Table ofContents

 

 

 

**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

**x****      QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended September 30, 2010**

 

**OR**

 

**o****         TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**Commissionfile number 001-06510**

 

**MAUI LAND & PINEAPPLECOMPANY, INC.**

(Exact name of registrant asspecified in its charter)

 

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

 

**870HALIIMAILE ROAD, MAKAWAO, MAUI, HAWAII 96768-9768**

(Address of principalexecutive offices)

 

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

 

**NONE**

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

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past90 days.  Yes x  No o

 

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

 

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

 

| Large accelerated filer o |   | Accelerated filer o         |
|--------------------------------|--------|----------------------------------|
|                           |   |                             |
| Non-accelerated filer o   |   | Smaller reporting company x |

 

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

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date.

 

| **Class**                  | ** ** | **Outstanding at November  1, 2010** |
|----------------------------|------------|-----------------------------------------------------|
| Common Stock, no par value |       | 18,757,196 shares                                   |

 

 

** **

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Table of Contents

 

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

**ANDSUBSIDIARIES**

 

**TABLE OF CONTENTS**

 
| ** **                                                                                                                             | **Page** |
|----------------------------------------------------------------------------------------------------------------------------------------|----------|
| PART I.  FINANCIAL INFORMATION                                                                                                    | 3        |
|                                                                                                                                   |     |
| Item 1.  Financial Statements (unaudited)                                                                                         | 3        |
|                                                                                                                                   |     |
| Condensed Consolidated  Statements of Operations and Comprehensive Income (Loss), Three Months Ended  September 30, 2010 and 2009 | 3        |
|                                                                                                                                   |     |
| Condensed Consolidated  Statements of Operations and Comprehensive Income (Loss), Nine Months Ended  September 30, 2010 and 2009  | 4        |
|                                                                                                                                   |     |
| Condensed  Consolidated Balance Sheets, September 30, 2010 and December 31,  2009                                            | 5        |
|                                                                                                                                   |     |
| Condensed Consolidated  Statements of Stockholders’ Equity (Deficiency), Nine Months Ended  September 30, 2010 and 2009      | 6        |
|                                                                                                                                   |     |
| Condensed Consolidated Statements of Cash Flows, Nine  Months Ended September 30, 2010 and 2009                                   | 7        |
|                                                                                                                                   |     |
| Notes to Condensed Consolidated Financial Statements                                                                                   | 8        |
|                                                                                                                                   |     |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations                               | 20       |
|                                                                                                                                   |     |
| Forward-Looking Statements and Risks                                                                                                   | 29       |
|                                                                                                                                   |     |
| Item 4. Controls and Procedures                                                                                                   | 30       |
|                                                                                                                                   |     |
| PART II.  OTHER INFORMATION                                                                                                       | 31       |
|                                                                                                                                   |     |
| Item 6.  Exhibits                                                                                                                 | 31       |
|                                                                                                                                   |     |
| Signature                                                                                                                              | 32       |
|                                                                                                                                   |     |
| EXHIBIT INDEX                                                                                                                     | 33       |
|                                                                                                                                   |     |
| Exhibit 10.1                                                                                                                      |     |
| Exhibit 10.2                                                                                                                      |     |
| Exhibit 10.3                                                                                                                      |     |
| Exhibit 10.4                                                                                                                      |     |
| Exhibit 31.1                                                                                                                      |     |
| Exhibit 31.2                                                                                                                      |     |
| Exhibit 32.1                                                                                                                      |     |

 

2

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Tableof Contents

 

**PART I FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements**

 

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

 

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ANDCOMPREHENSIVE INCOME (LOSS)**

 

**(UNAUDITED)**

 
|                                                                  | ** ** | **Three Months Ended,**  |         |
|-----------------------------------------------------------------------|------------|------------------------------------|--------------|
| ** **                                                            | ** ** | **9/30/2010**                      | ** **   | **9/30/2009** | ** ** |
|                                                                  | ** ** | **(in thousands except** |         |
|                                                                  | ** ** | **share amounts)**            |         |
|                                                                  | ** ** | ** **                         |         |   |   |
| OPERATING  REVENUES                                                   |       |                               |         |   |   |
| Product  revenues                                                     |       | $                                  | 2,895        |   | $ | 13,174 |   |
| Service  revenues                                                     |       | 5,340                              |         |   6,897 |   |
|                                                                  |       |                               |         |   |   |
| Total  Operating Revenues                                             |       | 8,235                              |         | 20,071 |   |
|                                                                  |       |                               |         |   |   |
| OPERATING  COSTS AND EXPENSES                                         |       |                               |         |   |   |
| Cost  of product revenues                                             |       | 949                                |         |   3,458 |   |
| Cost  of service revenues                                             |       | 6,938                              |         |   9,608 |   |
| Selling  and marketing                                                |       | 446                                |         |   704 |   |
| General  and administrative                                           |       | 3,317                              |         |   3,139 |   |
| (Gain)  loss on asset disposals (Note 10)                             |       | (25,736                            | )            |   784 |   |
|                                                                  |       |                               |         |   |   |
| Total  Operating Costs and Expenses                                   |       | (14,086                            | )            | 17,693 |   |
|                                                                  |       |                               |         |   |   |
| Operating  Income                                                     |       |  22,321                       |         |   2,378 |   |
|                                                                  |       |                               |         |   |   |
| Equity  in losses of affiliates (Note 11)                             |       |   —                      |         |  (22,784 | ) |
| Interest  expense                                                     |       |   (2,364                      | )            | (2,749 | ) |
| Interest  income                                                      |       |  9                            |         |   107 |   |
|                                                                  |       |                               |         |   |   |
| Income  (Loss) from Continuing Operations Before Income Taxes         |       |  19,966                       |         |  (23,048 | ) |
| Income  Tax Benefit                                                   |       |   (261                        | )            | (1,007 | ) |
|                                                                  |       |                               |         |   |   |
| Income  (Loss) from Continuing Operations                             |       |  20,227                       |         |  (22,041 | ) |
|                                                                  |       |                               |         |   |   |
| Loss  from Discontinued Operations (Note 7) net of income taxes of $0 |       |   (200                        | )            | (3,445 | ) |
|                                                                  |       |                               |         |   |   |
| NET  INCOME (LOSS)                                                    |       | $                                  |  20,027 |   | $ |  (25,486 | ) |
|                                                                  |       |                               |         |   |   |
| COMPREHENSIVE  INCOME (LOSS)                                          |       | $                                  |  20,027 |   | $ |  (25,486 | ) |
|                                                                  |       |                               |         |   |   |
| INCOME  (LOSS) PER COMMON SHARE                                       |       |                               |         |   |   |
| —BASIC  AND DILUTED                                              |       |                               |         |   |   |
| Continuing  Operations                                                |       | $                                  |   1.36  |   | $ |   (2.74 | ) |
| Discontinued  Operations                                              |       |  (0.01                        | )            |   (0.43 | ) |
| Net  Income (Loss)                                                    |       | $                                  |   1.35  |   | $ |   (3.17 | ) |

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

3

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Tableof Contents

 

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

 

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ANDCOMPREHENSIVE INCOME (LOSS)**

 

**(UNAUDITED)**

 
| ** **                                                                     | ** ** | **Nine Months Ended,**   | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                     | ** ** | **9/30/2010**                      | ** ** | **9/30/2009** | ** ** |
|                                                                           |       | **(in thousands except** |       |
|                                                                           |       | **share amounts)**            |       |
|                                                                           |       |                               |       |   |   |
| OPERATING  REVENUES                                                            |       |                               |       |   |   |
| Product  revenues                                                              |       | $                                  | 10,461     |   | $ | 19,965 |   |
| Service  revenues                                                              |       | 16,807                             |       | 19,563 |   |
|                                                                           |       |                               |       |   |   |
| Total  Operating Revenues                                                      |       | 27,268                             |       | 39,528 |   |
|                                                                           |       |                               |       |   |   |
| OPERATING  COSTS AND EXPENSES                                                  |       |                               |       |   |   |
| Cost  of product revenues                                                      |       | 2,997                              |       | 6,030 |   |
| Cost  of service revenues                                                      |       | 21,727                             |       | 28,494 |   |
| Selling  and marketing                                                         |       | 1,976                              |       | 3,108 |   |
| General  and administrative                                                    |       | 7,560                              |       | 15,818 |   |
| (Gain)  loss on disposal of assets (Note 10)                                   |       | (26,724                            | )          | 784 |   |
| Impairment  charges (Note 8)                                                   |       | —                             |       | 14,286 |   |
|                                                                           |       |                               |       |   |   |
| Total  Operating Costs and Expenses                                            |       | 7,536                              |       | 68,520 |   |
|                                                                           |       |                               |       |   |   |
| Operating  Income (Loss)                                                       |       | 19,732                             |       | (28,992 | ) |
|                                                                           |       |                               |       |   |   |
| Equity  in losses of affiliates (Note 11)                                      |       | —                             |       | (47,187 | ) |
| Interest  expense                                                              |       | (8,250                             | )          | (7,292 | ) |
| Interest  income                                                               |       | 34                                 |       | 485 |   |
|                                                                           |       |                               |       |   |   |
| Income  (Loss) from Continuing Operations Before Income Taxes                  |       | 11,516                             |       | (82,986 | ) |
| Income  Tax Benefit                                                            |       | (176                               | )          | (207 | ) |
|                                                                           |       |                               |       |   |   |
| Income  (Loss) from Continuing Operations                                      |       | 11,692                             |       | (82,779 | ) |
|                                                                           |       |                               |       |   |   |
| Income  (Loss) from Discontinued Operations (Note 7) net of income taxes of $0 |       | 1,043                              |       | (10,149 | ) |
|                                                                           |       |                               |       |   |   |
| NET  INCOME (LOSS)                                                             |       | 12,735                             |       | (92,928 | ) |
| Pension  Benefit Adjustment net of income taxes of $0                          |       | 615                                |       | — |   |
|                                                                           |       |                               |       |   |   |
| COMPREHENSIVE  INCOME (LOSS)                                                   |       | $                                  | 13,350     |   | $ | (92,928 | ) |
|                                                                           |       |                               |       |   |   |
| EARNINGS  (LOSS) PER COMMON SHARE                                              |       |                               |       |   |   |
| —BASIC  AND DILUTED                                                       |       |                               |       |   |   |
| Continuing  Operations                                                         |       | $                                  | 1.13       |   | $ | (10.31 | ) |
| Discontinued  Operations                                                       |       | 0.10                               |       | (1.26 | ) |
| Net  Income (Loss)                                                             |       | $                                  | 1.23       |   | $ | (11.57 | ) |

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

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

 

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 

**(UNAUDITED)**

 
| ** **                                                                                                             | ** ** | **9/30/2010**           | ** ** | **12/31/2009** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|----------------|------------|
| ** **                                                                                                             | ** ** | **(in thousands)** | ** ** |
| ** **                                                                                                             | ** ** | ** **              | ** ** | ** **     | ** ** |
| ASSETS                                                                                                                 |       |                    |       |           |       |
|                                                                                                                   |       |                    |       |           |       |
| CURRENT  ASSETS                                                                                                        |       |                    |       |           |       |
| Cash  and cash equivalents                                                                                             |       | $                       | 1,812      |           | $          | 1,881 |   |
| Accounts  receivable, less allowance of $482 and $452 for doubtful accounts                                            |       | 2,106                   |       | 3,684          |       |
| Refundable  income taxes                                                                                               |       | 436                     |       | 4,331          |       |
| Inventories                                                                                                            |       | 3,157                   |       | 3,387          |       |
| Prepaid  expenses and other assets                                                                                     |       | 738                     |       | 377            |       |
| Assets  held for sale                                                                                                  |       | 13,201                  |       | 15,227         |       |
| Total  Current Assets                                                                                                  |       | 21,450                  |       | 28,887         |       |
|                                                                                                                   |       |                    |       |           |       |
| PROPERTY                                                                                                               |       | 113,129                 |       | 144,903        |       |
| Accumulated  depreciation                                                                                              |       | (47,811                 | )          | (60,189        | )          |
| Net  Property                                                                                                          |       | 65,318                  |       | 84,714         |       |
|                                                                                                                   |       |                    |       |           |       |
| OTHER  ASSETS                                                                                                          |       | 12,623                  |       | 14,447         |       |
|                                                                                                                   |       |                    |       |           |       |
| TOTAL                                                                                                                  |       | $                       | 99,391     |           | $          | 128,048 |   |
|                                                                                                                   |       |                    |       |           |       |
| LIABILITIES  & STOCKHOLDERS’ DEFICIENCY                                                                       |       |                    |       |           |       |
|                                                                                                                   |       |                    |       |           |       |
| CURRENT  LIABILITIES                                                                                                   |       |                    |       |           |       |
| Current  portion of long-term debt and capital lease obligations                                                       |       | $                       | 43,224     |           | $          | 1,817 |   |
| Trade  accounts payable                                                                                                |       | 4,787                   |       | 6,581          |       |
| Payroll  and employee benefits                                                                                         |       | 3,058                   |       | 4,947          |       |
| Income  taxes payable                                                                                                  |       | 4,091                   |       | 2,626          |       |
| Golf  course deferred credits (Note 10)                                                                                |       | 24,796                  |       | —         |       |
| Other  accrued liabilities                                                                                             |       | 12,140                  |       | 12,072         |       |
| Total  Current Liabilities                                                                                             |       | 92,096                  |       | 28,043         |       |
|                                                                                                                   |       |                    |       |           |       |
| LONG-TERM  LIABILITIES                                                                                                 |       |                    |       |           |       |
| Long-term  debt and capital lease obligations                                                                          |       | 85                      |       | 94,824         |       |
| Accrued  retirement benefits                                                                                           |       | 23,972                  |       | 28,076         |       |
| Plantation  Golf Course (PGC) deferred credit (Note 10)                                                                |       | —                  |       | 46,338         |       |
| Other  noncurrent liabilities                                                                                          |       | 6,781                   |       | 7,708          |       |
| Total  Long-Term Liabilities                                                                                           |       | 30,838                  |       | 176,946        |       |
|                                                                                                                   |       |                    |       |           |       |
| COMMITMENTS  AND CONTINGENCIES (Note 17)                                                                               |       |                    |       |           |       |
|                                                                                                                   |       |                    |       |           |       |
| STOCKHOLDERS’  DEFICIENCY                                                                                         |       |                    |       |           |       |
| Common  stock—no par value, 43,000,000 shares authorized, 18,510,968 and 8,087,334  shares issued and outstanding |       | 75,371                  |       | 35,437         |       |
| Additional  paid in capital                                                                                            |       | 9,133                   |       | 9,019          |       |
| Accumulated  deficit                                                                                                   |       | (103,988                | )          | (116,723       | )          |
| Accumulated  other comprehensive loss                                                                                  |       | (4,059                  | )          | (4,674         | )          |
| Stockholders’  Deficiency                                                                                         |       | (23,543                 | )          | (76,941        | )          |
| TOTAL                                                                                                                  |       | $                       | 99,391     |           | $          | 128,048 |   |

