**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

**(Mark One)**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe quarterly period ended MARCH 31, 2007**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Commissionfile number 1-6510**

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

(Exact name of registrantas specified in its charter)

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

 

**P. O. BOX187, KAHULUI, MAUI, HAWAII  96733-6687**

(Address of principalexecutive offices)

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

**NONE**

Former name, formeraddress and former fiscal year, if changed since last report

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

Yes  x   No  o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and larger accelerated filer” in Rule 12b-2of the Exchange Act.

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

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o   No  x

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

| Class                       |   | **Outstanding at April 30, 2007** |
|-----------------------------|--------|----------------------------------------|
| Common Stock, no  par value |   | 8,134,709 shares                       |

 

 

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**MAUILAND & PINEAPPLE COMPANY, INC.AND SUBSIDIARIES**

**TABLEOF CONTENTS**

|                                                                                                                          | ** ** | **Page** |
|--------------------------------------------------------------------------------------------------------------------------|------------|----------|
| PART I.  FINANCIAL INFORMATION (unaudited)                                                                          |       |     |
| Item 1.  Financial Statements                                                                                            |       |     |
| Condensed  Consolidated Balance Sheets,  March 31, 2007 and December 31, 2006                                  |       | 3        |
| Condensed  Consolidated Statements of Operations and Retained Earnings,  Three Months Ended March 31, 2007 and 2006 |       | 4        |
| Condensed  Consolidated Statements of Cash Flows,  Three Months Ended March 31, 2007 and 2006                       |       | 5        |
| Notes  to Condensed Consolidated Financial Statements                                                                    |       | 6        |
| Item  2. Management’s Discussion and Analysis of Financial Condition and Results of  Operations                     |       | 15       |
| Forward-Looking  Statements                                                                                              |       | 22       |
| Item  3. Quantitative and Qualitative Disclosures About Market Risk                                                      |       | 23       |
| Item  4. Controls and Procedures                                                                                         |       | 23       |
| PART II.  OTHER INFORMATION                                                                                         |       |     |
| Item 1A. Risk  Factors                                                                                                   |       | 24       |
| Item 6. Exhibits                                                                                                         |       | 24       |
| Signature                                                                                                                |       | 25       |

 

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**PART I   FINANCIALINFORMATION**

**Item 1.**                        FinancialStatements

**MAUI LAND & PINEAPPLE COMPANY, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)**

| ** **                                                                                                   | ** ** | **3/31/07**             | ** ** | **12/31/06** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|--------------|------------|
| ** **                                                                                                   | ** ** | **(in thousands)** | ** ** |
| *ASSETS*                                                                                                     |       |                    |       |         |       |
| Current Assets                                                                                               |       |                    |       |         |       |
| Cash and cash equivalents                                                                                    |       | $                       | 3,649      |         | $          | 1,143 |   |
| Accounts and notes receivable                                                                                |       | 18,988                  |       | 25,440       |       |
| Inventories                                                                                                  |       | 18,619                  |       | 18,024       |       |
| Other current assets                                                                                         |       | 1,916                   |       | 1,813        |       |
| Total current assets                                                                                         |       | 43,172                  |       | 46,420       |       |
| Property                                                                                                     |       | 265,772                 |       | 260,837      |       |
| Accumulated depreciation                                                                                     |       | (133,248                | )          | (130,988     | )          |
| Property—net                                                                                            |       | 132,524                 |       | 129,849      |       |
| Other Assets                                                                                                 |       | 75,331                  |       | 43,930       |       |
| Total                                                                                                        |       | $                       | 251,027    |         | $          | 220,199 |   |
| *LIABILITIES AND STOCKHOLDERS’ EQUITY*                                                                  |       |                    |       |         |       |
| Current Liabilities                                                                                          |       |                    |       |         |       |
| Current portion of long-term debt and capital lease  obligations                                             |       | $                       | 1,270      |         | $          | 1,410 |   |
| Trade accounts payable                                                                                       |       | 13,128                  |       | 16,145       |       |
| Deferred revenue                                                                                             |       | 1,827                   |       | 1,205        |       |
| Other current liabilities                                                                                    |       | 17,545                  |       | 8,657        |       |
| Total current liabilities                                                                                    |       | 33,770                  |       | 27,417       |       |
| Long-Term  Liabilities                                                                                       |       |                    |       |         |       |
| Long-term debt and capital lease obligations                                                                 |       | 37,757                  |       | 49,716       |       |
| Accrued retirement benefits                                                                                  |       | 30,678                  |       | 29,272       |       |
| Other long-term liabilities                                                                                  |       | 13,842                  |       | 12,887       |       |
| Total long-term liabilities                                                                                  |       | 82,277                  |       | 91,875       |       |
| Minority Interest in Subsidiary                                                                              |       | 543                     |       | 538          |       |
| Commitments and  Contingencies (Note 12)                                                                     |       |                    |       |         |       |
| Stockholders’  Equity                                                                                   |       |                    |       |         |       |
| Common stock, no par value—9,000,000 shares  authorized, 7,923,154 and 7,287,779 issued and outstanding |       | 33,068                  |       | 15,168       |       |
| Additional paid-in capital                                                                                   |       | 5,397                   |       | 4,743        |       |
| Retained earnings                                                                                            |       | 98,279                  |       | 82,765       |       |
| Accumulated other comprehensive loss                                                                         |       | (2,307                  | )          | (2,307       | )          |
| Stockholders’ Equity                                                                                    |       | 134,437                 |       | 100,369      |       |
| Total                                                                                                        |       | $                       | 251,027    |         | $          | 220,199 |   |

 

See accompanying Notes to Condensed Consolidated Financial Statements.

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**MAUILAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONSAND RETAINED EARNINGS**

**(UNAUDITED)**

| ** **                                                                                                  | ** ** | **Three Months Ended**                        | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                                                  | ** ** | **3/31/07**                                             | ** ** | **3/31/06** | ** ** |
| ** **                                                                                                  | ** ** | **(in thousands  except share amounts)** | ** ** |
| Operating Revenues                                                                                          |       |                                                    |       |   |   |
| Net sales                                                                                                   |       | $                                                       | 50,087     |   | $ | 48,961 |   |
| Operating income                                                                                            |       | 10,687                                                  |       | 9,884 |   |
| Other income                                                                                                |       | 209                                                     |       | 107 |   |
| Total Operating  Revenues                                                                                   |       | 60,983                                                  |       | 58,952 |   |
| Operating Costs  and Expenses                                                                               |       |                                                    |       |   |   |
| Cost of sales                                                                                               |       | 13,186                                                  |       | 15,831 |   |
| Operating expenses                                                                                          |       | 9,076                                                   |       | 8,838 |   |
| Shipping and marketing                                                                                      |       | 3,148                                                   |       | 3,577 |   |
| General and administrative                                                                                  |       | 11,665                                                  |       | 9,626 |   |
| Total Operating  Costs and Expenses                                                                         |       | 37,075                                                  |       | 37,872 |   |
| Operating Income                                                                                            |       | 23,908                                                  |       | 21,080 |   |
| Equity in earnings of affiliates                                                                            |       | 1,858                                                   |       | 172 |   |
| Interest expense                                                                                            |       | (711                                                    | )          | (29 | ) |
| Interest income                                                                                             |       | 291                                                     |       | 301 |   |
| Income Before  Income Taxes                                                                                 |       | 25,346                                                  |       | 21,524 |   |
| Income Tax  Expense                                                                                         |       | 9,632                                                   |       | 7,749 |   |
| Net Income                                                                                                  |       | 15,714                                                  |       | 13,775 |   |
| Retained Earnings, Beginning of Period                                                                      |       | 82,765                                                  |       | 75,540 |   |
| Cumulative impact of change in accounting for  uncertainties in income taxes (FIN 48—see Note 16) |       | (200                                                    | )          | — |   |
| Retained Earnings, End of Period                                                                            |       | $                                                       | 98,279     |   | $ | 89,315 |   |
| Earnings Per  Common Share                                                                                  |       |                                                    |       |   |   |
| Basic                                                                                                       |       | $                                                       | 2.12       |   | $ | 1.90 |   |
| Diluted                                                                                                     |       | $                                                       | 2.10       |   | $ | 1.88 |   |

 

See accompanying Notes to Condensed Consolidated Financial Statements.

