**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

**(Mark One)**

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

**Forthe quarterly period ended MARCH 31, 2006**

**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 a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of“accelerated filer and larger accelerated filer” in Rule 12b-2 of the ExchangeAct. 

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

 

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 May 1, 2006** |
|-----------------------------|------------|---------------------------------|
| Common Stock, no  par value |       | 7,380,800 shares                |

 

 

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

**TABLEOF CONTENTS**
|                                                                                                                                 | ** ** | **Page** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|----------|
| PART I. FINANCIAL INFORMATION                                                                                                   |       |     |   |
| Item 1. Financial Statements                                                                                                    |       |     |   |
| Condensed Consolidated  Balance Sheets,  March 31, 2006 and December 31, 2005 (Unaudited)                                       |       | 3        |   |
| Condensed Consolidated Statements of Operations and  Retained Earnings,  Three Months Ended March 31, 2006 and 2005 (Unaudited) |       | 4        |   |
| Condensed Consolidated Statements  of Cash Flows,  Three Months Ended March 31, 2006 and 2005 (Unaudited)                       |       | 5        |   |
| Notes to Condensed  Consolidated Financial Statements (Unaudited)                                                               |       | 6        |   |
| Item 2. Management’s  Discussion and Analysis of Financial Condition and Results of Operations                             |       | 12       |   |
| Forward-Looking Statements                                                                                                      |       | 19       |   |
| Item 3. Quantitative and  Qualitative Disclosures About Market Risk                                                             |       | 20       |   |
| Item 4. Controls and Procedures                                                                                                 |       | 20       |   |
| PART II. OTHER INFORMATION                                                                                                      |       |     |   |
| Item 6. Exhibits                                                                                                                |       | 22       |   |
| Signature                                                                                                                       |       | 23       |   |

 

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**PART I   FINANCIALINFORMATION**

**Item 1.**                        FinancialStatements

**MAUILAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)**

| ** **                                                                                                   | ** ** | **3/31/06**             | ** ** | **12/31/05** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|--------------|------------|
| ** **                                                                                                   | ** ** | **(in thousands)** | ** ** |
| *ASSETS*                                                                                                     |       |                    |       |         |       |
| Current Assets                                                                                               |       |                    |       |         |       |
| Cash and cash equivalents                                                                                    |       | $                       | 11,162     |         | $          | 7,216 |   |
| Accounts and notes receivable                                                                                |       | 16,623                  |       | 19,605       |       |
| Inventories                                                                                                  |       | 17,805                  |       | 17,305       |       |
| Other current assets                                                                                         |       | 5,431                   |       | 5,271        |       |
| Total current assets                                                                                         |       | 51,021                  |       | 49,397       |       |
| Property                                                                                                     |       | 244,942                 |       | 236,250      |       |
| Accumulated depreciation                                                                                     |       | (142,515                | )          | (139,315     | )          |
| Property—net                                                                                            |       | 102,427                 |       | 96,935       |       |
| Other Assets                                                                                                 |       | 59,777                  |       | 39,667       |       |
| Total                                                                                                        |       | $                       | 213,225    |         | $          | 185,999 |   |
| *LIABILITIES AND STOCKHOLDERS’ EQUITY*                                                                  |       |                    |       |         |       |
| Current Liabilities                                                                                          |       |                    |       |         |       |
| Current portion of long-term debt and capital lease  obligations                                             |       | $                       | 662        |         | $          | 837 |   |
| Trade accounts payable                                                                                       |       | 15,939                  |       | 18,418       |       |
| Deferred revenue                                                                                             |       | 12,426                  |       | 11,380       |       |
| Other current liabilities                                                                                    |       | 14,058                  |       | 9,862        |       |
| Total current liabilities                                                                                    |       | 43,085                  |       | 40,497       |       |
| Long-Term  Liabilities                                                                                       |       |                    |       |         |       |
| Long-term debt                                                                                               |       | 19,904                  |       | 10,284       |       |
| Accrued retirement benefits                                                                                  |       | 30,202                  |       | 29,792       |       |
| Other long-term liabilities                                                                                  |       | 13,913                  |       | 13,729       |       |
| Total long-term liabilities                                                                                  |       | 64,019                  |       | 53,805       |       |
| Minority Interest in Subsidiary                                                                              |       | 522                     |       | 517          |       |
| Commitments and  Contingencies                                                                               |       |                    |       |         |       |
| Stockholders’  Equity                                                                                   |       |                    |       |         |       |
| Common stock, no par value—8,000,000 shares  authorized, 7,256,779 and 7,254,779 issued and outstanding |       | 14,247                  |       | 14,186       |       |
| Additional paid-in-capital                                                                                   |       | 3,513                   |       | 2,930        |       |
| Retained earnings                                                                                            |       | 89,315                  |       | 75,540       |       |
| Accumulated other comprehensive loss                                                                         |       | (1,476                  | )          | (1,476       | )          |
| Stockholders’ Equity                                                                                    |       | 105,599                 |       | 91,180       |       |
| Total                                                                                                        |       | $                       | 213,225    |         | $          | 185,999 |   |

 

See accompanying Notes to Condensed Consolidated Financial Statements.