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

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

 

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

 

**(UNAUDITED)**

 

**For theNine Months Ended September 30, 2010 and 2009**

 

**(inthousands)**

 
| ** **                                | ** ** | ** **            | ** ** | ** **       | ** ** | ** **       | ** ** | **Retained**      | ** ** | **Accumulated**        | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|-----------------------|------------|------------------|------------|------------------|------------|-------------------|------------|------------------------|------------|------------|------------|
| ** **                                | ** ** | ** **            | ** ** | ** **       | ** ** | **Additional**   | ** ** | **Earnings**      | ** ** | **Other**              | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **Common Stock** | ** ** | **Paid in** | ** ** | **(Accumulated** | ** ** | **Comprehensive** | ** ** | ** **             | ** ** |
| ** **                                | ** ** | **Shares**            | ** ** | **Amount**       | ** ** | **Capital**      | ** ** | **Deficit)**      | ** ** | **Income (Loss)** | ** ** | **Total**  | ** ** |
| ** **                                | ** ** | ** **            | ** ** | ** **       | ** ** | ** **       | ** ** | ** **        | ** ** | ** **             | ** ** | ** ** | ** ** |
| Balance,  January 1, 2010                 |       | 8,087                 |       | $                | 35,437     |             | $          | 9,019             |       | $                      | (116,723   | )          | $          | (4,674 | ) | $ | (76,941 | ) |
|                                      |       |                  |       |             |       |             |       |              |       |                   |       |       |       |
| Issuance  of stock, net of costs (Note 6) |       | 10,390                |       | 39,565           |       |             |       |              |       |                   |       | 39,565     |       |
| Pension  benefits adjustment (Note 13)    |       |                  |       |             |       |             |       |              |       | 615                    |       | 615        |       |
| Share-based  compensation expense         |       |                  |       |             |       | 585              |       |              |       |                   |       | 585        |       |
| Vested  restricted stock issued           |       | 58                    |       | 471              |       | (471             | )          |              |       |                   |       | —     |       |
| Shares  cancelled to pay tax liability    |       | (24                   | )          | (102             | )          |             |       |              |       |                   |       | (102       | )          |
| Net  income                               |       |                  |       |             |       |             |       | 12,735            |       |                   |       | 12,735     |       |
|                                      |       |                  |       |             |       |             |       |              |       |                   |       |       |       |
| Balance,  September 30, 2010              |       | 18,511                |       | $                | 75,371     |             | $          | 9,133             |       | $                      | (103,988   | )          | $          | (4,059 | ) | $ | (23,543 | ) |
|                                      |       |                  |       |             |       |             |       |              |       |                   |       |       |       |
| Balance,  January 1, 2009                 |       | 8,021                 |       | $                | 34,791     |             | $          | 8,363             |       | $                      | 6,558      |       | $          | (18,024 | ) | $ | 31,688 |   |
|                                      |       |                  |       |             |       |             |       |              |       |                   |       |       |       |
| Share-based  compensation expense         |       |                  |       |             |       | 1,239            |       |              |       |                   |       | 1,239      |       |
| Vested  restricted stock issued           |       | 61                    |       | 631              |       | (631             | )          |              |       |                   |       | —     |       |
| Shares  cancelled to pay tax liability    |       | (19                   | )          | (146             | )          |             |       |              |       |                   |       | (146       | )          |
| Net  loss                                 |       |                  |       |             |       |             |       | (92,928           | )          |                   |       | (92,928    | )          |
|                                      |       |                  |       |             |       |             |       |              |       |                   |       |       |       |
| Balance,  September 30, 2009              |       | 8,063                 |       | $                | 35,276     |             | $          | 8,971             |       | $                      | (86,370    | )          | $          | (18,024 | ) | $ | (60,147 | ) |

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

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

 

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

 

**(UNAUDITED)**

 
| ** **                                                | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                | ** ** | **9/30/10**                     | ** ** | **9/30/09** | ** ** |
| ** **                                                | ** ** | **(in thousands)**         | ** ** |
|                                                      |       |                            |       |   |   |
| NET  CASH USED IN OPERATING ACTIVITIES                    |       | $                               | (5,834     | ) | $ | (9,748 | ) |
|                                                      |       |                            |       |   |   |
| INVESTING  ACTIVITIES                                     |       |                            |       |   |   |
| Purchases  of property                                    |       | (3,396                          | )          | (1,063 | ) |
| Proceeds  from disposals of property                      |       | 3,629                           |       | 1,831 |   |
| Other                                                     |       | (217                            | )          | 1,313 |   |
|                                                      |       |                            |       |   |   |
| NET  CASH PROVIDED BY INVESTING ACTIVITIES                |       | 16                              |       | 2,081 |   |
|                                                      |       |                            |       |   |   |
| FINANCING  ACTIVITIES                                     |       |                            |       |   |   |
| Payments  of long-term debt and capital lease obligations |       | (70,381                         | )          | (64,407 | ) |
| Proceeds  from long-term debt                             |       | 15,300                          |       | 13,500 |   |
| Issuance  of common stock (Note 6)                        |       | 40,000                          |       | — |   |
| Net  proceeds from golf course sales (Note 10)            |       | 22,828                          |       | 48,520 |   |
| Reduction  of Plantation Golf Course deferred credit      |       | (1,405                          | )          | (1,521 | ) |
| Debt  and common stock issuance cost and other            |       | (593                            | )          | (1,238 | ) |
|                                                      |       |                            |       |   |   |
| NET  CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES      |       | 5,749                           |       | (5,146 | ) |
|                                                      |       |                            |       |   |   |
| NET  DECREASE IN CASH AND CASH EQUIVALENTS                |       | (69                             | )          | (12,813 | ) |
| CASH  AND CASH EQUIVALENTS AT BEGINNING OF PERIOD         |       | 1,881                           |       | 13,668 |   |
|                                                      |       |                            |       |   |   |
| CASH  AND CASH EQUIVALENTS AT END OF PERIOD               |       | $                               | 1,812      |   | $ | 855 |   |

 

Supplemental Disclosures of Cash Flow Information—Interest (net ofamounts capitalized) of $6,202,000 and $7,034,000 was paid during the ninemonths ended September 30, 2010 and 2009, respectively. Income taxes of$5,536,000 and $4,143,000 were refunded during the nine months ended September 30,2010 and 2009, respectively.

 

SupplementalNon-Cash Investing and Financing Activities—

 

·                  Property acquired undercapital leases was $698,000 during the nine months ended September 30,2009.

·                  A capital lease obligationof $289,000 and the related asset acquired there under were transferred to athird party during the nine months ended September 30, 2010.

·                  Amounts included in tradeaccounts payable for additions to property and for other investing activitiestotaled $709,000 and $1,398,000 at September 30, 2010 and 2009,respectively.

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

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

 

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**(UNAUDITED)**

 

**1.****                                     ****Basis of Presentation**

 

The accompanying unauditedcondensed consolidated financial statements have been prepared by MauiLand & Pineapple Company, Inc. (together with its subsidiaries,the “Company”) in accordance with U.S. generally accepted accounting principles(GAAP) for interim financial information that are consistent in all materialrespects with those applied in the Company’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2009, and pursuant to theinstructions to Form 10-Q and Article 8 promulgated byRegulation S-X of the Securities and Exchange Commission (the “SEC”).Accordingly, they do not include all of the information and notes to financialstatements required by GAAP for complete financial statements. In the opinionof management, the accompanying condensed consolidated financial statementscontain all normal and recurring adjustments necessary to fairly present theCompany’s financial position, results of operations and cash flows for theinterim periods ended September 30, 2010 and 2009. The financialstatements and notes should be read in conjunction with the consolidatedfinancial statements and notes thereto included in the Company’s Form 10-Kfor the fiscal year ended December 31, 2009.

 

LIQUIDITY

 

At September 30, 2010, the Company had$1.8 million in cash and cash equivalents. The Company had negative cash flows from operations of $5.8 million forthe nine months ended September 30, 2010. Reflected in the negative cashflow from operations was $5.5 million of income taxes refunded in the quarterended March 31, 2010. The Company had an excess of current liabilitiesover current assets of $70.6 million and had a stockholders’ deficiency of$23.5 million at September 30, 2010.

 

Current liabilities at September 30,2010 include $42.8 million of revolving lines of credit under two agreementsthat expire in March 2011. Both of the revolving lines of credit havefinancial covenants requiring among other things, a minimum of $8 million inliquidity and a limitation on new indebtedness. Failure to satisfy the minimum liquidity covenants or to otherwisedefault under one credit agreement could result in a default under both creditagreements resulting in all outstanding borrowings becoming immediately due andpayable.  The Company has pledged asignificant portion of its real estate holdings as security for borrowingsunder these credit facilities.

 

The Company’s cash outlook for the nexttwelve months and its ability to make the required debt repayments inMarch 2011 and to continue to meet its financial covenants is highlydependent on selling certain real estate assets in a difficult market andrefinancing its existing debt. If the Company is unable to meet its financialcovenants resulting in the borrowings becoming immediately due, or is unable torestructure its credit agreements to extend the maturity date beyondMarch 2011, the Company would not have sufficient liquidity to repay suchoutstanding borrowings. In addition, the Company is subject to severalcommitments and contingencies that could negatively impact its future cashflows, including commitments related to its investment in Kapalua Bay Holdings,LLC (Bay Holdings), its ongoing dispute with the Ladies Professional GolfAssociation (LPGA), a legal dispute with a former grower and an U.S. EqualEmployment Opportunity Commission (EEOC) matter related to the Company’sdiscontinued agricultural operations, and funding requirements related to theCompany’s defined benefit pension plans. These matters are further described in Notes 13 and 17.

 

The aforementioned circumstances raisesubstantial doubt about the Company’s ability to continue as a going concern.There can be no assurance that the Company will be able to successfully achieveits initiatives discussed below in order to continue as a going concern. Theaccompanying condensed consolidated financial statements have been preparedassuming the Company will continue as a going concern and do not include anyadjustments that might result should the Company be unable to continue as agoing concern.

 

In response to these circumstances, theCompany continues to undertake several financial and strategic initiatives toreduce cash commitments, to generate cash flow from a variety of sources and tofurther reduce its debt, including the sale of several real estate assets.  The Company is actively working with itslenders to extend the maturity dates and modify other terms of its creditagreements.

 

In July 2010, the Company concluded ashareholder rights offering of 10,389,610 shares of common stock, pursuant towhich it received gross proceeds of $40 million.  On August 3, 2010, the Company completedthe repurchase of all $40 million of its outstanding senior secured convertiblenotes for $35.2 million, utilizing proceeds from the rights offering (see Note6).

 

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On September 30, 2010, the Company soldthe Kapalua Bay Golf Course (Bay Course) and the adjacent maintenance facilityfor $24.1 million in cash.  The Companyutilized the proceeds from the sale to pay down its revolving credit facilitiesby $20 million (see Notes 5 and 10).

 

In the first nine months of 2010, the Companyalso concluded the sales of a 128-acre parcel and a two-acre parcel thatincluded its former administrative office building, resulting in total cashproceeds, net of selling costs, of $3.3 million.

 

**2.****                                     ****Use of Estimates**

 

The Company’s reports forinterim periods utilize numerous estimates of general and administrativeexpenses and other costs for the full year. Future actual amounts may differfrom the estimates. Amounts in the interim reports are not necessarilyindicative of results for the full year.

 

**3.****                                     ****Inventories**

 

Inventories as of September 30, 2010 and December 31, 2009were as follows: 

 
| ** **                          | ** ** | **9/30/10**             | ** ** | **12/31/09** | ** ** |
|-------------------------------------|------------|-------------------------|------------|--------------|------------|
| ** **                          | ** ** | **(in thousands)** | ** ** |
| Real estate                         |       | $                       | 1,721      |         | $          | 1,721 |   |
| Merchandise, materials and supplies |       | 1,436                   |       | 1,666        |       |
| Total Inventories                   |       | $                       | 3,157      |         | $          | 3,387 |   |

 

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

 
| ** **            | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **            | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **            | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
|                  |       |                             |       |                            |       |   |   |   |   |
| Basic  and diluted    |       | 14,882,010                       |       | 8,047,228                       |       | 10,376,333 |   | 8,034,045 |   |
| Potentially  dilutive |       | 423,272                          |       | 1,336,052                       |       | 423,272 |   | 1,333,333 |   |

 

Basic earnings (loss) per share is computedby dividing net income or loss by the weighted-average number of common sharesoutstanding. Diluted earnings (loss) per share is computed similar to basicearnings (loss) per share except that the denominator is increased to includethe number of additional common shares that would have been outstanding if thedilutive potential common shares from share-based compensation arrangements hadbeen issued.

