**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

**FORM 10-Q**

**(Mark One)**

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

**Forthe quarterly period ended SEPTEMBER 30, 2005**

**OR**

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

**Commissionfile number 1-6510****

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

(Exact name of registrantas specified in its charter)

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

 

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

(Address of principalexecutive offices)

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

**NONE**

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

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

Yes  x    No  o

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).

Yes  o    No  x

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes  o    No  x

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

| **Class**                   | ** ** | **Outstanding  at November 1, 2005** |
|-----------------------------|------------|-------------------------------------------|
| Common Stock, no  par value |       | 7,378,550 shares                          |

 

 

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

**TABLE OF CONTENTS**
|                                                                                                                                          |        | **Page** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|------------|
| PART I. FINANCIAL INFORMATION                                                                                                       |   |     |
| Item 1. Financial Statements                                                                                                             |   |     |
| Condensed Consolidated  Balance Sheets,  September 30, 2005 and December 31, 2004 (Unaudited)                                  | 3      |     |
| Condensed Consolidated  Statements of Operations and Retained Earnings,  Three Months Ended September 30, 2005 and 2004 (Unaudited) | 4      |     |
| Condensed Consolidated Statements  of Operations and Retained Earnings,  Nine Months Ended September 30, 2005 and 2004 (Unaudited)  | 5      |     |
| Condensed Consolidated  Statements of Comprehensive Income (Loss)  Three Months Ended September 30, 2005 and 2004 (Unaudited)       | 6      |     |
| Condensed Consolidated Statements of  Comprehensive Income (Loss)  Nine Months Ended September 30, 2005 and 2004 (Unaudited)        | 6      |     |
| Condensed Consolidated Statements of  Cash Flows,  Nine Months Ended September 30, 2005 and 2004 (Unaudited)                        | 7      |     |
| Notes to Condensed  Consolidated Financial Statements (Unaudited)                                                                        | 8      |     |
| Item 2. Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                      | 14     |     |
| Item 3. Quantitative and  Qualitative Disclosures About Market Risk                                                                      | 26     |     |
| Forward-Looking Statements  and Risks                                                                                                    | 27     |     |
| Item 4. Controls and Procedures                                                                                                          | 31     |     |
| PART II. OTHER INFORMATION                                                                                                          |   |     |
| Item 1. Legal Proceedings                                                                                                                | 32     |     |
| Item 6. Exhibits                                                                                                                         | 32     |     |
| Signatures                                                                                                                               | 33     |     |
|                                                                                                                                          |        |          |            |  |

 

2

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**PART I   FINANCIAL INFORMATION**

**Item 1.**                        FinancialStatements

**MAUI LAND & PINEAPPLE COMPANY, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATEDBALANCE SHEETS (Unaudited)**

| ** **                                                                                                                                                                      | ** ** | **9/30/05**                          | ** ** | **12/31/04** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|--------------|------------|
| ** **                                                                                                                                                                      | ** ** | **(Dollars in Thousands)** | ** ** |
| *ASSETS*                                                                                                                                                                        |       |                                 |       |         |       |
| Current Assets                                                                                                                                                                  |       |                                 |       |         |       |
| Cash and cash equivalents                                                                                                                                                       |       | $                                    | 3,482      |         | $          | 11,531 |   |
| Accounts and notes receivable                                                                                                                                                   |       | 18,654                               |       | 12,716       |       |
| Inventories                                                                                                                                                                     |       | 15,050                               |       | 15,100       |       |
| Other current assets                                                                                                                                                            |       | 7,732                                |       | 8,023        |       |
| Total current assets                                                                                                                                                            |       | 44,918                               |       | 47,370       |       |
| Property                                                                                                                                                                        |       | 250,451                              |       | 240,466      |       |
| Accumulated depreciation                                                                                                                                                        |       | (156,603                             | )          | (146,569     | )          |
| Property—net                                                                                                                                                               |       | 93,848                               |       | 93,897       |       |
| Other Assets                                                                                                                                                                    |       | 37,182                               |       | 19,656       |       |
| Total                                                                                                                                                                           |       | $                                    | 175,948    |         | $          | 160,923 |   |
| *LIABILITIES AND STOCKHOLDERS’ EQUITY*                                                                                                                                     |       |                                 |       |         |       |
| Current Liabilities                                                                                                                                                             |       |                                 |       |         |       |
| Current portion of long-term debt and capital lease  obligations                                                                                                                |       | $                                    | 1,119      |         | $          | 3,314 |   |
| Trade accounts payable                                                                                                                                                          |       | 13,110                               |       | 12,703       |       |
| Deferred revenue                                                                                                                                                                |       | 8,867                                |       | 13,018       |       |
| Other current liabilities                                                                                                                                                       |       | 12,212                               |       | 7,151        |       |
| Total current liabilities                                                                                                                                                       |       | 35,308                               |       | 36,186       |       |
| Long-Term  Liabilities                                                                                                                                                          |       |                                 |       |         |       |
| Long-term debt and capital lease obligations                                                                                                                                    |       | 15,461                               |       | 13,953       |       |
| Accrued retirement benefits                                                                                                                                                     |       | 33,636                               |       | 33,264       |       |
| Other long-term liabilities                                                                                                                                                     |       | 7,998                                |       | 5,395        |       |
| Total long-term liabilities                                                                                                                                                     |       | 57,095                               |       | 52,612       |       |
| Minority Interest in Subsidiary                                                                                                                                                 |       | 513                                  |       | 504          |       |
| Stockholders’  Equity                                                                                                                                                      |       |                                 |       |         |       |
| Common stock, no par value—8,000,000 shares  authorized, 7,232,050 and 7,266,550 issued and outstanding as of September  30, 2005 and December 31, 2004, respectively |       | 13,523                               |       | 13,335       |       |
| Additional paid-in-capital                                                                                                                                                      |       | 2,936                                |       | 1,456        |       |
| Retained earnings                                                                                                                                                               |       | 70,714                               |       | 60,971       |       |
| Accumulated other comprehensive loss                                                                                                                                            |       | (4,141                               | )          | (4,141       | )          |
| Stockholders’ equity                                                                                                                                                       |       | 83,032                               |       | 71,621       |       |
| Total                                                                                                                                                                           |       | $                                    | 175,948    |         | $          | 160,923 |   |

 

See accompanying Notes to Condensed Consolidated Financial Statements.

3

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

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSAND RETAINED EARNINGS**

**(UNAUDITED)**

| ** **                                                              | ** ** | **Three Months Ended**                                     | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **    9/30/05    **          | ** ** | **    9/30/04    ** | ** ** |
| ** **                                                              | ** ** | **(Dollars in Thousands  Except Share Amounts)** | ** ** |
| Operating Revenues                                                      |       |                                                                 |       |   |   |   |   |   |   |
| Net sales                                                               |       |                                                                 | $          | 35,510 |   |   |   | $ | 26,320 |   |   |
| Operating income                                                        |       |                                                                 | 8,557      |   |   |   | 8,151 |   |   |
| Other income                                                            |       |                                                                 | 35         |   |   |   | 115 |   |   |
| Total Operating  Revenues                                               |       |                                                                 | 44,102     |   |   |   | 34,586 |   |   |
| Operating Costs  and Expenses                                           |       |                                                                 |       |   |   |   |   |   |   |
| Cost of goods sold                                                      |       |                                                                 | 18,570     |   |   |   | 16,403 |   |   |
| Operating expenses                                                      |       |                                                                 | 9,462      |   |   |   | 9,195 |   |   |
| Shipping and marketing                                                  |       |                                                                 | 3,878      |   |   |   | 3,771 |   |   |
| General and administrative                                              |       |                                                                 | 9,299      |   |   |   | 8,083 |   |   |
| Total Operating  Costs and Expenses                                     |       |                                                                 | 41,209     |   |   |   | 37,452 |   |   |
| Operating Income (Loss)                                                 |       |                                                                 | 2,893      |   |   |   | (2,866 | ) |   |
| Equity in earnings (losses) of affiliates                               |       |                                                                 | 30         |   |   |   | (296 | ) |   |
| Interest expense                                                        |       |                                                                 | (71        | ) |   |   | (314 | ) |   |
| Interest income                                                         |       |                                                                 | 158        |   |   |   | 3 |   |   |
| Income (Loss)  From Continuing Operations Before Income Taxes           |       |                                                                 | 3,010      |   |   |   | (3,473 | ) |   |
| Income Tax  Expense (Benefit)                                           |       |                                                                 | 1,006      |   |   |   | (1,240 | ) |   |
| Income (Loss)  From Continuing Operations                               |       |                                                                 | 2,004      |   |   |   | (2,233 | ) |   |
| Income From  Discontinued Operations (net of income tax expense of $50) |       |                                                                 | —     |   |   |   | 80 |   |   |
| Net Income (Loss)                                                       |       |                                                                 | 2,004      |   |   |   | (2,153 | ) |   |
| Retained Earnings, Beginning of Period                                  |       |                                                                 | 68,710     |   |   |   | 60,499 |   |   |
| Retained Earnings, End of Period                                        |       |                                                                 | $          | 70,714 |   |   |   | $ | 58,346 |   |   |
| Earnings Per  Common Share                                              |       |                                                                 |       |   |   |   |   |   |   |
| Basic                                                                   |       |                                                                 | $          | 0.28 |   |   |   | $ | (0.30 | ) |   |
| Diluted                                                                 |       |                                                                 | $          | 0.27 |   |   |   | $ | (0.30 | ) |   |

 

See accompanying Notes to Condensed Consolidated Financial Statements.

4

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

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (Continued)**

**(UNAUDITED)**

| ** **                                                              | ** ** | **Nine Months Ended**                                      | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **9/30/05**                                                          | ** ** | **9/30/04** | ** ** |
| ** **                                                              | ** ** | **(Dollars in Thousands  Except Share Amounts)** | ** ** |
| Operating Revenues                                                      |       |                                                                 |       |   |   |
| Net sales                                                               |       | $                                                                    | 106,789    |   | $ | 77,571 |   |
| Operating income                                                        |       | 26,229                                                               |       | 27,050 |   |
| Other income                                                            |       | 415                                                                  |       | 221 |   |
| Total Operating  Revenues                                               |       | 133,433                                                              |       | 104,842 |   |
| Operating Costs  and Expenses                                           |       |                                                                 |       |   |   |
| Cost of sales                                                           |       | 53,968                                                               |       | 47,679 |   |
| Operating expenses                                                      |       | 27,218                                                               |       | 26,900 |   |
| Shipping and marketing                                                  |       | 10,845                                                               |       | 11,843 |   |
| General and administrative                                              |       | 25,801                                                               |       | 22,290 |   |
| Total Operating  Costs and Expenses                                     |       | 117,832                                                              |       | 108,712 |   |
| Operating Income (Loss)                                                 |       | 15,601                                                               |       | (3,870 | ) |
| Equity in earnings (losses) of affiliates                               |       | (186                                                                 | )          | 5 |   |
| Interest expense                                                        |       | (308                                                                 | )          | (966 | ) |
| Interest income                                                         |       | 188                                                                  |       | 31 |   |
| Income (Loss)  From Continuing Operations Before Income Taxes           |       | 15,295                                                               |       | (4,800 | ) |
| Income Tax  Expense (Benefit)                                           |       | 5,552                                                                |       | (1,678 | ) |
| Income (Loss)  From Continuing Operations                               |       | 9,743                                                                |       | (3,122 | ) |
| Income From  Discontinued Operations (net of income tax expense of $70) |       | —                                                               |       | 114 |   |
| Net Income (Loss)                                                       |       | 9,743                                                                |       | (3,008 | ) |
| Retained Earnings,  Beginning of Period                                 |       | 60,971                                                               |       | 61,354 |   |
| Retained  Earnings, End of Period                                       |       | $                                                                    | 70,714     |   | $ | 58,346 |   |
| Earnings Per Common  Share                                              |       |                                                                 |       |   |   |
| Basic                                                                   |       | $                                                                    | 1.35       |   | $ | (0.42 | ) |
| Diluted                                                                 |       | $                                                                    | 1.33       |   | $ | (0.42 | ) |

 

See accompanying Notes to Condensed Consolidated Financial Statements.

