | $                            | 722        |                         | $          | 645 |   | $ | 3,042 |   | $ | 1,567 |   |
|                                 |       |                         |       |                         |       |   |   |   |   |
| **Other Benefits**                   |       |                         |       |                         |       |   |   |   |   |
| Service cost                         |       | $                            | 45         |                         | $          | 54 |   | $ | 154 |   | $ | 212 |   |
| Interest cost                        |       | 145                          |       | 181                          |       | 544 |   | 605 |   |
| Amortization of prior service cost   |       | —                       |       | —                       |       | — |   | — |   |
| Recognized actuarial gain            |       | (162                         | )          | (187                         | )          | (403 | ) | (379 | ) |
| Curtailment gain                     |       | —                       |       | (421                         | )          | — |   | (421 | ) |
|                                 |       |                         |       |                         |       |   |   |   |   |
| Net expense                          |       | $                            | 28         |                         | $          | (373 | ) | $ | 295 |   | $ | 17 |   |

 

In 2009, minimum requiredcontributions to the Company’s defined benefit pension plans are expected to be$2.1 million. To date in 2009, the Company has made pension plancontributions totaling $1.7 million and has failed to pay a quarterlycontribution due in October of $404,000. The Company will be required to pay interest to the pension plans forcontributions that have been deferred. On August 3, 2009, the Company’s Board of Directors approved a planamendment to freeze future benefit accruals under the non-bargaining definedbenefit pension plan effective December 31, 2009. The Company expects tocontribute $835,000 to its other post-retirement benefit plans in 2009.

 

**15.****                              ****Fair Value Measurements**

 

In its ongoing businessoperations, the Company’s primary market risk exposure with regard to financialinstruments is due to changes in interest rates. The Company manages this riskby monitoring interest rates and future cash requirements and evaluatingopportunities to refinance borrowings at various maturities and interest rates.The Company also utilizes interest rate swaps or other derivatives to reducerisks associated with changes in interest rates.

 

The Company adopted FASB ASCTopic 820-10 (formerly, FASB Statement No. 157, *Fair Value Measurements),* on January 1, 2008 for itsfinancial assets and liabilities and on January 1, 2009 for itsnonfinancial assets and liabilities, and there was no material impact to theconsolidated financial statements. FASB ASC Topic 820-10 applies to all assetsand liabilities that are being measured and reported on a fair value basis.FASB ASC Topic 820-10 requires new disclosure that establishes a framework formeasuring fair value in GAAP, and expands disclosure about fair valuemeasurements. This statement enables the reader of the financial statements toassess the inputs used to develop those measurements by establishing ahierarchy for ranking the quality and reliability of the information used todetermine fair values. The statement requires that assets and liabilitiescarried at fair value be classified and disclosed in one of the following threecategories:

 

Level 1: Quoted marketprices in active markets for identical assets or liabilities.

 

Level 2: Observablemarket based inputs or unobservable inputs that are corroborated by marketdata.

 

Level 3: Unobservableinputs that are not corroborated by market data.

 

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In July 2008, theCompany issued $40 million in senior secured notes that are convertibleinto the Company’s common stock. The conversion features related to the notesgave rise to a derivative liability carried at fair value.

 

In January 2008, theCompany entered into interest rate swap agreements to reduce future cash flowvariability for approximately two years on $55 million of variable ratedebt. The effect of the agreements is to convert variable-rate interest, whichwas previously tied to 1-, 2-, 3- and 6-month LIBOR terms, to an averagefixed-rate interest of approximately 2.9%, before applicable interest ratespreads. The transactions were not designated as hedges, and, accordingly, thegains and losses resulting from the change in fair value from these interestrate swaps are recognized currently in interest expense.

 

Information regarding assetsand liabilities measured at fair value on a recurring basis is as follows:

 
| ** **                                        | ** ** | ** **                 | ** ** | **Fair Value****(1) ****of  Liability** | ** ** |
|---------------------------------------------------|------------|----------------------------|------------|----------------------------------------------|------------|
| ** **                                        | ** ** | ** **                 | ** ** | **Derivatives as of**                        | ** ** |
| **Derivatives not designated as  hedges:**        | ** ** | **Balance Sheet Location** | ** ** | **9/30/09**                                  | ** ** | **12/31/08** | ** ** |
|                                              |       |                       |       | **(in thousands)**                           |       |
| Interest rate swap agreements                     |       | Other current  liabilities |       | $                                            |  350  |   | $ |  1,160 |   |
| Derivative liability related to convertible  debt |       | Other  current liabilities |       | 724                                          |       | 2,689 |   |
|                                                   |            |                            |            |                                              |            |  |  |  |  |

 

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(1)                                  Fair valuemeasurements derived using significant other inputs (Level 2).

 
|                                              |       | **Location of gain or**     | ** ** | **Amount of gain or (loss) recognized** |       |
|---------------------------------------------------|------------|-----------------------------|------------|-----------------------------------------|------------|
|                                              |       | **(loss) recognized in**    | ** ** | **Three Months Ended**                  | ** ** | **Nine Months Ended** |   |
| **Derivatives not designated as  hedges:**        | ** ** | **statement of operations** | ** ** | **9/30/09**                             | ** ** | **9/30/08** | ** ** | **9/30/09** | ** ** | **9/30/08** | ** ** |
|                                              |       |                        |       | **(in  thousands)**                     |       |
| Interest rate swap agreements                     |       | Interest  expense           |       | $                                       | 322        |   | $ | (205 | ) | $ | 810 |   | $ | 134 |   |
| Derivative liability related to convertible  debt |       | Interest  expense           |       | 540                                     |       | 1,427 |   | 1,965 |   | 1,427 |   |
|                                                   |            |                             |            |                                         |            |  |  |  |  |  |  |  |  |  |  |

 

Except as indicated below,the carrying amount of the Company’s other financial instruments approximatesfair value.

 

*Long-Term Debt:*

 

The fair value of long-termdebt was estimated based on rates currently available to the Company for debtwith similar terms and remaining maturities. The carrying amount of long-termdebt at September 30, 2009 and December 31, 2008 was $86,303,000 and$133,959,000, respectively, and the fair value was $84,932,000 and$126,708,000, respectively.

 

In June 2009,long-lived assets currently classified as held for sale, with a carrying amountof $17.1 million were written down to estimated fair value less costs tosell of $15.2 million (based on Level 3 inputs), resulting in a loss of$1.9 million which was recorded as impairment losses in the second quarterof 2009 (see Note 7). The fair value was estimated based on the fairvalues of similar assets and recent offers received for the property as well othermarket information.

 

**16.****                              ****Income Taxes**

 

The Company uses arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return. Interest accrued related to unrecognized tax benefits isrecognized as interest expense and penalties are recognized in general andadministrative expense in the Company’s consolidated statement of operations;and such amounts are included in income taxes payable on the Company’sconsolidated balance sheet.

 

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At September 30, 2009,the Company had a liability of $945,000 for unrecognized tax benefits andinterest thereon of $1.5 million. At September 30, 2009,$13.3 million of unrecognized tax benefits represented taxes on revenuesfor which the timing of the taxability is uncertain and the liability for suchtaxes has been recognized as deferred tax liabilities. The acceleration of therecognition of such income would not affect the estimated annual effective taxrate, but would accelerate the payment of income taxes to earlier periods andwould result in additional interest expense.

 

**17.****                              ****Operating Segment Information**

** **
|                      |   | **Three Months**             |    | **Nine Months**              |   |
|---------------------------|--------|------------------------------|---------|------------------------------|--------|
|                      |   | **Ended September 30,** |    | **Ended September 30,** |   |
|                      |   | **2009**                     |    | **2008**                     |   | **2009** |   | **2008** |   |
|                      |   | **(in thousands)**           |    |
| Operating Revenues        |   |                         |    |                         |   |   |   |   |   |
| Agriculture               |   | $                            | 4,939   |                         | $      | 7,236 |   | $ | 14,353 |   | $ | 20,971 |   |
| Resort                    |   | 7,602                        |    | 9,101                        |   | 22,935 |   | 28,989 |   |
| Community Development     |   | 13,783                       |    | 2,220                        |   | 17,570 |   | 10,517 |   |
| Other                     |   | 336                          |    | 562                          |   | 673 |   | 1,572 |   |
| Total Operating Revenues  |   | $                            | 26,660  |                         | $      | 19,119 |   | $ | 55,531 |   | $ | 62,049 |   |
|                      |   |                         |    |                         |   |   |   |   |   |
| Operating Profit (Loss)   |   |                         |    |                         |   |   |   |   |   |
| Agriculture               |   | $                            | (4,086  | )                            | $      | (9,533 | ) | $ | (12,629 | ) | $ | (19,257 | ) |
| Resort                    |   | (2,664                       | )       | (5,652                       | )      | (11,432 | ) | (13,089 | ) |
| Community Development (1) |   | (16,946                      | )       | 2,461                        |   | (61,161 | ) | 21,517 |   |
| Other                     |   | (155                         | )       | (66                          | )      | (1,106 | ) | (391 | ) |
| Total Operating Loss      |   | (23,851                      | )       | (12,790                      | )      | (86,328 | ) | (11,220 | ) |
| Interest Expense          |   | (2,749                       | )       | (1,381                       | )      | (7,292 | ) | (3,323 | ) |
| Interest Income           |   | 107                          |    | 45                           |   | 485 |   | 247 |   |
| Income Tax Benefit        |   | 1,007                        |    | 5,431                        |   | 207 |   | 5,459 |   |
|                      |   |                         |    |                         |   |   |   |   |   |
| Net Loss                  |   | $                            | (25,486 | )                            | $      | (8,695 | ) | $ | (92,928 | ) | $ | (8,837 | ) |

 

----

(1)                                  Segment Profit(Loss) for the Community Development segment includes equity in income (losses)from Bay Holdings (see Note 11).