 

Potentially dilutive shares arise fromnon-qualified stock options to purchase common stock, non-vested restrictedstock, and for the three and nine months ended September 30, 2009, commonstock issuable upon assumed conversion of convertible debt. The treasury stockmethod is applied to determine the number of potentially dilutive shares fornon-vested restricted stock and stock options assuming that the shares ofnon-vested restricted stock are issued for an amount based on the grant datemarket price of the shares and that the outstanding stock options areexercised. Convertible debt was assumed to be converted by applying theif-converted method. These amounts were excluded for all periods presentedbecause the effect would be anti-dilutive.

 

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**5.****                                     ****Financing Arrangements**

 

Long-term debt and capital lease obligationsat September 30, 2010 and December 31, 2009 consisted of thefollowing:

 
| ** **                                    | ** ** | **9/30/2010**           | ** ** | **12/31/2009** | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|----------------|------------|
| ** **                                    | ** ** | **(in thousands)** | ** ** |
| Revolving  loans, 5.5%                        |       | $                       | 42,800     |           | $          | 59,900 |   |
| Senior  Secured Convertible Notes, 5.875%     |       | —                  |       | 34,324         |       |
| Capital  lease obligations                    |       | 509                     |       | 2,417          |       |
| Total                                         |       | 43,309                  |       | 96,641         |       |
| Less  current portion                         |       | 43,224                  |       | 1,817          |       |
| Long-term  debt and capital lease obligations |       | $                       | 85         |           | $          | 94,824 |   |

 

In November 2007, the Company entered into a $90 millionrevolving line of credit with Wells Fargo Bank secured by approximately 1,437acres of the Company’s West Maui land. All outstanding principal and accruedinterest was scheduled to be due on November 13, 2009. In March 2009,the Company sold the Plantation Golf Course (PGC) for $50 million (seeNote 10), which was included in the collateral securing the line of creditagreement. In consideration for release of the PGC from the collateral,$45 million of the sales proceeds were applied to partially repayoutstanding borrowings and the credit limit under this facility was reduced to$45 million. In conjunction with the PGC sale, the line of creditagreement was amended to extend the maturity date to March 13, 2010.

 

In October 2009, the line of creditagreement was amended and restated. The agreement principally increased thesecured revolving line of credit from $45 million to $50 million,extended the maturity date of the credit agreement from March 2010 toMarch 2011, and re-set financial covenants. As amended, the agreementprovided that interest on loan draws accrue interest based on the LIBOR marketindex or applicable LIBOR rate, plus 4.25%, subject to a minimum interest rateof 5.5%. The financial covenants include a minimum liquidity, as defined in theagreement, of $8 million and maximum total liabilities of$240 million. There are no commitment fees on the unused portion of therevolving facility and interest is due monthly. The line of credit agreementcontains various representations, warranties, affirmative, negative andfinancial covenants and events of default customary for financings of thistype.

 

In September 2010, the Company sold the Bay Course (see Note 10),which was included in the collateral securing the line of credit.  On September 30, 2010, the Companyutilized $20 million of proceeds from the sale to pay down the line of creditand reduce the facility commitment to $30 million.  As of September 30, 2010, the Companyhad $17.8 million outstanding or encumbered to secure letters of credit, and $11.1million available under this line.

 

The Company also has a $25 millionrevolving loan that is secured by certain parcels of the Company’s realproperty on Maui that matures in March 2011 (as amended). Commitment feesof 0.40% are payable on the unused portion of the revolving facility.  The revolving loan was fully drawn at September 30,2010 and December 31, 2009.  Thefinancial covenants include a minimum liquidity (as defined in the agreement)of $8 million, maximum total liabilities of $240 million, andlimitations on capital expenditures. As amended, the agreement provides thatinterest on loan draws accrue interest based on the LIBOR market index orapplicable LIBOR rate, plus 4.25%, subject to a minimum interest rate of 5.5%.

 

On July 28, 2008, the Company concludeda securities purchase agreement with certain institutional accredited investorsand issued an aggregate of $40 million in principal amount of seniorsecured convertible notes (the “convertible notes”), bearing 5.875% interestper annum payable quarterly in cash in arrears. The convertible notes were convertible, at any time following theirissuance, into shares of common stock of the Company at an initial conversionprice of $33.50 per share, which was equal to an initial conversion rate of29.8507 shares per $1,000 principal amount of the convertible notes. On thethird anniversary of the closing, each holder of the convertible notes had theright to require the Company to redeem all or any portion of such convertiblenote at a redemption price equal to 100% of the principal amount of theconvertible note being redeemed, plus accrued and unpaid interest thereon.

 

On August 3, 2010, the Company redeemedof all of the convertible notes for $35.2 million (see Note 6).  The Company’s carrying value of theconvertible notes at the time of the redemption was $36.3 million.  Including lock-up fees paid to the holders,legal fees and other costs, the Company recorded a net loss of $617,000 onredemption of the convertible notes that is included in general andadministrative expenses for the quarter ended September 30, 2010.

 

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**6.****                                     ****Rights Offering**

 

In June 2010, the Company initiated a shareholder rights offeringfor up to $40 million of its common stock with the intent to utilize theproceeds from the offering to repurchase up to all of its $40 million ofoutstanding senior secured convertible notes. In accordance with the terms ofthe offering, each shareholder received one non-transferable subscription rightfor each share of common stock owned as of the close of business onJuly 7, 2010, the record date for the rights offering. Each subscriptionright entitled the shareholder to purchase approximately 1.23 shares of commonstock at a subscription price of $3.85 per share. Shareholders who fullyexercised all of their initial subscription rights were entitled to purchaseany unsubscribed shares at the same subscription price per share, on a pro ratabasis, subject to the terms of the rights offering.

 

In conjunction with the rights offering, the Company entered intoagreements with holders of all of the convertible notes to repurchase theirnotes at 88% of face value. The Company paid to these note holders a lock-upfee of 2% of face value in exchange for their agreement not to transfer theirNotes for a 47-day period.

 

The rights offering concluded on July 29, 2010 and the Companyreceived gross proceeds of $40 million and issued 10,389,610 shares of commonstock. On August 3, 2010, the Company completed the repurchase of all $40million of its outstanding senior secured convertible notes for $35.2 million.

 

**7.****                                     ****DiscontinuedOperations**

 

The Company ceased all operations in itsAgriculture segment as of the end of 2009. The Company’s Agriculture segmentoperating results and the loss on sale of the assets are reported asdiscontinued operations and prior period operating results have beenreclassified for comparability.  Incomefrom discontinued operations for the nine months ended September 30, 2010includes a credit of $2.3 million representing the gain from settlement of theCompany’s post-retirement life insurance plans (Note 13).  Revenues and income (loss) before incometaxes from discontinued operations were as follows:

 
| ** **                                  | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                  | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                  | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                  | ** ** | **(in thousands)**          | ** ** | **(in thousands)**         | ** ** |
|                                        |       |                             |       |                            |       |   |   |   |   |
| Revenues                                    |       | $                                | —     |                            | $          | 4,939 |   | $ | — |   | $ | 14,353 |   |
|                                        |       |                             |       |                            |       |   |   |   |   |
| Income  (Loss) from Discontinued Operations |       | $                                | (200       | )                               | $          | (3,445 | ) | $ | 1,043 |   | $ | (10,149 | ) |

 

**8.****                                     ****Impairment Charges**

 

In June 2009, the Company wrote off$14.2 million of deferred development costs. Due to changing marketconditions, several project development plans were written off because theprojects as designed were no longer feasible. In addition, projects that wereno longer compatible with the Company’s future real estate developmentexpectations were abandoned and all related predevelopment costs were writtenoff.  Also in June 2009, the Companyrecorded a charge of $1.9 million representing the adjustment of its realestate held for sale to its estimated fair value less cost to sell. Theimpairment charge, which related to the Company’s Kahului property on whichimprovements for the fresh fruit processing plant were constructed wasreflected in discontinued operations.

 

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

 

InJune 2009, the Financial Accounting Standards Board (FASB) issued guidanceto revise the approach to determine when a variable interest entity (VIE)should be consolidated.  The new consolidation model for VIEs considerswhether the Company has the power to direct the activities that mostsignificantly impact the VIE’s economic performance and shares in thesignificant risks and rewards of the entity.  The guidance requirescompanies to continually reassess VIEs to determine if consolidation isappropriate and provide additional disclosures.  The guidance waseffective for the Company beginning January 1, 2010.  The adoption ofthis standard did not have a material effect on the Company’s consolidatedfinancial statements as the Company does not currently have any variableinterest in VIEs.

 

InJanuary 2010, the FASB issued guidance to improve disclosures about fairvalue measurements.  The Company must provide additional disclosuresregarding transfers in and out of levels 1 and 2, and activity in level 3 fairvalue measurements.  The guidance also provides clarification regardinglevels of disaggregation and disclosures about inputs and valuation techniquesfor both recurring and nonrecurring fair value measurements that fall in eitherlevel 2 or level 3.  The additional disclosure requirements were effectivefor the Company beginning January 1, 2010, except for the additionaldisclosures regarding the roll forward of activity in Level 3 fair valuemeasurements, which will be effective January 1, 2011.

 

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**10.****                              ****Assets Held for Sale and Real Estate Sales**

 

At September 30, 2010, assets held forsale included the Company’s property in Kahului, Maui (25 acres).  These assets include the site of the Company’sformer corporate office and the former agriculture processing facilities.  In April 2010, the Company sold the landand building that was previously its administrative offices in Kahului, Mauiand recognized a $1.0 million gain on disposal of assets.

 

On September 30, 2010, the Company soldthe land, improvements, structures and fixtures comprising the Bay Course andthe adjacent maintenance facility for a total of $24.1 million in cash.  Concurrent with the sale the Company enteredinto an agreement to lease back the assets through March 31, 2011 (Lease),and due to certain construction work required by the leaseback arrangement andother continuing involvement, the sale has been accounted for as a financingtransaction. Accordingly, the net proceeds received have been reflected as acurrent liability and no gain will be recognized until expiration of the Leasein March 2011.  Concurrent with theBay Course sale transaction, the Company entered into an agreement (GolfAcademy Lease) to lease to the buyer the property known as the Kapalua GolfAcademy.  Under terms of the Golf AcademyLease the buyer will lease the Golf Academy training facility for an initialterm of 10 years and be granted an easement for the approximately 25 acresadjacent to the training facility.

 

In March 2009, the Company sold theland, improvements, structures and fixtures comprising the PGC for$50 million in cash. Concurrent with the closing of the sale, the Companyentered into an agreement (Ground Lease) to leaseback the PGC for an initialperiod of two years for an annual net rental payment of $4 million,payable monthly in advance. The Ground Lease required the Company to replacethe irrigation system at the PGC at its own cost and expense, subject to a capof $5 million. Because of the Company’s continuing involvement associatedwith the obligation to replace the irrigation system, the sale and leaseback ofthe PGC was accounted for as a financing transaction and, accordingly, the netproceeds received were recorded as a non-current liability in the condensedconsolidated balance sheets.

 

In August 2010, the irrigation systemwas substantially complete and the Company recognized $25.7 million of thedeferred gain resulting from the PGC sale. The remaining $2.0 million deferred gain (included in currentliabilities) will be recognized ratably through the expiration of the GroundLease in March 2011.

 

In March 2010, the Company soldapproximately 128 acres of Upcountry Maui Land and recognized revenues of $1.7million and pre-tax profit of $1.5 million.

 

In September 2009, the Company soldapproximately 125 acres of land which included a portion of the master-plannedKapalua Mauka project and recognized revenues of $10.0 million and a pre-taxprofit of $7.3 million.

 

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

 

As a result of the 2009losses incurred by Bay Holdings, the Company’s carrying value of its investmentin Bay Holdings and its $3.6 million loan due from Bay Holdings werewritten down to zero in 2009. The Company does not expect to recover anyamounts from its investment in Bay Holdings, has recorded its estimated shareof its completion and recourse guarantees for its potential estimated liabilityand it has no further obligation to fund losses. The Company will not recognizeany additional equity in the earnings (losses) of Bay Holdings until theCompany’s income attributable to Bay Holdings exceeds its accumulatedlosses.  The Company had made cashcontributions to Bay Holdings of $53.2 million and an uncollateralizedloan of $3.6 million that accrued interest at 16%.

 

In June 2009, theCompany recorded an impairment charge of $21.3 million to reflect whatmanagement believed to be an impairment in the carrying value of its investmentin Bay Holdings.  In September 2009,Bay Holdings recorded impairment charges totaling $208.8 million to reflect animpairment of the carrying value of its real estate inventories (whole andfractional condominium units) held for sale; and for the year 2009, BayHoldings incurred total losses of $256.2 million.  The impairment charges reflected higherdefault rates on actual whole and fractional unit closings than wereanticipated once construction was completed in June 2009, and also reflecta change in forecasted sales revenue on the unsold whole and fractional unitsthat substantially reduces expected margins for those remaining units.

 

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Construction of the sixresidential buildings comprised of 146 residences was complete by year-end2009, however, the Company’s and the other members’ completion guaranty to thelenders will remain in place.  TheCompany has no funding commitments relating to Bay Holdings beyond this amount.

 

Pursuant to previousagreements, the Company has a commitment to purchase the spa, beach clubimprovements and the sundry store (the “Amenities”) from Bay Holdings at actualconstruction costs of approximately $35 million.  The Company is in discussions with the othermembers of Bay Holdings to negotiate the terms of the purchase agreementincluding the purchase price and payment terms, and is discussing whether theCompany will even be required to purchase the Amenities.