5

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

**CONDENSEDCONSOLIDATED STATEMENTS OFCOMPREHENSIVE INCOME (LOSS)**

**(UNAUDITED)**

| ** **                   | ** ** | **Three Months Ended**     | ** ** |
|------------------------------|------------|--------------------------------------|------------|
| ** **                   | ** ** | **  9/30/05  **  | ** ** | **  9/30/04  ** | ** ** |
| ** **                   | ** ** | **(Dollars in Thousands)** | ** ** |
| Net Income (Loss)            |       |                                 | $          | 2,004 |   |   |   | $ | (2,153 | ) |   |
| Other Comprehensive Income   |       |                                 | —     |   |   |   | — |   |   |
| Comprehensive  Income (Loss) |       |                                 | $          | 2,004 |   |   |   | $ | (2,153 | ) |   |

 

| ** **                                                               | ** ** | **Nine Months Ended**      | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                               | ** ** | **  9/30/05  **  | ** ** | **  9/30/04  ** | ** ** |
| ** **                                                               | ** ** | **(Dollars in Thousands)** | ** ** |
| Net Income (Loss)                                                        |       |                                 | $          | 9,743 |   |   |   | $ | (3,008 | ) |   |
| Other Comprehensive Income—Foreign Currency  Translation Adjustment |       |                                 | —     |   |   |   | 111 |   |   |
| Comprehensive  Income (Loss)                                             |       |                                 | $          | 9,743 |   |   |   | $ | (2,897 | ) |   |

 

See accompanying Notes to Condensed Consolidated Financial Statements.

6

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

| ** **                                                | ** ** | **Nine Months Ended**      | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                | ** ** | **9/30/05**                          | ** ** | **9/30/04** | ** ** |
| ** **                                                | ** ** | **(Dollars in Thousands)** | ** ** |
| Net Cash Provided  by Operating Activities                |       | $                                    | 3,449      |   | $ | 15,343 |   |
| Investing  Activities                                     |       |                                 |       |   |   |
| Purchases of property                                     |       | (11,250                              | )          | (11,256 | ) |
| Proceeds from disposals of property                       |       | 2,740                                |       | 2,992 |   |
| Other                                                     |       | (2,301                               | )          | (2,824 | ) |
| Net Cash Used in  Investing Activities                    |       | (10,811                              | )          | (11,088 | ) |
| Financing  Activities                                     |       |                                 |       |   |   |
| Payments of long-term debt and capital lease  obligations |       | (12,287                              | )          | (17,548 | ) |
| Proceeds from long-term debt                              |       | 11,600                               |       | 10,000 |   |
| Distribution to minority interest                         |       | —                               |       | (879 | ) |
| Net Cash Used in  Financing Activities                    |       | (687                                 | )          | (8,427 | ) |
| Net Decrease in Cash and Cash Equivalents                 |       | (8,049                               | )          | (4,172 | ) |
| Cash and Cash Equivalents at Beginning of Period          |       | 11,531                               |       | 7,863 |   |
| Cash and Cash  Equivalents at End of Period               |       | $                                    | 3,482      |   | $ | 3,691 |   |

 

Supplemental Disclosures of Cash Flow Information—Interest(net of amounts capitalized) of $316,000 and $994,000 was paid during the ninemonths ended September 30, 2005 and 2004, respectively. Income taxes of$303,000 and $1,831,000 were paid during the nine months ended September 30,2005 and 2004, respectively.

Non-Cash Investing Activities—For 2005, net cash salesproceeds of $14.6 million were available for re-investment on a tax-deferredbasis.

See accompanying Notes to Condensed Consolidated Financial Statements.

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

**1.**                 Inthe opinion of management, the accompanying condensed consolidated financialstatements contain all normal and recurring adjustments necessary to fairlypresent the financial position, results of operations and cash flows for theinterim periods ended September 30, 2005 and 2004.

**2.**                 TheCompany’s reports for interim periods utilize numerous estimates of productioncost, general and administrative expenses, and other costs for the full year. Futureactual amounts may differ from the estimates. Amounts in the interim reportsare not necessarily indicative of results for the full year.

**3.**                 Theeffective tax rate for 2005 and 2004 differs from the statutory federal rate of34% to 35% primarily because of the state tax provision and refundable statetax credits.

**4.**                 Accountsand notes receivable are reflected net of allowance for doubtful accounts of$656,000 and $825,000 at September 30, 2005 and December 31, 2004,respectively.

**5.**                 Inventoriesas of September 30, 2005 and December 31, 2004 were as follows:

| ** **                           | ** ** | **9/30/05**                          | ** ** | **12/31/04** | ** ** |
|--------------------------------------|------------|--------------------------------------|------------|--------------|------------|
| ** **                           | ** ** | **(Dollars in Thousands)** | ** ** |
| Pineapple products                   |       |                                 |       |         |       |
| Finished goods                       |       | $                                    | 2,512      |         | $          | 3,477 |   |
| Work in progress                     |       | 434                                  |       | 438          |       |
| Raw materials                        |       | 1,293                                |       | 751          |       |
| Real estate held  for sale           |       | 3,067                                |       | 2,966        |       |
| Merchandise,  materials and supplies |       | 7,744                                |       | 7,468        |       |
| Total Inventories                    |       | $                                    | 15,050     |         | $          | 15,100 |   |

 

The Company accounts for the costs of growingpineapple in accordance with the “annual accrual method,” which has been usedby Hawaii’s pineapple and sugarcane growers since the 1950s. Under this method,revenues and costs are determined on the accrual basis, and pineappleproduction costs incurred during a year are charged to the costs of cropsharvested during that year. These costs include land preparation and planting,cultivation, irrigation, crop development, harvesting and hauling to thecannery. They also include certain overhead costs that are directly related tothe growing of pineapple. Accordingly, no costs are assigned to the growing(unharvested) crops.  The annual accrualmethod is the most appropriate method of accounting for the costs of growingpineapple because of the pineapple’s crop cycle (18 to 48 months) and theuncertainties about fruit quality and the number of crops to be harvested fromeach planting (one to three crops). AICPA Statement of Position No. 85-3(SOP), “Accounting by Agricultural Producers and Agricultural Cooperatives,”states that all direct and indirect costs of growing crops should beaccumulated and growing crops should be reported at the lower of cost or market.However, the SOP does not apply to growers of pineapple and sugarcane intropical regions because tropical agriculture (of which pineapple and sugarcaneproduction in Hawaii are examples) differs greatly from agriculture intemperate regions of the mainland United States. The Company’s growing(unharvested) crops at September 30, 2005 and December 31, 2004,consisted of approximately 4,200 acres in various stages of growth that will beharvested principally in the years 2005 through 2008, and are expected to yieldan average of approximately 30 tons per acre. The estimated average yield oftons per acre reflects the 

8

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Company’s expectation thatit will harvest second ratoon crops (fruit from the third harvest), which yieldless tons per acre. 

TheCompany uses the percentage-of-completion method to recognize revenues andprofits from the sale of residential land parcels where the Company isobligated to construct improvements (roads, sidewalks, drainage, and utilities)after the closing of the sale. Under this method, revenues are recognized overthe improvement construction period on the basis of costs incurred as apercentage of total costs to be incurred. The Company recognizes revenues andprofits using the percentage of completion method for the sale of lots thatclosed escrow in Honolua Ridge Phase I and Phase II residential subdivision atthe Kapalua Resort. In the nine-months ended September 30, 2005, sevenlots closed escrow in the Honolua Ridge Phase I bringing the total lots sold to24; and the first three lots in Honolua Ridge Phase II closed escrow in September 2005.At September 30, 2005, construction of the improvements for Honolua Phase Iand Phase II was estimated to be approximately 96% and 14% complete,respectively. Costs of sales are allocated to each lot based on relative salesvalues. The estimated costs of the projects consist primarily of executedcontracts with contractors. These estimates could be affected by constructionor land conditions that were not anticipated that could result in additionalchange orders to the existing contracts or other unforeseen variables that mayaffect the total cost of the improvements to be constructed. At September 30,2005, deferred revenues (current liability) on the Company’s balance sheetrelated to these projects were $8.5 million.

**6.****                 RealEstate Sales**

In September 2005, the Company sold approximately36 acres of Upcountry Maui land for $676,000 in cash, a promissory note for$1.2 million and a one-acre parcel of land in West Maui valued at $350,000. Thepromissory note is due in November 2005. Also in September 2005, theCompany sold approximately 72 acres of Upcountry Maui land for $3.6 millioncash.

In June 2005, the Company sold approximately 129acres of Upcountry Maui land for $14 million, comprised of $11 million in cashand a promissory note for $3 million. In connection with the sale, the Companyand the buyer executed a Water Development Agreement. Under the agreement, theCompany will drill a new water well and construct a storage tank and atransmission line that would connect to the County of Maui water system. Thewell and storage tank will be constructed on a separate land parcel ofCompany-owned land. After the County’s approval of the completed project, theCompany will dedicate the facilities to the County for use as part of theCounty’s Upcountry water system. In exchange for the dedication, the Companyexpects to receive access to a specified quantity of water. The cost toconstruct the water source is estimated at $6.4 million. Based on the expectedwater capacity, the buyer will be assigned 51% of the water source allocated tothe Company by the County. Thus, in determining the profit to be recognized,51% of the estimated total cost was allocated to the three parcels sold. Theremainder of the cost (49%) will be deferred because the water source willbenefit other Company projects in the Upcountry area. Because the cost to constructthe water source can be reasonably estimated, $7.1 million of the profit on thetransaction was allocated to the sale of the land parcels and $1.9 million wasallocated to subsequent construction of the water source. Both of theseactivities will have the same rate of gross profit. This accounting isconsistent with SFAS No. 66, *Accounting for Sales ofReal Estate*. The $3.0 million note receivable is due on the date thebuyer receives its allocated water source; accordingly, the $1.9 million ofgross profit relating to construction of the water source will be recognized infuture periods based on performance. 

In June 2005, the Company also sold approximately25 acres of land and improvements to the Hui No`eau Visual Arts Center for $2.7million in cash and a promissory note of $856,000 that is due by December 31,2005. 

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These real estate sales transactions in the first ninemonths of 2005, resulted in net cash sales proceeds of $17.3 million, whichhave been or are expected to be re-invested on a tax deferred basis (InternalRevenue Code Section 1031 exchange). Proceeds of $2.6 million were used topurchase property to be used in the Company’s operations and, as of September 30,2005, $14.6 million was on deposit with a qualified exchange intermediary. Thegain on these sales recognized for financial statement purposes was $16.2million. 