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

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONSAND RETAINED EARNINGS**

**(UNAUDITED)**

| ** **                                | ** ** | **Three Months Ended**                        | ** ** |
|-------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                | ** ** | **3/31/06**                                             | ** ** | **3/31/05** | ** ** |
| ** **                                | ** ** | **(in thousands  except share amounts)** | ** ** |
| Operating Revenues                        |       |                                                    |       |   |   |
| Net sales                                 |       | $                                                       | 48,961     |   | $ | 27,470 |   |
| Operating income                          |       | 9,884                                                   |       | 10,410 |   |
| Other income                              |       | 107                                                     |       | 256 |   |
| Total Operating  Revenues                 |       | 58,952                                                  |       | 38,136 |   |
| Operating Costs  and Expenses             |       |                                                    |       |   |   |
| Cost of Sales                             |       | 15,831                                                  |       | 15,643 |   |
| Operating expenses                        |       | 8,838                                                   |       | 9,240 |   |
| Shipping and marketing                    |       | 3,577                                                   |       | 3,796 |   |
| General and administrative                |       | 9,626                                                   |       | 7,295 |   |
| Total Operating  Costs and Expenses       |       | 37,872                                                  |       | 35,974 |   |
| Operating Income                          |       | 21,080                                                  |       | 2,162 |   |
| Equity in earnings (losses) of affiliates |       | 172                                                     |       | (104 | ) |
| Interest expense                          |       | (29                                                     | )          | (142 | ) |
| Interest income                           |       | 301                                                     |       | 45 |   |
| Income Before  Income Taxes               |       | 21,524                                                  |       | 1,961 |   |
| Income Tax  Expense                       |       | 7,749                                                   |       | 706 |   |
| Net Income                                |       | 13,775                                                  |       | 1,255 |   |
| Retained Earnings, Beginning of Period    |       | 75,540                                                  |       | 60,971 |   |
| Retained Earnings, End of Period          |       | $                                                       | 89,315     |   | $ | 62,226 |   |
| Earnings Per  Common Share                |       |                                                    |       |   |   |
| Basic                                     |       | $                                                       | 1.90       |   | $ | 0.17 |   |
| Diluted                                   |       | $                                                       | 1.88       |   | $ | 0.17 |   |

 

See accompanying Notes to Condensed Consolidated Financial Statements.

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**MAUILAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)**

| ** **                                                | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                | ** ** | **3/31/06**                      | ** ** | **3/31/05** | ** ** |
| ** **                                                | ** ** | **(in thousands)**          | ** ** |
| Net Cash Used in  Operating Activities                    |       | $                                | (1,263     | ) | $ | (1,464 | ) |
| Investing Activities                                      |       |                             |       |   |   |
| Purchases of property                                     |       | (7,539                           | )          | (2,188 | ) |
| Proceeds from disposal of property                        |       | 5,181                            |       | 5 |   |
| Other                                                     |       | (1,879                           | )          | (1,055 | ) |
| Net Cash Used in  Investing Activities                    |       | (4,237                           | )          | (3,238 | ) |
| Financing  Activities                                     |       |                             |       |   |   |
| Payments of long-term debt and capital lease  obligations |       | (5,254                           | )          | (1,051 | ) |
| Proceeds from long-term debt                              |       | 14,700                           |       | — |   |
| Net Cash Provided  by (Used in) Financing Activities      |       | 9,446                            |       | (1,051 | ) |
| Net Increase (Decrease) in Cash and Cash Equivalents      |       | 3,946                            |       | (5,753 | ) |
| Cash and Cash Equivalents at Beginning of Period          |       | 7,216                            |       | 11,531 |   |
| Cash and Cash  Equivalents at End of Period               |       | $                                | 11,162     |   | $ | 5,778 |   |

 

Supplemental Disclosures of Cash Flow Information—Interest(net of amounts capitalized) of $14,000 and $169,000 was paid during the threemonths ended March 31, 2006 and 2005, respectively. Income taxes of$2,394,000 and $93,000 were paid during the three months ended March 31,2006 and 2005, respectively.