 

**18.****                              ****Commitments and Contingencies**

 

Pursuant to a 1999settlement agreement with the County of Maui, the Company and several chemicalmanufacturers have agreed that until December 1, 2039, they will pay for90% of the capital cost to install filtration systems in any future water wellsif the presence of a nematocide, commonly known as DBCP exceeds specifiedlevels, and for the ongoing maintenance and operating cost for filtrationsystems on existing and future wells. The Company is presently not aware of anyplans by the County of Maui to install other filtration systems or to drill anywater wells in areas affected by agricultural chemicals. Accordingly, a reservefor costs relating to any future wells has not been recorded because theCompany is not able to reasonably estimate the amount of the liability (ifany).

 

There are various otherclaims and legal actions pending against the Company. In the opinion ofmanagement, after consultation with legal counsel, the resolution of theseother matters is not expected to have a material adverse effect on the Company’scondensed consolidated financial statements.

 

The Company, as an investorin various affiliates (partnerships, limited liability companies), may underspecific circumstances be called upon to make additional capital contributions.

 

In connection with the PGCsale and leaseback, the Company is obligated to replace the irrigation systemprior to the end of the two-year leaseback term. The replacement costs arecapped at $5 million under the terms of the agreement (see Note 10).

 

Pursuant to previousagreements, the Company was obligated to purchase from Bay Holdings the spa,beach club improvements and the sundry store upon their completion in 2009 atthe actual construction cost of approximately $35 million. The Company isin negotiating with the other members of Bay Holdings to restructure thepurchase and sale agreements and avoid immediate cash requirements.  The Company does not currently have the cashresources to complete the sale.

 

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The Company had acontractual obligation to the Ladies Professional Golf Association to sponsoran annual golf tournament for five years beginning in October 2008. Thecost of such a tournament, including the production and the purse issignificant and the Company was seeking a title sponsor to defray part of thecost. On June 30, 2009, the Company announced that due to the lack of atitle sponsor, it is unable to hold the 2009 event that was scheduled forOctober, which has resulted in a dispute with the LPGA. As required by thecontract, the dispute can be resolved by mediation and if necessary by bindingarbitration. The Company is not able to estimate the losses, if any, that mightresult from the outcome of this dispute; accordingly, no provision for lossesrelating to this dispute has been recorded in the accompanying condensedconsolidated financial statements.  Dueto the liquidity situation of the Company, a judgment against the Company couldhave a material negative impact to the Company’s ability to maintain minimumliquidity required in its debt covenants.

 

On September 1, 2009,M. Yamamura and Sons, Inc. (Yamamura) filed a lawsuit against the Companywhich alleges that the Company materially breached the Planting Agreement bynot providing a planting schedule for 2009 and by asking Yamamura to ceaseplanting pineapple for the Company, and that the Company unilaterallyrestricted and impaired the value of Yamamura’s benefits under the PlantingAgreement.  The Company is not able toestimate the losses, if any, that might result from the outcome of thisdispute; accordingly, no provision for losses relating to this dispute has beenrecorded in the accompanying condensed consolidated financial statements. Dueto the liquidity situation of the Company, a judgment against the Company couldhave a material negative impact to the Company’s ability to maintain minimumliquidity required in its debt covenants.

 

At September 30, 2009,the Company had commitments under other signed contracts totaling$2.7 million, which primarily relate to real estate development projects, andare payable through 2014.

 

**19.****                              ****SubsequentEvent**

 

On November 2, 2009,the Board of Directors of the Company approved the immediate termination of theCompany’s pineapple operations.  TheCompany is currently evaluating the various costs that will be incurred andexpects that much of the termination process will be completed before year-end2009.

 

**Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

The following discussion and analysis of ourfinancial condition and results of operations should be read in conjunctionwith our audited consolidated financial statements and related notes includedin our Annual Report on Form 10-K for the year ended December 31,2008 and the unaudited condensed consolidated financial statements and relatednotes included in this Quarterly Report on Form 10-Q. Depending upon thecontext, the terms the “Company,” “we,” “our,” and “us,” refers to either MauiLand & Pineapple Company, Inc. alone, or the Company and itssubsidiaries.

 

***Overview of the Company***

 

Maui Land & Pineapple Company, Inc.is a Hawaii corporation and the successor to a business organized in 1909. Weoperate as a landholding and operating parent company for our principalsubsidiaries, including Maui Pineapple Company, Ltd., a producer andmarketer of Maui-grown pineapple, and Kapalua Land Company, Ltd., theoperator of Kapalua Resort, a master-planned community in West Maui. Ourreportable operating segments are Agriculture, Resort and CommunityDevelopment.

 

*Agriculture*

 

The Agriculture segment primarily includesgrowing, packing, and marketing of fresh pineapple. Our pineapple is sold underthe brand names *Maui Gold**®* and *HawaiianGold*TM. We also grow and market fresh organic pineapple. Prior to2008, a portion of our business included processing (canning) pineapple;however, we ceased substantially all canning and processing of solid-packproduct in June 2007.

 

*Resort*

 

The Kapalua Resort is part of approximately22,000 contiguous acres owned by us in West Maui, most of which remains as openspace. The Kapalua Resort borders the ocean with five white sand beaches andincludes The Ritz-Carlton, Kapalua hotel, the Ritz-Carlton Club and Residencesat Kapalua Bay, eight residential subdivisions, two championship golf courses(The Bay and The Plantation), a ten-court tennis facility, the first phase ofcommercial space in the central area of the Kapalua Resort, severalrestaurants, and over 800 condominiums, single-family homes and residentiallots. We operate Kapalua Resort’s two golf courses, the 

 

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tennis facility, several retail shops, the Kapalua Villas, a vacationrental program, and provide certain services to the Kapalua Resort. Wecurrently have approximately 203 units in our Kapalua Villas vacation rentalprogram. Our Resort operations also include a Mountain Outpost, which iscomprised of zip-lines stretching over scenic ravines in the West Mauimountains, a high ropes challenge course, a climbing wall and other activities.

 

*Community Development*

 

The Community Development segment includesour real estate entitlement, development, construction, sales, leasing, andconservation activities. Our projects are focused primarily on the luxury realestate market in and surrounding the Kapalua Resort and affordable andmoderately priced residential and mixed use projects in West Maui and UpcountryMaui. This segment also includes the operations of Kapalua Realty Company, ourgeneral brokerage real estate company located within the Resort, and KapaluaWater Company and Kapalua Waste Treatment Company, our Public UtilitiesCommission-regulated water and sewage operations that service the KapaluaResort and adjacent communities.

 

The Community Development segment alsoincludes our 51% equity interest in Bay Holdings, the limited liability companythat purchased the Kapalua Bay Hotel in August 2004 (see Note 11 tocondensed consolidated financial statements). Bay Holdings demolished theKapalua Bay Hotel and the adjacent shops in order to develop new whole andfractional residential units, an ocean-side spa, and a beach club at thatlocation. Construction was substantially complete in June 2009 and 19whole ownership and 62 fractional units closed escrow through the end of thethird quarter of 2009.

 

We have approximately 1,800 acres of land inMaui that are at various stages in the land entitlement process. We must obtainappropriate entitlements for land that we intend to develop or use forconstruction. Securing proper land entitlement is a process that requiresobtaining county, state and federal approvals, which can take several years tocomplete, if completed at all, and entails a variety of risks.

 

In the latter part of 2008, we concluded thatwe should delay the start of construction of new development projects becauseof the global recession, the uncertainty in the national and local economies,the continuing turmoil in the financial and credit markets, and our cash flowconstraints. However, we have continued to engage in planning, permitting andentitlement activities for our development projects, and we intend to proceedwith construction and sales of the following projects, among others, wheninternal and external factors permit:

 

·                  *KapaluaMauka: *The long-planned expansionof the Kapalua Resort, this project is entitled for up to 690 single andmulti-family residential units and commercial components, five acres ofcommercial space and up to 27 holes of golf on a total of 800 acres.

 

·                  *TheVillage at Kapalua: *This is thecommercial component of the central area of the Kapalua Resort. It is plannedto be built in two phases and will add approximately 30,000 square feet of newretail space to the Kapalua Resort. The Village will also include apartments,condominiums and other resort-related facilities. The first phase of thecommercial component opened in October 2006. This property has thenecessary land use entitlements to proceed.

 

·                  *Pulelehua: *This project is designed tobe a new traditional community for working families in West Maui. Itencompasses 312 acres and is currently planned to include 13 acres for anelementary school, 882 dwelling units, 91 acres of usable open space, and atraditional village center with a mix of residential and neighborhood-servingcommercial uses. This project has received the necessary State Land UseCommission Urban designation, but has not received the appropriate Countyzoning. We are currently in the process of securing a hearing for the projectwith the Maui County Council Land Use Committee.