TheCompany has a binding contract for the sale of approximately 323 acres ofUpcountry Maui land that is scheduled to close in December 2005. TheCompany expects to realize cash proceeds and report a net gain of approximately$9 million. This parcel is currently cultivated in pineapple, and the Companywill leaseback the parcel for approximately one year. 

**7.****                 DeferredCosts**

Pursuantto an April 30, 2004 letter of intent, the Company and Miraval Holding,LLC (Miraval) were negotiating the formation of a joint venture to create andmanage a health and wellness community at the Kapalua Resort. In early May 2005,the parties agreed to discontinue negotiations and to not proceed with thejoint venture, and the Company wrote-off legal, design and other deferred costsof $440,000 that related to the anticipated venture with Miraval. The Companyplans to continue with the development of a health and wellness community inanother area of the Kapalua Resort. On May 13, 2005, the Company’sChairman, President & CEO, David C. Cole, resigned from the Board ofDirectors of Miraval. The Stephen M. Case Revocable Trust, which as of September 30,2005 owns approximately 42% of the Company’s issued and outstanding commonstock, controls an entity that owns 70% of Miraval.

**8.****                 OperatingSegment Information:**

| ** **                               | ** ** | **Three Months  Ended September 30** | ** ** | **Nine Months  Ended September 30** | ** ** |
|------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                               | ** ** | **2005**                                            | ** ** | **2004**                                           | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                               | ** ** | **(Dollars in Thousands)**                | ** ** |
| Revenues                                 |       |                                                |       |                                               |       |   |   |   |   |
| Pineapple                                |       | $                                                   | 20,295     |                                               | $          | 19,008 |   | $ | 52,338 |   | $ | 57,604 |   |
| Resort                                   |       | 10,256                                              |       | 10,007                                             |       | 32,374 |   | 32,522 |   |
| Community Development                    |       | 13,483                                              |       | 5,563                                              |       | 48,619 |   | 14,674 |   |
| Other                                    |       | 68                                                  |       | 8                                                  |       | 102 |   | 42 |   |
| Total Operating  Revenues                |       | $                                                   | 44,102     |                                               | $          | 34,586 |   | $ | 133,433 |   | $ | 104,842 |   |
| Operating Profit  (Loss)                 |       |                                                |       |                                               |       |   |   |   |   |
| Pineapple                                |       | $                                                   | (2,490     | )                                                  | $          | (3,626 | ) | $ | (7,181 | ) | $ | (8,179 | ) |
| Resort                                   |       | (2,106                                              | )          | (1,800                                             | )          | (4,040 | ) | (3,059 | ) |
| Community Development                    |       | 7,535                                               |       | 2,254                                              |       | 26,777 |   | 7,601 |   |
| Other                                    |       | (16                                                 | )          | 10                                                 |       | (141 | ) | (228 | ) |
| Total Operating  Profit (Loss)           |       | 2,923                                               |       | (3,162                                             | )          | 15,415 |   | (3,865 | ) |
| Interest Expense                         |       | (71                                                 | )          | (314                                               | )          | (308 | ) | (966 | ) |
| Interest Income                          |       | 158                                                 |       | 3                                                  |       | 188 |   | 31 |   |
| Income Tax  (Expense) Benefit            |       | (1,006                                              | )          | 1,240                                              |       | (5,552 | ) | 1,678 |   |
| Income (Loss)—Continuing Operations |       | 2,004                                               |       | (2,233                                             | )          | 9,743 |   | (3,122 | ) |
| Income—Discontinued Operations      |       | —                                              |       | 80                                                 |       | — |   | 114 |   |
| Net Income (Loss)                        |       | $                                                   | 2,004      |                                               | $          | (2,153 | ) | $ | 9,743 |   | $ | (3,008 | ) |

 

10

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In 2005, responsibilityfor the real estate leasing activity that was accounted for in the Resortsegment was transferred to the Community Development segment (previously called“Development” segment) and prior year amounts were restated for comparability.The Community Development segment as reorganized is comprised of all of theCompany’s real estate entitlement, development, construction, sales and leasingactivities. The Community Development segment also includes the Company’s 51%equity interest in Kapalua Bay Holdings LLC, the owner and operator of theKapalua Bay Hotel. Remaining in the Resort segment are the operations of threechampionship golf courses, a tennis facility, ten retail outlets, a vacation rental program (The KapaluaVillas), and Public Utilities Commission regulated water and sewagetransmission operations at the Kapalua Resort.

**9.****                 DiscontinuedOperations**

In December 2003,in connection with the Company’s plan to cease a substantial portion of itsforeign pineapple operations, the Company entered into an agreement to sellsubstantially all of the assets of its 51% owned Costa Rican pineapplesubsidiary, and in 2003, title to all but two parcels of land in Costa Rica wastransferred to the buyer. In the first quarter of 2004, the Company ceased theremainder of its foreign pineapple operations. In February and August of2004, titles to the two remaining parcels were transferred to the buyer and thepreviously withheld sales price totaling $3.1 million was paid to theCompany’s subsidiary. The results of these operations prior to the sales andthe gains and other revenues and expenses realized after the sales are beingreported as discontinued operations, with prior period amounts restated forcomparability. Revenues and operating loss attributable to this discontinuedoperation were $386,000 and $130,000, respectively for the three months ended September 30,2004. For the nine months ended September 30, 2004, revenues and operatingprofit from this discontinued operation was $2,126,000 and $182,000,respectively.

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

| ** ** | ** ** | **Three Months  Ended September 30** | ** ** | **Nine Months  Ended September 30** | ** ** |
|------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** ** | ** ** | **2005**                                            | ** ** | **2004**                                           | ** ** | **2005** | ** ** | **2004** | ** ** |
| Basic      |       | 7,230,319                                           |       | 7,197,819                                          |       | 7,228,501 |   | 7,196,485 |   |
| Diluted    |       | 7,303,749                                           |       | 7,197,819                                          |       | 7,315,657 |   | 7,196,485 |   |

 

Forthe three months and nine months ended September 30, 2004, potentiallydilutive common shares from stock-based compensation arrangements are notincluded in the number of diluted common shares because to do so would have anantidilutive effect on the earnings per share amounts (i.e., decrease loss percommon share). The potentially dilutive common shares were 31,951 and 37,183,for the three months and nine months ended September 30, 2004,respectively.

**11.**          AtSeptember 30, 2005 and 2004, the Company did not hold any derivativeinstruments and did not enter into hedging transactions.

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**12.****          Componentsof Net Periodic Benefit Cost**

| ** **                            | ** ** | **Three Months  Ended** | ** ** | **Nine Months  Ended** | ** ** |
|---------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                            | ** ** | **2005**                     | ** ** | **2004**                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Pension  Benefits**                 |       |                         |       |                        |       |   |   |   |   |
| Service cost                          |       | $                            | 346        |                        | $          | 424 |   | $ | 1,204 |   | $ | 1,273 |   |
| Interest cost                         |       | 706                          |       | 699                         |       | 2,268 |   | 2,096 |   |
| Expected return  on plan assets       |       | (804                         | )          | (748                        | )          | (2,424 | ) | (2,243 | ) |
| Amortization of  prior service cost   |       | 17                           |       | 10                          |       | 41 |   | 30 |   |
| Amortization of  transition liability |       | 6                            |       | 6                           |       | 19 |   | 19 |   |
| Special  termination benefits         |       | —                       |       | —                      |       | — |   | 106 |   |
| Recognized  actuarial loss            |       | 33                           |       | 100                         |       | 285 |   | 301 |   |
| Net expense                           |       | $                            | 304        |                        | $          | 491 |   | $ | 1,393 |   | $ | 1,582 |   |
| **Other  Benefits**                   |       |                         |       |                        |       |   |   |   |   |
| Service cost                          |       | 109                          |       | 82                          |       | 292 |   | 245 |   |
| Interest cost                         |       | 232                          |       | 215                         |       | 712 |   | 645 |   |
| Amortization of  prior service cost   |       | (31                          | )          | (32                         | )          | (96 | ) | (96 | ) |
| Special  termination benefits         |       | —                       |       | —                      |       | — |   | 55 |   |
| Recognized  actuarial (gain)          |       | (16                          | )          | (70                         | )          | (152 | ) | (210 | ) |
| Net Expense                           |       | $                            | 294        |                        | $          | 195 |   | $ | 756 |   | $ | 639 |   |

 

TheCompany contributed $984,000 to its defined benefit pension plans in September 2005,and expects to contribute $675,000 to its other postretirement benefit plans in2005. Special termination benefits for pension benefits and other benefitsrelate to management changes in 2004.

**13.****          Contingencies**

Pursuant to a 1999 settlement agreement with theCounty of Maui, the Company and several chemical manufacturers have agreed thatuntil December 1, 2039, they will pay for 90% of the capital cost toinstall filtration systems in any future water wells if the presence of anematocide commonly 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 $46,000and $167,000 in September 2005 and December 2004, respectively, andpaid $214,000 in September 2005 for its share of the capital costs toinstall a filtration system for an existing well. The Company is presently notaware of any plans by the County of Maui to install other filtration systems orto drill any water wells in areas affected by agricultural chemicals. Accordingly,a reserve for costs relating to any future wells was not recorded because theCompany was not able to reasonably estimate the amount of liability (if any).

In 2001, in connection with pre-development planningfor a land parcel in Upcountry Maui, pesticide residues in the parcel’s soilwere discovered in levels that are in excess of Federal and Hawaii State limits.Studies by environmental consultants, in consultation with the State Departmentof Health, indicate that remediation probably will be necessary. Based on thepossible land use alternatives and the remediation alternatives proposed by theenvironmental consultants, estimates of the future remediation cost range from -0-to $3.5 million, and a liability for this remediation was not recorded. In June 2005,the Company sold this land parcel and the buyer will be responsible for anyfuture soil remediation.

12

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The Company has a 51% membership interest in KapaluaBay Holdings LLC (“Bay Holdings”). Kapalua Bay LLC, which is a wholly ownedsubsidiary of Bay Holdings, secured a $45.0 million loan in connection with itspurchase of the Kapalua Bay Hotel assets. The Company and the other BayHoldings’ members (owners) executed a $5.0 million indemnity and guarantyagreement, pursuant to which each member is responsible for (and guaranteespayment to the lenders of) their pro rata share of costs and losses incurred bythe lenders as a result of the occurrence of specified triggering events duringthe term of the agreement. The maximum future payments the Company could berequired to make is $2.55 million, plus interest. The Company has recognized aliability of $180,000, representing the estimated fair value of its obligationunder this agreement.

In addition to the matters noted above, there arevarious other claims and legal actions pending against the Company. In theopinion of management, after consultation with legal counsel, the resolution ofthese other matters is not expected to have a material adverse effect on theCompany’s financial position or 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.

At September 30,2005, the Company had commitments under signed contracts totaling $21,132,000,which primarily relate to real estate development projects.

**14.****          RelatedParty Transaction**

In June 2005, the Company purchased a residentialproperty in Upcountry Maui that includes a house and cottage on approximately 4acres of land for $2.6 million. The purchase was made to provide housing forone of its executive officers, and the Company entered into a one-year rental agreementat $4,000 per month with the executive.

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

***Overview of the Company***

The Company consists of alandholding and operating parent company and its principal subsidiaries,including Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. TheCompany’s reportable operating segments are Pineapple, Resort and CommunityDevelopment.