Non-Cash Investing Activities—In 2006, net cash salesproceeds of $21.9 million were deposited with a qualified exchange intermediaryfor re-investment on a tax-deferred basis. Amounts included in accounts payablefor additions to property and other assets totaled $6,891,000 and $1,724,000 atMarch 31, 2006 and 2005, respectively.

See accompanying Notes to Condensed Consolidated Financial Statements.

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

**1.**                 Inthe opinion of management, the accompanying condensed consolidated financialstatements contain all normal and recurring adjustments necessary to fairlypresent the financial position, results of operations and cash flows for theinterim periods ended March 31, 2006 and 2005.

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

**3.**                 Netincome was equal to comprehensive income for the interim periods ended March 31,2006 and 2005.

**4.**                 Theeffective tax rate for 2006 and 2005 differs from the statutory federal rateprimarily because of the state tax provision and refundable state tax credits.

**5.**                 Accountsand notes receivable are reflected net of allowance for doubtful accounts of$115,000 and $265,000 at March 31, 2006 and December 31, 2005,respectively.

**6.**                 Inventoriesas of March 31, 2006 and December 31, 2005 were as follows:

| ** **                           | ** ** | **3/31/06**             | ** ** | **12/31/05** | ** ** |
|--------------------------------------|------------|-------------------------|------------|--------------|------------|
| ** **                           | ** ** | **(in thousands)** | ** ** |
| Pineapple products                   |       |                    |       |         |       |
| Finished goods                       |       | $                       | 2,460      |         | $          | 2,425 |   |
| Work in progress                     |       | 277                     |       | 367          |       |
| Raw materials                        |       | 840                     |       | 861          |       |
| Real estate held  for sale           |       | 6,667                   |       | 5,651        |       |
| Merchandise,  materials and supplies |       | 7,561                   |       | 8,001        |       |
| Total Inventories                    |       | $                       | 17,805     |         | $          | 17,305 |   |

 

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 pineapple productioncosts incurred during a year are charged to the costs of crops harvested duringthat year. These costs include land preparation and planting, cultivation,irrigation, crop development, harvesting and hauling to the cannery. They alsoinclude certain overhead costs that are directly related to the growing ofpineapple. Accordingly, no costs are assigned to the growing (unharvested)crops. The annual accrual method is the most appropriate method of accountingfor the costs of growing pineapple because of the pineapple’s crop cycle (18 to48 months) and the uncertainties about fruit quality and the number of crops tobe harvested from each planting (one to three crops). AICPA Statement ofPosition No. 85-3 (SOP), *Accounting by AgriculturalProducers and Agricultural Cooperatives*, states that all direct andindirect costs of growing crops should be accumulated and growing crops shouldbe reported at the lower of cost or market. However, SOP No. 85-3 does notapply to growers of pineapple and sugarcane in tropical regions becausetropical agriculture (of which pineapple and sugarcane production in Hawaii areexamples) differs greatly from agriculture in temperate regions of the mainlandUnited States. The Company’s growing (unharvested) crops at March 31, 2006and December 31, 2005, consisted of approximately 5,500 acres in variousstages of 

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growth that will beharvested principally in the years 2006 through 2008, and are expected to yieldan average of approximately 33 tons per acre. The estimated average yield oftons per acre reflects the Company’s expectation that it will harvest secondratoon crops (fruit from the third harvest), which yield less 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 three-months ended March 31, 2006, two lotsclosed escrow for Honolua Ridge Phase II bringing the number sold to nine, with16 lots remaining to be sold. At March 31, 2006, construction of theimprovements for Honolua Phase II was estimated to be approximately 50%complete. Construction of Honolua Ridge Phase I and all of the lot sales werecompleted by the end of 2005. Costs of sales are allocated to each lot based onrelative sales values. The estimated costs of the projects consist primarily ofexecuted contracts with contractors. These estimates could be affected byconstruction or land conditions that were not anticipated that could result inadditional change orders to the existing contracts or other unforeseen variablesthat may affect the total cost of the improvements to be constructed. At March 31,2006, deferred revenues (current liability) on the Company’s balance sheetrelated to these projects were $11.0 million.