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**MAUI LAND & PINEAPPLE COMPANY, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)**

| ** **                                                | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                | ** ** | **3/31/07**                      | ** ** | **3/31/06** | ** ** |
| ** **                                                | ** ** | **(in thousands)**          | ** ** |
| Net Cash Used in  Operating Activities                    |       | $                                | (2,144     | ) | $ | (1,263 | ) |
| Investing Activities                                      |       |                             |       |   |   |
| Purchases of property                                     |       | (7,396                           | )          | (7,539 | ) |
| Proceeds from disposal of property                        |       | 8,589                            |       | 5,181 |   |
| Other                                                     |       | (757                             | )          | (1,879 | ) |
| Net Cash Provided  by (Used in) Investing Activities      |       | 436                              |       | (4,237 | ) |
| Financing  Activities                                     |       |                             |       |   |   |
| Payments of long-term debt and capital lease  obligations |       | (28,149                          | )          | (5,254 | ) |
| Proceeds from long-term debt                              |       | 16,050                           |       | 14,700 |   |
| Stock compensation exercises                              |       | 1,313                            |       | — |   |
| Stock issuance                                            |       | 15,000                           |       | — |   |
| Net Cash Provided  by Financing Activities                |       | 4,214                            |       | 9,446 |   |
| Net Increase in Cash and Cash Equivalents                 |       | 2,506                            |       | 3,946 |   |
| Cash and Cash Equivalents at Beginning of Period          |       | 1,143                            |       | 7,216 |   |
| Cash and Cash  Equivalents at End of Period               |       | $                                | 3,649      |   | $ | 11,162 |   |

 

Supplemental Disclosures of Cash Flow Information—Interest(net of amounts capitalized) of $308,000 and $14,000 was paid during the threemonths ended March 31, 2007 and 2006, respectively. Income taxes of$200,000 and $2,394,000 were paid during the three months ended March 31,2007 and 2006, respectively.

Non-Cash Investing Activities—In 2007 and 2006, netcash sales proceeds of $25.0 million and $21.9 million were deposited witha qualified exchange intermediary for reinvestment on a tax-deferred basis. Amountsincluded in trade accounts payable for additions to property and other assetstotaled $4,867,000 and $6,891,000 at March 31, 2007 and 2006,respectively.

See accompanying Notes to Condensed Consolidated Financial Statements.

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**MAUI LAND & PINEAPPLE COMPANY, INC. ANDSUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

**1.**                 Inthe opinion of management, the accompanying condensed consolidated financialstatements contain all normal and recurring adjustments necessary to fairlypresent the financial position, results of operations and cash flows for theinterim periods ended March 31, 2007 and 2006.

**2.**                 TheCompany’s reports for interim periods utilize numerous estimates of productioncost, 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.**                 Netincome was equal to comprehensive income for the interim periods ended March 31,2007 and 2006.

**4.**                 Theeffective tax rate for 2007 and 2006 differs from the statutory federal rateprimarily because of the state tax provision, state tax credits, and certainnon-deductible expenses.

**5.**                 Accountsand notes receivable are reflected net of allowance for doubtful accounts of$317,000 and $555,000 at March 31, 2007 and December 31, 2006,respectively.

**6.**                 Inventoriesas of March 31, 2007 and December 31, 2006 were as follows:

| ** **                           | ** ** | **3/31/07**             | ** ** | **12/31/06** | ** ** |
|--------------------------------------|------------|-------------------------|------------|--------------|------------|
| ** **                           | ** ** | **(in thousands)** | ** ** |
| Pineapple products                   |       |                    |       |         |       |
| Finished goods                       |       | $                       | 2,299      |         | $          | 1,416 |   |
| Work in progress                     |       | 485                     |       | 299          |       |
| Raw materials                        |       | 799                     |       | 492          |       |
| Real estate held  for sale           |       | 7,413                   |       | 8,449        |       |
| Merchandise,  materials and supplies |       | 7,623                   |       | 7,368        |       |
| Total Inventories                    |       | $                       | 18,619     |         | $          | 18,024 |   |

 

The Company accounts forthe costs of growing pineapple in accordance with the “annual accrual method,”which has been used by Hawaii’s pineapple and sugarcane growers since the 1950s.Under this method, revenues and costs are determined on the accrual basis, andpineapple production costs incurred during a year are charged to the costs ofcrops harvested during that year. These costs include land preparation andplanting, cultivation, irrigation, crop development, harvesting and hauling tothe cannery. They also include certain overhead costs that are directly relatedto the growing of pineapple. Accordingly, no costs are assigned to the growing(unharvested) crops. The annual accrual method is the most appropriate methodof accounting for the costs of growing pineapple because of pineapple’s cropcycle (18 to 48 months) and the uncertainties about fruit quality and thenumber of crops to be harvested from each planting (one to three crops). AICPAStatement of Position No. 85-3 (SOP), *Accountingby Agricultural Producers and Agricultural Cooperatives*, states thatall direct and indirect costs of growing crops should be accumulated andgrowing crops should be reported at the lower of cost or market. However, SOP No. 85-3does not apply to growers of pineapple and sugarcane in tropical regionsbecause tropical agriculture (of which pineapple and sugarcane production inHawaii are examples) differs greatly from agriculture in temperate regions ofthe mainland United States. The Company’s growing (unharvested) crops at March 31,2007 consisted of approximately 3,696 acres that are expected to yieldapproximately 33 tons per acre. At 

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December 31,2006, growing crops consisted of approximately 3,575 acres that are expected toyield approximately 33 tons per acre. The Company’s growing crops are invarious stages of development, and will be harvested principally in the years2007 through 2009.

**7.****                 LandSale and Joint Venture Interest**

On March 28, 2007, the Company sold the landunderlying the Ritz-Carlton, Kapalua hotel (“Hotel”) to a wholly-ownedaffiliate of the limited liability company (the “Hotel JV”) that owned thehotel and was the lessee under the long-term ground lease with the Company. Approximately49 acres were sold for $25 million in cash at closing and a 21.4% interest inthe Hotel JV. The Company recognized a gain of $24.8 million and deposited cashproceeds of $25.0 million with a qualified exchange intermediary. As of March 31,2007, these sales proceeds remained on deposit and a portion of such proceedsare expected to be reinvested on a tax deferred basis (Internal Revenue Code Section 1031exchange).

In connection with the sale of the land, the long-termground lease was terminated and the Second Amended and Restated LimitedLiability Company Agreement of W2005 Kapalua/Gengate Holdings L.L.C. (the “HotelJV Agreement”) was executed. Pursuant to the Hotel JV Agreement, the members of and the percentage interestsin the Hotel JV are:

(i)             Whitehall StreetGlobal Real Estate Limited Partnership 2005, a Delaware limited partnership (“WhitehallStreet”); 40.4234%;

(ii)         Whitehall Street GlobalEmployee Fund 2005, a Delaware limited partnership (“Whitehall Employee Fund”);10.648%;

(iii)     Gengate Kapalua Holdings GP,LLC, a Delaware limited liability company (“GHGP”); 0%;

(iv)       Gengate Kapalua Holdings,LLC, a Delaware limited liability company (“GKH”); 27.5%;

(v)           MLP RCK LLC, a Hawaiilimited liability company (“MLPC”), whose sole member is the Company; 21.4286%.

Whitehall Street, Whitehall Employee Fund and GKH aredesignated as the Managing Members of the Hotel JV. Major decisions, as suchterm is defined in the Hotel JV Agreement, require the consent of WhitehallStreet or Whitehall Employee Fund, and either GKH or MLPC. Profits and lossesof the Hotel JV will be allocated in proportion to the members’ ownershipinterests, which approximate the estimated cash distributions to the members. TheCompany has the ability to exercise significant influence, but not control,over operating and financial policies of the Hotel JV and will account for itsinvestment in the Hotel JV using the equity method. The Hotel JV is not avariable interest entity as defined by Financial Accounting Standards BoardInterpretation No. 46(R), *Consolidation of VariableInterest Entities*.

Pursuant to the Hotel JV Agreement, the Company isdeemed to have contributed $7.5 million as a capital contribution to the HotelJV. The Company’s initial carrying amount of its interest in the Hotel JV hasbeen recorded on its consolidated balance sheet as -0-, whichresulted from the deferral of a portion of the gain on the land sale amountingto $7.5 million that is proportionate to the Company’s interest in the HotelJV.