*Pineapple*

The Pineapple operating segment includes growing,packing and processing, and marketing of fresh and canned pineapple. The fruitgrown by the Company principally consists of three types of pineapple: HawaiianGoldTM (sold as fresh whole or canned fruit), Champaka(largely used for canning) and organic pineapple (sold as fresh whole fruit).

The Company is expanding its presence in the freshfruit market, while selectively reducing its reliance on the canned fruitmarket. Therefore, over recent years, the Company has decreased the tonnage offruit going to the cannery and, in 2004, began to commensurately reduce thenumber of markets that it serves. The Company’s strategy focuses on using thecanned pineapple operations to complement the fresh operations, therebyallowing the Company to market only the highest quality fresh pineapple. TheCompany directs fruit to either the canned or the fresh pack facility at thetime of harvest based on a variety of factors including: market conditions,fruit size and fruit quality. The transition of the Company’s pineappleoperations continues with an emphasis on automating many labor-intensivefunctions and upgrading the workforce through selective training andperformance based compensation programs.

The fresh fruit market is a year-round business, whichrequires consistency of supply. Over the past year, significant progress hasbeen made in changing the Company’s agronomic practices and planting schedulesto produce a more consistent and predictable supply of fruit throughout theyear. In addition, significant progress has been made towards improved cropmaintenance and agronomic practices that are beginning to result in improvedplant yields (tons of fruit per acre) and vastly improved fruit quality.

In February 2005, theCompany’s Board of Directors approved the capital expenditure of $17.2 millionfor multi-client processing facility that will replace the current cannery, canplant and fresh fruit processing facility. The new facility is expected toreduce the Company’s overall cost structure by integrating and streamlining thefresh fruit and canning processes and by upgrading much of the currentequipment. The facility is expected to be completed by June 30, 2006.

*Resort*

The Resort segment consists of ongoing operations atthe Kapalua Resort. These operations include three championship golf courses, atennis facility, a vacation rental program (The Kapalua Villas), ten retailoutlets and Public Utilities Commission regulated water and sewage transmissionoperations.

The Company began toimplement the Kapalua Gold program to upgrade and standardize The KapaluaVillas as well as other initiatives to enhance and improve the Kapalua resort. TheCompany expects to have 25 to 30 Kapalua Gold Villas renovations completed inthe fourth quarter of 2005. The Company has 265 units in its vacation rentalprogram as of September 30, 2005.

*Community Development*

The Community Development segment includes the Company’sreal estate entitlement, development, construction, sales and leasingactivities. A large portion of the focus for this segment is on the luxury realestate market on Maui. The segment also includes the operations of KapaluaRealty Company, a general brokerage real estate company located within theResort.

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Community Development includes the management ofseveral leases, including the ground lease underlying the Ritz-Carlton, Kapaluaand through August 31, 2004, the ground lease for the Kapalua Bay Hotel. BeginningAugust 31, 2004, the Community Development segment includes the Company’s51% equity interest in Kapalua Bay Holdings LLC, the limited liability companythat owns and operates the Kapalua Bay Hotel, and that has the landlord’srights and interest in the adjacent retail shops, including the retail leases. KapaluaBay Holdings LLC currently plans to demolish the hotel and shops after the landentitlements are secured, which is presently estimated to be in 2006, anddevelop new whole and fractional residential units, an ocean-side spa and abeach club.

The Company has approximately 1,800 acres of land inMaui that are at various stages in the land entitlement process. Land must beappropriately entitled if development or construction is the intended use. Securingproper land entitlement is a process that requires obtaining county, state andfederal approvals, which can take several years to complete and entails avariety of risks.

The Community Developmentsegment is working on a number of real estate development and Kapalua Resortrevitalization projects, some of which are as follows: Honolua Ridge Phase Iand Phase II are residential subdivisions of agricultural zoned lots at theKapalua Resort, both of which are presently under construction and being sold. Pulelehuais a planned traditional community in West Maui for working families. TheCompany is currently in the entitlement phase of this project. Master planningwork began in 2005 for Kapalua Mauka, a planned 690 unit residential community.Honolua Village (formerly known as Kapalua Village) is a planned commercialarea in the Central Resort. Construction of the first phase of Honolua Village,comprised of 12,000 square feet of commercial space, is under construction andwill house, among other tenants, Kapalua Realty.

***Current Developments***

In the thirdquarter of 2005, some of the Company’s significant transactions, events and keyinitiatives to meet its goals and objectives included:

·       TheCompany sold approximately 100 acres of Upcountry Maui land. The net cashproceeds from these land sales of approximately $4.2 million will be used tostrengthen its Pineapple segment operations, reposition the Resort operationsand to increase investments in its Community Development segment.

·       Thesale of the agricultural home sites in Honolua Ridge Phase II began and threelot sales closed escrow in September. Construction of the offsite improvementsfor this 25-lot residential subdivision, ranging in size from 3 to 30acres, began in August 2005 and is expected to be completed in October 2006.

·       TheCompany actively engaged in two Maui County Council Land Use Committee hearingsregarding Kapalua Mauka. The Committee did not conclude on the change of zoningrequest from agricultural to urban, and a follow-up hearing is currentlyscheduled for November 2005.

·       Groundbreakingand a blessing for Honolua Village were held in September. Mass grading iscompleted and construction of the buildings is underway.

·       The Company’s secondLifeFest Kapalua was held in September. This health and wellness event featureslectures, workshops and panels by some of the country’s leading wellness andfitness experts.

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**RESULTS OF OPERATIONS**

***Three Months Ended September 30, 2005 compared toThree Months Ended September 30, 2004***

**CONSOLIDATED**

| ** **                   | ** ** | **Three Months Ended  September 30,**                                | ** ** | **Change**                                   | ** ** |
|------------------------------|------------|-------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                   | ** ** | **   2005   **                                        | ** ** | **   2004   ** | ** ** | **inc (dec)** | ** ** | **%** | ** ** |
| ** **                   | ** ** | **(Dollars in Millions,   Except Per Share Amounts)** | ** ** |
| *Consolidated  Revenues*     |       |                                                                                | $          | 44.1                                         |       |   |   | $ | 34.6 |   |   |   | $ | 9.5 |   |   | 27 | % |
| *Net Income (Loss)*          |       |                                                                                | $          | 2.0                                          |       |   |   | $ | (2.2 | ) |   |   | $ | 4.2 |   | * * | * * | * * |
| *Earnings  Per Common Share* |       |                                                                                | $          | 0.28                                         |       |   |   | $ | (0.30 | ) |   |   | $ | 0.58 |   | * * | * * | * * |

 

The Company reported netincome of $2.0 million ($.28 per share) for the third quarter of 2005 comparedto a net loss of $2.2 million ($.30 per share) for the third quarter of 2004.Consolidated revenues for the third quarter of 2005 were $44.1 million comparedto $34.6 million for the third quarter of 2004. The improved results in 2005were primarily attributable to revenues and operating profit from the CommunityDevelopment segment as a result of sales of real estate inventories and thesale of other real estate, as further described below.

*General andAdministrative*

Consolidated general and administrative expensesincreased by 15% to $9.3 million for the third quarter of 2005 from $8.1million for the third quarter of 2004.

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

| ** **                                         | ** ** | **Three Months Ended   September 30,** | ** ** |
|----------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                                         | ** ** | **2005**                                                   | ** ** | **2004** | ** ** | **inc (dec)** | ** ** |
| ** **                                         | ** ** | **(Dollars in Millions)**                        | ** ** |
| Salaries &  wages                         |       | $                                                          | 2.0        |   | $ | 1.2 |   |   | $ | 0.8 |   |   |
| Employee  incentives & stock compensation |       | 0.7                                                        |       | 0.3 |   |   | 0.4 |   |   |
| Medical insurance  premiums                        |       | 0.8                                                        |       | 1.2 |   |   | (0.4 | ) |   |
| Professional  services                             |       | 1.8                                                        |       | 0.9 |   |   | 0.9 |   |   |
| Depreciation  expense                              |       | 1.4                                                        |       | 0.5 |   |   | 0.9 |   |   |
| Other (net)                                        |       | 2.6                                                        |       | 4.0 |   |   | (1.4 | ) |   |
| Total                                              |       | $                                                          | 9.3        |   | $ | 8.1 |   |   | $ | 1.2 |   |   |

 

The increase in salaries and wages is primarily theresult of additional employees in the Community Development segment in 2005compared to 2004. Further expansion of the Community Development staff isexpected in order to accomplish the projects and initiatives for this segment. Theincrease in employee incentives and stock compensation expense was principallythe result of accruals for performance-based incentives, reflecting the Company’sincreased emphasis on performance-based pay plans.

The decrease in medical insurance premiums in 2005largely reflects the reduction in the work force in the Pineapple segment.

The increase in professional services in 2005 reflectsthe cost of outside consultants primarily to assist the Company in documentingits internal controls and processes required, in part, by the requirements of Section 404of the Sarbanes-Oxley Act of 2002. The increase in professional services alsoreflects charges incurred in 2005 for modifications and adjustments to theCompany’s integrated accounting system and additional training of the Company’semployees on use of the system. The system was fully placed in 

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service in January 2003and reduction in staffing and staff turnover, particularly in the Pineapplesegment, necessitated re-training in 2005.

The increase in depreciation charged to general andadministrative expense for the third quarter of 2005 is due to a change in theestimated useful lives of certain Pineapple segment assets in 2005 as a resultof the decision to construct a new plant to replace the current cannery, canplant and fresh fruit processing facility. The Company has tentativelyconcluded which equipment will not be incorporated into the new facility andhas accelerated the depreciation of such equipment with total net book value ofapproximately $4.9 million, over the 16-month period ending June 30,2006, the scheduled date of completion of the new processing plant. This hasresulted in additional depreciation charges of $900,000 for the three monthsended September 30, 2005.

General and administrativeexpenses are incurred at the corporate level and at the operating segment level.All general and administrative expenses incurred at the corporate level are allocatedto the operating segments. Such allocations are consistent with management’sevaluation of the operating segments.

*Interest Expense*

Interest expense of$71,000 for the third quarter of 2005 was lower by 77% compared to the sameperiod in 2004. The decrease in interest expense was due to lower averageborrowings and to a higher amount of capitalized interest in 2005. Capitalizedinterest was $249,000 for the third quarter of 2005 compared to $33,000 for thethird quarter of 2004 primarily as a result of construction activity at theKapalua Resort. The Company’s effective interest rate on borrowings wasslightly higher in 2005 due to higher borrowing rates from financialinstitutions.

**PINEAPPLE**

| ** **                   | ** ** | **Three Months Ended   September 30,** | ** ** | **Change**                       | ** ** |
|------------------------------|------------|------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                   | ** ** | **   2005   **               | ** ** | **  2004  ** | ** ** | **inc (dec)** | ** ** | **%** | ** ** |
| ** **                   | ** ** | **(Dollars in Millions)**                        | ** ** |
| *Revenues*                   |       |                                                       | $          | 20.3                             | * *   |   |   | $ | 19.0 | * * |   |   | $ | 1.3 |   |   |   | 7 | % |   |
| *% of consolidated revenues* | * *   | * *                                                   | *46*       | *%*                              | * *   | * * | *55* | *%* |   |   |   |   |   |   |   |   |   |
| *Operating  Loss*            |       |                                                       | $          | (2.5                             | *)*        |   |   | $ | (3.6 | *)* |   |   | $ | 1.1 |   |   |   |   |   |   |

 

The Pineapple segment produced an operating loss fromcontinuing operations of $2.5 million for the third quarter of 2005 compared toan operating loss of $3.6 million for the third quarter of 2004. Revenues forthe third quarter of 2005 of $20.3 million were 7% higher than the thirdquarter of 2004.