 

·                  *Hali‘imaileTown: *This project is contemplatedto be a new town in Upcountry Maui, a holistic traditional community withagriculture, education, and sustainability as core design elements. Communitydesign workshops were held to involve the Maui community in determining thevision for this community. The public approval process for any plan to developthis area is expected to take several years and will be subject to urban growthboundary determination by the County of Maui as it updates the County GeneralPlan over the next two years.

*** ***

***Current Developments***

 

For the third quarter of 2009, we incurred anet loss of $25.5 million and for the nine months ended September 30,2009, we had negative cash flows from operations of $19.6 million.  In September 2009, we sold approximately125 acres that comprised a portion of our Kapalua Mauka project for $10.0million and in August 2009 we sold a residential property for $1.7million.  Proceeds from these sales wereused to pay down our revolving lines of credit and to support ongoing operatingactivities.  In September 2009, BayHoldings recorded a $208.8 million charge representing an impairment of thevalue of the Kapalua Bay Residence condominium project.  We recorded a loss of $22.8 million from thisinvestment in the third quarter of 2009 and stopped recording our share of BayHoldings’ losses in September 2009 after our investment balance and otheramounts advanced to Bay Holdings were reduced to zero, and the estimatedremaining obligations to the joint venture were accrued.

 

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At September 30, 2009, we had amountsoutstanding under borrowing agreements of approximately $92.8 million,approximately $15.6 million available under existing lines of credit and$855,000 in cash and cash equivalents. We also had a deficiency in stockholders’equity (total liabilities exceeded total assets) of $60.1 million.

 

In early October 2009, we entered intoamended agreements for our two lines of credit. Our $45 million revolving line of credit was increased to $50 million,the maturity of this credit was extended from March 2010 to March 2011,and the minimum liquidity requirement was reduced from $10 million to $8million.  The maturity and liquidityrequirement for our $25 million revolving line of credit was similarly amended.  See Note 12 to the condensed consolidatedfinancial statements.

 

See also Note 1 to the condensedconsolidated financial statements for a discussion of our ability to continueas a going concern.

 

**CriticalAccounting Policies and Estimates**

 

The preparation of consolidated financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires the use of accounting estimates. Changes inthese estimates and assumptions are considered reasonably possible and may havea material effect on the consolidated financial statements and thus actualresults could differ from the amounts reported and disclosed herein. Ourcritical accounting policies that require the use of estimates and assumptionswere discussed in detail in our most recently filed Form 10-K. There havebeen no significant changes in our critical accounting policies during 2009.

 

Amendments to FASB ASC Topic 715-20-65-2related to additional pension plan disclosures will be effective for our December 31,2009 financial statement disclosures. FASB Statement No. 167 will be effective for us on January 1, 2010.We are currently evaluating whether this pronouncement will require us toconsolidate any of our unconsolidated affiliates. There are no other accountingpronouncements or interpretations that have been issued but not yet applied byus that we believe will have a material impact on our consolidated financialstatements.

 

**RESULTS OFOPERATIONS**

 

***Three Months Ended September 30, 2009 compared to Three MonthsEnded September 30, 2008***

 

**CONSOLIDATED**

** **
| ** **                     | ** ** | **Three Months Ended September 30,** | ** ** | ** ** | ** ** |
|--------------------------------|------------|-------------------------------------------|------------|------------|------------|
| ** **                     | ** ** | **2009**                                  | ** ** | **2008**   | ** ** | **change** | ** ** |
| ** **                     | ** ** | **(in millions, except share amounts)**   | ** ** |
|                           |       |                                      |       |       |       |   |   |
| *Consolidated  Revenues*       |       | $                                         | 26.7       |       | $          | 19.1 |   | $ | 7.6 |   |
|                           |       |                                      |       |       |       |   |   |
| *Net  Loss*                    |       | $                                         | (25.5      | )          | $          | (8.7 | ) | $ | (16.8 | ) |
|                           |       |                                      |       |       |       |   |   |
| *Basic  Loss Per Common Share* |       | $                                         | (3.17      | )          | $          | (1.09 | ) | $ | (2.08 | ) |

 

We reported a net loss of $25.5 million($3.17 per share) for the third quarter of 2009 compared to a net loss of $8.7million ($1.09 per share) for the third quarter of 2008. The net loss for thethird quarter of 2009 includes $22.8 million equity in losses from ourinvestment in Bay Holdings, compared to income of $5.1 millionattributable to this investment for the third quarter of 2008. Consolidatedrevenues for the third quarter of 2009 were $26.7 million compared to$19.1 million for the third quarter of 2008. Our Agriculture and Resortsegments produced lower revenues in the third quarter of 2009 compared to thethird quarter of 2008.  Revenues from ourCommunity Development segment for the third quarter of 2009 include the sale oftwo properties that resulted in revenues of $11.7 million.

 

The continuing national and worldwideeconomic uncertainty and high transportation costs resulted in reduced visitorcounts to Maui and to the State of Hawaii, which negatively affected our Resortsegment, and also resulted in slower sales of, and increased potential defaultrates, on the residential units at Kapalua Bay, which negatively affected ourCommunity Development segment. In our Agriculture segment we reduced the sizeof our fresh pineapple operations as we continued to restructure theseoperations.

 

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*General and Administrative*

 

Consolidated general and administrativeexpenses of $4.6 million for the third quarter of 2009 were approximately58% lower than the third quarter of 2008.

 

The major components of the difference ingeneral and administrative expenses were as follows:

 
| ** **                                 | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|------------------------|------------|------------|------------|
| ** **                                 | ** ** | **September 30,** | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **2009**               | ** ** | **2008**   | ** ** | **change** | ** ** |
| ** **                                 | ** ** | **(in millions)**      | ** ** |
| Salaries and wages                         |       | $                      | 1.1        |       | $          | 2.1 |   | $ | (1.0 | ) |
| Employee incentives and stock compensation |       | 0.3                    |       | 0.6        |       | (0.3 | ) |
| Employee severance expense                 |       | 0.1                    |       | 2.5        |       | (2.4 | ) |
| Pension and other post retirement expense  |       | 0.8                    |       | 0.3        |       | 0.5 |   |
| Professional services                      |       | 0.7                    |       | 1.4        |       | (0.7 | ) |
| Loss on asset disposals                    |       | 0.2                    |       | 1.0        |       | (0.8 | ) |
| Other                                      |       | 1.4                    |       | 3.1        |       | (1.7 | ) |
|                                       |       |                   |       |       |       |   |   |
| Total                                      |       | $                      | 4.6        |       | $          | 11.0 |   | $ | (6.4 | ) |

 

The decrease in salaries, wages, employeeincentives and stock compensation expense reflect staffing reductions in alloperating segments and in corporate services, and a 10% wage rate reductionthat was implemented during the first quarter of 2009 that affected nearly allemployees.  Lower employee severance expensereflects a reduction in the size of our workforce by approximately 274employees during the third quarter of 2008.

 

Increased pension and other post retirementexpense reflects the decrease in value of the assets in our defined benefitpension plans combined with a reduction in the discount rate as of January 1,2009 compared to January 1, 2008. On August 3, 2009, our Board ofDirectors approved a plan amendment to freeze future benefit accruals under ournon-bargaining defined benefit pension plan effective December 31, 2009.

 

The decrease in professional and otherservices reflects a reduction in use of outside consultants, in particular forwork performed with regard to testing of internal controls, certain litigationthat was settled in early 2009, and corporate communications.

 

General and administrative expenses areincurred at the corporate level and at the operating segment level. All generaland administrative expenses incurred at the corporate level are allocated toour operating segments. Such allocations are made on the basis of ourevaluation of services provided to the operating segments.

 

*Interest Expense*

 

Interest expense was $2.7 million forthe third quarter of 2009 compared to $1.4 million for the third quarter of2008. There was no interest capitalized in the third quarter of 2009 becauseconstruction projects have been delayed due to the current economic climate andour cash flow constraints; interest of $41,000 was capitalized to constructionprojects in the third quarter of 2008. Included in interest expense are creditsof $322,000 and $205,000 for the third quarters of 2009 and 2008, respectively,representing the change in fair value of certain interest rate swapagreements.  Also included in interestexpense for the third quarter of 2009 and 2008 is a net charge (credit) of$260,000 and $(941,000), respectively, representing the change in the estimatedfair value of the derivative liability that was bifurcated from the$40 million convertible notes, plus accretion on the carrying value of thenotes. In the third quarter of 2009 our average borrowings were approximately$2.7 million lower than the third quarter of 2008. Our effective interest rateon borrowings was 6.4% in the third quarter of 2009 compared to 5.2% in thethird quarter of 2008.

 

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**AGRICULTURE**

 
| ** **                   | ** ** | **Three Months Ended September 30,** | ** ** | ** ** | ** ** |
|------------------------------|------------|-------------------------------------------|------------|------------|------------|
| ** **                   | ** ** | **2009**                                  | ** ** | **2008**   | ** ** | **change** | ** ** |
| ** **                   | ** ** | **(in millions)**                         | ** ** |
|                         |       |                                      |       |       |       |   |   |
| *Revenues*                   |       | $                                         | 4.9        |       | $          | 7.2 |   | $ | (2.3 | ) |
| *% of consolidated revenues* | * *   | *19*                                      | *%*        | *38*       | *%*        |   |   |
| * *                     | * *   | * *                                  | * *   |       |       |   |   |
| *Operating Loss*             |       | $                                         | (4.1       | )          | $          | (9.5 | ) | $ | 5.4 |   |

 

Revenues for the Agriculture segment decreased by 32%, or $2.3 million,from $7.2 million for the third quarter of 2008 to $4.9 million forthe third quarter of 2009, primarily due to a reduction in fresh fruit andpineapple juice sales volume and lower average prices for both products. TheAgriculture segment reported an operating loss of $4.1 million for thethird quarter of 2009 compared to an operating loss of $9.5 million forthe third quarter of 2008. The operating loss for the third quarter of 2008includes employee severance charges of approximately $1.7 million as a resultof a reduction in the work force related to the restructuring of theseoperations.  The reduction in loss in thethird quarter of 2009 reflects cost cutting measures that we have continued toimplement in the Agriculture operations.