 

In July 2006, Bay Holdings entered intoa syndicated construction loan agreement with Lehman Brothers Holdings Inc.(Lehman) for the lesser of $370 million or 61.6% of the total projectedcost of the project. Lehman’s commitment under the loan agreement wasapproximately 78% of the total. The loan was collateralized by the projectassets, including the fee simple interest in the land owned by Bay Holdings,the adjacent spa parcel owned by the Company, and all of the sales contracts.On September 15, 2008, Lehman filed a petition under Chapter 11 ofthe U.S. Bankruptcy Code with the United States Bankruptcy Court, and onFebruary 11, 2009, Bay Holdings, Lehman, other lenders under the loanagreement, Swedbank and MH Kapalua Venture, LLC, an affiliate of Marriott,entered into an Amended and Restated Construction Loan Agreement. Pursuant tothe amended loan agreement, the aggregate amount that Bay Holdings couldborrow, including amounts previously funded under the amended loan agreementwas approximately $354.5 million. In December 2009, Bay Holdingsfurther amended the amended loan agreement to extend the maturity date of theprincipal payment of $45.7 million that was previously due inFebruary 2010 to December 2010. Bay Holdings’ failure to repayamounts when due could result in all of its outstanding borrowings under theamended loan agreement becoming immediately due and payable. Bay Holdings’ability to make the December 2010 debt payment as scheduled is dependenton its ability to generate sufficient cash flows from fractional and whole unitclosings. Bay Holdings is currently in negotiations with the lenders torestructure the terms of the amended loan agreement to provide availablefunding until the project is completely sold out.

 

Summarized operating information for BayHoldings for the three months and nine months ended September 30, 2010 and2009 is as follows:

 
| ** **       | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **       | ** ** | **2010**                                                 | ** ** | **2009**                                                | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **       | ** ** | **(in thousands)**                                  | ** ** | ** **                                              | ** ** | ** ** | ** ** |
|             |       |                                                     |       |                                                    |       |   |   |   |   |
| Revenues         |       | $                                                        | 2,921      |                                                    | $          | (10,969 | ) | $ | 10,189 |   | $ | (20,076 | ) |
|             |       |                                                     |       |                                                    |       |   |   |   |   |
| Expenses         |       | 14,581                                                   |       | (77                                                     | )          | 34,898 |   | (3,411 | ) |
|             |       |                                                     |       |                                                    |       |   |   |   |   |
| Impairment  loss |       | —                                                   |       | 208,768                                                 |       | — |   | 208,768 |   |
|             |       |                                                     |       |                                                    |       |   |   |   |   |
| Net  Loss        |       | $                                                        | (11,660    | )                                                       | $          | (219,660 | ) | $ | (24,709 | ) | $ | (225,433 | ) |

 

Negative revenues and expenses in 2009resulted from increasing the allowance for defaults, as sales of the pre-soldunits were previously recognized on the percentage-of-completion method.

 

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**12.****                              ****Share-Based Compensation**

 

The total compensation expense recognized forshare-based compensation was $585,000 and $1,239,000 for the nine months endedSeptember 30, 2010 and 2009, respectively, and $157,000 and $270,000 forthe three months ended September 30, 2010 and 2009, respectively. Therewas no tax benefit or expense related thereto for each period presented.  Subsequent to issuance of the condensedconsolidated financial statements for the quarter ended September 30,2009, management determined that the $97,000 and $445,000 previously disclosedas the total tax benefit related to share-based compensation for the three andnine month periods ended September 30, 2009 were incorrect.  This had no impact on previously reported taxbenefit or expense or net loss. Accordingly, the total tax benefit has beenrestated to $-0- for these periods. Recognized stock compensation was reducedfor estimated forfeitures prior to vesting primarily based on historical annualforfeiture rates of approximately 4.1% and 4.0%, as of September 30, 2010and 2009, respectively. Estimated forfeitures will be reassessed in subsequentperiods and may change based on new facts and circumstances.

 

*StockOptions*

 

A summary of stock option award activity as ofand for the nine months ended September 30, 2010 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, 2009           |       | 266,500    |       | $            | 29.20      |                |       |                  |       |          |       |   |
| Granted                                          |       | —     |       | $            | —     |                | $          | —                |       |          |       |   |   |
| Exercised                                        |       | —     |       | $            | —     |                | $          | —                |       |          |       |   |   |
| Forfeited  or Cancelled                          |       | (100,000   | )          | $            | 30.03      |                | $          | 11.15                 |       |          |       |   |   |
| Outstanding  at September 30, 2010          |       | 166,500    |       | $            | 27.46      |                | $          | 10.32                 |       | 4.6           |       | $ | — |   |
| Exercisable  at September 30, 2010          |       | 113,000    |       | $            | 30.93      |                | $          | 11.30                 |       | 3.6           |       | $ | — |   |
| Expected  to Vest at September 30, 2010 (2) |       | 38,622     |       | $            | 20.12      |                | $          | 8.23                  |       | 6.5           |       | $ | — |   |

 

----

(1)                                 Forin-the-money options

(2)                                 Optionsexpected to vest reflect estimated forfeitures

 

Additional stock option information for thenine months ended September 30, 2010 and 2009 is as follows:

 
| ** **                                                                         | ** ** | **2010** | ** ** | **2009** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Weighted  Average Grant-Date Fair Value For Options Granted During the Period |       | $        | —     |     | $          | 3.11 |   |
| Intrinsic  Value of Options Exercised $(000)                                       |       | —   |       | —   |       |
| Cash  Received From Option Exercises $(000)                                        |       | —   |       | —   |       |
| Tax  Benefit From Option Exercises $(000)                                          |       | —   |       | —   |       |
| Fair  Value of Shares Vested During the Period $(000)                              |       | 190      |       | 1,125    |       |
|                                                                                    |            |          |            |          |            |  |  |

 

For the nine months ended September 30,2009, the fair value of the Company’s stock options awarded was estimated usingthe Black-Scholes option pricing model and the following weighted averageassumptions (there were no stock option awards granted in the first nine monthsof 2010):

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

 

As of September 30, 2010, there was$227,000 of total unrecognized compensation expense for awards granted underthe stock option plans that is expected to be recognized over a weightedaverage period of 1.5 years.

 

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* *

*RestrictedStock*

 

In the first nine months of 2010, 3,000shares of restricted stock that vest as service requirements are met weregranted to certain directors; and 37,553 shares (net of shares withheld forpayment of income taxes) of restricted stock vested as directors’ andmanagement service requirements were met.

 

A summary of the activity for restrictedstock awards as of and for the nine months ended September 30, 2010 ispresented below:

 
| ** **                                    | ** ** | ** ** | ** ** | **Weighted**        | ** ** |
|-----------------------------------------------|------------|------------|------------|---------------------|------------|
| ** **                                    | ** ** | ** ** | ** ** | **Average**         | ** ** |
| ** **                                    | ** ** | ** ** | ** ** | **Grant-Date**      | ** ** |
| ** **                                    | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Nonvested  balance at December 31, 2009  |       | 448,301    |       | $                   | 8.25       |   |
| Granted                                       |       | 3,000      |       | $                   | 4.98       |   |
| Vested                                        |       | (37,553    | )          | $                   | 8.30       |   |
| Forfeited  or Cancelled                       |       | (156,976   | )          | $                   | 7.47       |   |
| Nonvested  balance at September 30, 2010 |       | 256,772    |       | $                   | 3.79       |   |

 

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

 

The net periodic benefitcosts for pension and other post-retirement benefits for the three months andnine months ended September 30, 2010 and 2009 were as follows:

 
| ** **                            | ** ** | **Three Months**             | ** ** | **Nine Months**              | ** ** |
|---------------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| ** **                            | ** ** | **Ended September 30,** | ** ** | **Ended September 30,** | ** ** |
| ** **                            | ** ** | **2010**                          | ** ** | **2009**                          | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                            | ** ** | **(in thousands)**           | ** ** |
| **Pension Benefits**                  |       |                              |       |                              |       |   |   |   |   |
| Service  cost                         |       | $                                 | 31         |                              | $          | 127 |   | $ | 91 |   | $ | 883 |   |
| Interest  cost                        |       | 884                               |       | 821                               |       | 2,629 |   | 2,632 |   |
| Expected  return on plan assets       |       | (699                              | )          | (593                              | )          | (2,109 | ) | (1,838 | ) |
| Amortization  of prior service cost   |       | 1                                 |       | 12                                |       | 3 |   | 34 |   |
| Amortization  of transition liability |       | 1                                 |       | 4                                 |       | 5 |   | 12 |   |
| Recognized  actuarial loss            |       | 207                               |       | 351                               |       | 574 |   | 1,319 |   |
|                                  |       |                              |       |                              |       |   |   |   |   |
| Net  expense                          |       | $                                 | 425        |                              | $          | 722 |   | $ | 1,193 |   | $ | 3,042 |   |
|                                  |       |                              |       |                              |       |   |   |   |   |
| **Other Benefits**                    |       |                              |       |                              |       |   |   |   |   |
| Service  cost                         |       | $                                 | —     |                              | $          | 45 |   | $ | 33 |   | $ | 154 |   |
| Interest  cost                        |       | 33                                |       | 145                               |       | 98 |   | 544 |   |
| Amortization  of prior service cost   |       | (20                               | )          | —                            |       | (59 | ) | — |   |
| Recognized  actuarial gain            |       | (213                              | )          | (162                              | )          | (637 | ) | (403 | ) |
| Recognized  gain due to curtailment   |       | —                            |       | —                            |       | (576 | ) | — |   |
| Recognized  gain due to settlement    |       | —                            |       | —                            |       | (2,683 | ) | — |   |
|                                  |       |                              |       |                              |       |   |   |   |   |
| Net  expense (credit)                 |       | $                                 | (200       | )                                 | $          | 28 |   | $ | (3,824 | ) | $ | 295 |   |

 

In January 2010, the Company terminatedits postretirement life insurance plan and in February 2010, the Companyterminated its postretirement medical coverage for non-bargainingretirees.  The curtailment and settlementgain from these events totaled $3,259,000 of which $2,334,000 is recorded indiscontinued operations and $925,000 is included in general and administrativeexpense.

 

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In 2010, minimum required contributions tothe Company’s defined benefit pension plans are expected to be$2.0 million which have been fully paid. On June 25, 2010, thePreservation of Access to Care for Medicare Beneficiaries and Pension ReliefAct of 2010 (the “2010 Relief Act”) was signed into law.  The Company’s plan contributions in 2010include the deferral of pension plan contributions provided for by the 2010Relief Act with regard to plan years 2009 and 2010.  The Company will be required to pay interestto the pension plans for all contributions that have been deferred. The Companyexpects to contribute $190,000 to its other post-retirement benefit plans in2010.

 

In September 2010, the Company wasadvised by the Pension Benefits Guaranty Corporation (PBGC) that the cessationof its pineapple operations and the corresponding reduction in the activeparticipant count for its Pension Plan for Bargaining Unit and Hourly Employees(Plan) has triggered the requirement that the Company provide security to thePBGC of approximately $5.2 million to support unfunded liabilities of the Planor to make contributions to the Plan in excess of the minimum required amounts.Management is currently working with the PBGC to reach an agreement as to theamount of contributions that will be made or the form and amount of collateralthat will be provided.

 

**14.****                              ****Fair Value Measurements**

 

In its ongoing business operations, theCompany’s primary market risk exposure with regard to financial instruments isdue to changes in interest rates. The Company manages this risk by monitoringinterest rates and future cash requirements and evaluating opportunities torefinance borrowings at various maturities and interest rates. The Company alsoutilizes interest rate swaps or other derivatives to reduce risks associatedwith changes in interest rates.

 

GAAP requires that assetsand liabilities carried at fair value be classified and disclosed in one of thefollowing three categories:

 

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

 

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

 

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

 

In July 2008, the Company issued$40 million in senior secured notes that were convertible into the Company’scommon stock. The conversion features related to the notes gave rise to aderivative liability carried at fair value, with changes in fair valuerecognized currently in interest expense. In August 2010, the convertible notes were fully repaid (see Note5).

 

In January 2008, the Company enteredinto interest rate swap agreements to reduce future cash flow variability forapproximately two years on $55 million of variable rate debt. The effectof the agreements was to convert variable-rate interest, which was previouslytied to 1-, 2-, 3- and 6-month LIBOR terms, to an average fixed-rate interestof approximately 2.9%, before applicable interest rate spreads. Thetransactions were not designated as hedges, and, accordingly, the gains andlosses resulting from the change in fair value from these interest rate swapswere recognized currently in interest expense. The interest rate swapagreements expired in January 2010.

 

Information regarding assets and liabilitiesmeasured at fair value on a recurring basis is as follows:

 
| ** **                                                    | ** ** | ** **                           | ** ** | **Fair Value(1) of Liability  Derivatives as of** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------|------------|----------------------------------------------------------------------------|------------|
| **Derivatives not designated as hedges:** | ** ** | **Balance Sheet Location** | ** ** | **9/30/10**                                                                | ** ** | **12/31/09** | ** ** |
| ** **                                                    | ** ** | ** **                           | ** ** | **(in thousands)**                                                    | ** ** |
| Interest  rate swap agreements                                |       | Other current liabilities            |       | $                                                                          | —     |   | $ | 63 |   |
| Derivative  liability related to convertible debt             |       | Other current liabilities            |       | —                                                                     |       | 489 |   |
|                                                               |            |                                      |            |                                                                            |            |  |  |  |  |

 

----

(1)                                 Fair valuemeasurements derived using Level 2 inputs.

 
| ** **                                                    | ** ** | **Location of gain or** | ** ** | **Amount of gain or (loss)  recognized on derivative** | ** ** | **Amount of gain or (loss)  recognized on derivative** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|
| ** **                                                    | ** ** | **(loss) recognized in**     | ** ** | **Three Months Ended**                                                     | ** ** | **Nine Months Ended**                                                      | ** ** |
| **Derivatives not designated as hedges:** | ** ** | **statement of operations**  | ** ** | **9/30/10**                                                                          | ** ** | **9/30/09**                                                                          | ** ** | **9/30/10** | ** ** | **9/30/09** | ** ** |
| ** **                                                    | ** ** | ** **                             | ** ** | **(in thousands)**                                                              | ** ** | **(in thousands)**                                                              | ** ** |
| Interest  rate swap agreements                                |       | Interest expense                       |       | $                                                                                    | —     |                                                                                 | $          | 322 |   | $ | 63 |   | $ | 810 |   |
| Derivative  liability related to convertible debt             |       | Interest expense                       |       | 12                                                                                   |       | 540                                                                                  |       | 489 |   | 1,965 |   |
|                                                               |            |                                        |            |                                                                                      |            |                                                                                      |            |  |  |  |  |  |  |  |  |

 

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Except as indicated below, the carryingamount of the Company’s other financial instruments approximates fair value.