Pursuant to the Hotel JV Agreement, $4.1 million ofthe Company’s $7.5 million contribution is deemed to have been contributed inlieu of certain future capital calls. Should MLPC fail to make any additionalcapital contributions when called to do so by a Managing Member, certaindilution provisions provide that MLPC’s interest will be reduced by theaggregate amount of the increase in the percentage interests of allcontributing members, but in no event shall MLPC’s percentage interest bereduced below 10%. Any amounts funded by the other members on behalf of MLPCwhich would 

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have otherwise reducedMLPC’s percentage interest below 10% will instead be treated as member loans tothe Hotel JV, with such loans to be repaid directly by the Hotel JV on behalfof MLPC from any amounts that would otherwise be payable by the Hotel JV toMLPC.

Concurrent with the HotelJV Agreement, the Hotel JV entered into certain loan agreements with LehmanBrothers Holding Inc. totaling $271.7 million and an amendment to an existingloan agreement of $20 million with Luxury Finance, LLC, a Delaware limited liabilitycompany (collectively, the “Loans”). The Loans are principally for the purposeof acquiring the land from the Company, repaying existing debt, and completinga comprehensive refurbishment of the Hotel. The Company is not liable for therepayment of the Loans, but is liable for any loss suffered by the lenders as aresult of the Company’s fraudulent acts, misrepresentation or certain othertriggering events, up to 10.71% of the then outstanding loan balances. TheCompany has recognized a liability of $93,000, representing the estimated fairvalue of its obligations under these provisions.

**8.****                 Stock-BasedCompensation**

The Company accounts for stock compensationarrangements in accordance with Statement of Financial Accounting Standards (“SFAS”)No. 123(R), *Share-Based Payment*.SFAS No. 123(R) requires all share-based payments, including grantsof employee stock options, to be recognized as compensation expense over theservice period (generally the vesting period) in the consolidated financialstatements based on their fair values. The impact of forfeitures that may occurprior to vesting is also estimated and considered in the amount recognized. SFASNo. 123(R) requires excess tax benefits be reported as a financingcash inflow rather than as a reduction of taxes paid.

The total compensationexpense recognized for stock-based compensation was $2,051,000 and $644,000 forthe three months ended March 31, 2007 and 2006, respectively. The totaltax benefit related thereto was $429,000 and $232,000, for the three monthsended March 31, 2007 and 2006, respectively. Recognized stock compensation was reducedfor estimated forfeitures prior to vesting primarily based on historical annualforfeiture rates of approximately 5.6% and 6.5%, for the three monthsended March 31, 2007 and 2006, respectively. Estimated forfeitures will bereassessed in subsequent periods and may change based on new facts andcircumstances.

*Stock Options*

In May 2006, the Company’s shareholders approvedthe 2006 Equity and Incentive Award Plan (the “2006 Plan”) and an increase inthe number of shares of common stock authorized under the Articles ofAssociation by 1,000,000 shares, all of which have been reserved for issuanceunder the 2006 Plan. The 2006 Plan provides that the administrator can grantstock options and other equity instruments. The terms of certain grant typesfollow general guidelines, but the term and conditions of each award can varyat the discretion of the administrator. With respect to awards granted tonon-employee directors, the administrator of the 2006 Plan is the Board ofDirectors. The Compensation Committee of the Board is the administrator of the2006 Plan for all other persons, unless the Board assumes authority foradministration. Upon approval of the 2006 Plan, the Company’s Stock andIncentive Compensation Plan of 2003 (the “2003 Plan”) was terminated and nofurther grants will be made under that plan.

The 2003 Plan was approved by the Company’sshareholders in December 2003 and included 500,000 shares of common stockauthorized for issuance. The Company also has stock compensation agreementswith its President and Chief Executive Officer under which non-qualified stockoptions (200,000 shares) and restricted stock (100,000 shares) were granted in2003.

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Asummary of stock option award activity as of and for the three months ended March 31,2007 is presented 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, 2006 |       | 863,500    |       |         | $          | 31.64               |       |                  |       |          |       |   |   |   |   |   |   |   |   |   |
| Granted                                |       | 25,000     |       |         | $          | 31.73               |       |                  |       | $             | 13.36      |   |   |   |   |   |   |   |   |   |   |
| Exercised                              |       | (66,667    | )          |         | $          | 19.70               |       |                  |       |          |       |   |   |   |   |   |   |   |   |   |
| Forfeited or  Cancelled                |       | (30,000    | )          |         | $          | 30.85               |       |                  |       | $             | 15.59      |   |   |   |   |   |   |   |   |   |   |
| Outstanding at  March 31, 2007    |       | 791,833    |       |         | $          | 32.67               |       |                  |       | $             | 13.48      |   |   |   | 7.9 |   |   |   | $ | 2,403 |   |   |
| Exercisable at  March 31, 2007    |       | 287,901    |       |         | $          | 27.52               |       |                  |       | $             | 12.06      |   |   |   | 6.1 |   |   |   | $ | 1,387 |   |   |

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       (1) For in the money options

There were no stockoptions granted or exercised during the first quarter of 2006. Additional stockoption information for the three months ended March 31, 2007 and 2006follows:

| ** **                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------------------------|------------|----------|------------|----------|------------|
| Weighted Average  Grant-Date Fair Value               |       |     |       |     |       |
| For Options Granted During the Period                 |       | $        | 13.36      |     | —     |   |
| Intrinsic Value  of Options Exercised $(000)          |       | $        | 734        |     | —     |   |
| Cash Received  From Option Exercises $(000)           |       | $        | 1,313      |     | —     |   |
| Tax Benefit From  Option Exercises $(000)             |       | $        | —     |     | —     |   |
| Fair Value of Shares  Vested During the Period $(000) |       | $        | 442        |     | $          | 453 |   |
|                                                       |            |          |            |          |            |  |  |

 

For the three months endedMarch 31, 2007, the fair value of the Company’s stock options awarded toemployees was estimated using a Black-Scholes option pricing model and thefollowing weighted average assumptions:

| ** **                         | ** ** | **2007** | ** ** |
|------------------------------------|------------|----------|------------|
| Expected Life of  Options in Years |       | 7        |       |
| Expected  Volatility               |       | 31.5     | %          |
| Risk-free  interest rate           |       | 4.7      | %          |
| Expected dividend yield            |       | —   |       |

 

As of March 31, 2007,there was $6,454,000 of total unrecognized compensation for awards grantedunder the stock option plans that is expected to be recognized over a weightedaverage period of 2.1 years.

*Restricted Stock*

In the first quarter of 2007, 25,000 shares ofrestricted stock were granted to certain officers pursuant to the 2006 Plan. Theshares will vest subject to achievement of certain performance measures. In thefirst quarter of 2007, 2,000 shares of restricted stock vested as directors’service requirements were met and 49,466 shares granted to certain officersvested as performance measures were achieved. The weighted average grant-datefair value of restricted stock granted during the three months ended March 31,2007 and 2006 was $31.73 and $37.42, per share, respectively.

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A summary of theactivity for restricted stock awards as of and for the quarter ended March 31,2007 is presented below:

| ** **                                  | ** ** | ** ** | ** ** | **Weighted**        | ** ** |
|---------------------------------------------|------------|------------|------------|---------------------|------------|
| ** **                                  | ** ** | ** ** | ** ** | **Average**         | ** ** |
| ** **                                  | ** ** | ** ** | ** ** | **Grant-Date**      | ** ** |
| ** **                                  | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Nonvested balance at December 31, 2006 |       | 259,271    |       |                | $          | 33.24 |   |   |
| Granted                                     |       | 25,000     |       |                | $          | 31.73 |   |   |
| Vested                                      |       | (51,466    | )          |                | $          | 30.84 |   |   |
| Forfeited or Cancelled                      |       | (21,250    | )          |                | $          | 35.60 |   |   |
| Nonvested balance at March 31, 2007    |       | 211,555    |       |                | $          | 33.98 |   |   |

 