 

*Fresh Operations*

 

The volume of fresh pineapple case sales waslower by 18% for the third quarter of 2009 and revenue per case sold wasapproximately 16% lower in the third quarter of 2009 compared to the thirdquarter of 2008.  Lower sales volume inthe third quarter of 2009 reflect a shortage of product in September 2009due to weather related issues; and lower average pricing in 2009 reflectsquality issues that resulted in certain shipments of pineapple being sold atlower prices.

 

The Agriculture segment cost of sales waslower by approximately 47% in the third quarter of 2009 compared to the thirdquarter of 2008, largely as a result of the lower sales volume, and lower perunit costs as a result of overall cost reduction in the pineapple operations.

 

Shipping and marketing cost decreased by 53%in the third quarter of 2009 compared to the third quarter of 2008 because oflower volume of sales and lower average per unit shipping cost. The averageshipping cost was lower in 2009 because in 2008, a greater percentage ofproducts to the mainland United States were sent by air freight, which is morecostly than ocean freight.

 

On November 2, 2009, our Board ofDirectors approved the immediate termination of our pineapple operations.  We are currently evaluating the various coststhat will be incurred and expect that much of the termination process will becompleted before year-end 2009.

 

**RESORT**

** **
| ** **                    | ** ** | **Three Months Ended September 30,** | ** ** | ** ** | ** ** |
|-------------------------------|------------|-------------------------------------------|------------|------------|------------|
| ** **                    | ** ** | **2009**                                  | ** ** | **2008**   | ** ** | **change** | ** ** |
| ** **                    | ** ** | **(in millions)**                         | ** ** |
|                          |       |                                      |       |       |       |   |   |
| *Revenues*                    |       | $                                         | 7.6        |       | $          | 9.1 |   | $ | (1.5 | ) |
| *%  of consolidated revenues* | * *   | *29*                                      | *%*        | *48*       | *%*        |   |   |
|                          |       |                                      |       |       |       |   |   |
| *Operating  Loss*             |       | $                                         | (2.7       | )          | $          | (5.7 | ) | $ | 3.0 |   |

 

Resort segment revenues decreased from$9.1 million in the third quarter of 2008 to $7.6 million for thethird quarter of 2009, or 16%, reflecting lower revenues from our primaryResort operations, golf, retail and villas. The Resort segment reported anoperating loss of $2.7 million for the third quarter of 2009 compared toan operating loss of $5.7 million for the third quarter of 2008. While areduction in visitor arrivals and occupancy at the Resort, resulting from thenational and global economic recession continued to negatively affect ourResort operations, the reduced loss reflects cost reduction measures that wehave implemented. It is anticipated that the continuing global economicrecession will continue to negatively impact resort occupancy rates and operations.

 

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*Golf, Retail and Villas*

 

Revenues from golf operations decreased byapproximately 14% in the third quarter of 2009 compared to the third quarter of2008 primarily reflecting a 1% increase in paid rounds of golf offset by a 21%decrease in average greens and cart fees. Resort retail sales for the thirdquarter of 2009 were approximately 12% lower than the third quarter of 2008,primarily reflecting reduced spending by guests.  Overall occupied rooms at the Kapalua Resortfor the third quarter of 2009 exceeded the third quarter of 2008 by over 9%.

 

Revenues from the Kapalua Villas were 32%less in the third quarter of 2009 compared to the third quarter of 2008,reflecting a 15% decrease in occupied rooms and a 27% lower average room rate.Rooms available in the Kapalua Villas in the third quarter of 2009 were 9%lower in the third quarter of 2009 largely reflecting the removal ofsubstandard units from our rental program.

 

**COMMUNITYDEVELOPMENT**

 
| ** **                   | ** ** | **Three Months Ended September 30,** | ** ** | ** ** | ** ** |
|------------------------------|------------|-------------------------------------------|------------|------------|------------|
| ** **                   | ** ** | **2009**                                  | ** ** | **2008**   | ** ** | **change** | ** ** |
| ** **                   | ** ** | **(in millions)**                         | ** ** |
|                         |       |                                      |       |       |       |   |   |
| *Revenues*                   |       | $                                         | 13.8       |       | $          | 2.2 |   | $ | 11.6 |   |
| *% of consolidated revenues* | * *   | *52*                                      | *%*        | *12*       | *%*        |   |   |
|                         |       |                                      |       |       |       |   |   |
| *Operating Profit (Loss)*    |       | $                                         | (16.9      | )          | $          | 2.5 |   | $ | (19.4 | ) |

 

The Community Development segment reported anoperating loss of $16.9 million for the third quarter of 2009 compared toan operating profit of $2.5 million for the third quarter of 2008.Revenues from this operating segment were $13.8 million for the third quarterof 2009 compared to $2.2 million for the third quarter of 2008. Theoperating loss for the third quarter of 2009 reflect the losses from ourinvestment in Bay Holdings; increased revenues reflect the sale of two realestate properties in the third quarter of 2009. In September 2009, Bay Holdings recorded an impairment in the valueof its real estate inventory totaling $208.8 million primarily reflecting achange in forecasted sales revenues on the unsold whole and fractional units,which substantially reduced the value of the units currently held in inventory.

 

Our equity in the income (losses) of BayHoldings was $(22.8) million in the third quarter of 2009 compared to $5.1million in the third quarter of 2008. The construction of the 146 units in sixresidential buildings was substantially complete in June 2009, and 4 wholeownership units and 62 fractional units closed escrow in the third quarter of2009.  Revenues and profit from the saleof the units were recognized on the percentage-of-completion method from March 2007through June 2009 as construction progressed and the pre-sales of unitstook place. Revenues from subsequent sales will be recognized when the sale isconsummated.  The lower results in 2009also reflect sales concessions and increased default reserves recorded in 2009.

 

*Real Estate Sales*

 

In the third quarter of 2009, we soldapproximately 128 acres including a portion of our Kapalua Mauka plannedproject and a residential property in Upcountry Maui and recognized revenues of$11.7 million and pre-tax profit of approximately $6.8 million.  There were no real estate sales in the thirdquarter of 2008.

 

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***Nine Months Ended September 30,2009 compared to Nine Months Ended September 30, 2008***

 

**CONSOLIDATED**

 
| ** **                     | ** ** | **Nine Months Ended September 30,**     | ** ** | ** ** | ** ** |
|--------------------------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                     | ** ** | **2009**                                | ** ** | **2008**   | ** ** | **change** | ** ** |
| ** **                     | ** ** | **(in millions, except share amounts)** | ** ** |
|                           |       |                                    |       |       |       |   |   |
| *Consolidated  Revenues*       |       | $                                       | 55.5       |       | $          | 62.0 |   | $ | (6.5 | ) |
|                           |       |                                    |       |       |       |   |   |
| *Net  Loss*                    |       | $                                       | (92.9      | )          | $          | (8.8 | ) | $ | (84.1 | ) |
|                           |       |                                    |       |       |       |   |   |
| *Basic  Loss Per Common Share* |       | $                                       | (11.57     | )          | $          | (1.11 | ) | $ | (10.46 | ) |

 

Wereported a net loss of $92.9 million ($11.57 per share) for the first ninemonths of 2009 compared to $8.8 million ($1.11 per share) for the first ninemonths of 2008. The increased loss reflects charges totaling $47.2 millionattributable to our investment in Bay Holdings; a charge of $14.2 millionfor the write off of development plans that are no longer considered feasiblebecause of changing market conditions; and a $1.9 million impairmentcharge related to real estate held for sale. Consolidated revenues for thefirst nine months of 2009 were $55.5 million compared to$62.0 million for the first nine months of 2008. Lower revenues primarilyreflect lower hotel and villa occupancies at the Kapalua Resort as a result ofreduced visitor counts to Maui and a decrease in fresh pineapple sales.

 

*Generaland Administrative*

 

Consolidatedgeneral and administrative expenses decreased by 31%, or $9.1 million to$20.3 million for the first nine months of 2009 from $29.4 million for thefirst nine months of 2008.