 

*Long-TermDebt:*

 

The fair value of long-term debt wasestimated based on rates currently available to the Company for debt withsimilar terms and remaining maturities. The carrying amount of long-term debt(including current portion) at September 30, 2010 was $42,800,000, whichapproximated fair value.  The carryingamount of long-term debt at December 31, 2009 was $94,224,000 and the fairvalue was $94,312,000.

 

**15.****                              ****Income Taxes**

 

The effective tax rate for 2010 and 2009 reflectsthe recognition of expected federal alternative minimum tax liabilities andinterim period tax benefits and changes to the tax valuation allowance.

 

The Company uses a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. Interestaccrued related to unrecognized tax benefits is recognized as interest expenseand penalties are recognized in general and administrative expense in theCompany’s consolidated statement of operations; and such amounts are includedin income taxes payable on the Company’s consolidated balance sheet.

 

At September 30, 2010, the Company had aliability of $984,000 for unrecognized tax benefits and interest thereon of$1.7 million. At September 30, 2010, $13.6 million ofunrecognized tax benefits represented taxes on revenues for which the timing ofthe taxability is uncertain and the liability for such taxes has beenrecognized as deferred tax liabilities. The acceleration of the recognition ofsuch income would not affect the estimated annual effective tax rate, but wouldaccelerate the payment of income taxes to earlier periods and would result inadditional interest expense.

 

**16.****                              ****Operating Segment Information**

 
| ** **                                  | ** ** | **Three Months**             | ** ** | **Nine Months**              | ** ** |
|---------------------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| ** **                                  | ** ** | **Ended September 30,** | ** ** | **Ended September 30,** | ** ** |
| ** **                                  | ** ** | **2010**                          | ** ** | **2009**                          | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                  | ** ** | **(in thousands)**           | ** ** |
| Operating  Revenues                         |       |                              |       |                              |       |   |   |   |   |
| Community  Development                      |       | $                                 | 2,632      |                              | $          | 12,133 |   | $ | 9,260 |   | $ | 15,920 |   |
| Resort                                      |       | 5,601                             |       | 7,602                             |       | 17,904 |   | 22,935 |   |
| Other                                       |       | 2                                 |       | 336                               |       | 104 |   | 673 |   |
| Total  Operating Revenues                   |       | $                                 | 8,235      |                              | $          | 20,071 |   | $ | 27,268 |   | $ | 39,528 |   |
|                                        |       |                              |       |                              |       |   |   |   |   |
| Operating  Profit (Loss)                    |       |                              |       |                              |       |   |   |   |   |
| Community  Development (1)                  |       | $                                 | (499       | )                                 | $          | (16,162 | ) | $ | 237 |   | $ | (60,377 | ) |
| Resort  (2)                                 |       | 23,520                            |       | (3,448                            | )          | 18,342 |   | (12,216 | ) |
| Other                                       |       | (700                              | )          | (796                              | )          | 1,153 |   | (3,586 | ) |
| Total  Operating Profit (Loss)              |       | 22,321                            |       | (20,406                           | )          | 19,732 |   | (76,179 | ) |
| Interest  Expense, net                      |       | (2,355                            | )          | (2,642                            | )          | (8,216 | ) | (6,807 | ) |
| Income  Tax Benefit                         |       | 261                               |       | 1,007                             |       | 176 |   | 207 |   |
|                                        |       |                              |       |                              |       |   |   |   |   |
| Income  (Loss) from Continuing Operations   |       | 20,227                            |       | (22,041                           | )          | 11,692 |   | (82,779 | ) |
|                                        |       |                              |       |                              |       |   |   |   |   |
| Income  (Loss) from Discontinued Operations |       | (200                              | )          | (3,445                            | )          | 1,043 |   | (10,149 | ) |
|                                        |       |                              |       |                              |       |   |   |   |   |
| Net  Income (Loss)                          |       | $                                 | 20,027     |                              | $          | (25,486 | ) | $ | 12,735 |   | $ | (92,928 | ) |

 

----

The amounts in the table above give effect tothe correction discussed in Note 18.

 

(1)           Operating loss for theCommunity Development segment for the three months and nine months ended September 30,2009 include losses from the Company’s equity interest in Bay Holdings of $22.8million and $47.2 million, respectively.

 

(2)           Operating profit for theResort segment for the three months and nine months ended September 30,2010 include $25.7 million of the gain from March 2009 sale of thePlantation Golf Course.

 

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**17.****                          ****Commitments and Contingencies**

 

*LPGA*

 

The Company had a contractual obligation to the LPGA to sponsor anannual golf tournament for five years beginning in October 2008. The costof such a tournament, including the production and the purse is significant andthe Company was seeking a title sponsor to defray part of the cost. InJune 2009, the Company announced that due to a lack of a title sponsor, itwas unable to hold the 2009 LPGA event that was scheduled for October. This hasresulted in a dispute with the LPGA, which can be resolved by mediationand if necessary by binding arbitration. By agreement between the parties,mediation has been suspended through November 2010 and, in March 2010the Company paid $700,000 to the LPGA of which 50% will be applied towardssponsorship of an event if the parties are able to structure a future event.The Company is not able to estimate the losses that may be incurred if theCompany is not able to further perform under the agreement and, accordingly, noadditional provision for losses relating to this dispute has been recorded inthe condensed consolidated financial statements. An unfavorable judgmentagainst the Company could have a material negative impact on the Company’sfinancial condition, including its ability to comply with its debt covenants.

 

*Discontinued Operations*

 

The Company has various unsettled contractual obligations with regardto its now terminated Agriculture segment operations and has recorded its bestestimate of the potential loss of $3.5 million, which is included in otheraccrued liabilities in the condensed consolidated balance sheet at September 30,2010.

 

On September 1, 2009, M. Yamamura and Sons, Inc. (Yamamura)filed a lawsuit against the Company, which alleged that the Company materiallybreached its planting agreement with Yamamura by not providing a plantingschedule for 2009 and by asking Yamamura to cease planting pineapple for theCompany until further notice. The lawsuit further alleged that the Companyunilaterally restricted and impaired the value of Yamamura’s benefits under thePlanting Agreement.  The Company iscurrently in settlement discussions with Yamamura and management has recorded aliability based on the expected settlement.

 

The Company is involved in a legal dispute with the EEOC concerningformer Thai workers in the Company’s discontinued agriculture operations undera labor contact agreement with Global Horizons, Inc.  The Company is currently engaged in theinitial stages of a conciliation process with the EEOC, and is presently unableto reasonably estimate the amount of probable liability, if any, related tothis matter and, accordingly, has made no provision in the accompanyingcondensed consolidated financial statements.

 

Pursuant to a 1999 settlement agreement with the County of Maui, theCompany and several chemical manufacturers have agreed that untilDecember 1, 2039, they will pay for 90% of the capital cost to installfiltration systems in any future water wells, if the presence of a nematocidecommonly known as DBCP exceeds specified levels, and for the ongoingmaintenance and operating cost for filtration systems on existing and futurewells. The Company estimated its share of the cost to operate and maintain thefiltration systems for the existing wells and its share of the cost of a letterof credit used to secure its obligations, and recorded a liability of $250,000in 1999. The Company recognized an additional liability and expense of $262,000since 1999; and paid $368,000 for its share of the cost of the letter of creditsecuring its obligation and the capital costs to install a filtration systemfor an existing well. In March 2010, the Company was advised by the Countyof Maui that it intends to drill an exploratory water well on State of Hawaiilands that are directly above property that the Company previously used toplant pineapple.  Management believesthat the potential for contamination is low because the proposed well site isabove the land where agricultural chemicals were used.  Accordingly, a reserve for costs relating tothe future well has not been recorded because the Company is not able to reasonablyestimate the amount of its potential liability, if any.

 

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*Investments in Affiliates*

 

Pursuant to a previous agreement, the Company was committed to purchasefrom Bay Holdings certain Amenities (see Note 11) upon their completion in 2009at the actual construction cost of approximately $35 million. The Companyis currently in discussions with the other members of Bay Holdings to negotiatethe terms of the purchase agreement including the purchase and payment terms,and is discussing whether the Company will even be required to purchase theAmenities.

 

Pursuant to loan agreements of certain equity investments, the Companyand the other members of the respective joint ventures have guaranteed tolenders each investor’s pro rata share of costs and losses that may be incurredby the lender as a result of the occurrence of specified triggering events.These guarantees do not include full payment of the loans. AtSeptember 30, 2010, the Company has recognized a liability for theestimated fair value of its obligations under these agreements; such amountsare not material.

 

*Other*

 

In connection with a Honolua Ridge Phase II lot sale in 2007, theCompany deferred the recognition of $4.3 million of revenues because ofcontingencies that could result in the Company becoming obligated to repurchasethe lot from the buyer. The buy-back provision will expire in November 2010.

 

In February 2010, the Company received notification from theInternal Revenue Service proposing changes to the Company’s employment taxwithholdings. The Company currently does not expect the impact of the ultimateresolution of the matter to be material and has recorded an immaterial amountas the low end of the range of its estimated potential exposure.

 

In addition to the matters noted above, there are various other claimsand legal actions pending against the Company. In the opinion of management, afterconsultation with legal counsel, the resolution of these other matters is notexpected to have a material adverse effect on the Company’s financial positionor results of operations. The Company, as an investor in various affiliates(partnerships, limited liability companies), may under specific circumstancesbe called upon to make additional capital contributions.

 

**18.****                              ****Correction of Previously Issued Financial Statements**

 

Subsequent to the issuanceof the Company’s condensed consolidated financial statements for the quarterended September 30, 2009, the Company concluded that the net gain or lossfrom sale of real estate that had been used in its operations should have beenreflected as gain or loss on disposal of assets in the operating cost andexpense section of the statement of operations rather than as product revenuesand cost of product revenues.  Alsosubsequent to the issuance of such financial statements, the Company concludedthat cash flows from the sale of undeveloped land should have been reflectedwithin the operating activities section of the cash flow statement rather thanwithin the investing activities section because the sale of undeveloped land isconsidered a principal business activity of the Community Development segment.As a result, the accompanying condensed consolidated statement of operationsfor the three and nine months ended September 30, 2009 and the condensedconsolidated statements of cash flows for the nine months ended September 30,2009 have been corrected.  In addition,as discussed in Note 7, the condensed consolidated statements of operations forthe three and nine months ended September 30, 2009 have beenretrospectively adjusted to reclassify the operating results and loss on saleof assets of the discontinued Agriculture operations.

 

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The following is a summaryof the impact of the correction and discontinued operations adjustments on thecondensed consolidated statements of operations for the three and nine monthsended September 30, 2009:

 
| ** **                                    | ** ** | ** **              | ** ** | **Adjustments**   | ** ** | ** **        | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                    | ** ** | **As**                  | ** ** | **Discontinued**  | ** ** | ** **        | ** ** | **As** | ** ** |
| ** **                                    | ** ** | **Previously**          | ** ** | **Operations**    | ** ** | **Correction**    | ** ** | **Reclassified** | ** ** |
| ** **                                    | ** ** | **Reported**            | ** ** | **(Note 7)** | ** ** | **of Error** | ** ** | **& Corrected** | ** ** |
| ** **                                    | ** ** | **(in thousands)** | ** ** |
| *Three Months Ended September 30, 2009:* |       |                    |       |              |       |              |       |   |   |
|                                          |       |                    |       |              |       |              |       |   |   |
| OPERATING  REVENUES                           |       |                    |       |              |       |              |       |   |   |
| Product  revenues                             |       | $                       | 19,605     |              | $          | (4,781            | )          | $ | (1,650 | ) | $ | 13,174 |   |
| Total  Operating Revenues                     |       | 26,660                  |       | (4,939            | )          | (1,650            | )          | 20,071 |   |
| OPERATING  COSTS AND EXPENSE                  |       |                    |       |              |       |              |       |   |   |
| Cost  of product revenues                     |       | 11,602                  |       | (5,710            | )          | (2,434            | )          | 3,458 |   |
| (Gain)  loss on property disposals            |       | —                  |       | —            |       | 784               |       | 784 |   |
| Total  Operating Costs and Expenses           |       | 27,717                  |       | (8,374            | )          | (1,650            | )          | 17,693 |   |
|                                          |       |                    |       |              |       |              |       |   |   |
| *Nine Months Ended September 30, 2009:*  |       |                    |       |              |       |              |       |   |   |
|                                          |       |                    |       |              |       |              |       |   |   |
| OPERATING  REVENUES                           |       |                    |       |              |       |              |       |   |   |
| Product  revenues                             |       | $                       | 35,423     |              | $          | (13,808           | )          | $ | (1,650 | ) | $ | 19,965 |   |
| Total  Operating Revenues                     |       | 55,531                  |       | (14,353           | )          | (1,650            | )          | 39,528 |   |
| OPERATING  COSTS AND EXPENSE                  |       |                    |       |              |       |              |       |   |   |
| Cost  of product revenues                     |       | 23,539                  |       | (15,075           | )          | (2,434            | )          | 6,030 |   |
| (Gain)  loss on property disposals            |       | —                  |       | —            |       | 784               |       | 784 |   |
| Total  Operating Costs and Expenses           |       | 94,672                  |       | (24,502           | )          | (1,650            | )          | 68,520 |   |

 

These corrections andadjustments had no impact on previously reported net loss or net loss pershare.