**7.**                 **Real Estate Sales**

In March 2006,the Company sold approximately 1,800 acres of Upcountry Maui land for $22.9 million.The Company recognized a gain of $21.5 million and deposited the cash proceedsof $21.9 million with a qualified exchange intermediary. As of March 31,2006, the Company had $33.0 million of real estate sales proceeds ondeposit with a qualified exchange intermediary that is expected to bereinvested on a tax deferred basis (Internal Revenue Code Section 1031exchange). 

**8.**                 **Stock-Based Compensation**

Effective January 1,2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R),*Share-Based Payment*, using themodified prospective application transition method. The Company had previouslyaccounted for its stock-based compensation arrangements under SFAS No. 123,*Accounting for Stock-Based Compensation.*Becausethe fair value recognition provisions of SFAS No. 123 and SFAS No. 123(R) werematerially consistent under the Company’s equity plans, the adoption of SFAS No. 123(R) didnot have a significant impact on the Company’s financial position or results ofoperations. SFAS No. 123(R) requires all share-based payments,including grants of employee stock options, to be recognized as compensationexpense over the service period (generally the vesting period) in theconsolidated financial statements based on their fair values. Under themodified prospective method, awards that were granted, modified, or settled onor after January 1, 2006 are measured and accounted for in accordance withSFAS No. 123(R). The impact of forfeitures that may occur prior to vestingis also estimated and considered in the amount recognized. In addition, priorto adoption of SFAS No. 123(R), benefits of tax deductions in excess ofrecognized compensation costs were reported as operating cash flows. SFAS No. 123(R) requiresexcess tax benefits be reported as a financing cash inflow rather than as areduction of taxes paid.

*Stock Options*

In December 2003, 800,000 shares of the Company’scommon stock were authorized for issuance under equity compensation plans. TheCompany’s Stock and Incentive Compensation Plan of 2003 

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was approved by itsshareholders on December 11, 2003 and includes 500,000 shares of commonstock authorized for issuance. The remaining 300,000 shares were granted to theCompany’s President and Chief Executive Officer under a non-qualified stockoption agreement (200,000 shares) and a restricted share agreement (100,000shares).

Asummary of stock option award activity as of and for the three months ended March 31,2006 is presented below:

| ** **                             | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price ($)** | ** ** | **Weighted  Average  Remaining  Contractual  Term (years)** | ** ** | **Aggregate  Intrinsic  Value $(000)** | ** ** |
|----------------------------------------|------------|------------|------------|-------------------------------------------------|------------|------------------------------------------------------------------|------------|---------------------------------------------|------------|
| Outstanding at  December 31, 2005 |       | 613,500    |       |                                            | 28.99      |                                                             |       |                                        |       |   |   |   |   |   |   |
| Granted                                |       | —     |       |                                            |       |                                                             |       |                                        |       |   |   |   |   |   |   |
| Exercised                              |       | —     |       |                                            |       |                                                             |       |                                        |       |   |   |   |   |   |   |
| Forfeited                              |       | (12,500    | )          |                                            | 42.74      |                                                             |       |                                        |       |   |   |   |   |   |   |
| Outstanding at  March 31, 2006    |       | 601,000    |       |                                            | 28.70      |                                                             |       |                                        | 7.63       |   |   |   | 5,440 |   |   |
| Exercisable at  March 31, 2006    |       | 248,700    |       |                                            | 24.85      |                                                             |       |                                        | 6.56       |   |   |   | 3,209 |   |   |

 

The total fair value of shares vested during theinterim periods ended March 31, 2006 and 2005 was $119,000 and $393,000,respectively.

SFAS No. 123(R) requiresthe recognition of stock-based compensation for the number of awards that areultimately expected to vest. As a result, recognized stock compensation wasreduced for estimated forfeitures prior to vesting primarily based onhistorical annual forfeiture rates of approximately 6.5%. Estimated forfeitureswill be reassessed in subsequent periods and may change based on new facts andcircumstances.

*Restricted Stock*

The Company entered into a restricted stock agreementunder which 100,000 shares of restricted common stock were granted to theCompany’s President and Chief Executive Officer in October 2003. Therestricted common stock will vest at a rate of 25,000 shares per year from 2004through 2007, subject to the achievement of certain performance measures. TheCompany also has restricted stock agreements with certain other officers anddirectors that vest as service is provided or vest subject to the achievementof certain performance measures. 