 

Themajor components of the difference in general and administrative expenses wereas follows:

 
| ** **                                  | ** ** | **Nine Months Ended**  | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------------------|------------|------------|------------|
| ** **                                  | ** ** | **September 30,** | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | **2009**               | ** ** | **2008**   | ** ** | **change** | ** ** |
| ** **                                  | ** ** | **(in millions)**      | ** ** |
| Salaries and  wages                         |       | $                      | 3.9        |       | $          | 6.8 |   | $ | (2.9 | ) |
| Employee  incentives and stock compensation |       | 0.7                    |       | 1.9        |       | (1.2 | ) |
| Employee  severance expense                 |       | 1.6                    |       | 2.9        |       | (1.3 | ) |
| Pension and  other post retirement expense  |       | 3.3                    |       | 1.6        |       | 1.7 |   |
| Professional  services                      |       | 2.2                    |       | 4.4        |       | (2.2 | ) |
| Loss on asset  disposals                    |       | 3.0                    |       | 2.7        |       | 0.3 |   |
| Other                                       |       | 5.6                    |       | 9.1        |       | (3.5 | ) |
| Total                                       |       | $                      | 20.3       |       | $          | 29.4 |   | $ | (9.1 | ) |

 

Thedecrease in salaries, wages, employee incentives and stock compensation reflectstaffing reductions in all operating segments and in corporate services, and a10% wage rate reduction that was implemented during the first quarter of 2009that affected nearly all employees.  Thedecrease in employee severance expense reflect a decrease in the size of thework force in July and September 2008, in particular from ourAgriculture segment.  In 2009, wecontinued to reduce the size of our work force across all business segments andcorporate services.

 

Increasedpension and other post retirement expense reflects the decrease in value of theassets in our defined benefit pension plans combined with a reduction in thediscount rate as of January 1, 2009 compared to January 1, 2008.

 

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Losson asset disposals for the first nine months of 2009 includes a charge of$1.9 million for the settlement payment and forfeiture of a deposit underwhich the Company was obligated to purchase certain real estate at KapaluaResort. It also includes the write off of Agriculture segment assets as aresult of the continued restructuring of that operating segment and the writeoff of excess assets at Kapalua Resort in 2008.

 

Thedecrease in professional and other services reflects a reduction in use ofoutside consultants, in particular for work performed with regard to testing ofinternal controls, certain litigation that was settled in early 2009, andcorporate communications.

 

Generaland administrative expenses are incurred at the corporate level and at theoperating segment level. All general and administrative expenses incurred atthe corporate level are allocated to the operating segments. Such allocationsare consistent with our evaluation of services provided to the operatingsegments.

 

*InterestExpense*

 

Interestexpense was $7.3 million for the first nine months of 2009 compared to$3.3 million for the first nine months of 2008. Interest incurred in thefirst nine months of 2009 was $7.3 million of which $18,000 wascapitalized. In the first nine months of 2008 interest incurred was$3.3 million of which $300,000 was capitalized to construction projects.Interest expense for the first nine months of 2009 and 2008 includes credits of$810,000 and $134,000, respectively, representing the change in the estimatedfair value of certain interest rate swap agreements. Included in interestexpense for the first nine months of 2009 and 2008 is a charge (credit) of$378,000 and $(941,000), respectively, also representing the change in theestimated fair value of the derivative liability that was bifurcated from the$40 million convertible notes, plus accretion on the carrying value of thenotes.  Our average borrowings were $11.5million higher for the first nine months of 2009 compared to the same period in2008; and our effective interest rate on borrowings was 5.8% for the first ninemonths of 2009 compared to 5.2% for the first nine months of 2008.

 

**AGRICULTURE**

 
| ** **                    | ** ** | **Nine Months Ended September 30,** | ** ** | ** ** | ** ** |
|-------------------------------|------------|------------------------------------------|------------|------------|------------|
| ** **                    | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **change** | ** ** |
| ** **                    | ** ** | **(in millions)**                        | ** ** |
|                          |       |                                     |       |       |       |   |   |
| *Revenues*                    |       | $                                        | 14.4       |       | $          | 21.0 |   | $ | (6.6 | ) |
| *%  of consolidated revenues* | * *   | *26*                                     | *%*        | *34*       | *%*        |   |   |
|                          |       |                                     |       |       |       |   |   |
| *Operating  Loss*             |       | $                                        | (12.6      | )          | $          | (19.3 | ) | $ | 6.7 |   |

 

TheAgriculture segment recorded an operating loss of $12.6 million for thefirst nine months of 2009 compared to an operating loss of $19.3 million forthe first nine months of 2008. Included in the operating loss for the firstnine months of 2009 is a charge of $1.9 million representing an adjustmentto the estimated fair value less selling costs of our property in Kahului thatincludes our fresh fruit processing plant. The Kahului property is currentlyclassified as held for sale. Revenues for the first nine months of 2009 were$14.4 million or 32% lower than the first nine months of 2008, dueprimarily to lower sales volume and lower average prices for fresh pineapple.In 2007, we ceased the production of all solid-packed pineapple products.Therefore, in the first nine months of 2009 and 2008, processed pineapple salesare comprised solely of juice sales, which represented approximately 4% and 12%of the Agriculture segment revenues in the first nine months of 2009 and 2008,respectively.

 

*Fresh andProcessed Operations*

 

Thecase volume of fresh pineapple sales decreased by approximately 23% in thefirst nine months of 2009 compared to the first nine months of 2008; andaverage revenue per case was approximately 6% lower for the first nine monthsof 2009 compared to the first nine months of 2008.

 

TheAgriculture segment cost of sales was lower by approximately 39% in the firstnine months of 2009 compared to the first nine months of 2008, largely as aresult of the lower sales volume of fresh and processed product. Per unit costof sales decreased in 2009 compared to 2008 because of a 10% reduction insalaries and wages that was implemented in March 2009, other costreduction measures taken in 2009, and as planting was minimized in 2009 asmanagement continues to evaluate the best course of action for the future ofthe pineapple operations. Juice is accounted for as a by-product and the costof the product includes the additional direct factory cost of processing fruitthat is not suitable to be sold as fresh fruit product into juice.

 

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Shippingand marketing cost decreased by 10% in the first nine months of 2009 comparedto the first nine months of 2008 primarily because of lower volume of sales andlower average shipping cost. Average shipping cost was lower in 2009 becauserelatively more shipments to the mainland United States were by ocean transportationin 2009, which is less costly than shipment by air freight.

 

OnNovember 2, 2009, our Board of Directors approved the immediatetermination of our pineapple operations. We are currently evaluating the various costs that will be incurred andexpect that much of the termination process will be completed before year-end2009.

 

**RESORT**

** **
| ** **                    | ** ** | **Nine Months Ended September 30,** | ** ** | ** ** | ** ** |
|-------------------------------|------------|------------------------------------------|------------|------------|------------|
| ** **                    | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **change** | ** ** |
| ** **                    | ** ** | **(in millions)**                        | ** ** |
|                          |       |                                     |       |       |       |   |   |
| *Revenues*                    |       | $                                        | 22.9       |       | $          | 29.0 |   | $ | (6.1 | ) |
| *%  of consolidated revenues* | * *   | *41*                                     | *%*        | *47*       | *%*        |   |   |
|                          |       |                                     |       |       |       |   |   |
| *Operating  Loss*             |       | $                                        | (11.4      | )          | $          | (13.1 | ) | $ | 1.7 |   |

 

TheResort segment reported an operating loss of $11.4 million for the firstnine months of 2009 compared to an operating loss of $13.1 million for thefirst nine months of 2008. Resort segment revenues were $6.1 million or 21%lower for the first nine months of 2009 compared to the same period in 2008.Our primary Resort operations, golf, retail and villas reported lower revenueslargely reflecting the reduction in visitor arrivals to Maui as a result of thecurrent economic recession, and the lower operating loss reflects costreduction measures that have been implemented by the Resort segment.

 

*Golf,Retail and Villas*

 

Revenuesfrom golf operations decreased by approximately 20% in the first nine months of2009 compared to the first nine months of 2008 as a result of a 9% decrease inpaid rounds of golf coupled with an approximately 16% decrease in averagegreens and cart fees. Revenues from the Kapalua Villas operations were 43% lessin the first nine months of 2009 compared to the first nine months of 2008reflecting a 29% decrease in occupied rooms and a 19% decrease in average roomrates. Resort retail sales for the first nine months of 2009 were approximately11% lower than the same period in 2008.

 

**COMMUNITY DEVELOPMENT**

 
| ** **                    | ** ** | **Nine Months Ended September 30,** | ** ** | ** ** | ** ** |
|-------------------------------|------------|------------------------------------------|------------|------------|------------|
| ** **                    | ** ** | **2009**                                 | ** ** | **2008**   | ** ** | **change** | ** ** |
| ** **                    | ** ** | **(in millions)**                        | ** ** |
|                          |       |                                     |       |       |       |   |   |
| *Revenues*                    |       | $                                        | 17.6       |       | $          | 10.5 |   | $ | 7.1 |   |
| *%  of consolidated revenues* | * *   | *32*                                     | *%*        | *17*       | *%*        |   |   |
|                          |       |                                     |       |       |       |   |   |
| *Operating  Profit (Loss)*    |       | $                                        | (61.2      | )          | $          | 21.5 |   | $ | (82.7 | ) |

 

TheCommunity Development segment reported an operating loss of $61.2 for the firstnine months of 2009 compared to operating profit of $21.5 million for the firstnine months of 2008. Revenues from this operating segment were$17.6 million for the first nine months of 2009 compared to $10.5 millionfor the same period in 2008. The increase in revenues primarily reflectsincreased real estate sales in 2009. The operating loss for the first ninemonths of 2009 reflect losses from our investment in Bay Holdings and a chargeof $14.2 million for the write off of development plans that were nolonger considered feasible because of changing market conditions.  In September 2009, Bay Holdings recordedan impairment in the value of its real estate inventories totaling $208.8million.