**9.****                 OperatingSegment Information:**

| ** **                | ** ** | **Three Months**        | ** ** |
|---------------------------|------------|------------------------------|------------|
| ** **                | ** ** | **Ended March 31** | ** ** |
| ** **                | ** ** | **2007**                     | ** ** | **2006** | ** ** |
| ** **                | ** ** | **(in thousands)**      | ** ** |
| Revenues                  |       |                         |       |   |   |
| Community Development     |       | $                            | 35,234     |   | $ | 30,087 |   |
| Resort                    |       | 11,655                       |       | 12,930 |   |
| Agriculture               |       | 13,746                       |       | 15,923 |   |
| Other                     |       | 348                          |       | 12 |   |
| Total Operating  Revenues |       | $                            | 60,983     |   | $ | 58,952 |   |
| Operating Profit (Loss)   |       |                         |       |   |   |
| Community Development     |       | $                            | 29,095     |   | $ | 23,363 |   |
| Resort                    |       | (904                         | )          | 430 |   |
| Agriculture               |       | (2,396                       | )          | (2,298 | ) |
| Other                     |       | (29                          | )          | (243 | ) |
| Total Operating  Profit   |       | 25,766                       |       | 21,252 |   |
| Interest Expense          |       | (711                         | )          | (29 | ) |
| Interest Income           |       | 291                          |       | 301 |   |
| Income Tax  Expense       |       | (9,632                       | )          | (7,749 | ) |
| Net Income                |       | $                            | 15,714     |   | $ | 13,775 |   |

 

**10.**          AverageCommon Shares Outstanding Used to Compute Earnings Per Share

| ** ** | ** ** | **Three Months**        | ** ** |
|------------|------------|------------------------------|------------|
| ** ** | ** ** | **Ended March 31** | ** ** |
| ** ** | ** ** | **2007**                     | ** ** | **2006** | ** ** |
| Basic      |       | 7,423,645                    |       | 7,254,801 |   |
| Diluted    |       | 7,498,932                    |       | 7,346,358 |   |

 

In 2007 and 2006,diluted shares included common stock equivalents, principally employee stockoptions and restricted stock awards.

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**11.**          Componentsof Net Periodic Benefit Cost

The net periodiccost for pension and other postretirement benefits for the three months ended March 31,2007 and 2006 were as follows:

| ** **                             | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|----------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| ** **                             | ** ** | **2007**                  | ** ** | **2006**                | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                             | ** ** | **(in thousands)**   | ** ** |
| **Pension Benefits**                   |       |                      |       |                    |       |   |   |   |   |
| Service cost                           |       | $                         | 435        |                    | $          | 401 |   | $ | 75 |   | $ | 97 |   |
| Interest cost                          |       | 848                       |       | 756                     |       | 199 |   | 238 |   |
| Expected return  on plan assets        |       | (863                      | )          | (808                    | )          | — |   | — |   |
| Amortization of  prior service cost    |       | 12                        |       | 6                       |       | (8 | ) | (32 | ) |
| Amortization of  transition obligation |       | 6                         |       | 12                      |       | — |   | — |   |
| Curtailment loss                       |       | —                    |       | —                  |       | — |   | — |   |
| Amortization of  actuarial loss/(gain) |       | 156                       |       | 97                      |       | (122 | ) | (51 | ) |
| Net expense                            |       | $                         | 594        |                    | $          | 464 |   | $ | 144 |   | $ | 252 |   |

 

The Company expectsto contribute $1.2 million to $2.0 million to its defined benefit pension plansand expects to contribute $719,000 to its other post-retirement benefit plansin 2007.

**12.**          Commitmentsand 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 estimated its share of thecost to operate and maintain the filtration systems for the existing wells andits share of the cost of a letter of credit used to secure its obligations, andrecorded a total liability of $477,000 as of March 31, 2007. The Companypaid $238,000 in 2005 for its share of the capital costs to install afiltration system for an existing well. The Company is presently not aware ofany plans by the County of Maui to install other filtration systems or to drillany water wells in areas affected by agricultural chemicals. Accordingly, areserve for costs relating to any future wells has not been recorded becausethe Company is not able to reasonably estimate the amount of the liability (ifany).

In addition to thematter noted above, there are various other claims and legal actions pendingagainst the Company. In the opinion of management, after consultation withlegal counsel, the resolution of these other matters is not expected to have amaterial adverse effect on the Company’s Consolidated Financial Statements.

The Company, as aninvestor in various affiliates (partnerships, limited liability companies), mayunder specific circumstances be called upon to make additional capitalcontributions.

At March 31,2007 the Company had commitments under signed contracts totaling $11.1 million,which primarily relate to real estate development projects.

**13.**          RelatedParty Transactions

In February 2007, the$4.1 million sale of 157 acres of Upcountry Maui land to the Company’sChairman, President and Chief Executive Officer closed escrow. Prior to theclosing of the sale, the Company leased a 3,500 square foot residence that islocated on the property to the executive for $1,500 per month, which amountrepresented fair market value based on an estimate by a third party realtor.

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The land sale agreementwas structured in compliance with the Company’s policy for related party realestate sales. Such policy requires an independent appraisal of the propertyvalue, allows for a 3% discount to the sales price in lieu of broker’scommissions, and requires review and approval of the sales price by the AuditCommittee of the Board of Directors. The property had been previouslydesignated for sale in 2004 as part of the real estate that is considerednon-core to the Company’s operations.

**14.**          KapaluaBay Holdings, LLC

The Company has a 51%ownership interest in Kapalua Bay Holdings, LLC, a Delaware limited liabilitycompany (“Bay Holdings”), which is the sole member of Kapalua Bay LLC, aDelaware limited liability company (“Kapalua Bay”). Kapalua Bay is constructinga residential development on land that it owns at the site of the formerKapalua Bay Hotel, which was closed in April 2006, and a spa on an adjacentparcel of land that is owned by the Company and leased to Kapalua Bay. Majoroperating and financial decisions require approval of all the members in BayHoldings and, accordingly, the Company’s investment in Bay Holdings is beingaccounted for using the equity method, rather than being consolidated with theCompany’s financial statements, because the Company does not have a controllinginterest in Bay Holdings.

The Company’s equity inthe earnings of Bay Holdings was $1.9 million and $169,000 for the quartersended March 31, 2007 and 2006, respectively. In March 2007, BayHoldings began to recognize profit from binding sales contracts on condominiumsin two of the four whole ownership unit buildings on a percentage-of-completionmethod. Accordingly, in March 2007, the Company began to recognize aproportionate amount of the fair value of its land and other non-monetarycontributions to Kapalua Bay and other deferred costs related to the jointventure. The net amount of income recognized in the first quarter of 2007was $538,000, which is included in the Company’s equity in earnings of BayHoldings. Upon formation of Kapalua Bay in 2004, the Company’s non-monetarycontributions to Bay Holdings, including the 21-acre land parcel werevalued at $25 million by the members through arms-length negotiations. The landcontribution was recorded by the Company in its investment carrying value inBay Holdings at historical cost, which was nominal, and Kapalua Bayrecorded the contribution at its fair market value of $25 million.

In July 2006, KapaluaBay entered into a Construction Loan Agreement (the “Loan Agreement”) withLehman Brothers Holdings Inc., a Delaware corporation (“Lehman”), for thelesser of $370 million or 61.6% of the total projected cost of the project (the“Loan”). Disbursements under the Loan Agreement are contingent upon, amongother things, no event of default or material adverse change occurring withrespect to Kapalua Bay or the project. The loan is not revolving in nature andamounts repaid may not be subsequently advanced. All Loan proceeds disbursedshall be used only for specified budgeted items for which such proceeds wereadvanced. The Lender is not obligated to make loan advances exceeding $85 millionuntil sales of residential units equals or exceeds $285.0 million. As of March 31,2007, total loan advances were $62.4 million and Kapalua Bay had executedapproximately $220 million in binding sales commitments.

The Loan is collateralizedby the project assets, including the fee simple interest in the land owned byKapalua Bay, the adjacent spa parcel owned by the Company, and all of the salescontracts.

The Company and the othermembers of the joint venture have guaranteed to the lender completion of theproject and each member’s pro rata share of costs and losses incurred by thelender as a result of the occurrence of specified triggering events during theterm of the Loan Agreement. The members’ guarantee to the lender does notinclude payment in full of the Loan. The Company has recognized a liability of$968,000, representing the estimated fair value of its obligation under thisguarantee.