 

The following is a summaryof the impact of the correction on the condensed consolidated statement of cashflows for the nine months ended September 30, 2009:

 
| ** **                                   | ** ** | **As**                  | ** ** | **Adjustments**   | ** ** | ** **    | ** ** |
|----------------------------------------------|------------|-------------------------|------------|-------------------|------------|---------------|------------|
| ** **                                   | ** ** | **Previously**          | ** ** | **Correction**    | ** ** | **As**        | ** ** |
| ** **                                   | ** ** | **Reported**            | ** ** | **of Error** | ** ** | **Corrected** | ** ** |
| ** **                                   | ** ** | **(in thousands)** | ** ** |
| *Nine months ended September 30, 2009:* |       |                    |       |              |       |          |       |
|                                         |       |                    |       |              |       |          |       |
| Net  Cash Used in Operating Activities       |       | $                       | (19,626    | )                 | $          | 9,878         |       | $ | (9,748 | ) |
| Investing  Activities                        |       |                    |       |              |       |          |       |
| Proceeds  from disposal of property          |       | 11,709                  |       | (9,878            | )          | 1,831         |       |
| Net  Cash Provided by Investing Activities   |       | 11,959                  |       | (9,878            | )          | 2,081         |       |
|                                              |            |                         |            |                   |            |               |            |  |  |  |

 

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

 

The following discussion and analysis of our financial condition andresults of operations should be read in conjunction with our auditedconsolidated financial statements and related notes included in our AnnualReport on Form 10-K for the year ended December 31, 2009 and theunaudited condensed consolidated financial statements and related notesincluded in this Quarterly Report on Form 10-Q. The following discussionand analysis also gives effect to the correction discussed in Note 18 to theunaudited condensed financial statements. Depending upon the context, the termsthe “Company,” “we,” “our,” and “us,” refers to either Maui Land &Pineapple Company, Inc. alone, or the Company and its subsidiaries.

 

***Overview of the Company***

 

Maui Land & Pineapple Company, Inc. is a Hawaiicorporation and the successor to a business organized in 1909. We are alandholding company.  Our principal subsidiaryis Kapalua Land Company, Ltd., the operator and developer of KapaluaResort, a master-planned community in West Maui. Our reportable operatingsegments are Resort and Community Development. In December 2009, all of our Agriculture segment operations wereceased and the segment is reported as discontinued operations.

 

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*Resort*

 

The Kapalua Resort is part of approximately 21,800 acres owned by us inWest Maui, most of which remains as open space. The Kapalua Resort borders theocean with five white sand beaches and includes The Ritz-Carlton, Kapaluahotel, the Ritz-Carlton Club and Residences at Kapalua Bay, the Kapalua Spa,eight residential subdivisions, two championship golf courses (The Bay and ThePlantation), a ten-court tennis facility, several restaurants, and over 800condominiums, single-family homes and residential lots. We operate KapaluaResort’s two golf courses, the tennis facility, and several retail shops. Priorto mid-December 2009, our Resort operations also included a vacationrental program (The Kapalua Villas) and Kapalua Adventures, which is comprisedof zip-lines stretching over scenic ravines in the West Maui mountains, a highropes challenge course, a climbing wall and other activities. InDecember 2009, we entered into agreements to transfer the operations ofThe Kapalua Villas and Kapalua Adventures operations to third parties, from whichwe receive lease and license income.  In March 2009we sold The Plantation and in September 2010 we sold The Bay golfcourses.  We currently operate bothcourses under leaseback agreements with terms that expire at the end of March 2011.

 

*Community Development*

 

The Community Development segment includes our real estate entitlement,development, construction, sales, leasing, and conservation activities. Ourprojects are focused primarily on the luxury real estate market in andsurrounding the Kapalua Resort and affordable and moderately priced residentialand mixed use projects in West Maui and Upcountry Maui. This segment alsoincludes the operations of Kapalua Realty Company, our general brokerage realestate company located within the Resort, and Kapalua Water Company and KapaluaWaste Treatment Company, our Public Utilities Commission-regulated water andsewage operations that service the Kapalua Resort and adjacent communities.

 

The Community Development segment also includes our 51% equity interestin Bay Holdings, the limited liability company that purchased the Kapalua BayHotel in August 2004 (Note 11 to condensed consolidated financialstatements). Bay Holdings demolished the Kapalua Bay Hotel and the adjacentshops in order to develop new whole and fractional residential units, anocean-side spa, and a beach club at that location. Construction wassubstantially complete in June 2009 and includes 84 whole ownership unitsand 744 fractional units of which 24 whole ownership and 144 fractional units closedescrow through the end of the third quarter of 2010.

 

We have approximately 1,600 acres of land in Maui that are at variousstages in the land entitlement process. We must obtain appropriate entitlementsfor land that we intend to develop or use for construction. Securing properland entitlements is a process that requires obtaining county, state andfederal approvals, which can take several years to complete, if completed atall, and entails a variety of risks.

 

At the end of 2008, we postponed the start of construction of newdevelopment projects until economic conditions improve. However, we expect tocontinue engaging in planning, permitting and entitlement activities for ourdevelopment projects, and we intend to proceed with construction and sales ofthe following projects, among others, when internal and external factorspermit:

 

·                  Kapalua Mauka:  As presently planned, this project iscomprised of 640 single and multi-family residential units and commercialcomponents, five acres of commercial space and up to 27 holes of golf on atotal of 800 acres.

 

·                  The Village at Kapalua:  This is the commercial component of thecentral area of the Kapalua Resort. It is planned to be built in two phases andwill add approximately 30,000 square feet of new commercial/retail space to theKapalua Resort. The Village will also include apartments, condominiums andother resort-related facilities. The first phase of the commercial componentopened in 2006, which included approximately 12,000 square feet ofcommercial/retail space.

 

·                  Pulelehua:  This project is designed to be a newtraditional community for working families in West Maui. It encompasses 312acres and is currently planned to include 13 acres for an elementary school,882 dwelling units, 91 acres of usable open space, and a traditional villagecenter with a mix of residential and neighborhood-serving commercial uses. Weare currently in the process of securing a hearing for the project with theMaui County Council Land Use Committee.

 

·                  Hali`imaile Town:  This project is contemplated to be a new townin Upcountry Maui, a holistic traditional community with agriculture,education, and sustainability as core design elements. Community designworkshops were held to involve the Maui community in determining the vision forthis community. The public approval process for any plan to develop this areais expected to take several years and will be subject to urban growth boundarydetermination by the County of Maui as it updates the County General Plan overthe next year.

 

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*Discontinued Operations*

 

The Agriculture segment primarily included growing, packing, andmarketing of fresh pineapple. Our pineapple was sold under the brand names *Maui Gold*® and *HawaiianGold*TM.  We also grew andmarketed fresh organic pineapple. On December 31, 2009, we ceased allagriculture operations and we entered into agreements with an unrelated partythat began to grow and market Maui Gold® pineapple as of January 1, 2010.We receive royalty payments based upon sales volume from such third party.

 

***Current Developments***

 

Inthe third quarter of 2010, our debt was reduced by $60 million as weaccomplished the key initiatives that are further described below.  For the third quarter of 2010, we reportednet income of $20.0 million and for the first nine months of 2010, we reportednet income of $12.7 million; compared to net losses of $25.5 million and $92.9million, for the same periods in 2009. Cash used in operating activities for the first nine months of 2010 was$5.8 million.  In addition, these resultsreflect improved operating performance and overhead cost reductions, and $3.3million of gains due to the termination of certain post-retirement benefits.

 

·                    In July 2010, ourrights offering concluded and we received $40 million in gross subscriptionproceeds and issued 10,389,610 shares of common stock.

·                    In August 2010, wepurchased all $40 million of our outstanding senior secured convertible notesfor $35.2 million utilizing proceeds from the rights offering.

·                    In August 2010, ourobligation to complete the irrigation system on the Plantation Golf Course wassubstantially complete and we recognized $25.7 million of the deferred gainfrom the March 2009 sale of this asset (Note 10 to condensed consolidatedfinancial statements).

·                    In September 2010, wesold the Bay Course and adjacent maintenance facility for $24.1 million incash.  In connection with thistransaction we repaid $20 million on our revolving line of credit agreement.

 

**CriticalAccounting Policies and Estimates**

 

The preparation of consolidated financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires the use of accounting estimates. Changes in these estimates andassumptions are considered reasonably possible and may have a material effecton the consolidated financial statements and thus actual results could differfrom the amounts reported and disclosed herein. Our critical accountingpolicies that require the use of estimates and assumptions were discussed indetail in our most recently filed Form 10-K. There have been nosignificant changes in our critical accounting policies during the first ninemonths of 2010.

 

There are no accounting pronouncements or interpretations that havebeen issued but not yet applied by us that we believe will have a materialimpact on our consolidated financial statements.

 

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** **

**RESULTS OFOPERATIONS**

 

***Three Months Ended September 30, 2010 compared to Three MonthsEnded September 30, 2009; and Nine Months Ended September 30, 2010compared to Nine Months Ended September 30, 2009***

 

**CONSOLIDATED**

 
| ** **                                   | ** ** | **Three Months Ended**                            | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------|------------|-------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                   | ** ** | **September 30,**                                      | ** ** | **September 30,**          | ** ** |
| ** **                                   | ** ** | **2010**                                                    | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                   | ** ** | **(in millions, except share amounts)** | ** ** |
|                                         |       |                                                        |       |                            |       |   |   |   |   |
| *Consolidated Revenues*                      |       | $                                                           | 8.2        |                            | $          | 20.1 |   | $ | 27.3 |   | $ | 39.5 |   |
|                                         |       |                                                        |       |                            |       |   |   |   |   |
| *Income (Loss) From Continuing Operations*   |       | $                                                           | 20.2       |                            | $          | (22.0 | ) | $ | 11.7 |   | $ | (82.8 | ) |
|                                         |       |                                                        |       |                            |       |   |   |   |   |
| *Income (Loss) From Discontinued Operations* |       | $                                                           | (0.2       | )                               | $          | (3.5 | ) | $ | 1.0 |   | $ | (10.1 | ) |
|                                         |       |                                                        |       |                            |       |   |   |   |   |
| *Net Income (Loss)*                          |       | $                                                           | 20.0       |                            | $          | (25.5 | ) | $ | 12.7 |   | $ | (92.9 | ) |
|                                         |       |                                                        |       |                            |       |   |   |   |   |
| *Net Income (Loss) Per Common Share*         |       | $                                                           | 1.35       |                            | $          | (3.17 | ) | $ | 1.23 |   | $ | (11.57 | ) |

 

Consolidatedrevenues were $8.2 million for the third quarter of 2010 compared to $20.1million for the third quarter of 2009; and $27.3 million for the first ninemonths of 2010 compared to $39.5 million for the first nine months of2009.  Lower revenues for 2010 wereprimarily due to lower sales of real estate inventories and the absence ofrevenues from The Kapalua Villas and Kapalua Adventures as these operationswere leased to third parties to operate in December 2009.

 

Wereported net income of $20.0 million ($1.35 per share) for the third quarter of2010 compared to a net loss of $25.5 million ($3.17 per share) for the thirdquarter of 2009. Net income for the third quarter of 2010 was primarily due torecognition of $25.7 million of the deferred gain from the March 2009 saleof the Plantation Golf Course (Note 10 to condensed consolidated financialstatements).  The net loss for the thirdquarter of 2009 included $22.8 million equity in losses from our investment inBay Holdings.  We ceased recordingfurther losses from this investment in September 2009 after the carryingvalue of our investment including our $3.6 million unsecured loan was reducedto zero and our estimated liability under the completion and recourseguarantees were recorded.

 

Forthe first nine months of 2010, we reported net income of $12.7 million ($1.23per share) compared to a net loss of $92.9 million ($11.57 per share) for thefirst nine months of 2009.  In additionto the gain from the PGC sale mentioned above, net income for the first ninemonths of 2010 includes a credit of $3.3 million representing the gainrecognized from the curtailment of our postretirement medical plan andsettlement of our postretirement life insurance plan (Note 13 to condensedconsolidated financial statements) and pre-tax profits of $2.5 million from thesale of real estate inventory and our former administrative offices in Kahului.The first nine months of 2009 includes charges totaling $47.2 million relatedto our investment in Bay Holdings. Our losses for the first nine months of 2009also includes charges of $14.2 million for the write off of development plansthat were no longer considered feasible due to changes in market conditions;and a charge of $1.9 million representing an adjustment to estimated fair valueless cost to sell of certain real estate that we have classified as held forsale (included in loss from discontinued operations).

 

*General and Administrative*

 

Consolidated general and administrative expenses were $3.3 million forthe third quarter of 2010 compared to $3.1 million for the third quarter of2009; and $7.6 million for the first nine months of 2010 compared to $15.8million for the first nine months of 2009.

 

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The major components of the difference in general and administrativeexpenses were as follows:

 
| ** **                                 | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                 | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                 | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                 | ** ** | **(in millions)**           | ** ** |
| Pension  and other post retirement expense |       | $                                | 0.2        |                            | $          | 0.8 |   | $ | (0.3 | ) | $ | 3.3 |   |
| Salaries,  wages and stock compensation    |       | 0.7                              |       | 1.0                             |       | 2.7 |   | 4.1 |   |
| Employee  severance expense                |       | 0.2                              |       | 0.1                             |       | 0.3 |   | 1.6 |   |
| Professional  and other services           |       | 0.4                              |       | 0.7                             |       | 1.4 |   | 2.1 |   |
| Contract  settlements                      |       | 0.8                              |       | —                          |       | 0.8 |   | 1.9 |   |
| Other                                      |       | 1.0                              |       | 0.5                             |       | 2.7 |   | 2.8 |   |
|                                       |       |                             |       |                            |       |   |   |   |   |
| Total                                      |       | $                                | 3.3        |                            | $          | 3.1 |   | $ | 7.6 |   | $ | 15.8 |   |

 

The decrease in pension and other post retirement expense in 2010 isdue to the termination of our postretirement life insurance plan for allretirees in January 2010 and elimination of retiree medical insurancebenefits for non-bargaining retirees in February 2010.  These actions resulted in curtailment andsettlement gains totaling $3.3 million of which $2.3 million was credited todiscontinued operations. In addition, our non-bargaining pension plan wasfrozen as of January 1, 2010, so there was no service cost accrued forthis plan in 2010 (Note 13 to condensed consolidated financial statements).