Pineapple segment revenues increased due to freshpineapple sales more than offsetting lower revenues from canned pineapple. Operatinglosses reported by the Pineapple segment in 2005 include increased depreciationcharges of $900,000, related to the planned replacement of the current cannery,can plant and fresh fruit packing facility, and costs associated with themodification and adjustment of the Company’s integrated accounting system, asmentioned above under “General and Administrative.”

As mentioned above, theCompany’s new multi-client processing facility is presently being designed andphysical construction work is expected to begin in November 2005. Inconnection with the new processing facility, and as the Company transitions itsbusiness to focus on the premium fresh fruit business, the Company willcontinue to restructure its workforce, which may result in additional chargesto operating results.

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*Canned and FreshOperations*

The case volume of canned pineapple sales decreased by22% for the third quarter of 2005 as compared to the third quarter of 2004primarily reflecting the Company’s strategy to sharply reduce supply toselected retail market segments. This market refinement has resulted in theaverage sales prices for the Company’s canned pineapple products to increase byapproximately 17% for the third quarter compared to the third quarter of 2004.

Canned pineapple sold to the U. S. Government(primarily to the Department of Agriculture) comprised approximately 46% of theCompany’s case volume of canned pineapple sales in the third quarter of 2005compared to 29% in the third quarter of 2004. The increase in the percentage ofcanned pineapple sales to the U. S. Government is a result of lower overallcanned pineapple sales and an increase in the Company’s participation ingovernment programs that purchase pineapple for school lunches, needy familiesand other areas.

The case volume of fresh pineapple sales increased by37% in the third quarter of 2005 compared to the third quarter of 2004. Revenuesfrom fresh pineapple sales were approximately 38% of the Pineapple segment netsales for the third quarter of 2005, compared to approximately 27% for thethird quarter of 2004. The Company’s average revenue per box of fresh pineapplesales increased by approximately 11% for the third quarter of 2005 compared tothe third quarter of 2004, primarily reflecting the improved quality of itsproducts and related marketing efforts.

Pineapple cost of sales was higher by 6% in the thirdquarter of 2005 compared to the third quarter 2004, primarily reflecting theincreased sales volume of fresh pineapple and higher per unit cost of sales forcanned pineapple, partially offset by lower sales volume of canned pineapple. Theaverage per unit cost of sales for canned pineapple was higher in 2005 comparedto 2004 because, in 2004, cost of sales was reduced for the impact of aliquidation of inventory based on the LIFO (last-in, first-out) method ofaccounting for inventories.

Pineapple shipping andmarketing cost decreased by $326,000 (11%) in the third quarter of 2005,compared to the same period in 2004, largely reflecting the lower sales volumeof canned pineapple. An increase in shipments directly to the Company’scustomers (as opposed to interim storage of inventory in public warehouses)also contributed to lower shipping and marketing cost in 2005. In addition, alower average shipping cost for fresh pineapple due to increased use of surfaceshipment instead of the higher cost air shipment, was also responsible for thelower cost in 2005. The Company’s changes in cultivation practices, harvestingmethods, and post-harvest handling have extended the shelf life of fresh fruitproducts thereby enabling a greater reliance on surface transport to reachNorth American markets.

**RESORT**

| ** **                   | ** ** | **Three Months Ended   September 30,** | ** ** | **Change**                                   | ** ** |
|------------------------------|------------|------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                   | ** ** | **   2005   **               | ** ** | **   2004   ** | ** ** | **inc (dec)** | ** ** | **%** | ** ** |
| ** **                   | ** ** | **(Dollars in Millions)**                        | ** ** |
| *Revenues*                   |       |                                                       | $          | 10.3                                         | * *   |   |   | $ | 10.0 | * * |   |   | $ | 0.3 |   |   |   | 2 | % |   |
| *% of consolidated revenues* | * *   | * *                                                   | *23*       | *%*                                          | * *   | * * | *29* | *%* |   |   |   |   |   |   |   |   |   |
| *Operating  Loss*            |       |                                                       | $          | (2.1                                         | *)*        |   |   | $ | (1.8 | *)* |   |   | $ | (0.3 | ) |   |   |   |   |   |

 

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The Resort segment reported an operating loss of $2.1million for the third quarter of 2005 compared to an operating loss of $1.8million for the third quarter of 2004. Resort revenues of $10.3 million for thethird quarter of 2005 were approximately 2% higher than the third quarter of2004.

Hotel and condominium room occupancies at the Resort,and to a somewhat lesser extent for Maui in general, largely drive the increasein resort activity as reflected by increased golf play and merchandise sales. Hoteland condominium room occupancies at Kapalua Resort increased by 8% in the thirdquarter of 2005 compared to the third quarter of 2004.

The closure of the Plantation Golf Course from April 1,2005 through July 30, 2005 for extended green and fairway bunker renovationshad a significant negative impact on the Resort operations for the thirdquarter of 2005. However, increased play at the Bay and Village golf coursesand higher average green fees, along with increased hotel and villaoccupancies, partially offset the negative impact of the Plantation Golf Courseclosure.

Higher operating expenseat the Resort for electricity, repairs and maintenance costs, increased KapaluaResort Association dues, and increased staffing costs at the Kapalua Villaswere partially offset by lower workers’ compensation cost. Marketing expenseswere higher in the third quarter of 2005 compared to the prior year because ofgreater emphasis on marketing the Kapalua Resort.

*Golf, Merchandiseand Villas*

Revenues from golf operations increased by 3% for thethird quarter of 2005 compared to the third quarter of 2004. Lost revenues fromthe closure of the Plantation Course were more than offset by increased paidrounds and higher average green fees at the Bay Course and the Village Course. Overall,paid rounds of golf decreased by 9%, and average green and cart fees increasedby 14% in the third quarter of 2005 compared to the third quarter of 2004.

Resort merchandise sales decreased by 2% in the thirdquarter of 2005 compared to the third quarter of 2004 due to the closure of thePlantation Course during July 2005. Increased sales at Kapalua Resort’sother retail outlets, in part attributed to higher room occupancies, partiallyoffset the effect of the Plantation Course closure.

Gross revenuesattributable to the Kapalua Villas increased by approximately 35% in the thirdquarter of 2005 compared to the third quarter of 2004 reflecting higher averageroom rates and occupancies.

**COMMUNITYDEVELOPMENT**

| ** **                   | ** ** | **Three Months Ended  September 30,**     | ** ** | **Change**                                               | ** ** |
|------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                   | ** ** | **    2005    ** | ** ** | **    2004    ** | ** ** | **inc (dec)** | ** ** | **%** | ** ** |
| ** **                   | ** ** | **(Dollars in Millions)**                      | ** ** |
| *Revenues*                   |       |                                                     | $          | 13.5                                                     | * *   |   |   | $ | 5.6 | * * |   |   | $ | 7.9 |   |   | 141 | % |
| *% of consolidated revenues* | * *   | * *                                                 | *31*       | *%*                                                      | * *   | * * | *16* | *%* |   |   |   |   | * * | * * | * * |
| *Operating  Profit*          |       |                                                     | $          | 7.5                                                      | * *   |   |   | $ | 2.3 | * * |   |   | $ | 5.2 |   |   |   |   |

 

The Community Development segment reported anoperating profit of $7.5 million for the third quarter of 2005 compared to $2.3million for the third quarter of 2004. Revenues from this operating segmentwere $13.5 million for the third quarter of 2005 compared to $5.6 million forthe third quarter of 2004.

Operating profit for thethird quarter of 2005 includes $56,000 of losses from the Company’s equityinterest in Kapalua Bay Holdings LLC, compared to $91,000 for the third quarterof 2004.

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*Real Estate Sales*

In the third quarter of 2005, the Company concludedthree Upcountry Maui land sales transactions and recognized revenues of $6.0million and pre-tax gains of $5.6 million. The land sold had been earmarked fordisposition as “non-core” to the Company’s strategic plan. The Company has otherunder-performing fields and pasturelands leased to other parties inUpcountry Maui, as well as other real estate that has been assessed as non-corethat may also be disposed of in 2005 and 2006.

The sale of two lots atHonolua Ridge Phase I and three lots at Honolua Ridge Phase II closed escrow,and the Company recognized revenues of $5.8 million from these sales in thethird quarter of 2005. Honolua Ridge Phase I began sales in July of 2004and ten lots were sold during the third quarter of 2004. Revenues of $4.0million were recognized in the third quarter of 2004 using the percentage ofcompletion method.

*Realty and Leasing*

Kapalua Realty’s commission income from the resale ofresidential units in the Kapalua Resort was higher in the third quarter of 2005compared to the third quarter in 2004, because of a higher number oftransactions, partially offset by lower average resale prices in 2005.

Revenues from leasingactivities decreased by about 23% for the third quarter of 2005 compared to thethird quarter of 2004. The decrease primarily reflects the absence of leaserevenues from the Kapalua Shops retail leases and from the Kapalua Bay Hotelground lease, effective August 31, 2004.

***Nine Months Ended September 30, 2005 Compared tothe Nine Months Ended September 30, 2004***

**CONSOLIDATED**

| ** **                   | ** ** | **Nine Months Ended  September 30,**                               | ** ** | **Change**                                                           | ** ** |
|------------------------------|------------|-----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                   | ** ** | **     2005     **              | ** ** | **     2004     ** | ** ** | ** inc (dec) ** | ** ** | **   %   ** | ** ** |
| ** **                   | ** ** | **(Dollars in Millions, Except Per Share Amounts)** | ** ** |
| *Consolidated  Revenues*     |       |                                                                              | $          | 133.4                                                                |       |   |   | $ | 104.8 |   |   |   | $ | 28.6 |   |   |   | 27 | % |   |
| *Net Income (Loss)*          |       |                                                                              | $          | 9.7                                                                  |       |   |   | $ | (3.0 | ) |   |   | $ | 12.7 |   | * * |   |   |   |   |
| *Earnings  Per Common Share* |       |                                                                              | $          | 1.35                                                                 |       |   |   | $ | (0.42 | ) |   |   | $ | 1.77 |   | * * |   |   |   |   |

 

For the first nine monthsof 2005, the Company’s net income was $9.7 million ($1.35 per share) comparedto a net loss of $3.0 million for the same period in 2004. For the first ninemonths of 2005, consolidated revenues were $133.4 million ($.42 per share) comparedto $104.8 million for the first nine months of 2004. The improved results in2005 were primarily attributable to revenues and operating profit from theCommunity Development segment as a result of sales of real estate inventoriesand the sale of other real estate, as further described below.

*General andAdministrative*

For the first nine months of 2005, general andadministrative expenses increased by 16% to $25.8 million compared to$22.3 million for the first nine months of 2004.