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Summarized operatingstatement information for Bay Holdings is as follows:

| ** ** | ** ** | **Three Months  Ended March 31,** | ** ** |
|------------|------------|--------------------------------------------------|------------|
| ** ** | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** ** | ** ** | **(in thousands)**                          | ** ** |
| Revenues   |       | $                                                | 19,514     |   | $ | 6,233 |   |
| Expenses   |       | 16,914                                           |       | 5,902 |   |
| Net Income |       | $                                                | 2,600      |   | $ | 331 |   |

 

**15.**          PrivatePlacement of Common Stock

On March 12, 2007,the Company entered into a Securities Purchase Agreement with two accreditedinvestors, Ohana Holdings, LLC and ZG Ventures, LLC, pursuant to which theCompany raised approximately $15,000,000 in gross proceeds through a privateplacement of 517,242 shares of common stock at a purchase price of $29.00 pershare. Miles R. Gilburne, who was elected to the Company’s Board of Directorson May 7, 2007, is the managing member of ZG Ventures, LLC.

In connection with theissuance of the common stock (the “Shares”), the Company entered into aRegistration Rights Agreement with the investors obligating the Company toregister for resale the Shares on a registration statement to be filed with theSecurities and Exchange Commission not later than March 12, 2008, subjectto the exceptions set forth therein. The investors have also been granted “piggy-back”registration rights with respect to the Shares.

**16.**          IncomeTaxes

The Company’s State ofHawaii income tax returns for 2000, 2001 and 2002 are under examination by theDepartment of Taxation. The tax auditor’s reports on these examinations havenot been issued and the Company presently cannot predict the outcome of theseexaminations. The Company’s federal income tax returns have been reviewedthrough 2002.

The Company adopted theprovisions of Financial Accounting Standards Board (FASB) Interpretation No. 48,*Accounting for Uncertainty in Income Taxes-aninterpretation of FASB Statement No. 109*(FIN 48) on January 1,2007. This interpretation prescribes a recognition threshold and measurementattribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return. As of January 1,2007, the Company had unrecognized tax benefits of approximately $2.9 million,and as a result of the implementation of FIN 48, the Company increased itsliability for these benefits by $200,000, which was accounted for as areduction to the January 1, 2007 balance of retained earnings. Approximately$2.2 million of the unrecognized tax benefits represent taxes on revenues forwhich the timing of the taxability is uncertain and the liability for suchtaxes have 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.

As of January 1,2007, the Company had recorded a liability of approximately $394,000 forpotential interest expense for uncertain tax issues. In the first quarter of2007, the Company recorded $70,000 of additional interest expense forunrecognized tax benefits.        TheCompany recognizes interest accrued related to unrecognized tax benefits asinterest expense and penalties in general and administrative expense in itsstatement of operations and such amounts are included in income taxes payableon the Company’s balance sheet.

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**17.**          SubsequentEvent

On April 30, 2007,the Company’s Board of Directors approved a comprehensive plan to shift thepineapple operations focus to fresh fruit sales. As part of this plan, theCompany will cease the processing of solid-pack pineapple products effective asof June 30, 2007. The Company will continue to process pineapple juice andwill extend its fresh fruit line to include product for institutional accounts.The decision to exit from the solid-pack operations was based on the risingcosts of fuel, materials and labor, and the competitive forces of a globaleconomy that have made the operation unprofitable.

The Company estimates thatit will have cash expenditures of approximately $1.6 million for severance andvacation payments as currently established by the contract with theInternational Longshore & Warehouse Union or by Company policy. Additionalone-time termination benefits are currently being negotiated with the union andthe Company is not currently able to estimate such cost. The Company estimatesthat non-cash charges for the write off of fixed assets, materials and supplieswill total approximately $2.5 million. The Company has not yet determined theeffect on its pension and other post-retirement plans.

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**Item 2.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations

The following discussionand analysis of our financial condition and results of operations should beread in conjunction with our audited consolidated financial statements andrelated notes included in our Annual Report on Form 10-K for theyear ended December 31, 2006 and the unaudited condensed consolidatedfinancial statements and related notes included in this Quarterly Report on Form 10-Q.Depending upon the context, the terms the “Company”, “we,” “our,” and “us,”refers to either the Company alone, or the Company and its subsidiaries.

***Overview of the Company***

Maui Land &Pineapple Company, Inc. is a Hawaii corporation and the successor to abusiness organized in 1909. Principal subsidiaries include Maui PineappleCompany, Ltd. and Kapalua Land Company, Ltd. Our reportable operating segmentsare Agriculture, Resort and Community Development.

*Agriculture*

The Agriculture segment primarily includes growing,packing and marketing of fresh premium pineapple. This segment also includesthe packing and canning (processing) of pineapple that is not suitable for thefresh premium market because of quality or market conditions. The fruit grownby us principally consists of three types of pineapple, *Maui Gold**®**, Hawaiian Gold*TM, and organic pineapple. Alsosee Note 17 to Condensed Consolidated Financial Statements.

Our strategy focuses on marketing only the highestquality of fresh pineapple. We use our processed pineapple operations tocomplement the fresh operations, and direct fruit to either our processed orour fresh packing facility at the time of harvest based on a variety offactors, including market conditions, fruit size and fruit quality.

The fresh fruit market isa year-round business, which requires consistency of supply. Over the past twoyears, we have made significant progress in changing our agronomic practicesand planting schedules to produce a more consistent and predictable supply offruit throughout the year. In addition, we have made significant progress inimplementing improved crop maintenance and agronomic practices that we believewill improve our plant yields (tons of fruit per acre) and fruit quality.

*Resort*

The Kapalua Resort is partof approximately 22,500 acres of our land-holdings in West Maui, most of whichremain as open space. Presently, the Kapalua Resort development includesapproximately 2,575 acres bordering the ocean with five white sand beaches andincludes The Ritz-Carlton, Kapalua, eight residential subdivisions, twochampionship golf courses (The Bay and The Plantation), a ten-court tennisfacility, the first phase of commercial space in the central area of theResort, several restaurants, and over 800 single family residential lots, condominiumsand homes. We operate Kapalua Resort’s two golf courses, the tennis facility,several retail shops, a vacation rental program (The Kapalua Villas), andprovide certain services to the Resort. We currently have approximately 250units in the Kapalua Villas vacation rental program.

*CommunityDevelopment*

The Community Development segment includes our realestate entitlement, development, construction, sales, leasing, and conservationactivities. Our projects are focused primarily on the luxury real estate marketwithin the central area of Kapalua Resort and affordable and moderately pricedresidential and mixed use projects in West Maui and Upcountry Maui. Thissegment also includes the operations of Kapalua Realty Company, our generalbrokerage real estate company located within the 

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Resort, and our PublicUtilities Commission regulated water and sewage operations that service theKapalua Resort.

The Community Development segment also includes themanagement of several leases, including the ground lease underlying TheRitz-Carlton, Kapalua (through March 28, 2007). On March 28, 2007, wesold the land underlying the Ritz-Carlton, Kapalua hotel to a wholly-ownedaffiliate of the limited liability company (the Hotel JV) that was the lesseeunder the ground lease for $25 million in cash at closing and a 21.4% interestin the Hotel JV. See Note 7 to Consolidated Condensed Financial Statements. TheCommunity Development segment also includes our 51% equity interest in KapaluaBay Holdings, LLC, the limited liability company that purchased the Kapalua BayHotel. Kapalua Bay Holdings LLC has demolished the Kapalua Bay Hotel and theadjacent shops in order to develop new whole and fractional residential units,an ocean-side spa, and a beach club at that location. As of March 31,2007, two of the whole-ownership residential buildings were approximately 15%complete. See Note 14 to Condensed Consolidated Financial Statements.

We have approximately 1,500 acres of land in Maui thatare 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 and entails a variety of risks.

The CommunityDevelopment segment is working on a number of real estate development andKapalua Resort revitalization projects, some of which are as follows:

·       KapaluaMauka is a 690-unit residential, golf and commercial project, whichreceived zoning approval in February 2006. Detailed planning for KapaluaMauka is currently underway.

·       CentralResort (Village at Kapalua) includes 196 dwelling units and approximately44,500 square feet of commercial space. The project is in the designdevelopment phase.

·       PailoloViews includes approximately 42 affordable housing rental units near the BayCourse. We are presently in the design and construction bidding phase of thisproject.

·       WestMaui Village includes approximately 90 affordable units and approximately 68market priced units in Napili, near the outer edge of Kapalua Resort. We arepresently in the design and construction bidding phase of this project.

·       Pulelehuais a proposed “new urbanism” community of approximately 882 units in West Mauithat will include a variety of housing types, mixed commercial and residentialuses, and neighborhood serving commercial uses. Over 50% of the homes andapartments are intended to be affordable for working families as defined by theCounty of Maui. We are presently in the entitlement phase of this project.