 

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Ourequity in the income (losses) of Bay Holdings was $(47.2) million in the firstnine months of 2009 compared to $26.5 million in the first nine months of2008.  The construction of the sixresidential buildings and the amenities were substantially complete in June 2009,and 19 whole ownership units and 62 fractional units closed escrow through theend of September 2009.  Revenues andprofit from the sale of the whole and fractional residential condominiums werebeing recognized on the percentage-of-completion method from March 2007through June 2009 as construction progressed and the pre-sales of theunits took place. Revenues from subsequent sales will be recognized when thesale is consummated.  The lower resultsin 2009 also reflect sales discounting and increased default reserves recordedin 2009.

 

*RealEstate Sales*

 

Inthe first nine months of 2009, we sold approximately 128 acres of land,including a portion of our Kapalua Mauka planned project and a residentialproperty in Upcountry Maui, and recognized revenues of $11.7 million andpre-tax profit of approximately $6.8 million.

 

Inthe first nine months of 2008, we sold approximately 111 acres of UpcountryMaui land that was considered non-core to our operations and recognizedrevenues of $4.4 million and pre-tax profit of approximately$4.1 million.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

*Debt Position*

 

At September 30, 2009,our total debt, including capital leases, was $89.0 million, compared to$137.0 million at December 31, 2008. The decrease in outstanding debtin the first nine months of 2009 was due to proceeds of approximately $9.5million from the sale of real estate in September 2009 being applied topay down on revolving lines of credit and proceeds from the sale of the PGC in March 2009being applied to partially repay our revolving line of credit with Wells Fargoand certain other lenders (Note 10 to condensed consolidated financialstatements). At September 30, 2009, we had approximately$15.6 million available under existing lines of credit and $855,000 incash and cash equivalents; and a deficiency in stockholders’ equity (totalliabilities exceeded total assets) of $60.1 million.

 

At September 30, 2009,we had $52.8 million of borrowings outstanding under agreements that werescheduled to mature in March 2010, with financial covenants requiringamong other things, a minimum of $10 million in liquidity and a limitation onnew indebtedness.  Failure to satisfy theminimum liquidity covenants or to otherwise default under one credit agreementcould result in a default under both credit agreements as well as a defaultunder the $40 million senior secured convertible notes. Defaults under thecredit agreements could result in all outstanding borrowings becomingimmediately due and payable. A default under the senior secured convertiblenotes could require us to redeem the notes at 115% of the outstanding amount ofprincipal and accrued interest.

 

Our cash outlook for thenext twelve months and ability to continue to meet our financial covenants ishighly dependent on selling certain real estate assets in a difficult market.If we are unable to meet itsfinancial covenants resulting in the borrowings becoming immediately due, wewould not have sufficient liquidity to repay such outstanding borrowings. Inaddition, we are obligated to purchase the spa, beach club improvements and thesundry store from Bay Holdings at actual construction costs of approximately$35 million. We are negotiating with the members of Bay Holdings torestructure the purchase and sale of the assets and avoid immediate cashrequirements. We do not currently have the cash resources to complete the sale.We are also subject to other commitments and contingencies that couldnegatively impact its future cash flows as described in Note 18 to thecondensed consolidated financial statements. These circumstances raise substantial doubt about our ability tocontinue as a going concern and there can be no assurance that we will be ableto successfully achieve our initiatives discussed below in order to continue asa going concern.

 

In response to thesecircumstances, we are undertaking several financial and strategic initiativesto reduce cash commitments and generate cash flow from a variety of sources,including the sale of several real estate assets. In the third quarter of 2009,we concluded the sale of two properties that resulted in total cash proceeds(net of selling costs) of $11.5 million, and in October 2009, we enteredinto revised revolving credit agreements (see Note 12 to condensed consolidatedfinancial statements).  Our $45 millionline of credit was increased to $50 million, the maturity extended from March 2010to March 2011, and the minimum liquidity requirement was reduced from $10million to $8 million.  The maturity andliquidity covenant of our $25 million line of credit was similarlyamended.  In March 2009, we sold thePlantation Golf Course (PGC) and repaid $45 million of debt (Note 10 tocondensed consolidated financial statements). We have renegotiated agreements to eliminate approximately$6 million of 2009 cash commitments (net of cancellation fees); and arecurrently in the process of negotiating additional deferrals of 2009 paymentsinto 2010 and later. In addition, we have taken several other actions to reducecash outflows including reducing its total number of employees by 

 

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approximately 183, or 23%, in the first ninemonths of 2009, as well as other measures to reduce operating expenses. We areactively in the process of attempting to sell several selected real estateassets to provide additional liquidity and to further reduce debt.  We are also working on engaging third partiesto operate certain of its operations in order to reduce overhead and cashrequirements and may conclude an equity financing transaction.

 

There can be no assurancethat we will be able to sell real estate assets at acceptable prices, or atall, or that we will be able to maintain compliance with financial covenants orcontinue as a going concern.  Failure tosell real estate assets or to maintain compliance with financial covenantswould have a material adverse impact on our financial condition and results ofoperations and raises substantial doubt about our ability to continue as agoing concern.

 

*Amended Construction Loan Agreement Following LehmanBankruptcy*

 

InJuly 2006, Bay Holdings, in which we have a 51% interest, entered into asyndicated construction loan agreement with Lehman, for the lesser of$370 million or 61.6% of the total projected cost of the project. Lehman’scommitment under the loan agreement was approximately 78% of the total. On September 15,2008, Lehman filed a petition under Chapter 11 of the U.S. Bankruptcy Codewith the United States Bankruptcy Court. In February 2009, Bay Holdingsentered into an amended and restated construction loan agreement with Lehman,Swedbank, MH Kapalua Venture, LLC, an affiliate of Marriott, and certainother syndicate lenders, pursuant to which Bay Holdings may borrow an aggregateof approximately $354.5 million, including amounts previously funded underthe original construction loan agreement (see Note 11 to condensedconsolidated financial statements).

 

*RevolvingLine of Credit with American AgCredit, FLCA*

 

OnOctober 9, 2009, we executed an amendment to our revolving line of creditagreement with American AgCredit, FLCA. The amendment extends the maturity ofthe loan from March 2010 to March 2011, reduces the minimum liquidityrequirement from $10 million to $8 million, places limitations on newindebtedness and capital expenditures, requires that total liabilities be nogreater than $240 million and increases the interest rate by 75 to 200 basispoints, subject to a minimum interest rate of 5.5%. As of September 30,2009, this $25 million line of credit was fully drawn.

 

*RevolvingLine of Credit with Wells Fargo and Certain Other Lenders*

 

OnOctober 9, 2009, we executed a restated and amended revolving line ofcredit agreement with Wells Fargo Bank and certain other lenders. The restatedand amended credit agreement increases the amount of the revolving line from$45 million to $50 million, extends the maturity of the loan from March 2010to March 2011, reduces the minimum liquidity requirement from $10 millionto $8 million, requires that total liabilities be no greater than $240 millionand limits additional indebtedness and capital expenditures.  Interest on outstanding amounts are at aLIBOR market index or the LIBOR rate, plus 4.25%.  In connection with the sale of PGC in March 2009,we applied $45 million of proceeds against outstanding borrowings underthis line of credit, which was partially collateralized by the PGC, and theavailable credit was reduced from $90 million to $45 million. As of September 30,2009, we had $28.5 million outstanding or encumbered to secure letters ofcredit, and $15.6 million available under this line.

 

*PrivatePlacement of Convertible Notes*

 

OnJuly 28, 2008, we issued $40 million in aggregate principal amount ofconvertible notes, bearing 5.875% interest per annum payable quarterly in cashin arrears beginning October 15, 2008. The convertible notes mature on July 15,2013, subject to earlier conversion or redemption under certain conditions asspecified in the notes. As of June 30, 2009, we had $40.5 million inprincipal and accrued but unpaid interest outstanding under the convertiblenotes.  On July 28, 2011, theconvertible note holders have the right to require the Company to redeem all orany portion of the convertible notes at a redemption price equal to 100% of theprincipal amount being redeemed, plus accrued and unpaid interest thereon.

 

Asof September 30, 2009, we were in compliance with all of the covenantsunder our outstanding debt arrangements.

 

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*OperatingCash Flows*

 

Inthe first nine months of 2009, consolidated net cash used in operatingactivities was $19.6 million compared to net cash used in operating activitiesof $40.8 million for the first nine months of 2008. By operating segment,these cash flows were approximately as follows:

 
| ** **                | ** ** | **Nine Months Ended**  | ** ** |
|---------------------------|------------|------------------------|------------|
| ** **                | ** ** | **September 30,** | ** ** |
| ** **                | ** ** | **2009**               | ** ** | **2008** | ** ** |
|                      |       |                   |       |   |   |
| Agriculture               |       | $                      | (5.5       | ) | $ | (21.0 | ) |
| Resort                    |       | (7.0                   | )          | (9.6 | ) |
| Community Development     |       | (4.2                   | )          | (10.7 | ) |
| Interest, taxes and other |       | (2.9                   | )          | 0.5 |   |
|                      |       |                   |       |   |   |
| Total                     |       | $                      | (19.6      | ) | $ | (40.8 | ) |

 

Thereduction in cash used in operating activities in the first nine months of 2009compared to 2008 primarily reflects cost reduction measures that we beganimplementing in the later part of 2008 and in the first nine months of 2009.Operating cash flows for the first nine months of 2009 and 2008 did not includethe sale of new real estate product and there was no construction of real estateinventories in 2009 or 2008.