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

| ** **                                         | ** ** | **Nine Months Ended September 30,**  | ** ** |
|----------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                         | ** ** | **    2005    ** | ** ** | **    2004    ** | ** ** | **  inc (dec)  ** | ** ** |
| ** **                                         | ** ** | **(Dollars in Millions)**                      | ** ** |
| Salaries &  wages                         |       |                                                     | $          | 6.3 |   |   |   | $ | 4.5 |   |   |   | $ | 1.8 |   |   |
| Employee  incentives & stock compensation |       |                                                     | 2.1        |   |   |   | 0.7 |   |   |   | 1.4 |   |   |
| Employee severance  expense                        |       |                                                     | 0.6        |   |   |   | 1.8 |   |   |   | (1.2 | ) |   |
| Medical insurance  premiums                        |       |                                                     | 2.8        |   |   |   | 3.4 |   |   |   | (0.6 | ) |   |
| Professional services                              |       |                                                     | 4.0        |   |   |   | 2.4 |   |   |   | 1.6 |   |   |
| Depreciation expense                               |       |                                                     | 3.9        |   |   |   | 1.6 |   |   |   | 2.3 |   |   |
| Other (net)                                        |       |                                                     | 6.1        |   |   |   | 7.9 |   |   |   | (1.8 | ) |   |
| Total                                              |       |                                                     | $          | 25.8 |   |   |   | $ | 22.3 |   |   |   | $ | 3.5 |   |   |

 

The increase in salariesand wages is primarily the result of additional employees in the CommunityDevelopment segment in 2005. Further expansion of the Community Developmentstaff is expected in order to accomplish the projects and initiatives for thissegment. The increase in employee incentives and stock compensation expense wasprincipally the result of accruals for performance-based incentives, reflectingthe Company’s increased emphasis on performance-based pay plans.

Employee severance expensewas lower in the first nine months of 2005 because of management changes at thecorporate level in the first nine months of 2004. In addition, employeeseverance charges, arising from reduction in the work force in the Pineapplesegment, were approximately $700,000 in the first nine months of 2004, comparedto $365,000 in the first nine months of 2005. The decrease in medical insurancepremiums in the first nine months of 2005 largely reflects the reduction in thework force in the Pineapple segment that occurred in 2004 and in the first ninemonths of 2005.

The increase inprofessional services in 2005 reflects the cost of outside consultantsprimarily to assist the Company in documenting its internal controls andprocesses required, in part, by the requirements Section 404 of theSarbanes-Oxley Act. The increase in professional services also reflects chargesincurred in 2005 for modifications and adjustments to the Company’s integratedaccounting system and additional training of the Company’s employees on use ofthe system. The system was fully placed in service in January 2003;however, reduction in staffing and staff turnover, particularly in thePineapple segment, necessitated re-training in 2005.

The increase indepreciation charged to general and administrative expense for the first ninemonths of 2005 is due to a change in the estimated useful lives of certainPineapple segment assets in 2005 as a result of the decision to construct a newplant to replace the current cannery, can plant and fresh fruit processingfacility. The Company currently estimates that assets with a net book value ofapproximately $4.9 million will be expensed over the 16-month periodending June 30, 2006. This has resulted in additional depreciation chargesof $2.2 million for the nine months ended September 30, 2005.

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

*Interest Expense*

Interest expense of$308,000 for the first nine months of 2005 was lower by 68% compared to thesame period in 2004. The decrease in interest expense was due to lower averageborrowings and to a higher amount of capitalized interest in 2005 (seeLiquidity and Capital Resources, *Debt Position*).Capitalized interest was $586,000 for the first nine months of 2005 compared to$62,000 for the first nine months of 2004, primarily as a result ofconstruction activity at the Kapalua Resort. The Company’s effective interestrate on borrowings was slightly higher in 2005 due to higher borrowing ratesfrom financial institutions.

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**PINEAPPLE**

| ** **                   | ** ** | **Nine Months Ended  September 30,**      | ** ** | **Change**                                               | ** ** |
|------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                   | ** ** | **    2005    ** | ** ** | **    2004    ** | ** ** | **inc (dec)** | ** ** | **  %  ** | ** ** |
| ** **                   | ** ** | **(Dollars in Millions)**                      | ** ** |
| *Revenues*                   |       |                                                     | $          | 52.3                                                     | * *   |   |   | $ | 57.6 | * * |   |   | $ | (5.3 | ) |   |   | -9 | % |   |
| *% of consolidated revenues* | * *   | * *                                                 | *39*       | *%*                                                      | * *   | * * | *55* | *%* |   |   |   |   | * * |   |   |   |   |
| *Operating  Loss*            |       |                                                     | $          | (7.2                                                     | )          |   |   | $ | (8.2 | ) |   |   | $ | 1.0 |   |   |   |   |   |   |

 

The Pineapple segment produced an operating loss fromcontinuing operations of $7.2 million for the first nine months of 2005compared to an operating loss of $8.2 million for the first nine months of 2004.Revenues for the first nine months of 2005 of $52.3 million were 9% lower thanthe first nine months of 2004.

Lower Pineapple segment revenues in 2005 was due to areduced sales volume of canned pineapple sales, which was partially offset byincreased fresh pineapple sales volume.

Operating losses reportedby the Pineapple segment in 2005 include increased depreciation charges of $2.2million related to the planned replacement of the current cannery, can plantand fresh fruit packing facility, and costs associated with the modificationand adjustment of the Company’s integrated accounting system, as mentionedabove under *General and Administrative*.

*Canned and FreshOperations*

The case volume of canned pineapple sales decreased by28% for the first nine months of 2005 as compared to the same period in 2004,primarily reflecting the Company’s strategy to sharply reduce supply toselected retail market segments. This market refinement has resulted in theaverage sales prices for the Company’s canned pineapple products to increase byapproximately 8% for the first nine months of 2005 compared to the same periodin 2004. The Company implemented price increases for its canned product linesin March, June and August of 2004, and in August 2005.

Canned pineapple sold to the U. S. Government(primarily to the Department of Agriculture) comprised approximately 41% of theCompany’s case volume of canned pineapple sales in first nine months 2005compared to approximately 25% in the first nine months of 2004. The increase inthe percentage of canned pineapple sales to the U. S. Government is a result oflower overall canned pineapple sales and an increase in the Company’sparticipation in government programs that purchase pineapple for schoollunches, needy families and other areas.

The case volume of fresh pineapple sales increased by22% in the first nine months of 2005 compared to the same period in 2004. Revenuesfrom fresh pineapple sales were approximately 35% and 24% of the Pineapplesegment net sales for the first nine months of 2005 and 2004, respectively. TheCompany’s average revenue per box of fresh pineapple sales increased byapproximately 7% in the first nine months of 2005 compared to the same periodin 2004 primarily reflecting the improved quality of its products and relatedmarketing efforts.

Pineapple cost of sales was lower by 9% for first ninemonths of 2005 as compared to the same period in 2004, primarily reflectinglower sales volume of canned pineapple. The average per unit cost of sales washigher in 2005 compared to 2004 because, in 2004, cost of sales was reduced forthe impact of a liquidation of inventory based on the LIFO (last-in, first-out)method of accounting for inventories.

Pineapple shipping andmarketing cost decreased by $2.3 million (25%) in the first nine months of2005, compared to the same period in 2004, largely reflecting the lower salesvolume of canned pineapple. Reductions in the work force at the Company’s salesand marketing office and an increase in shipments 

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directlyto the Company’s customers (as opposed to interim storage of inventory inpublic warehouses), also contributed to lower shipping and marketing cost in2005. In addition, increased use of surface shipment, instead of the highercost air shipment, was also responsible for the lower cost in 2005. The Company’schanges in cultivation practices, harvesting methods, and post-harvest handlinghave extended the shelf life of fresh fruit products enabling the company toincrease its reliance on surface transport to reach North American markets. Inthe first nine months of 2005, the Company shipped approximately 85% of itsHawaiian GoldTM fresh pineapple by surface,rather than by air, compared to about 66% in the first nine months of 2004.

**RESORT**

| ** **                   | ** ** | **Nine Months Ended  September 30,**      | ** ** | **Change**                                               | ** ** |
|------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                   | ** ** | **    2005    ** | ** ** | **    2004    ** | ** ** | **inc (dec)** | ** ** | **  %  ** | ** ** |
| ** **                   | ** ** | **(Dollars in Millions)**                      | ** ** |
| *Revenues*                   |       |                                                     | $          | 32.4                                                     | * *   |   |   | $ | 32.5 | * * |   |   | $ | (0.1 | ) |   |   | 0 | % |   |
| *% of consolidated revenues* | * *   | * *                                                 | *24*       | *%*                                                      | * *   | * * | *31* | *%* |   |   |   |   |   |   |   |   |   |
| *Operating  Loss*            |       |                                                     | $          | (4.0                                                     | )          |   |   | $ | (3.1 | ) |   |   | $ | (0.9 | ) |   |   |   |   |   |

                                                                                                

The Resort segment reported an operating loss of $4.0million for the first nine months of 2005 compared to an operating loss of $3.1million for the first nine months of 2004. Resort revenues of $32.4 millionfor the first nine months of 2005 were less than 1% lower than the same periodin 2004.

Hotel and condominium room occupancies at the Resort,and to a somewhat lesser extent for Maui in general, largely drive the increasein resort activity as reflected by increased golf play, merchandise sales andincreased lease revenues. Hotel and condominium room occupancies at KapaluaResort increased by 6% in the first nine of 2005 compared to the same period in2004. Occupancies for the island of Maui increased by 13% and for the State ofHawaii, occupancies increased by 7% in the first nine months 2005 compared tothe first nine months of 2004.

The closure of the Plantation Golf Course as ofApril 1, 2005 for extended green and fairway bunker renovations was thesingle largest contributor to the increased operating losses in 2005. Therenovations were completed on schedule and the course reopened on July 31,2005.

Higher operating expensesat the Resort were attributable to increases in staffing at the Kapalua Villas,and higher electricity, repairs and maintenance costs, Kapalua ResortAssociation dues, and increased costs for outside consultants. These increaseswere partially offset by lower workers’ compensation cost. Marketing expenseswere higher in nine months of 2005 compared to the prior year because ofgreater emphasis on marketing the Kapalua Resort.

*Golf, Merchandiseand Villas*

Revenues from golf operations decreased by 2% in thefirst nine months of 2005 compared to the same period in 2004. Lost revenuesfrom the closure of the Plantation Course were partially offset by increasedpaid rounds and higher average green fees at the Bay Course and the VillageCourse. Overall, paid rounds of golf decreased by 11% for the first nine monthsof 2005 compared to the same period in 2004. Average green and cart feesincreased by 10% in the first nine months of 2005 compared to the same periodin 2004.

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The closure of the Plantation Course from April 1,2005 through July 30, 2005 also negatively affected the Resort’smerchandise sales, which decreased by 5% for the first nine months of 2005compared to the same period in 2004. Increased sales at Kapalua Resort’s otherretail outlets, in part attributed to higher room occupancies, partially offsetthe effect of the Plantation Course closure.

Gross revenues from theKapalua Villas increased by approximately 18% for the first nine months of 2005compared to the first nine months of 2004, reflecting both higher average roomrates and occupancies.

**COMMUNITYDEVELOPMENT**

| ** **                   | ** ** | **Nine Months Ended  September 30,** | ** ** | **Change**                       | ** ** |
|------------------------------|------------|-----------------------------------------------------|------------|----------------------------------|------------|
| ** **                   | ** ** | **  2005  **                    | ** ** | **  2004  ** | ** ** | **inc (dec)** | ** ** | **%** | ** ** |
| ** **                   | ** ** | **(Dollars in Millions)**                 | ** ** |
| *Revenues*                   |       |                                                | $          | 48.6                             | * *   |   |   | $ | 14.7 | * * |   |   | $ | 33.9 |   |   | 231 | % |
| *% of consolidated revenues* |       | * *                                            | *36*       | *%*                              | * *   | * * | *14* | *%* |   |   |   |   |   |   |   |
| *Operating  Profit*          |       |                                                | $          | 26.8                             | * *   |   |   | $ | 7.6 | * * |   |   | $ | 19.2 |   |   |   |   |

 

The Community Development segment reported anoperating profit of $26.8 million for the first nine months of 2005 compared to$7.6 million for the first nine months of 2004. Revenues from this operatingsegment were $48.6 million for the first nine months of 2005 compared to $14.7million for the first nine months of 2004.