·       Hali`imaile Town is aplanned new town in Upcountry Maui that we expect to be a holistic communitywhere sustainable agriculture, education, and green building principles are coredesign elements. We are presently in the conceptual design phase of thisproject, with entitlement applications to be submitted in 2007. We areproceeding with the design of a mixed-use residential and commercial area oneleven acres of existing urban-zoned land.

***Current Developments***

In the firstquarter of 2007, some of the Company’s significant transactions, events and keyinitiatives include the following:

·       InFebruary, we closed the Village (golf) Course. We intend to construct a newMauka Course in place of the Village Course.

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·       InMarch, we raised approximately $15,000,000 in gross proceeds through a privateplacement of 517,242 shares of common stock. The funds were initially used topay down our revolving credit facility.

·       InMarch, we sold the land underlying the Ritz-Carlton, Kapalua hotel and obtainedan interest in a joint venture for the ownership of the hotel (see Note 7 toCondensed Consolidated Financial Statements).

·       InMarch, construction of the condominiums by Kapalua Bay Holdings, LLC haveprogressed to the point at which the joint venture began to recognize revenuesand profit from the sales of the whole ownership units in two of the buildingson a percentage-of-completion method (see Note 14 to Condensed ConsolidatedFinancial Statements).

·       In the first quarter of2007, we closed escrow on the $4.1 million sale of a non-core land parcel; andalso received $4.5 million from the repayment of a $4.5 million promissory notefrom a December 2006 sale of non-core land.

**Critical AccountingPolicies and Estimates**

The preparation ofconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires the use ofaccounting estimates. Changes in these estimates and assumptions are consideredreasonably possible and may have a material effect on the consolidatedfinancial statements and thus actual results could differ from the amountsreported and disclosed herein. The Company’s critical accounting policies thatrequire the use of estimates and assumptions were discussed in detail in themost recently filed Form 10-K and have not changed materially fromthat discussion.

**RESULTS OFOPERATIONS**

***Three Months Ended March 31, 2007 compared toThree Months Ended March 31, 2006***

**CONSOLIDATED**

| ** **                         | ** ** | **Three Months Ended March 31,**        | ** ** |
|------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                         | ** ** | **2007**                                                    | ** ** | **2006** | ** ** | **difference** | ** ** |
| ** **                         | ** ** | **(in millions, except share amounts)** | ** ** |
| *Consolidated  Revenues*           |       | $                                                           | 61.0       |   | $ | 59.0 |   |   | $ | 2.0 |   |   |
| *Net Income*                       |       | $                                                           | 15.7       |   | $ | 13.8 |   |   | $ | 1.9 |   |   |
| *Basic  Earnings Per Common Share* |       | $                                                           | 2.12       |   | $ | 1.90 |   |   | $ | 0.22 |   |   |

 

We reported net income of$15.7 million ($2.12 per share) for the first quarter of 2007 compared to netincome of $13.8 million ($1.90 per share) for the first quarter of 2006. Thedifference in net income between the first quarter of 2007 and 2006 was due primarilyto higher gains from land sales in 2007, partially offset by lower results fromour Agriculture and Resort operations. Consolidated revenues for the firstquarter of 2007 were $61.0 million compared to $59.0 million for the firstquarter of 2006. The increase in revenues was due to an increase of $5.1million from the Community Development segment, partially offset by a decreaseof $2.2 million from the Agriculture segment and a decrease of $1.2 millionfrom the Resort segment.

*General andAdministrative*

Consolidated general and administrative expensesincreased by 21%, or $2.1 million to $11.7 million for the first quarter of2007 from $9.6 million for the first quarter of 2006.

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

| ** **                                         | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                         | ** ** | **2007**                                             | ** ** | **2006** | ** ** | **difference** | ** ** |
| ** **                                         | ** ** | **(in millions)**                               | ** ** |
| Salaries &  wages                         |       | $                                                    | 2.5        |   | $ | 2.6 |   |   | $ | (0.1 | ) |   |
| Employee  incentives & stock compensation |       | 3.5                                                  |       | 0.9 |   |   | 2.6 |   |   |
| Professional  services                             |       | 2.1                                                  |       | 1.1 |   |   | 1.0 |   |   |
| Depreciation  expense                              |       | 0.3                                                  |       | 1.3 |   |   | (1.0 | ) |   |
| Other                                              |       | 3.3                                                  |       | 3.7 |   |   | (0.4 | ) |   |
| Total                                              |       | $                                                    | 11.7       |   | $ | 9.6 |   |   | $ | 2.1 |   |   |

 

The increase in employee incentives and stockcompensation was primarily due to restricted stock vesting in the first quarterof 2007 for certain officers and a payment of $1.1 million to David C. Cole,our Chairman, President & CEO because of an amendment to Mr. Cole’sstock option agreement with the Company that reduced the value of the stockoptions. The stock option agreement was amended to eliminate adverse taxconsequences imposed by section 409A of the Internal Revenue Code.

The increase in professional services primarilyreflects work performed by outside consultants and the external auditors withregard to Sarbanes-Oxley Act of 2002, Section 404 in the first quarter of2007, for the 2006 fiscal year. Much of the work in this area was delayedbecause of the completion of installation of new accounting systems and thecentralization of the accounting function late in 2006.

The reduction in depreciation expense charged togeneral and administrative expense is primarily due to acceleration ofdepreciation charges in 2006 for our accounting systems that were replaced in2006 and our fresh fruit packing facility that was also replaced in 2006.

General and administrativeexpenses are incurred at the corporate level and at the operating segment level.All general and administrative expenses incurred at the corporate level areallocated to the operating segments. Such allocations are consistent with ourmanagement’s evaluation of service provided to the operating segments.

*Interest Expense*

Interest expense was$711,000 for the first quarter of 2007 compared to $29,000 for the firstquarter of 2006. Interest incurred in the first quarter of 2007 was $1.1million, of which $362,000 was capitalized to construction projects. In thefirst quarter of 2006, interest incurred was $333,000 of which $304,000 wascapitalized. Our effective interest rate on borrowings was 7.8% in the firstquarter of 2007 compared to 7.5% in the first quarter of 2006. The increase ininterest expense was due primarily to higher average borrowings in the firstquarter of 2007.

**AGRICULTURE**

| ** **                   | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------|------------|------------------------------------------------------|------------|
| ** **                   | ** ** | **2007**                                             | ** ** | **2006** | ** ** | **difference** | ** ** |
| ** **                   | ** ** | **(in millions)**                               | ** ** |
| *Revenues*                   |       | $                                                    | 13.7       |   | $ | 15.9 |   |   | $ | (2.2 | ) |   |
| *% of consolidated revenues* | * *   | *22*                                                 | *%*        | *27* | *%* |   |   |   |   |
| *Operating  Loss*            |       | $                                                    | (2.4       | ) | $ | (2.3 | ) |   | $ | (0.1 | ) |   |

 

The Agriculture segmentproduced an operating loss of $2.4 million for the first quarter of 2007compared to an operating loss of $2.3 million for the first quarter of 2006. Revenuesfor the first quarter of 2007 were $13.7 million or 14% lower than the firstquarter of 2006. The decrease in revenues was 

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primarilyattributable to a reduction in revenues from fresh and processed pineapple. Lowerrevenues coupled with higher per unit cost of sales, more than offsetadditional depreciation charges that are included in the first quarter of 2006.

*Fresh and ProcessedOperations*

The case volume of fresh pineapple sales decreased by13% and the average revenue per case of fresh pineapple sold increased by 4% inthe first quarter of 2007 compared to the first quarter of 2006. Revenues fromfresh pineapple sales were approximately 44% of the Agriculture segment netsales for the first quarter of 2007, compared to approximately 42% for thefirst quarter of 2006 primarily because we sold relatively more juice which hasa lower sales value as compared to fruit.

The case volume of processed pineapple sales decreasedby 16% for the first quarter of 2007 as compared to the first quarter of 2006primarily reflecting our strategy to reduce supply to selected retail marketsegments. The average sales prices for our processed pineapple productsdecreased by approximately 4% for the first quarter of 2007 compared to thefirst quarter of 2006, primarily because we sold relatively more juice in 2007,which has a lower sales value, than canned fruit.