Asummary of the activity for nonvested restricted stock awards as of and for thequarter ended March 31, 2006 is presented below:

| ** **                                   | ** ** | **Shares** | ** ** |
|----------------------------------------------|------------|------------|------------|
| Nonvested balance  at December 31, 2005 |       | 123,771    |       |
| Granted                                      |       | 2,250      |       |
| Vested                                       |       | (2,000     | )          |
| Nonvested balance at  March 31, 2006    |       | 124,021    |       |

 

In 2006, 2,250 shares of restricted stock were grantedto a new director and 2,000 shares were vested as service requirements wereachieved. The weightedaverage grant-date fair value of restricted stock granted during the threemonths ended March 31, 2006 was $37.42 per share. There were no restrictedshares granted during the three months ended March 31, 2005.

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The total compensation expense recognized forstock-based compensation for stock options and restricted stock for the interimperiods ended March 31, 2006 and 2005 was $644,000 and $507,000,respectively. The total tax benefit related thereto was $232,000 and $183,000,respectively. 

As of March 31,2006, there was $4,269,000 of total unrecognized compensation awards grantedunder the stock option plans that is expected to be recognized over a weightedaverage period of 2.2 years.

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

| ** **                | ** ** | **Three Months**        | ** ** |
|---------------------------|------------|------------------------------|------------|
| ** **                | ** ** | **Ended March 31** | ** ** |
| ** **                | ** ** | **2006**                     | ** ** | **2005** | ** ** |
| ** **                | ** ** | **(in thousands)**      | ** ** |
| Revenues                  |       |                         |       |   |   |
| Agriculture               |       | $                            | 15,923     |   | $ | 15,787 |   |
| Resort                    |       | 12,930                       |       | 12,925 |   |
| Community Development     |       | 30,087                       |       | 9,406 |   |
| Other                     |       | 12                           |       | 18 |   |
| Total Operating  Revenues |       | $                            | 58,952     |   | $ | 38,136 |   |
| Operating Profit (Loss)   |       |                         |       |   |   |
| Agriculture               |       | $                            | (2,298     | ) | $ | (2,088 | ) |
| Resort                    |       | 430                          |       | 272 |   |
| Community Development     |       | 23,363                       |       | 3,942 |   |
| Other                     |       | (243                         | )          | (68 | ) |
| Total Operating  Profit   |       | 21,252                       |       | 2,058 |   |
| Interest Expense          |       | (29                          | )          | (142 | ) |
| Interest Income           |       | 301                          |       | 45 |   |
| Income Tax  Expense       |       | (7,749                       | )          | (706 | ) |
| Net Income                |       | $                            | 13,775     |   | $ | 1,255 |   |

 

In 2006, responsibility for the Company’s PublicUtilities Commissionregulated water and sewage transmission operations that were accountedfor in the Resort segment was transferred to the Community Development segmentand prior year amounts were restated for comparability.

The Community Development segment as reorganized iscomprised of all of the Company’s real estate entitlement, development,construction, sales, leasing and conservation activities, and Public Utilities Commission regulated waterand sewage transmission operations. The Community Development segmentalso includes the Company’s 51% equity interest in Kapalua Bay Holdings LLC(“Bay Holdings”), the owner and operator of the Kapalua Bay Hotel. Remaining inthe Resort segment are the operations of three championship golf courses, atennis facility, several retail outlets, and a vacation rental program (The Kapalua Villas) at the KapaluaResort.

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

| ** ** | ** ** | **Three Months  Ended March 31** | ** ** |
|------------|------------|-------------------------------------------------|------------|
| ** ** | ** ** | **2006**                                        | ** ** | **2005** | ** ** |
| Basic      |       | 7,254,801                                       |       | 7,226,572 |   |
| Diluted    |       | 7,346,358                                       |       | 7,397,896 |   |

 

In 2006 and 2005, dilutedshares included common stock equivalents, principally employee stock optionsand restricted stock awards.

**11.**          At March 31, 2006 and 2005, the Company did nothold any derivative instruments and did not enter into hedging transactions.

**12.**          Componentsof Net Periodic Benefit Cost

Thenet periodic cost for pension and other postretirement benefits for the threemonths ended March 31, 2006 and 2005 were as follows:

| ** **                            | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|---------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| ** **                            | ** ** | **2006**                  | ** ** | **2005**                | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                            | ** ** | **(in thousands)**   | ** ** |
| Service cost                          |       | $                         | 401        |                    | $          | 429 |   | $ | 97 |   | $ | 91 |   |
| Interest cost                         |       | 756                       |       | 781                     |       | 238 |   | 240 |   |
| Expected return  on plan assets       |       | (808                      | )          | (810                    | )          | — |   | — |   |
| Amortization of  prior service cost   |       | 6                         |       | 12                      |       | (32 | ) | (32 | ) |
| Amortization of  transition liability |       | 12                        |       | 6                       |       | — |   | — |   |
| Recognized  actuarial loss (gain)     |       | 97                        |       | 126                     |       | (51 | ) | (68 | ) |
| Net expense                           |       | $                         | 464        |                    | $          | 544 |   | $ | 252 |   | $ | 231 |   |

 

The Company expects tocontribute $1.9 million to its defined benefit pension plans and expects tocontribute $727,000 to its other postretirement benefit plans in 2006.