Operating profit for thefirst nine months of 2005 includes $196,000 of losses from the Company’s equityinterest in Kapalua Bay Holdings LLC, compared to $91,000 for the first ninemonths of 2004.

*Real Estate Sales*

The first nine months of 2005 includes the sales ofapproximately 260 acres of Upcountry Maui properties, which resulted inrevenues of $20.5 million and operating profit of $16.2 million. Approximately88 acres of the land had been planned for development and subsequent bulk sale,potentially in 2007. The remaining property was comprised of sub-standardagricultural lands and property that had been earmarked for disposition as “non-core”to the Company’s strategic plan. The Company has other under-performing fieldsand pasturelands leased to other parties in Upcountry Maui, as well as otherreal estate that has been assessed as non-core that may also be disposed of in2005 and 2006.

Revenues for the first nine months of 2005 include$23.0 million from the sale of lots at the Honolua Ridge Phase I and IIresidential subdivisions. Revenues and profit from these projects are beingrecognized using the percentage-of-completion method as the subdivisionimprovements are completed. At September 30, 2005, Honolua Ridge Phase Iwas approximately 96% compete and Honolua Ridge Phase II, which beganconstruction in August 2005, was approximately 14% completed. The Company’sbalance sheet at September 30, 2005, includes $8.5 million of deferredrevenues (current liability) related to Honolua Ridge and $1.9 million ofdeferred profit (offset against the related note receivable, which is includedin non-current other assets) related to a June 2005 sale of Upcountry Mauiproperties. See Note 6 to Condensed Consolidated Financial Statements.

Honolua Ridge Phase Ibegan sales in July of 2004 and ten lots were sold in August and September of2004. Revenues of $4.0 million were recognized in the nine-month period ended September 30,2004 using the percentage of completion method. Revenues for the first ninemonths of 2004 also include $4.3 million from the March 2004 sale of a 6.5-acreparcel at Kapalua and $810,000 from the May 2004 sale of a custom home atPineapple Hill Estates that the Company constructed as part of a joint venture.

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*Realty and Leasing*

Kapalua Realty’s commission income from the resale ofresidential units in the Kapalua Resort was lower in the first nine months of2005 compared to the same period in 2004, primarily because of fewertransactions, partially offset by higher average resale prices in 2005.

Revenues from leasingactivities decreased by about 39% for the nine months ended September 30,2005 compared to the same period in 2004. The decrease primarily reflects theabsence of lease revenues from the Kapalua Shops retail leases and from theKapalua Bay Hotel ground lease, effective August 31, 2004.

***LIQUIDITY AND CAPITAL RESOURCES***

*Debt Position*

At September 30, 2005, the Company’s total debt,including capital leases, was $16.6 million, compared to $17.3 million at December 31,2004. The year 2005 began with no borrowings under the Company’s revolvingcredit lines and $11.5 million in cash and cash equivalents. Such cash and cashequivalents were used to fund cash flows used in investing activities in thefirst nine months of 2005 and the scheduled repayments of existing debt. At September 30,2005, the Company had unused long-term credit lines of $28.4 million.

EffectiveSeptember 2005, the Company’s $13.5 million term loan was amendedand restated to: (1) convert it to a revolving loan; (2) modifyfinancial covenants and interest rates to be similar to the Company’s $30million revolving credit agreement; and (3) release one of the landparcels previously securing the loan.

*Operating CashFlows*

In thefirst nine months of 2005, cash flows from operating activities were $3.4million. Operating activities for the first nine months of 2004 provided $15.3million of net cash flows. By operating segment, these cash flows wereapproximately as follows:

| ** **                                      | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                      | ** ** | **  2005  **                    | ** ** | **  2004  ** | ** ** |
| ** **                                      | ** ** | **(Dollars in  Millions)**                     | ** ** |
| Pineapple                                       |       |                                                | $          | 0.7 |   |   |   | $ | 3.6 |   |   |
| Resort                                          |       |                                                | 1.6        |   |   |   | 0.7 |   |   |
| Community  Development                          |       |                                                | 8.4        |   |   |   | 18.7 |   |   |
| Corporate  expense, taxes, interest & other |       |                                                | (7.3       | ) |   |   | (7.7 | ) |   |
| Total                                           |       |                                                | $          | 3.4 |   |   |   | $ | 15.3 |   |   |

 

In the first nine months of 2004, the large amount ofcash from operating activities in the Pineapple segment was primarily due to ahigher than normal level of sales realized in the latter part of 2003 andcollected in early 2004.

The reduction in cashflows from operating activities from the Community Development segment isprincipally due to cash flows of $16.5 million in the first nine months of 2005from the sale of lots at Honolua Ridge being partially offset by constructioncost of approximately $7.8 million for infrastructure improvements for thesubdivision and the cost of administration of the operating segment. Non-coreland sales in the first nine months of 2005 (see Note 6 to CondensedConsolidated Financial Statements) are reported as non-cash InvestingActivities because the proceeds were on deposit with a qualified exchange 

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intermediary.In addition, cash flows from the Community Development segment for 2004includes approximately $4 million from the sale of a 6.5-acre parcel atKapalua.

*Real Estate SalesProceeds*

In the first nine monthsof 2005, the Company closed five real estate sales transactions, which resultedin net cash sales proceeds of $17.3 million that the Company intends toreinvest on a tax-deferred basis (Internal Revenue Code Section 1031exchange). Proceeds of $2.7 million were used to purchase property to be used inthe Company’s operations and $14.6 million was available at September 30,2005 to re-invest on a tax-deferred basis.

*Future CashOutflows*

The Company expects that, in 2005, it will have totalexpenditures or commitments for capital assets and deferred development costs ofapproximately $25.6 million. The anticipated expenditures for 2005 does notinclude approximately $4 million of capital expenditures that have beenpostponed to better coincide with Resort development plans and approximately$39 million of projects which will be carried over to 2006 and 2007. TheCompany expects to secure project specific long-term financing for some of thecapital expenditures. Cash from operating activities in 2005 and availablelines of credit are anticipated to fund most of these expenditures through theplanning and design phases before project specific financing is secured. Basedon preliminary discussions with lenders, the Company believes that it will beable to secure the additional financing needed to fund these projects.

At September 30, 2005, the Pineapple segment had$21.3 million of planned capital expenditures, including $17.2 million for thenew multi-client processing facility that will replace the present pineapplecannery, can plant and fresh fruit packing facility, of which $18.1 millionwill be expended in the fourth quarter of 2005 and in 2006. The planned capitalexpenditures for 2005 also include $1.1 million for replacement of existingequipment.

Capital expenditures for the Resort segment areexpected to be $3.5 million in 2005. These expenditures include renovation ofthe Plantation Course greens and fairway bunkers, the Bay Course Clubhouserestaurant, and other miscellaneous renovation or replacement projects.

At September 30, 2005, the Community Developmentsegment had planned capital expenditures and expenditures for deferreddevelopment cost pending entitlements of $37.0 million of which $9.0 millionwas committed or incurred, and the remainder would be expended in the fourthquarter of 2005, and in 2006 and 2007.

Expenditures for HonoluaRidge Phase II, which the Company began selling in September 2005, areexpected to be approximately $9 million in 2005; and expenditures for HonoluaRidge Phase I are expected to be $7 million in 2005. These expenditures for subdivisioninfrastructure improvements to date have been funded by proceeds from pre-saleof the lots. Twenty-two lots in Phase II remain to be sold and one lot in PhaseI remained in inventory at September 30, 2005.

**Item 3.**                        Quantitativeand Qualitative Disclosures about Market Risk

The Company’s primarymarket risk exposure with regard to financial instruments is to changes ininterest rates. The Company attempts to manage this risk by monitoring interestrates and future cash requirements, and evaluating opportunities to refinanceborrowings at various maturities and interest rates. There were no materialchanges to the Company’s market risk exposure during the first nine months of2005.

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**FORWARD-LOOKINGSTATEMENTS AND RISKS**

This and otherreports filed by the Company with the Securities and Exchange Commissioncontain forward-looking statements intended to qualify for the safe harbor fromliability established by the Private Securities Litigation Reform Act of 1995. Thesestatements can be identified by the fact that they do not relate strictly tohistorical or current facts. They contain words such as “may,” “will,” “project,”“might,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,”“continue” or “pursue,” or the negative or other variations thereof orcomparable terminology. In particular, they include, among others, statementsrelating to:

·       thetiming and success of the Kapalua Bay Hotel redevelopment;

·       theclosing of lot sales at the Honolua Ridge residential subdivisions;

·       thetiming, cost and efficiency of the planned multi-client processing facility;

·       thetiming and success of sale of “non-core” properties;

·       thetiming and success of the Kapalua Resort initiatives to enhance and improve theresort, including renovations of the Plantation Golf Course, the Bay Club, theBay Course restaurant and the Villas;

·       newprocedures and practices to balance revenue sources and timing of productionvolume to strengthen the pineapple operations;

·       reductionin the number of types of products canned and sold;

·       expectationsas to the Company’s cash commitments;

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

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

·       shiftingtowards greater levels of fresh fruit production;

·       thefuture cost of compliance with environmental laws;

·       improvementof practices in areas of soil, water and energy conservation;

·       theeffect of assumption changes on net periodic pension and other benefit costs;and

·       theimpact from the continuation of work force restructuring of the Pineapplesegment.

In addition, from time to time, the Company maypublish forward-looking statements as to those matters or other aspects of theCompany’s anticipated financial performance, business prospects, new products,marketing initiatives or similar matters.

Any forward-looking statements are made pursuant tothe Private Securities Litigation Reform Act of 1995 and, as such, speak onlyas of the date made. The Company undertakes no obligation to publiclyupdate any forward-looking statements, whether as a result of new information,future events or otherwise. The Company has based these forward-lookingstatements on our current expectations and projections about future events.

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TheCompany cautions the reader that forward-looking statements involve risks anduncertainties that cannot be predicted or quantified and, consequently, actualresults may differ materially from those expressed or implied by suchforward-looking statements. Such risks and uncertainties include, but are notlimited to, the following factors as well as other factors described from timeto time in the Company’s reports filed with the Securities and ExchangeCommission:

**Dependencyon certain key personnel.**

The Company is currentlydependent upon the ability and experience of certain key management employees. Therecan be no assurance that the Company will be able to retain their services. TheCompany does not currently carry key man insurance on any of these individuals,and loss of one or more could have a material adverse effect on the Company’sfinancial results.