Processed pineapple sold to the U. S. Government(primarily to the Department of Agriculture) comprised approximately 48% of ourcase volume of canned pineapple sales in the first quarter of 2007 compared to43% in the first quarter of 2006.

TheAgriculture segment cost of sales was lower by approximately 3% in the firstquarter of 2007 compared to the first quarter of 2006 reflecting lower casesales volume of fresh and processed pineapple, partially offset by higher perunit cost of sales reflecting increased depreciation charges, principally forthe new fresh fruit packing facility that was placed in service in mid-2006,and higher cost of fuel and fuel related products such as fertilizers andchemicals. Shipping and marketing cost increased by 8% in the first quarter of2007 compared to the first quarter of 2006 primarily because of higher oceanand surface transportation costs reflecting higher fuel costs.

**RESORT**

| ** **                   | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------|------------|------------------------------------------------------|------------|
| ** **                   | ** ** | **2007**                                             | ** ** | **2006** | ** ** | **difference** | ** ** |
| ** **                   | ** ** | **(in millions)**                               | ** ** |
| *Revenues*                   |       | $                                                    | 11.7       |   | $ | 12.9 |   |   | $ | (1.2 | ) |   |
| *% of consolidated revenues* | * *   | *19*                                                 | *%*        | *22* | *%* |   |   |   |   |
| *Operating  Profit (Loss)*   |       | $                                                    | (0.9       | ) | $ | 0.4 |   |   | $ | (1.3 | ) |   |

 

The Resort segment reported an operating loss of$904,000 for the first quarter of 2007 compared to an operating profit of$430,000 for the first quarter of 2006. Resort segment revenues were $11.7million or 10% lower for the first quarter of 2007 compared to the firstquarter of 2006.

Hotel and condominium roomoccupancies at the Kapalua Resort and to a somewhat lesser extent for Maui ingeneral, largely drives resort activity as reflected by increased golf play andmerchandise sales. In early April 2006, the Kapalua Bay Hotel held itsfinal guest night and the hotel was permanently closed, resulting inapproximately 20% fewer rooms available at Kapalua Resort, and as expected,negatively affecting the number of paid rounds of golf and retail sales.

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*Golf, Retail andVillas*

Revenues from golf operations decreased byapproximately 14% for the first quarter of 2007 compared to the first quarterof 2006. Paid rounds of golf decreased by 12% and average green and cart feesdecreased by about 2% in the first quarter of 2007 compared to the firstquarter of 2006. The closure of the Village Course as of the end of February 2007,as well as the reduction in rooms available at Kapalua Resort also primarilycontributed to the decrease in revenues.

Resort retail sales for the first quarter of 2007 wereapproximately 17% lower than the first quarter of 2006. The reduction inrevenues reflects the closure in May 2006 of our Logo Shop, Kids Shop andHome Store comprising approximately 5,800 square feet in the Kapalua Shopsfollowing the closure of the adjacent Kapalua Bay Hotel. In addition, closureof the Village Course at the end of February 2007 also had a negativeimpact on retail sales. In mid-October 2006, our new 1,900 square footKapalua Collections store featuring upscale resort wear opened at the newHonolua Village Center in our central resort area.

Revenues from the KapaluaVillas were approximately 15% lower in the first quarter of 2007 compared tothe first quarter of 2006, reflecting a 19% decrease in occupied roomspartially offset by a 4% higher average room rate. There were approximately 8%fewer rooms available in the first quarter of 2007 partially reflecting unitsunder renovation under our Kapalua Gold program to upgrade and standardize theunits in our rental program.

**COMMUNITY DEVELOPMENT**

| ** **                   | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------|------------|------------------------------------------------------|------------|
| ** **                   | ** ** | **   2007   **         | ** ** | **   2006   ** | ** ** | **   difference   ** | ** ** |
| ** **                   | ** ** | **(in millions)**                               | ** ** |
| *Revenues*                   |       |                                                 | $          | 35.2 | * * |   |   | $ | 30.1 | * * |   |   | $ | 5.1 |   |   |
| *% of consolidated revenues* | * *   | * *                                             | *58*       | *%* | * * | * * | *51* | *%* |   |   |   |   |   |
| *Operating  Profit*          |       |                                                 | $          | 29.1 | * * |   |   | $ | 23.4 | * * |   |   | $ | 5.7 |   |   |

 

The Community Development segment reported anoperating profit of $29.1 million for the first quarter of 2007 compared to$23.4 million for the first quarter of 2006. Revenues from this operatingsegment increased by 17% to $35.2 million for the first quarter of 2007compared to $30.1 million for the first quarter of 2006. This increaseprimarily resulted from our sale of the land underlying the Ritz-Carlton,Kapalua hotel in March 2007. See Note 7 to Condensed ConsolidatedFinancial Statements.

Our equity in the earnings of Kapalua Bay Holdings,LLC was $1.9 million in the first quarter of 2007 compared to $169,000 in thefirst quarter of 2006. In March 2007, the joint venture began to recognizerevenues and profits on a percentage-of-completion method from condominiums intwo of the whole ownership buildings and accordingly, we began recognizing thefair market value of our land contribution to the joint venture and theamortization of related deferred costs. See Note 14 to Condensed ConsolidatedFinancial Statements.

The Kapalua Bay Hotelclosed in April 2006 to prepare for the commencement of sales andmarketing efforts for the whole and fractional condominium units that willcomprise the Residences at Kapalua Bay project. In June of 2006 we beganto finalize binding sales contracts and in the second half of 2006, demolitionand construction began.

*Real Estate Sales*

In the first quarter of 2007, we sold the landunderlying the Ritz-Carlton, Kapalua hotel. The approximately 49 acres weresold for $25 million in cash at closing and a 21.4% interest in the Hotel JV. 

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The Company recognized apre-tax gain of $24.8 million and deposited cash proceeds of $25.0 million witha qualified exchange intermediary.

Our Honolua Ridge Phase II subdivision consists of 25agricultural-zoned lots, which began selling in August 2005. Through theend of the first quarter of 2007, 18 lot sales have closed escrow. Revenues of$3.4 million were recognized from the two lot sales that closed escrow in thefirst quarter of 2007. We had accounted for revenues and profit from thisproject on a percentage-of-completion method and the project was substantiallycomplete in November of 2006. At the end of the first quarter of 2006, theconstruction of the infrastructure improvements for this project wasapproximately 50% and we recognized revenues of $5.7 million for the lots thathad closed escrow through that date.

In the first quarter of2007, we sold approximately 157 acres of Upcountry Maui property and recognizedrevenues of $4.1 million and a pre-tax gain of approximately $4.0 million (seeNote 13 to Condensed Consolidated Financial Statements). The land sold hadpreviously been earmarked as “non-core” to our strategic plans. In the firstquarter of 2006, we recognized revenues of $22.9 million and a pre-taxgain of $21.5 million from the sale of approximately 1,800 acres of UpcountryMaui land, which was considered non-core to our businesses.

**LIQUIDITY ANDCAPITAL RESOURCES**

*Debt Position*

At March 31, 2007,our total debt, including capital leases, was $39.0 million, compared to $51.1 millionat December 31, 2006. The decrease was primarily due to repaying revolvingcredit debt with cash proceeds from the private placement of 517,242 shares ofcommon stock, which raised approximately $15 million. See Note 15 to CondensedConsolidated Financial Statements. At March 31, 2007, we had unusedlong-term credit lines of $33.2 million.

*Operating CashFlows*

In thefirst quarter of 2007, consolidated net cash used in operating activities were$2.1 million compared to net cash used in operating activities of $1.3 millionfor the first quarter of 2006. By operating segment, these cash flows wereapproximately as follows:

| ** **                 | ** ** | **Three Months Ended March 31,**                                                                 | ** ** |
|----------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|
| ** **                 | ** ** | **         2007         ** | ** ** | **         2006         ** | ** ** |
| ** **                 | ** ** | **(in millions)**                                                                                               | ** ** |
| Agriculture                |       |                                                                                                                 | $          | (3.2 | ) |   |   | $ | 0.9 |   |   |
| Resort                     |       |                                                                                                                 | (0.6       | ) |   |   | (0.3 | ) |   |
| Community  Development     |       |                                                                                                                 | 2.2        |   |   |   | 0.8 |   |   |
| Interest, taxes  and other |       |                                                                                                                 | (0.5       | ) |   |   | (2.7 | ) |   |
| Total                      |       |                                                                                                                 | $          | (2.1 | ) |   |   | $ | (1.3 | ) |   |

 

The decrease in cash from operating activities fromthe Agriculture segment primarily reflects increases in pineapple productinventories in 2007 and collections on accounts receivable in early 2006 as aresult of late 2005 sales.