 

*FutureCash Inflows and Outflows*

 

Inorder to meet liquidity covenants required by our borrowing agreements, and tosupplement negative cash flows from operations, our plans for the remainder of2009 include the sales of certain operating and non-operating real estateassets combined with the leaseback of properties as necessary. We are alsoworking on engaging third parties to operate certain of our operations in orderto reduce overhead and cash expenditures and may conclude an equity financingtransaction.  There can be no assurancethat we will be able to sell real estate assets at acceptable prices, or atall, or that we will be able to maintain compliance with financial covenants orto continue as a going concern.  Failureto sell real estate assets or to maintain compliance with financial covenantswould have a material adverse impact on our financial condition and results ofoperations and raises substantial doubt about our ability to continue as agoing concern.

 

In2009, minimum required contributions to our defined benefit pension plans areexpected to be $2.1 million. We may defer contributions to our pensionplans and to the extent that payments are deferred, we would be required to payinterest on all deferred amounts. To date in 2009, we have made $1.7 million ofcontributions to our pension plans, but have failed to pay the contributionrequired in October 2009. Our net pension liability and minimum requiredcontribution amounts are calculated based upon an assessment of severalvariables including employee compensation levels, employee turnover rates, theexpected long term rate of return on investments, and other factors that aredifficult to ascertain. Any significant changes in any one or more of these variablescould materially affect our net pension liability and required minimumcontributions. We expect to contribute $835,000 to our other post-retirementbenefit plans in 2009.

 

In2009, capital expenditures and expenditures for deferred development cost havebeen reduced, except for expenditures that are necessary to maintain ouroperations and standards of quality at the Kapalua Resort. Capital expendituresplanned for the remainder of 2009 total $2.0 million primarily forreplacement of equipment.

 

Inconnection with the PGC sale and leaseback, we are obligated to replace theirrigation system prior to the end of the two-year leaseback term. Thereplacement costs are capped at $5 million under the terms of theagreement. In addition, our annual net rental payment under the lease is$4.0 million.

 

Weare obligated to purchase the spa, beach club improvements and the sundry storefrom Bay Holdings at actual construction costs of approximately$35 million. We are negotiating with the members of Bay Holdings torestructure the purchase and sale agreements and avoid immediate cashrequirements. We do not currently have the cash resources to complete the sale.

 

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**CONTRACTUAL OBLIGATIONS**

 

Thefollowing summarizes our contractual obligations as of September 30, 2009(in thousands):

 
| ** **                                     | ** ** | ** ** | ** ** | **Payment due by period (years)** | ** ** |
|------------------------------------------------|------------|------------|------------|-----------------------------------|------------|
| ** **                                     | ** ** | ** ** | ** ** | **Less**                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Contractual Obligations**                    | ** ** | **Total**  | ** ** | **Than 1**                        | ** ** | **1 - 3** | ** ** | **4 - 5** | ** ** | **After 5** | ** ** |
| Long-term debt (1)                             |       | $          | 92,800     |                              | $          | — |   | $ | 52,800 |   | $ | 40,000 |   | $ | — |   |
| Capital lease obligations (including interest) |       | 3,095      |       | 1,166                             |       | 1,319 |   | 466 |   | 144 |   |
| Interest on long-term debt (2)(7)              |       | 16,946     |       | 7,949                             |       | 7,117 |   | 1,880 |   | — |   |
| Operating leases (3)                           |       | 2,303      |       | 465                               |       | 1,351 |   | 478 |   | 9 |   |
| Purchase commitments (3)(6)                    |       | 6,620      |       | 2,752                             |       | 1,982 |   | 1,886 |   | — |   |
| Other long-term liabilities (4)(5)(7)          |       | 7,092      |       | 2,307                             |       | 3,012 |   | 977 |   | 796 |   |
|                                           |       |       |       |                              |       |   |   |   |   |   |   |
| Total                                          |       | $          | 128,856    |                              | $          | 14,639 |   | $ | 67,581 |   | $ | 45,687 |   | $ | 949 |   |

 

----

(1)           Long-term debt as presentedabove includes convertible notes of $40 million due in July 2013.These notes are included in our September 30, 2009 balance sheet aslong-term debt of $33,503,000 and other current liabilities (derivativeliability) of $724,000. The purchasers of the notes have the right to requireredemption on the third anniversary of issuance, but the notes have a statedfive year maturity.

 

(2)           Future interest payments onlong term debt were calculated assuming that future interest rates equal therates at September 30, 2009.

 

(3)           These operating leases andpurchase commitments are not reflected on the consolidated balance sheets underaccounting principles generally accepted in the United States of America.

 

(4)           Amounts consist primarily ofpayments due under our deferred compensation plan, unfunded pension paymentsand severance plans. Where pension payments were for lifetime, payments wereestimated for five additional years.

 

(5)           We have not provided adetailed estimate of the timing of income tax payments amounting to $945,000due to the uncertainty of when the related tax settlements are due (seeNote 16 to condensed consolidated financial statements).

 

(6)           We are obligated to purchasethe spa, beach club improvements and the sundry store from Bay Holdings at actualconstruction costs of approximately $35 million. We are negotiating theterms of the purchase with the other members of Bay Holdings.  The obligation is not included in the tableabove because the timing and amount of the payment is uncertain.  In addition, we had a contractual obligationwith the Ladies Professional Golf Association. However, no amounts related to our obligations under this contract havebeen included in the table above because the timing and amount of the paymentis uncertain.

 

(7)           In connection with the saleof the PGC, we entered into an agreement to leaseback the PGC for two years foran annual net rental payment of $4 million. The agreement also requires usto replace the irrigation system at the PGC, subject to a cap of $5 million,prior to the end of the two year lease term. The sale and leaseback has beenaccounted for as a financing transaction, and, accordingly, a portion of eachmonthly rental payment is charged to interest expense. The portion of therental payments which will represent a reduction of the noncurrent obligationis included in this line in the table above. The interest component has beenincluded in Interest on Long-Term Debt in the table above. The obligation toreplace the irrigation system is not included in the table above because thetiming and amount of the payment is uncertain.

 

**FORWARD-LOOKING STATEMENTS AND RISKS**

 

Thisand other reports filed by us with the Securities and Exchange Commission, orSEC, contain forward-looking statements intended to qualify for the safe harborfrom liability established by the Private Securities Litigation Reform Act of1995. These statements relate to future events or our future financialperformance and involve known and unknown risks, uncertainties and otherfactors that may cause our actual results, levels of activity, performance orachievements to differ materially from any future results, levels of activity,performance or achievements expressed or implied by these forward-lookingstatements. These statements can be identified by the fact that they do notrelate strictly to historical or current facts. They contain words such as “may,”“will,” “project,” “might,” “expect,” “believe,” “anticipate,” “intend,” “could,”“would,” “estimate,” “continue” or “pursue,” or the negative or othervariations thereof or comparable terminology. Actual results could differmaterially from those projected in forward-looking statements as a result ofthe following factors, among others.

 

·                  our ability tocomply with the terms of our indebtedness, including the financial covenantsset forth therein;

 

·                  generaleconomic factors, including the current economic recession, tightening creditmarkets, declining demand for real estate, declining expenditures within thetourism industry on Maui, and increased fuel and travel costs;

 

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·                  thesatisfaction of certain closing conditions set forth in the amendedconstruction loan agreement and certain related agreements relating to theconstruction of the Residences at Kapalua Bay project;

 

·                  the ability andwillingness of our lenders to comply with the terms of their lending agreementswith us;

 

·                  timing andsuccess of sales at the Residences at Kapalua Bay project;

 

·                  increased fueland travel costs, and reductions in airline passenger capacity;

 

·                  dependence onthird parties and actual or potential lack of control over joint venturerelationships;

 

·                  recoverabilityfrom operations of real estate development deferred costs;

 

·                  timing ofapprovals and conditions of future real estate entitlement applications;

 

·                  impact ofcurrent and future local, state and national government regulations, includingMaui County affordable housing legislation;

 

·                  future cost ofcompliance with environmental laws;

 

·                  effects ofweather conditions and natural disasters;

 

·                  our ability tomaintain the listing of our common stock on the New York Stock Exchange; and

 

·                  availability ofcapital on terms favorable to us, or at all.

 

Suchrisks and uncertainties also include those risks and uncertainties discussed inthe sections entitled “Business,” “Risk Factors,” and “Management’s Discussionand Analysis of Financial Condition and Results of Operations” in our AnnualReport on Form 10-K for the year ended December 31, 2008, and thesections entitled “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and “Risk Factors” in this Quarterly Report on Form 10-Q,as well as other factors described from time to time in our reports filed withthe SEC. Although we believe that our opinions and expectations reflected inthe forward-looking statements are reasonable as of the date of this report, wecannot guarantee future results, levels of activity, performance orachievements, and our actual results may differ substantially from the viewsand expectations set forth in this report. Thus, you should not place unduereliance on any forward-looking statements. New factors emerge from time totime, and it is not possible for us to predict which factors will arise. Inaddition, we cannot assess the impact of each factor on our business or theextent to which any factor, or combination of factors, may cause actual resultsto differ materially from those contained in any forward-looking statements.Further, any forward-looking statements speak only as of the date made and,except as required by law, we undertake no obligation to publicly revise ourforward-looking statements to reflect events or circumstances that arise afterthe date of this report.