 

The decrease in salaries, wages, and stock compensation expense in 2010reflect staffing reductions and attrition in all operating segments and incorporate services.  Staff reductionstook place throughout 2009, and further attrition continued in 2010.  As of September 30, 2010, we had 203employees compared to 623 employees as of September 2009.  Severance expense in the first nine months of2009 includes amounts related to the termination of our former President andChief Executive Officer in May 2009.

 

Contract settlements for 2010 include a $617,000 net loss from theextinguishment of $40 million senior secured convertible notes in August 2010(Note 5 to condensed consolidated financial statements).  In the first nine months of 2009, contractsettlements included $1.9 million for the deposit forfeiture and settlementpayment under which we were obligated to purchase certain real estate atKapalua Resort.

 

The decrease in professional and other services in 2010 reflectsreductions in our utilization of outside professional services.

 

General and administrative expenses are incurred at the corporate leveland at the operating segment level. All general and administrative expensesincurred at the corporate level are allocated to our operating segments. Suchallocations are made on the basis of our evaluation of the level of servicesprovided to the operating segments.

 

*Interest Expense*

 

Interest expense was $2.4 million for the third quarter of 2010compared to $2.7 million for the third quarter of 2009.  Included in interest expense for the thirdquarter of 2010 are charges of $280,000 representing accretion of the carryingvalue of $40 million of convertible notes. Included in interest expense for the third quarter of 2009 are netcredits of $63,000 representing the change in the estimated fair value of thederivative liability that was bifurcated from the $40 million ofconvertible notes, plus the change in fair value of certain interest swap agreements,and accretion on the carrying value of the convertible notes. The swapagreements expired in January 2010 and the convertible notes were repaidin August 2010. In the third quarter of 2010 our average borrowings wereapproximately $5.4 million lower than the third quarter of 2009. Our effectiveinterest rate on borrowings was 5.6% in the third quarter of 2010 compared to6.4% in the third quarter of 2009.

 

Interest expense was $8.3 million for the first nine months of 2010compared to $7.3 million for the first nine months of 2009.  Included in interest expense for the firstnine months of 2010 and 2009 are net charges (credits) of $1,439,000 and$(431,000), respectively, representing the accretion of and change in theestimated fair value of the derivative liability and swap agreements describedabove.  In the first nine months of 2010our average borrowings were approximately $15.2 million lower than the firstnine months of 2009. Our effective interest rate on borrowings was 5.7% in thefirst nine months of 2010 compared to 5.8% in the first nine months of 2009.

 

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**RESORT**

 
| ** **                   | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                   | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                   | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                   | ** ** | **(in millions)**           | ** ** |
|                         |       |                             |       |                            |       |   |   |   |   |
| *Revenues*                   |       | $                                | 5.6        |                            | $          | 7.6 |   | $ | 17.9 |   | $ | 22.9 |   |
| *% of consolidated revenues* | * *   | *68*                             | *%*        | *38*                            | *%*        | *66* | *%* | *58* | *%* |
| * *                     | * *   | * *                         | * *   | * *                        | * *   | * * | * * | * * | * * |
| *Operating Profit (Loss)*    |       | $                                | 23.5       |                            | $          | (3.4 | ) | $ | 18.3 |   | $ | (12.2 | ) |

 

Resort segment revenues decreased from $7.6 million in the thirdquarter of 2009 to $5.6 million for the third quarter of 2010, or 26%.  Resort segment revenues decreased from $22.9million in the first nine months of 2009 to $17.9 million for the first ninemonths of 2010, or 22%.  The decrease inResort segment revenues for the third quarter and the first nine monthsprimarily reflect the absence of revenues from The Kapalua Villas and KapaluaAdventures in 2010 as these operations were leased to third party operators inDecember 2009.  We are now receivinglease and license income related to these operations that is reflected in theCommunity Development segment results. Partially offsetting the decrease in Resort operations revenues from TheKapalua Villas and Kapalua Adventures was an increase in revenues from theKapalua Spa that began operating in July 2009.

 

The Resort segment reported an operating profit of $23.5 millionfor the third quarter of 2010, compared to an operating loss of $3.4 millionfor the third quarter of 2009. For the first nine months of 2010, the Resortsegment operating profit was $18.3 million compared to an operating loss of$12.2 million for the first nine months of 2009. Operating profit for the thirdquarter and first nine months of 2010 includes a $25.7 million gain from the March 2009sale of the Plantation Golf Course (Note 10 to condensed consolidated financialstatements).  The improved results in2010 also reflect better results from our golf and spa operations and generalcost reductions throughout the Resort segment operations.  The results reported by the Company’soperating segments include allocations of corporate and administrative overheadcharges.  Visitor counts to Maui in 2010increased over 2009, which also contributed to the improved results.

 

*Golf and Retail*

 

Revenues from golf operations were approximately the same in the thirdquarter of 2010 as the third quarter of 2009, as a 17% decrease in paid roundsof golf was offset by an increase in average greens and cart fees per paidround. For the first nine months of 2010, revenues from golf operationsincreased by approximately 5% compared to the first nine months of 2009, as a3% decrease in paid rounds of golf was more than offset by an increase in averagegreens and cart fees per paid round.

 

Resort retail sales for the third quarter and first nine months of 2010were approximately 12% and 14% lower, respectively, than the same periods in2009, primarily reflecting the reduced spending by guests and a reduction inretail and food and beverage space with the closure of the Kapalua Adventuresretail and café in December 2009 and the closure of our tennis retail areain November 2009.

 

**COMMUNITYDEVELOPMENT**

 
| ** **                   | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                   | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                   | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                   | ** ** | **(in millions)**           | ** ** |
|                         |       |                             |       |                            |       |   |   |   |   |
| *Revenues*                   |       | $                                | 2.6        |                            | $          | 12.1 |   | $ | 9.3 |   | $ | 15.9 |   |
| *% of consolidated revenues* | * *   | *32*                             | *%*        | *60*                            | *%*        | *34* | *%* | *40* | *%* |
| * *                     | * *   | * *                         | * *   | * *                        | * *   | * * | * * | * * | * * |
| *Operating Profit (Loss)*    |       | $                                | (0.5       | )                               | $          | (16.2 | ) | $ | 0.2 |   | $ | (60.4 | ) |

 

Revenues from the Community Development segment were $2.6 million forthe third quarter of 2010 compared to $12.1 million for the third quarterof 2009.  Revenues from this operatingsegment were $9.3 million for the first nine months of 2010 compared to$15.9 million for the first nine months of 2009.  Lower revenues in the third quarter and firstnine months of 2010 are due to lower sales of real estate inventories,partially offset by increased revenues from lease and license agreements thatwere primarily put in place in December 2009, and increased commissionincome from the sale of real estate.

 

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The Community Development segment reported an operating loss of$499,000 for the third quarter of 2010 compared to an operating loss of $16.2million for the third quarter of 2009. For the first nine months of 2010 this operating segment reportedoperating profit of $237,000 compared to an operating loss of $60.4 million forthe same period in 2009.

 

The operating loss for the third quarter and first nine months of 2009included our equity in losses of Bay Holdings of $22.8 million and $47.2million, respectively.  The Community Developmentoperating loss for the first nine months of 2009 also included a charge of$14.2 million for the write off of project development plans that were nolonger feasible as designed due to changing market conditions. In 2010, we didnot recognize any additional losses from our investment in Bay Holdings as thecarrying value of the investment and our loan to Bay Holdings have been writtendown to zero and we have no further obligation to fund losses (Note 11 tocondensed consolidated financial statements).

 

*Real Estate Inventory Sales*

 

There were no sales of real estate inventories in the third quarter of2010.  In the third quarter of 2009, wesold approximately 125 acres including a portion of our master-planned KapaluaMauka project and recognized revenues of $10.0 million and pre-tax profit ofapproximately $7.3 million.

 

Community Development segment revenues for the first nine months of2010 includes the March 2010 sale of approximately 128 acres of land inUpcountry Maui that resulted in revenues of $1.7 million and pre-tax profit ofapproximately $1.5 million.

 

**DISCONTINUEDOPERATIONS**

 
| ** **                                                        | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                        | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                        | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                                        | ** ** | **(in millions)**           | ** ** |
|                                                              |       |                             |       |                            |       |   |   |   |   |
| *Income (Loss) From Discontinued Operations Before Income  Taxes* |       | $                                | (0.2       | )                               | $          | (3.4 | ) | $ | 1.0 |   | $ | (10.1 | ) |
|                                                                   |            |                                  |            |                                 |            |  |  |  |  |  |  |  |  |

 

Asof the end of 2009, we ceased all of our agricultural operations (Note 7 tocondensed consolidated financial statements) and we are reporting theseoperating results as discontinued operations with prior period amountsreclassified for comparability.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

*Debt Position*

 

AtSeptember 30, 2010, our total debt, including capital leases, was$43.3 million, compared to $96.6 million at December 31,2009.  The decrease in outstanding debtwas primarily due to the repayment of $60 million of outstanding debt as aresult of the completion of our $40 million rights offering in July 2010(Note 6 to condensed consolidated financial statements) and the sale of the BayCourse and maintenance facility in September 2010 for $24.1 million incash (Note 10 to condensed consolidated financial statements).  In connection with the completion of ourrights offering, our convertible notes with face value of $40 million and bookvalue of $36.3 million were repaid at 88% of their face value, or $35.2 millionin August 2010.  In consideration ofthe release of the Bay Course from the collateral of our $50 million revolvingline of credit, we repaid $20 million of outstanding borrowings under that lineand the availability under the line was commensurately reduced.  At September 30, 2010, we hadapproximately $11.1 million available under existing lines of credit and$1.8 million in cash and cash equivalents; an excess of current liabilitiesover current assets of $70.6 million, and a deficiency in stockholders’ equity(total liabilities exceeded total assets) of $23.5 million.  Cash used in operating activities was $5.8million for the nine months ended September 30, 2010.

 

Includedin current liabilities are $42.8 million of borrowings outstanding under creditfacilities that are scheduled to mature in March 2011, with financialcovenants requiring among other things, a minimum of $8 million in liquidityand a limitation on new indebtedness. Failure to satisfy the minimum liquidity covenants or to otherwisedefault under one credit agreement could result in a default under both creditagreements. Defaults under the credit agreements could result in alloutstanding borrowings becoming immediately due and payable.

 

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*Liquidity*

 

Ourcash outlook for the next twelve months and our ability to make the requireddebt repayments in March 2011 and to continue to meet our financialcovenants is highly dependent on selling certain real estate assets in adifficult market and to refinancing our existing debt. If we are unable to meetour financial covenants resulting in the borrowings becoming immediately due,or are unable to restructure our credit agreements to extend the maturity datebeyond March 2011, we would not have sufficient liquidity to repay suchoutstanding borrowings (Note 5 to condensed consolidated financial statements).In addition, we have a commitment to purchase the spa, beach club improvementsand the sundry store, referred to as the Amenities, from Bay Holdings at actualconstruction costs of approximately $35 million. We do not currently havethe cash resources to complete the purchase. We are in discussions with the other members of Bay Holdings tonegotiate the terms of the purchase agreement including the purchase price andpayment terms, and are discussing whether we will even be required to purchasethe Amenities.  In June 2009, weannounced that due to a lack of a title sponsor, we were unable to hold the2009 LPGA event that was scheduled for October. This has resulted in a disputewith the LPGA, which can be resolved by mediation and if necessary by bindingarbitration. By agreement between the parties, mediation has been suspendedthrough November 2010 and we paid $700,000 of which 50% will be appliedtowards sponsorship of an event if the parties are able to structure a futureevent. We are also subject to other commitments and contingencies such as alegal dispute with a former grower and an EEOC matter related to our formerAgriculture operations, and funding requirements related to our defined pensionplan that could negatively impact our future cash flows.  These matters are further described in Notes13 and 17 to our condensed consolidated financial statements.  These circumstances raise substantial doubtabout our ability to continue as a going concern. There can be no assurance thatwe will be able to successfully achieve our initiatives discussed below inorder to continue as a going concern. Our condensed consolidated financialstatements do not include any adjustments that might result should we be unableto continue as a going concern.

 

Inresponse to these circumstances, we have undertaken and will continue toundertake several financial and strategic initiatives to generate cash flowfrom a variety of sources, including capital raising transactions and the saleof several real estate assets.  Inparticular, in the first nine months of 2010, we concluded the sale of twoproperties that resulted in total cash proceeds (net of selling costs) of $3.3million. In addition, in July 2010, we completed a rights offering and wereceived gross proceeds of $40 million. Pursuant to purchase agreements withholders of our senior secured convertible notes that held in the aggregate $40million of the principal amount of these notes, as of August 3, 2010, wepaid $35.2 million to redeem the notes. On September 30, 2010, we sold theBay Course and adjacent maintenance facility and received net cash proceeds of$22.8 million of which $20 million was used to repay borrowings under ourcredit agreement with Wells Fargo.  We havealso taken several actions to reduce cash outflows, as well as adoptingmeasures to reduce operating expenses. In particular, in February 2010, weterminated our postretirement medical insurance plan for non-bargainingretirees and in January we increased the percentage of medical insurancethat active employees are paying for current medical insurance coverage.  We also terminated our retiree life insuranceplan in January 2010. We are actively in the process of attempting to sellseveral selected real estate assets to provide additional liquidity and tofurther reduce debt.  In addition, we areactively working with our lenders to extend the maturity date of our creditagreements.

 

*AmendedConstruction Loan Agreement Following Lehman Bankruptcy*

 

In July 2006, Bay Holdings, in which we have a 51% interest,entered into a syndicated construction loan agreement with Lehman, for thelesser of $370 million or 61.6% of the total projected cost of theproject. Lehman’s commitment under the loan agreement was approximately 78% ofthe total. On September 15, 2008, Lehman filed a petition underChapter 11 of the U.S. Bankruptcy Code with the United States BankruptcyCourt. In February 2009, Bay Holdings entered into an amended and restatedconstruction loan agreement with Lehman, Swedbank, MH KapaluaVenture, LLC, an affiliate of Marriott, and certain other syndicatelenders, pursuant to which Bay Holdings could borrow an aggregate ofapproximately $354.5 million, including amounts previously funded underthe original construction loan agreement (Note 11 to condensedconsolidated financial statements).