Cash flows from operatingactivities in the Community Development segment vary significantly with theamount of new real estate product sold and the amount of construction activityfor real estate inventories. In the first quarter of 2007, the closing ofHonolua Ridge Phase II lot sales and the collection on a purchase moneymortgage from December 2005 resulted in cash flows from operatingactivities of $5.1 million. In the first quarter of 2006, we closed on two lotsales at Honolua Ridge and much of these cash receipts were offset by paymentsfor the construction of the improvements, which were about 50% complete at thetime.

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*Real Estate Sales Proceeds*

In the first quarter of2007, we sold the land underlying the Ritz-Carlton, Kapalua and received $25 millionin cash at closing. The cash proceeds were deposited with a qualified exchangeintermediary in anticipation of reinvestment on a tax-deferred basis under Section 1031of the Internal Revenue Code.

In the first quarter of2007, we sold approximately 157 acres of Upcountry Maui land that wasconsidered non-core to our business, which resulted in net sales proceeds of$4.1 million. We also received $4.5 million from the repayment of a promissorynote from a December 2006 sale of non-core land.

*Future Cash Outflows*

Contributions to pensionplans and to other post-retirement plans are expected to be in the range of $1.9million to $2.7 million in 2007.

Capital expenditures for2007 are expected to include $5 million for completion of construction of a newoffice area for our corporate headquarters and support services—accounting,information technology and human resources; $1.6 million for upgrades toinformation systems. We expect the Agriculture segment to have capitalexpenditures of approximately $5.2 million in 2007 of which approximately $1.8 millionis for the replacement of existing equipment and facilities. The Resort segmentcapital expenditures for 2007 are expected to be approximately $1.7 million forreplacement of existing equipment.

Expenditures in 2007 forCommunity Development segment capital projects, deferred development costs andinvestments are expected to be approximately $32.5 million. In addition, weexpect that we may contribute additional cash to Kapalua Bay Holdings, LLC ifcash required for construction exceeds the funds to be released by theconstruction lender (see Note 14 to the Condensed Consolidated FinancialStatements). In connection with the planning for the various projects, we willanalyze the feasibility of proceeding with each project and may seek projectspecific non-recourse financing for some of the capital projects.

**FORWARD-LOOKING STATEMENTS**

Thisand other reports filed by us, with the Securities and Exchange Commissioncontain forward-looking statements intended to qualify for the safe harbor fromliability established by the Private Securities Litigation Reform Act of 1995. Thesestatements can be identified by the fact that they do not relate strictly tohistorical 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 other variations thereof orcomparable terminology. In particular, they include, among others, statementsrelating to:

·       timingand success of the Residences at Kapalua Bay project;

·       closingof lot sales at the Honolua Ridge agricultural subdivisions;

·       timingand success of the sale of “non-core” properties;

·       timingand success of the Kapalua Resort initiatives to enhance and improve the resortand the Kapalua Villas;

·       expectationsas to the Company’s cash commitments;

·       expectationsas to the Company’s cash flows from operating and investing activities;

·       recoverabilityfrom operations of real estate development deferred costs and the net bookvalue of Agriculture segment assets;

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·       impactof current and future local, state and national government regulations,including Maui County affordable housing legislation;

·       shiftingtowards greater levels of fresh fruit production;

·       futurecost of compliance with environmental laws;

·       timingof approvals and conditions of future real estate entitlement applications; and

·       effectof changes in assumptions on net periodic pension and other benefit costs.

In addition, from time totime, we may publish forward-looking statements as to those matters or otheraspects of our anticipated financial performance, business prospects, newproducts, marketing initiatives or similar matters.

Any forward-lookingstatements are made pursuant to the Private Securities Litigation Reform Act of1995 and, as such, speak only as of the date made. We undertake noobligation to publicly update any forward-looking statements, whether as aresult of new information, future events or otherwise. We have based theseforward-looking statements on our current expectations and projections aboutfuture events.

We caution the reader thatforward-looking statements involve risks and uncertainties that cannot bepredicted or quantified and, consequently, actual results may differ materiallyfrom those expressed or implied by such forward-looking statements. Such risksand uncertainties include, but are not limited to, the 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, 2006, 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 filedwith the SEC.

**Item3.**                        Quantitativeand Qualitative Disclosures about Market Risk

Our primary market riskexposure with regard to financial instruments is to changes in interest rates. Weattempt to manage this risk by monitoring interest rates and future cashrequirements, and evaluating opportunities to refinance borrowings at variousmaturities and interest rates. There were no material changes to our marketrisk exposure during the first three months of 2007.

**Item4.**                        Controlsand Procedures

We maintain disclosurecontrols 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 are designed to ensure that information required to be disclosed in ourExchange Act reports is recorded, processed, summarized and reported within thetime periods specified in the SEC’s rules and forms, and that suchinformation is accumulated and communicated to our management, including ourChief Executive Officer and Chief Financial Officer, as appropriate, toallow timely decisions regarding required disclosure.

In designing andevaluating the disclosure controls and procedures, our management recognizesthat any controls and procedures, no matter how well designed and operated, canprovide only reasonable assurance of achieving the desired control objectives,and our management necessarily was required to apply its judgment in evaluatingthe cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) and15d-15(b) under the Exchange Act, we carried out an evaluation,under the supervision and with the participation of our management, includingour Chief Executive Officer and Chief Financial Officer, of the effectivenessof the design and operation of our disclosure controls and procedures as of theend of the fiscal quarter covered by this report. Based upon the foregoing, ourChief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective to ensure 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.

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**PART II   OTHERINFORMATION**

**Item 1A.**                RiskFactors

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, 2006, 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 Securities and ExchangeCommission. We undertake no obligation to publicly release the results of anyrevisions to any forward-looking statements to reflect anticipated orunanticipated events or circumstances occurring after the date of suchstatements. In the first quarter of 2007, there were no material changes fromthe risk factors previously disclosed in our Form 10-K filed for theyear ended December 31, 2006.

**Item 6.**                        Exhibits

The followingexhibits are filed herewith:

| (10)   |   | Material Contracts |
|--------|--------|--------------------|
|   |   | 10.1               | ** ** | Sale, Purchase and Lease  Termination Agreement, entered into on March 28, 2007. Portions of the  exhibit filed herewith have been omitted pursuant to a request for  confidential treatment under Rule 24b-2 of the Exchange Act. The  omitted material has been separately filed with the Securities and Exchange  Commission. |
|   |   | 10.2               | ** ** | Second Amended and  Restated Limited Liability Company Agreement of W2005 Kapalua/Gengate Hotel  Holdings L.L.C., entered into on March 28, 2007. Portions of the exhibit  filed herewith have been omitted pursuant to a request for confidential  treatment under Rule 24b-2 of the Exchange Act. The omitted  material has been separately filed with the Securities and Exchange  Commission. |
|   |   | 10.3               | ** ** | Termination of  Memorandum of Hotel Ground Lease, dated as of March 28, 2007. |
| (31)   |   |               |   | Rule 13a – 14(a) Certifications |
|   |   | 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)   |   | 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.                         |
|------------------|--------|-----------------------------------------------------------------------|
| May 8, 2007 |   | /s/ ROBERT I. WEBBER                                                  |
| Date             |   | Robert I. Webber                                                      |
|             |   | *Chief Financial Officer/Senior Vice President  Business Development* |
|             |   | (Principal Financial Officer)                                         |

 

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**EXHIBITINDEX**

| Exhibit Number | ** ** | **Description**                                                                                                                                                                                       |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1*               |       | Sale, Purchase and Lease Termination Agreement,  entered into on March 28, 2007                                                                                                                  |
| 10.2*               |       | Second Amended and  Restated Limited Liability Company Agreement of W2005 Kapalua/Gengate Hotel  Holdings L.L.C., entered into on March 28, 2007                                                 |
| 10.3                |       | Termination of  Memorandum of Hotel Ground Lease, dated as of March 28, 2007                                                                                                                     |
| 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. |

 

Portions of this exhibit have been omitted pursuant toa request for confidential treatment under Rule 24b-2 of theExchange Act. The omitted material has been separately filed with theSecurities and Exchange Commission.

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