 

**Item 4.  Controlsand Procedures**

 

Wemaintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended) that aredesigned to ensure that information required to be disclosed in our ExchangeAct reports is recorded, processed, summarized and reported within the timeperiods specified in the SEC’s rules and forms, and that such informationis accumulated and communicated to our management, including our Interim ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosure.

 

Indesigning and evaluating the disclosure controls and procedures, our managementrecognizes that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desiredcontrol objectives, and our management necessarily was required to apply itsjudgment in evaluating the cost-benefit relationship of possible controls andprocedures.

 

Asrequired by Rule 13a-15(b) and 15d-15(b) under the Exchange Act,we carried out an evaluation, under the supervision and with the participationof our management, including our Interim Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of the design and operation of ourdisclosure controls and procedures as of the end of the fiscal quarter coveredby this report. Based upon the foregoing, our Interim Chief Executive Officerand Chief Financial Officer concluded that our disclosure controls andprocedures were effective to provide reasonable assurance that informationrequired to be disclosed by us in our Exchange Act reports is recorded,processed, summarized and reported within the time periods specified inapplicable SEC rules and forms. There has been no change in our internalcontrol over financial reporting during the nine months ended September 30,2009 that has materially affected or is reasonably likely to materially affectour internal control over financial reporting.

 

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**PART IIOTHER INFORMATION**

 

**Item 1.  LegalProceedings**

 

On September 1, 2009,M. Yamamura and Sons, Inc. (Yamamura) filed a lawsuit against the Companyand its wholly owned subsidiary, Maui Pineapple Company, Ltd. (MPC), which wasfiled as M. Yamamura & Sons, Inc. vs. Maui Land &Pineapple Company, Inc. and Maui Pineapple Company, Ltd..  The lawsuit was filed  in the Circuit Court of the Second Circuit,State of Hawaii pursuant to Civil No. 09-1-0655(1).  In December 2007, Yamamura and MPCentered into a Maui Gold Pineapple Planting and Fruit Purchase Agreement(Planting Agreement) whereby Yamamura would plant pineapple for MPC from January 1,2008 through December 31, 2010 and MPC agreed to irrigate, crop log,ripen, harvest and purchase such pineapples from Yamamura at prices specifiedin the Planting Agreement.  The lawsuitalleges that MPC and the Company materially breached the Planting Agreement bynot providing a planting schedule for 2009 and by asking Yamamura to ceaseplanting pineapple for MPC until further notice.  The lawsuit further alleges that MPC and theCompany unilaterally restricted and impaired the value of Yamamura’s benefitsunder the Planting Agreement.  Yamamuraseeks an award for general and special damages in an unspecified amount to beproven at trial, an award for punitive damages, an award for legal fees andcosts, and an award of such other amounts as the Court deems necessary or appropriate.  Discovery is ongoing in this action and notrial date has been set.  The Companydenies the allegations made by Yamamura and intends to vigorously defend thelawsuit.

 

**Item 1A. Risk Factors**

 

**If we do not meet the continuedlisting requirements of the New York Stock Exchange (NYSE), our common stockmay be delisted and we would be in default of debt covenants.**

 

Our common stock is currently listed on the NYSE.  To remain so listed, NYSE rules require,among other things, that the minimum listing price of our common stock not beless than $1.00 for more than 30 consecutive trading days, and that our averageglobal market capitalization over a consecutive 30 trading-day period be notless than $50 million and, at the same time, our total stockholders’equity be not less than $50 million. However, a company is subject to delisting if average global marketcapitalization over a consecutive 30 trading day period is less than$25 million, regardless of stockholders’ equity.  As of September 30, 2009, our closingstock price was $6.29, our total stockholders’ equity was a deficiency of $60.1million, and our average global market capitalization over the previousconsecutive 30 trading-day period was approximately $52.5 million.

 

In the future, we may notbe able to meet the continued listing requirements of the NYSE, in response towhich the NYSE may take action to delist our common stock.  In such event, if we were unable to regaincompliance with the NYSE’s continued listing standards within the required timeframes, our common stock would be delisted, which could negatively impact usby, among other things, reducing the liquidity and market price of our commonstock, reducing the number of investors willing to hold or acquire our commonstock, decreasing the amount of news and analyst coverage for us, and limitingour ability to issue additional securities or obtain additional financing inthe future.  In addition, delisting fromthe NYSE might negatively impact our reputation and, as a consequence, ourbusiness. Debt covenants require that we maintain a stock exchange listing.Should the Company be delisted from the NYSE, and without a waiver granted byour lenders, we would be in default of our debt covenants.

 

Additional potential risks anduncertainties include, among other things, those factors discussed in thesections entitled “Business”, “Risk Factors” and “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” in our Annual Reporton Form 10-K for the year ended December 31, 2008 and the sectionentitled “Management’s Discussion and Analysis of Financial Condition andResults of Operations” in this Quarterly Report on Form 10-Q. Readersshould carefully review those risks, as well as additional risks described inother documents we file from time to time with the SEC. We undertake noobligation to publicly release the results of any revisions to anyforward-looking statements to reflect anticipated or unanticipated events or circumstancesoccurring after the date of such statements.

 

**Our cash outlook for the nexttwelve months and our ability to continue to meet our financial covenants andto continue as a going concern is highly dependent on selling certain realestate assets in a difficult market. **

 

For the nine months endedSeptember 30, 2009, we had negative cash flows from operations of $19.6million.  We had borrowings outstanding,including capital leases of $95.5 million, $855,000 of cash and $15.6 millionin unused lines of credit as of September 30, 2009.  We have several commitments and contingentliabilities that could materialize into the need for large amounts ofcash.  Our lines of credit require thatwe maintain liquidity of $8 million and also places limitations on additionalindebtedness.  Violation of the loancovenants could result in all of our outstanding borrowings becomingimmediately due.  There can be noassurance that we will be able to sell real estate assets at acceptable prices,or at all, which raises substantial doubt about our ability to continue as agoing concern.  See also Note 1 to thecondensed consolidated financial statements for a discussion of our ability tocontinue as a going concern.

 

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**Item 6. Exhibits**

 
| 10.1 |   | Amended and Restated Credit Agreement, dated as of  October 9, 2009 by and among Maui  Land & Pineapple Company, Inc., and each of the financial  institutions initially a signatory thereto, and Wells Fargo Bank, National Association as Administrative Agent. |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.2 |   | Fifth Amendment to Revolving Line of Credit Loan Agreement entered into by and between American  AgCredit, FLCA and Maui Land & Pineapple Company, Inc., dated  for reference purposes as of October 9, 2009.                                                     |
| 31.1 |   | Certification of Chief  Executive Officer Pursuant to Rule 13a-14(d) / 15d-14(a) of  the Securities Exchange Act of 1934.                                                                                                                                             |
| 31.2 |   | Certification of Chief  Financial Officer Pursuant to Rule 13a-14(d) / 15d-14(a) of  the Securities Exchange Act of 1934.                                                                                                                                             |
| 32.1 |   | Certification of Chief  Executive Officer and Chief Financial Officer Pursuant to  Rule 13a-14(b) / 15d-14(b) of the Securities Exchange Act of  1934 and 18 U.S.C. Section 1350.                                                                                |

 

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**SIGNATURE**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|                  |   | MAUI LAND &  PINEAPPLE COMPANY, INC. |
|-----------------------|--------|----------------------------------------------------|
|                  |   |                                               |
|                  |   |                                               |
| November 3, 2009 |   | /s/ JOHN P. DURKIN                                 |
| Date                  |   | John P. Durkin                                     |
|                  |   | *Chief  Financial Officer*                         |
|                  |   | (Principal Financial  Officer)                     |

 

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**EXHIBITINDEX**

 
| **Exhibit Number** | ** ** | **Description**                                                                                                                                                                                                                                                                           |
|-------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                    |       | Amended and Restated Credit Agreement, dated as of  October 9, 2009 by and among Maui  Land & Pineapple Company, Inc., and each of the financial  institutions initially a signatory thereto, and Wells Fargo Bank, National Association as Administrative Agent.  (1) |
|                    |       |                                                                                                                                                                                                                                                                                      |
| 10.2                    |       | Fifth Amendment to Revolving Line of Credit Loan Agreement entered into by and between American  AgCredit, FLCA and Maui Land & Pineapple Company, Inc., dated  for reference purposes as of October 9, 2009. (1)                                                      |
|                    |       |                                                                                                                                                                                                                                                                                      |
| 31.1                    |       | Certification of Chief  Executive Officer Pursuant to Rule 13a-14(d)/15d-14(a) of the  Securities Exchange Act of 1934.(1)                                                                                                                                                      |
|                    |       |                                                                                                                                                                                                                                                                                      |
| 31.2                    |       | Certification of Chief  Financial Officer Pursuant to Rule 13a-14(d)/15d-14(a) of the  Securities Exchange Act of 1934.(1)                                                                                                                                                      |
|                    |       |                                                                                                                                                                                                                                                                                      |
| 32.1                    |       | Certification of Chief  Executive Officer and Chief Financial Officer Pursuant to  Rule 13a-14(b) / 15d-14(b) of the Securities Exchange Act of  1934 and 18 U.S.C. Section 1350.(2)                                                                                  |

 

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(1)                                  Filed herewith.

 

(2)                                  Furnishedherewith and not “filed” for purposes of Section 18 of the SecuritiesExchange Act of 1934, as amended.

 

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