**12.**          Commitmentsand 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 $48,000and $167,000 in 2005 and 2004, respectively, and paid $238,000 in 2005 for itsshare of the capital costs to install a filtration system for an existing well.The Company is presently not aware of any plans by the County of Maui toinstall other filtration systems or to drill any water wells in areas affectedby agricultural chemicals. Accordingly, a reserve for costs relating to anyfuture wells was not recorded because the Company was not able to reasonablyestimate the amount of liability (if any).

The Company has a 51% membership interest in Bay Holdings.Kapalua Bay LLC, which is a wholly owned subsidiary of Bay Holdings, secured a$45.0 million loan in connection with its purchase of the Kapalua Bay Hotelassets. In 2005, the loan agreement was reduced to $42.3 million. The Companyand the other Bay Holdings’ members (owners) executed a $5.0 million indemnityand guaranty agreement, pursuant to which each member is responsible for (andguarantees payment to the lenders of) their pro 

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rata share of costs andlosses incurred by the lenders as a result of the occurrence of specifiedtriggering events during the term of the agreement. The maximum future paymentsthe Company could be required to make is $2.55 million, plus interest. TheCompany has recognized a liability of $180,000, representing the estimated fairvalue of its obligation under 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 March 31, 2006,the Company had commitments under signed contracts totaling $34.8 million,which primarily relate to real estate development projects.

**13.**          RelatedParty Transactions

In March 2006, the Company entered into anagreement to sell 190 acres of Upcountry Maui land and improvements thereon toDavid C. Cole, the Company’s Chairman, President and Chief Executive Officer,for $4.9 million. Prior to the closing of the sale, the Company will lease the3,500 square foot residence that is located on the property to Mr. Colefor $1,500 per month, which amount is at fair market value based on an estimateby a third party realtor. In April 2006, the Company entered into anagreement to sell approximately 181 acres of Upcountry Maui land to a VicePresident/Community Development of the Company for $2.8 million. Both land saleagreements were structured in compliance with the Company’s policy for relatedparty real estate sales. Such policy requires an independent appraisal of theproperty value, allows for a 3% discount to the sales price in lieu of broker’scommissions, and requires review and approval of the sales price by the AuditCommittee of the Board of Directors. The sales agreements require a deposit of$50,000 upon execution and the balance of the sales price is payable in cashupon closing of the sale. Subdivision of the land parcels is a conditionprecedent to the closing of the sales. The Company estimates that the closingswill occur in 2007. The properties had been earmarked for sale in 2004 as partof the real estate that is considered non-core to the Company’s operations.

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

***Overview of the Company***

Maui Land &Pineapple Company, Inc. is a Hawaii corporation, the successor to abusiness organized in 1909. We consist of a landholding and operating parentcompany and its principal subsidiaries, including Maui Pineapple Company, Ltd.and Kapalua Land Company, Ltd. Our reportable operating segments areAgriculture, Resort and Community Development.

*Agriculture*

The Agriculture segment primarily includes growing,packing, processing, and marketing of processed and fresh pineapple. The fruitgrown by us principally consists of three types of pineapple, *Maui Gold* and Hawaiian GoldTM (usually sold as fresh, whole fruit), Champaka(largely used for canning) and fresh organic pineapple.

Our current strategy is to expand our presence in thefresh pineapple market, while selectively reducing our reliance on theprocessed pineapple market. Therefore, over recent years, we have decreased thetonnage of fruit going to the cannery and commensurately reduced the number ofmarkets for processed pineapple that we serve.

Our strategy focuses on marketing only the highestquality fresh pineapple by using the processed pineapple operations tocomplement the fresh operations. We direct fruit to either the processed or thefresh packing facility at the time of harvest based on a variety of factors,including market conditions, fruit size and fruit quality. The transition ofour Agriculture operations continues with an emphasis on automating manylabor-intensive functions and upgrading the workforce through selectivetraining and performance-based compensation programs.