**RealEstate Investments are subject to numerous risks.**

The Company is subject tothe risks that generally relate to investments in real property because itdevelops and sells real property, primarily for residential use. Also, theCompany has a 51% ownership interest in Kapalua Bay Holdings LLC, which ownsand operates the Kapalua Bay Hotel. When interest rates increase, the cost ofacquiring, developing, expanding or renovating real property increases and realproperty values may decrease as the number of potential buyers decreases. Similarly,as financing becomes less available, it becomes more difficult both to acquireand to sell real property. Under eminent domain laws, governments can take realproperty. Sometimes this taking is for less compensation than the ownerbelieves the property is worth. Any of these factors could have a materialadverse impact on our results of operations or financial condition. Inaddition, equity real estate investments may be difficult to sell quickly andthe Company may not be able to adjust its portfolio of properties quickly inresponse to changes in economic conditions.

**Ifthe Company is unable to complete land development projects within forecastedtiming and budgeting, or at all, financial results may be negatively affected.**

The Company intendsto develop resort properties, as suitable opportunities arise, taking intoconsideration the general economic climate. New project developments have anumber of risks, including risks associated with:

·       constructiondelays or cost overruns that may increase project costs;

·       receiptof zoning, occupancy and other required governmental permits andauthorizations;

·       developmentcosts incurred for projects that are not pursued to completion;

·       earthquakes,hurricanes, floods, fires or other natural disasters that could adverselyimpact a project;

·       defectsin design or construction that may result in additional costs to remedy orrequire all or a portion of a property to be closed during the period requiredto rectify the situation;

·       abilityto raise capital;

·       governmentalrestrictions on the nature or size of a project or timing of completion; and

·       potentiallack of adequate building/construction capacity for large development projects.

If any development projectis not completed on time or within budget, it may have a material adverseaffect on the Company’s financial results.

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**Ifthe Company is unable to obtain required land use entitlements at reasonablecosts, or at all, its operating results would be adversely affected.**

The Company’s financialresults are highly dependent on its real estate development business segment. Thefinancial performance of the Company’s real estate development segment isclosely related to our success in obtaining land use entitlements for proposeddevelopment projects. Obtaining all of the necessary entitlements to develop aparcel of land is often difficult, costly and may take several years, or more,to complete. In some situations, the Company may be unable to obtain thenecessary entitlements to proceed with a real estate development or may berequired to alter its plans for the development. Delays or failures to obtainthese entitlements may have a material adverse affect on the Company’sfinancial results.

**Ifthe planning and construction of infrastructure in Maui is not improved,particularly in the area of transportation, this could result in additionaldifficulty or the inability of the Company to move forward with its planneddevelopment projects, which could negatively impact its financial results.**

The roads and highways inMaui are currently inadequate to accommodate the planned growth of the island. Planningand construction of this infrastructure has not been done with a long-termperspective and in coordination with the needs of the community. This lack ofcomprehensive planning may result in infrastructure stress in Maui and may be amajor impediment to future development. Infrastructure stress can also lead toa deterioration of the visitor experience and the quality of life forresidents, which in turn can impact the Company’s ability to attractdiscriminating customers, employees, vendors and contractors.

**Thehistorical price and market for luxury real estate on Maui has been highlycyclical and if the market demand for luxury real estate were to decrease, theCompany’s operating results could be adversely affected.**

The highs and lows in themarket cycle can prevail for multiple years at a time. During low periods ofdemand, real estate may remain in inventory for much longer than expected or besold at lower than expected returns, or even at a loss, which could impair theCompany’s liquidity and ability to proceed with additional land developmentprojects and negatively affect its operating results.

**Ifthe Company is unable to successfully compete with other developers of luxuryreal estate on Maui, its financial results could be materially affected.**

The Company’s real estatedevelopment projects face competition from other luxury resort real estateproperties on Maui, and from other luxury resort residential property in Hawaiiand the mainland United States. In many cases, the Company’s competitors arelarger than it is and have greater resources and access to capital. If theCompany is unable to compete with these larger competitors, its financialresults could be materially and adversely affected.

**Ifthe Company cannot attract and retain skilled workers for its resortoperations, its financial results could be negatively impacted. There is apotential lack of adequate skilled workers on Maui for larger developmentprojects.**

The Company’s three golfcourses require a large number of course and facility maintenance andoperations workers, and the hotel and villas require housekeepers, food andbeverage servers, front desk, and other operational and hospitality workers. Overall,the Company’s resort operations require a large number of workers to maintainthe quality and level of service that it strives to provide to its customers. TheCompany’s plans for development projects require that there be adequate laborin all of the construction trades. The labor market on Maui is verycompetitive, with the labor premium in West Maui being even greater thanelsewhere on Maui. The cost and insufficient supply of housing and the absenceof adequate public services, such as schools, continue to be an impediment toattracting and retaining labor. 

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If theCompany and other Maui businesses are unable to work with the government toallow for the expansion of affordable housing and to implement plans to providea higher level of public services, including schools, further development inWest Maui could be severely restricted, which in turn could have a materialadverse effect on the Company’s operations.

**TheCompany may be subject to certain environmental regulations under which it mayhave additional liability and experience additional costs for land development.**

Various federal, state,and local environmental laws, ordinances and regulations regulate the Company’sproperties and could make it liable for the costs of removing or cleaning uphazardous or toxic substances on, under, or in property it currently owns oroperates or that it previously owned or operated. These laws could imposeliability without regard to whether the Company knew of, or was responsiblefor, the presence of hazardous or toxic substances. The presence of hazardousor toxic substances, or the failure to properly clean up such substances whenpresent, could jeopardize the Company’s ability to develop, use, sell or rentthe real property or to borrow using the real property as collateral. If theCompany arranges for the disposal or treatment of hazardous or toxic wastes, itcould be liable for the costs of removing or cleaning up wastes at the disposalor treatment facility, even if it never owned or operated that facility. Certainlaws, ordinances and regulations, particularly those governing the managementor preservation of wetlands, coastal zones and threatened or endangeredspecies, could limit the Company’s ability to develop, use, sell or rent itsreal property.

**TheCompany’s pineapple operations face significant competition from companies withgreater financial resources and from foreign competition with lower coststructures.**

The Company sells itsproducts in competition with both foreign and United States companies. Itsprincipal competitors are three United States companies, Dole Food Company, Inc.,Del Monte Food Co., and Del Monte Fresh Produce Company, each of which producessubstantial quantities of pineapple products, a significant portion of which isproduced in Central America and Southeast Asia. Other producers of pineappleproducts in Central America, Thailand and Indonesia also are a major source ofcompetition. Producers of pineapple in foreign countries have substantiallylower labor costs than the Company’s.

The Company’s marketingstrategy is to compete based on the premium quality of our fresh pineappleproduct and being the only company that cans all of its pineapple in the UnitedStates. If the Company cannot compete effectively with these larger companiesand lower cost producers, its financial results could be adversely affected.

**Ifthe Company is unable to successfully compete with other producers of fresh andcanned pineapple, its financial results could be materially affected.**

The fresh and cannedpineapple markets are highly competitive. A decline in the price of pineappleor increases in the price of fuel or packaging materials could adversely affectoperating results. The growing, planting and harvesting of crops can beaffected by adverse weather conditions, thereby increasing costs and erodingprofit margins. Agricultural chemicals used in the past have resulted incontingent liabilities that could result in future claims against the Company.

**Ifthe multi-client processing facility is not able to sufficiently reduce theCompany’s cost of processing and packing pineapple, the Company’s financialresults could be adversely affected.**

The Company is in theplanning and design phase for the construction of a multi-client processingfacility that will replace the present pineapple cannery, can plant and freshfruit packing facility. The Company’s current high cost structure is expectedto be reduced because of the efficiency of the new facility. While the Company’spersonnel and outside consultants have thoroughly evaluated the 

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requirementsof the new facility, variances from the estimates of the cost, timing ofcompletion or the efficiency of the new processing facility could adverselyaffect the Company’s financial results.

**Onecustomer has provided a substantial portion of the Company’s canned pineapplesales; the loss of this customer may have a material adverse effect onoperating results.**

The United Statesgovernment represented approximately 35% and 20% of the Company’s cannedpineapple sales for 2004 and 2003, respectively; and 41% of the Company’scanned pineapple sales for the first nine months of 2005. It is difficult topredict whether the United States government will continue to represent such asignificant portion of the Company’s canned pineapple sales in the futurebecause there is no long-term contract. If the Company were to lose thiscustomer, operating results would be negatively affected.

**Becausethe Company is located in Hawaii and therefore apart from the mainland UnitedStates, it is more sensitive to certain economic factors, which may adverselyaffect operating results.**

The Community Developmentsegment and the Resort segment are dependent on attracting visitors to Kapalua,Maui and the state of Hawaii as a whole. Economic factors that affect thenumber of visitors, their length of stay or expenditure levels will affect ourfinancial performance. Factors such as the cost of energy, events in theairline industry that affect passenger capacity or traveling cost, and thethreat, or perceived threat, of heightened terrorist activity in the UnitedStates, could affect a potential visitor’s choice of vacation destination orsecond home location.

The Company’s pineappleoperations are dependent on ocean, surface and air freight to transport cannedand fresh pineapple to customers on the mainland United States. Increases inthe cost of energy, and other factors that affect the cost and reliability ofocean, surface and air freight will affect the financial results of thePineapple segment.

**Item4.**                        Controlsand Procedures

The Company maintainsdisclosure controls and procedures (as such term is defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended)that are designed to ensure that information required to be disclosed in theCompany’s Exchange Act reports is recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and forms, and thatsuch information is accumulated and communicated to Company’s management, includingits Chief Executive Officer and Chief Financial Officer, as appropriate, toallow timely decisions regarding required disclosure.

In designing andevaluating the disclosure controls and procedures, the Company’s managementrecognizes that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desiredcontrol objectives, and the Company’s management necessarily was required toapply its judgment in evaluating the cost-benefit relationship of possiblecontrols and procedures.

As required by Rule 13a-15(b) and15d-15(b) under the Exchange Act, the Company carried out anevaluation, under the supervision and with the participation of the Company’smanagement, including the Company’s Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of the Company’sdisclosure controls and procedures as of the end of the fiscal quarter coveredby this report. Based upon the foregoing, the Company’s Chief Executive Officerand Chief Financial Officer concluded that the Company’s disclosure controlsand procedures were effective in reaching a level of reasonable assurance inachieving the Company’s desired control objectives.

There have been no changesin the Company’s internal controls over financial reporting during the mostrecent fiscal quarter that have materially affected, or are reasonably likelyto materially affect, the Company’s internal controls over financial reporting.

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**PART II   OTHER INFORMATION**

**Item 1.**                        LegalProceedings

There are no knownmaterial pending legal proceedings to which the Company or any of itssubsidiaries is a party or to which any of their property is subject. Certainof the Company’s subsidiaries are involved in ordinary routine litigationincidental to their respective businesses.

**Item 6.**                        Exhibits

The followingexhibits are filed herewith:

(4)                       InstrumentsDefining the Rights of Security Holders.Revolving Line of Credit Loan Agreement between American AgCredit, FLCA,successor in interest to Pacific Coast Farm Credit Services, ACA and Maui LandPineapple Company, Inc., dated as of September 1, 2005

(31)                Rule 13a– 14(a) Certifications

(32)                Section 1350Certifications

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**SIGNATURE**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                   | MAUI LAND &  PINEAPPLE COMPANY, INC. |
|-------------------|-----------------------------------------------|
| November 14, 2005 |                                          | /s/ FRED W. RICKERT |   |
| Date              | Fred W. Rickert                               |
|              | *Vice President/Chief Financial Officer*      |
|              | (Principal Financial Officer)                 |
|                   |                                               |  |  |

 

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