 

*Revolving Line of Credit with American AgCredit, FLCA*

 

In October 2009, we executed an amendment to our revolving line ofcredit agreement with American AgCredit, FLCA. The amendment extended thematurity of the loan from March 2010 to March 2011, reduced theminimum liquidity requirement from $10 million to $8 million, placedlimitations on new indebtedness and capital expenditures, required that totalliabilities not exceed $240 million and increased the interest rate by 75 to200 basis points, subject to a minimum interest rate of 5.5%. As ofSeptember 30, 2010, this $25 million line of credit was fully drawn(Note 5 to condensed consolidated financial statements).

 

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*Revolving Line of Credit with Wells Fargo and Certain OtherLenders*

 

In October 2009, we executed a restated and amended revolving lineof credit agreement with Wells Fargo Bank and certain other lenders. Therestated and amended credit agreement increased the amount of the revolvingline from $45 million to $50 million, extended the maturity of the loan fromMarch 2010 to March 2011, reduced the minimum liquidity requirementfrom $10 million to $8 million, required that total liabilities not exceed $240million and limited additional indebtedness and capital expenditures.  Interest on outstanding amounts are at aLIBOR market index or the LIBOR rate, plus 4.25%, subject to a minimum interestrate of 5.5%.  As of September 30,2010, the restated and amended credit agreement was amended to reduce therevolving line commitment from $50 million to $30 million, after we paid down$20 million of borrowings from proceeds from the sale of the Bay Course.  As of September 30, 2010, we had$17.8 million outstanding or encumbered to secure letters of credit, and$11.1 million available under this line (Note 5 to condensed consolidatedfinancial statements).

 

*Private Placement of Convertible Notes*

 

On July 28, 2008, we issued $40 million in aggregateprincipal amount of senior secured convertible notes, bearing 5.875% interestper annum payable quarterly in cash in arrears beginning October 15, 2008.As of June 30, 2010, we had $40.5 million in principal and accruedbut unpaid interest outstanding under the convertible notes.  As of August 3, 2010, we redeemed all ofthe outstanding senior secured convertible notes for 88% of the face value or$35.2 million.  We paid an additionalaggregate sum of $800,000 in connection with entering into the purchaseagreements to redeem the notes in order to lock up the holders for a period ofup to 47 days.

 

As of September 30, 2010, we were in compliance with all of thecovenants under our outstanding debt arrangements.

 

*Operating Cash Flows*

 

In the first nine months of 2010, consolidated net cash used inoperating activities was $5.8 million compared to net cash used in operatingactivities of $9.7 million for the first nine months of 2009. Operating cashflows for the first nine months of 2010 included expenditures of $1.2 millionrelated to the extinguishment of our $40 million senior secured convertiblenotes. The improved cash flows from operating activities reflect improvedoperating performance, continued implementation of cost reduction measures inall of our operations, and income tax refunds of $5.5 million.  In addition, we sold 128 acres of land in thefirst nine months of 2010 and received net cash proceeds of $1.5 million.  Operating cash flows for the first ninemonths of 2009 includes $9.9 million from the sale of real estate inventories.

 

*Investing Cash Flows*

 

Cash provided by investing activities in the first nine months of 2010include $3.2 million for the purchase and installation of the irrigation systemon the Plantation Course, $1.7 million from the sale of our formeradministrative offices and the two acre parcel underlying those buildings, and$1.7 million from the sale of excess machinery and equipment.

 

*Financing Cash Flows*

 

Cash flows from financing activities for the firstnine months of 2010 include $22.8 million of cash received from the sale of theBay Course and maintenance facility in September 2010.  In the first nine months of 2009, financingcash flows included $48.5 million in cash received from the sale of thePlantation Course in March 2009. The cash received from the sales of the Bay Course and the PlantationCourse was accounted for as financing because of the leaseback arrangement andother continuing involvement with the properties.  The first nine months of 2010 and 2009included net repayments of long-term debt and capital lease obligations of$55.1 million and $50.9 million, respectively.

 

*Future Cash Inflows and Outflows*

 

Our plans for the remainderof 2010 include the possible sale of certain operating and non-operating realestate assets.  There can be no assurancethat we will be able to sell any of our real estate assets.

 

In2010, minimum required contributions to our defined benefit pension plans areexpected to be $2.0 million, which to date has been paid. In September 2010,we were advised by the Pension Benefits Guaranty Corporation (PBGC) that thecessation of our pineapple operations and the corresponding reduction in theactive participant count for our Pension Plan for Bargaining Unit and HourlyEmployees (Plan) has triggered the requirement that we provide security to thePBGC of approximately $5.2 million to support unfunded liabilities of the Planor that we make contributions to the Plan in excess of the minimum requiredamounts. Management is currently working with the PBGC to reach an agreement asto the amount of contributions that will be made and the form and amount ofcollateral that will be provided.

 

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Our net pension liability and minimum required contribution amounts arecalculated based upon an assessment of several variables including employeecompensation levels, employee turnover rates, the expected long term rate ofreturn on investments, and other factors that are difficult to ascertain. Anysignificant changes in any one or more of these variables could materiallyaffect our net pension liability and required minimum contributions. We expectto contribute $190,000 to our other post-retirement benefit plans in 2010.

 

In 2010, capital expenditures and expenditures for deferred developmentcosts have been reduced, except for expenditures that are necessary to maintainour operations and standards of quality at the Kapalua Resort. Expendituresplanned for 2010, excluding costs related to the PGC irrigation system, totalapproximately $1.0 million, primarily for development entitlement work.

 

We have a commitment to purchase the Amenities from Bay Holdings atactual construction costs of approximately $35 million. We are indiscussions with the members of Bay Holdings to negotiate the terms of thepurchase agreement including the purchase price and payment terms, and arediscussing whether we will even be required to purchase the Amenities.

 

**FORWARD-LOOKINGSTATEMENTS AND RISKS**

 

This and other reports filed by us with the Securities and ExchangeCommission, or SEC, contain forward-looking statements intended to qualify forthe safe harbor from liability established by the Private Securities LitigationReform Act of 1995. These statements relate to future events or our futurefinancial performance and involve known and unknown risks, uncertainties andother factors that may cause our actual results, levels of activity,performance or achievements to differ materially from any future results,levels of activity, performance or achievements expressed or implied by theseforward-looking statements. These statements can be identified by the fact thatthey do not relate strictly to historical or current facts. They contain wordssuch as “may,” “will,” “project,” “might,” “expect,” “believe,” “anticipate,” “intend,”“could,” “would,” “estimate,” “continue” or “pursue,” or the negative or othervariations thereof or comparable terminology. Actual results could differmaterially from those projected in forward-looking statements as a result ofthe following factors, among others.

 

·                  our ability to comply withthe terms of our indebtedness, including the financial covenants set forththerein;

 

·                  our ability to refinance ourexisting credit lines on terms that are favorable to us or at all;

 

·                  general economic factors,including the current economic slowdown;

 

·                  our inability to completeland development projects in a timely manner or at all;

 

·                  our ability to raise capitalthrough the sale of selected real property assets;

 

·                  the ability and willingnessof our lenders to comply with the terms of their lending agreements with us;

 

·                  uncertain fuel and travelcosts, and reductions in airline passenger capacity to Maui;

 

·                  dependence on third partiesand actual or potential lack of control over joint venture relationships;

 

·                  timing of approvals andconditions of future real estate entitlement applications;

 

·                  impact of current and futurelocal, state and national government regulations;

 

·                  future cost of compliancewith environmental laws;

 

·                  effects of weatherconditions and natural disasters; and

 

·                  our ability to maintain thelisting of our common stock on the New York Stock Exchange.

 

Such risks and uncertainties also include those risks and uncertaintiesdiscussed in the sections entitled “Business,” “Risk Factors,” and “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” inour Annual Report on Form 10-K for the year ended December 31, 2009,and the sections entitled “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” in this Quarterly Report onForm 10-Q, as well as other factors described from time to time in ourreports filed with the SEC. Although we believe that our opinions andexpectations reflected in the forward-looking statements are reasonable as of thedate of this report, we cannot guarantee future results, levels of activity,performance or achievements, and our actual results may differ substantiallyfrom the views and expectations set forth in this report. Thus, you should notplace undue reliance on any forward-looking statements. New factors emerge fromtime to time, and it is not possible for us to predict which factors willarise. In addition, we cannot assess the impact of each factor on our businessor the extent to which any factor, or combination of factors, may cause actualresults to differ materially from those contained in any forward-lookingstatements. Further, any forward-looking statements speak only as of the datemade and, except as required by law, we undertake no obligation to publiclyrevise our forward-looking statements to reflect events or circumstances thatarise after the date of this report.

 

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**Item 4.  Controls and Procedures**

 

We maintain disclosure controls and procedures (as such term is definedin Rules 13a-15(e) and 15d-15(e) under the Securities ExchangeAct of 1934, as amended) that are designed to ensure that information required tobe disclosed in our Exchange Act reports is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms,and that such information is accumulated and communicated to our management,including our Interim Chief Executive Officer and Chief Financial Officer, asappropriate, to allow timely decisions regarding required disclosure.

 

In designing and evaluating the disclosure controls and procedures, ourmanagement recognizes that any controls and procedures, no matter how well designedand operated, can provide only reasonable assurance of achieving the desiredcontrol objectives, and our management necessarily was required to apply itsjudgment in evaluating the cost-benefit relationship of possible controls andprocedures.

 

As required by Rule 13a-15(b) and 15d-15(b) under theExchange Act, we carried out an evaluation, under the supervision and with theparticipation of our management, including our Interim Chief Executive Officerand Chief Financial Officer, of the effectiveness of the design and operationof our disclosure controls and procedures as of the end of the fiscal quartercovered by this report. Based upon the foregoing, our Interim Chief ExecutiveOfficer and Chief Financial Officer concluded that our disclosure controls andprocedures were effective to provide reasonable assurance that informationrequired to be disclosed by us in our Exchange Act reports is recorded,processed, summarized and reported within the time periods specified inapplicable SEC rules and forms. There has been no change in our internalcontrol over financial reporting during the nine months endedSeptember 30, 2010 that has materially affected or is reasonably likely tomaterially affect our internal control over financial reporting.

 

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**PART II OTHER INFORMATION**

 

**Item 6.  Exhibits**

 
|   | 10.1   | Kapalua  Bay Course Sale, Purchase and Escrow Agreement dated September 16, 2010.                                                                                                                                   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                     |
|   | 10.2   | Bay  Golf Course Lease made and entered into effective September 30, 2010.                                                                                                                                          |
|   |   |                                                                                                                                                                                                                     |
|   | 10.3   | Golf  Academy Lease, made and entered into effective October 1, 2010.                                                                                                                                               |
|   |   |                                                                                                                                                                                                                     |
|   | 10.4   | First  Modification Agreement, dated as of September 17, 2010, entered into by  and among Maui Land & Pineapple Company, Inc., and each of the  financial institutions initially a signatory thereto. |
|   |   |                                                                                                                                                                                                                     |
|   | 31.1   | Certification  of Chief Executive Officer Pursuant to Rule 13a-14(d) /  15d-14(a) of the Securities Exchange Act of 1934.                                                                                 |
|   |   |                                                                                                                                                                                                                     |
|   | 31.2   | Certification  of Chief Financial Officer Pursuant to Rule 13a-14(d) /  15d-14(a) of the Securities Exchange Act of 1934.                                                                                 |
|   |   |                                                                                                                                                                                                                     |
|   | 32.1   | Certification  of Chief Executive Officer and Chief Financial Officer Pursuant to  Rule 13a-14(b) / 15d-14(b) of the Securities Exchange Act of  1934 and 18 U.S.C. Section 1350.                    |

 

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**SIGNATURE**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|                   |     | MAUI  LAND & PINEAPPLE COMPANY, INC. |
|------------------------|----------|----------------------------------------------------|
|                   |     |                                               |
|                   |     |                                               |
| November 2,  2010 |     | /s/  TIM T. ESAKI                                  |
| Date                   |     | Tim  T. Esaki                                      |
| * *               | * * | *Chief Financial Officer*                          |
|                   |     | (Principal  Financial Officer)                     |

 

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**EXHIBIT INDEX**

 
| **Exhibit Number** | ** ** | **Description**                                                                                                                                                                                                             |
|-------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **              | ** ** | ** **                                                                                                                                                                                                                  |
| 10.1                    |       | Kapalua  Bay Course Sale, Purchase and Escrow Agreement dated September 16, 2010.  (1)                                                                                                                                 |
|                    |       |                                                                                                                                                                                                                        |
| 10.2                    |       | Bay  Golf Course Lease made and entered into effective September 30, 2010.  (1)                                                                                                                                        |
|                    |       |                                                                                                                                                                                                                        |
| 10.3                    |       | Golf  Academy Lease, made and entered into effective October 1, 2010. (1)                                                                                                                                              |
|                    |       |                                                                                                                                                                                                                        |
| 10.4                    |       | First  Modification Agreement dated as of September 17, 2010, entered into by  and among Maui Land & Pineapple Company, Inc., and each of the  financial institutions initially a signatory thereto. (1) |
|                    |       |                                                                                                                                                                                                                        |
| 31.1                    |       | Certification  of Chief Executive Officer Pursuant to Rule 13a-14(d) /  15d-14(a) of the Securities Exchange Act of 1934. (1)                                                                                |
|                    |       |                                                                                                                                                                                                                        |
| 31.2                    |       | Certification  of Chief Financial Officer Pursuant to Rule 13a-14(d) /  15d-14(a) of the Securities Exchange Act of 1934. (1)                                                                                |
|                    |       |                                                                                                                                                                                                                        |
| 32.1                    |       | Certification  of Chief Executive Officer and Chief Financial Officer Pursuant to  Rule 13a-14(b) / 15d-14(b) of the Securities Exchange Act of  1934 and 18 U.S.C. Section 1350. (2)                   |

 

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(1)                                  Filed herewith.

 

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

 

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