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

*Resort*

The Kapalua Resort is part of approximately 22,500acres of our land-holdings in West Maui, most of which remain as open space. Presently,the Kapalua Resort development includes 2,575 acres bordering the ocean withfive white sand beaches and includes The Ritz-Carlton, Kapalua, eightresidential subdivisions, three championship golf courses (The Bay, The Villageand The Plantation), a ten-court tennis facility, a shopping center, severalrestaurants, over 800 single family residential lots, condominiums and homes. Weoperate Kapalua Resort’s three golf courses, the tennis facility, severalretail shops, a vacation rental program (The Kapalua Villas), and providecertain services to the Resort.

We continue to implementour Kapalua Gold program to upgrade and standardize The Kapalua Villas. We had258 units in the Kapalua Villas vacation rental program as of March 31, 2006.We also continue to implement other initiatives to enhance and improve theKapalua Resort, as described further below under “—Community Development.”

*CommunityDevelopment*

The Community Development segment includes our realestate entitlement, development, construction, sales, leasing, and conservationactivities. The focus for this segment is the creation of holistic communities,including a broad range of residential products on Maui. The segment alsoincludes the 

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operations of KapaluaRealty Company, our general brokerage real estate company located within theResort, and our Public Utilities Commission regulated water and sewageoperations that service the Kapalua Resort.

The Community Development segment also includes themanagement of several leases, including the ground lease underlying TheRitz-Carlton, Kapalua, and our 51% equity interest in Kapalua Bay Holdings LLC,the limited liability company that owns and operates the Kapalua Bay Hotel andthat has the landlord’s rights and interest in the adjacent retail shops andrelated retail leases. Kapalua Bay Holdings LLC plans to begin demolition ofthe Kapalua Bay Hotel and the adjacent retail shops in June 2006 in orderto develop new whole and fractional residential units, an ocean-side spa and abeach club at the Kapalua Bay Hotel’s current location.

We have approximately 1,700 acres of land in Maui thatare at various stages in the land entitlement process. We must obtain theappropriate entitlements for land that we intend to develop or use forconstruction. Securing proper land entitlement is a process that requiresobtaining county, state and federal approvals, which can take several years tocomplete and entails a variety of risks.

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

·       HonoluaRidge Phase II is a residential subdivision of agricultural zoned land at theKapalua Resort, which is presently under construction and being sold.

·       KapaluaMauka is a 690 unit residential, golf and commercial project, which receivedzoning approval in February 2006. The first phase of Kapalua Mauka isscheduled to break ground in early 2007 and detailed planning is currentlyunderway.

·       HonoluaVillage is a 12,000 square foot of commercial space in the Central Resort,which is currently under construction and will house, among other tenants,Kapalua Realty.

·       Pulelehuais a proposed “new urbanism” community of 882 units in West Maui that willinclude a variety of housing types, mixed commercial residential uses andneighborhood serving commercial uses. Over 50% of the homes and apartments areintended to be affordable for working families as defined by the County of Maui.We are presently in the entitlement phase of this project.

·       Hali`imaile Town is aplanned new town in Upcountry Maui that we expect to be a holistic communitywhere sustainable agriculture, education, and green building principles arecore design elements. We are presently in the entitlement phase of thisproject.

***Current Developments***

In early April 2006, the Kapalua Bay Hotel heldits final guest night and closed its doors. In conjunction with our jointventure partners in Kapalua Bay Holdings LLC, we began the recycling andupcycling of all salvable materials with the intent of reusing over 90% of thematerial from the existing hotel. Demolition is expected to begin in June 2006.

In the firstquarter of 2006, some of the significant transactions, events and keyinitiatives to meet our goals and objectives included:

·       InJanuary, we determined that we should first focus on completing the newfresh-packing facility portion of the new multi-client/multi-product processingfacility project and defer the remainder of the project. The project as revisedincludes the expenditure of $17.5 million for the new fresh-packing facilityand the deferral of the canning portion of the facility to 2007. The revisedproject also includes the expenditure of $6.9 million for construction of newoffice space for our corporate headquarters and support services. Theprocessing facility and office space will be constructed 

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within an existingwarehouse on a portion of the current cannery site and will utilize recycledand upcycled materials from the Kapalua Bay Hotel.

·       InFebruary, we received final zoning approval from the Maui County Council tochange Kapalua Mauka’s zoning from “agricultural” to “West Maui ProjectDistrict 2,” which allows a mix of up to 690 homes and condominiums, five acresof commercial space, and up to 27 holes of golf.

·       InMarch, we determined that we will close the Village Course in early 2007.

·       InMarch, we entered into an agreement to design a new Kapalua Mauka golf coursewith T.J.F. Golf, Inc.

·       InMarch, we held a series of community design workshops to involve the MauiCommunity in the planning process for the future of Hali’imaile Town.

·       InMarch, Kapalua Bay LLC began taking sales reservations for selected residentialunits that are planned on the present Kapalua Bay Hotel property.

·       InMarch, the Board of Directors appointed Warren H. Haruki to fill the positionas Class III Director that was left vacant by the resignation of RichardH. Cameron in May 2005.

·       In March, we soldapproximately 1,800 acres of Upcountry Maui land as we continued towards ourgoal of re-deploying assets to strengthen our Agriculture segment operations,repositioning our Resort operations and increasing investments in our CommunityDevelopment segment.

**RESULTS OFOPERATIONS**

***Three Months Ended March 31, 2006 compared toThree Months Ended March 31, 2005***

**CONSOLIDATED**

| ** **                         | ** ** | **Three Months Ended March 31,**             | ** ** |
|------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                         | ** ** | **   2006   **                     | ** ** | **   2005   ** | ** ** | **    inc    ** | ** ** |
| ** **                         | ** ** | **(in millions, except  per share amounts)** | ** ** |
| *Consolidated  Revenues*           |       |                                                             | $          | 59.0 |   |   |   | $ | 38.1 |   |   |   | $ | 20.9 |   |   |
| *Net Income*                       |       |                                                             | $          | 13.8 |   |   |   | $ | 1.3 |   |   |   | $ | 12.5 |   |   |
| *Basic  Earnings Per Common Share* |       |                                                             | $          | 1.90 |   |   |   | $ | 0.17 |   |   |   | $ | 1.73 |   |   |

 

We reported net income of$13.8 million ($1.90 per share) for the first quarter of 2006 compared to a netincome of $1.3 million ($.17 per share) for the first quarter of 2005. Consolidatedrevenues for the first quarter of 2006 were $59.0 million compared to $38.1million for the first quarter of 2005. The improved results in the firstquarter of 2006 as compared to the first quarter of 2005 were primarilyattributable to an increase in revenues and operating profit from our CommunityDevelopment segment as a result of the sale of real estate, as furtherdescribed below.

*General andAdministrative*

Consolidated general and administrative expensesincreased by 32% to $9.6 million for the first quarter of 2006 from $7.3million for the first quarter of 2005.

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

| ** **                                         | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                         | ** ** | ** 2006 **                                 | ** ** | ** 2005 ** | ** ** | ** inc (dec) ** | ** ** |
| ** **                                         | ** ** | **(in millions)**                               | ** ** |
| Salaries &  wages                         |       |                                                 | $          | 2.6 |   |   |   | $ | 2.0 |   |   |   | $ | 0.6 |   |   |
| Employee  incentives & stock compensation |       |                                                 | 0.9        |   |   |   | 0.6 |   |   |   | 0.3 |   |   |
| Professional  services                             |       |                                                 | 1.1        |   |   |   | 1.2 |   |   |   | (0.1 | ) |   |
| Depreciation  expense                              |       |                                                 | 1.3        |   |   |   | 0.8 |   |   |   | 0.5 |   |   |
| Other                                              |       |                                                 | 3.7        |   |   |   | 2.7 |   |   |   | 1.0 |   |   |
| Total                                              |       |                                                 | $          | 9.6 |   |   |   | $ | 7.3 |   |   |   | $ | 2.3 |   |   |

 

The increase in salaries and wages is primarily theresult of additional employees in our Community Development segment in 2006compared to 2005. Further expansion of the Community Development staff isexpected in order to accomplish the projects and initiatives currently plannedfor this segment. The increase in employee incentives and stock compensationexpense was principally the result of accruals for performance-basedincentives, reflecting our increased emphasis on performance-based pay plans.

The increase in depreciation charged to general andadministrative expenses for the first quarters of 2006 and 2005 include$975,000 and $264,000, respectively, for acceleration of depreciation chargesrelated to the change in estimated useful life of our fresh fruit packing andgrading facility, the integrated accounting system used by our Agriculture andcorporate operations, and the current cannery at Kahului. The new fresh fruitprocessing facility is expected to be in operation at our present cannery sitein 2006. The decision to replace our primary accounting systems was made in thefourth quarter of 2005. Our management estimates that most of the new systemswill be in place in the second and third quarters of 2006.

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

*Interest Expense*

Interest expense was$29,000 for the first quarter of 2006 compared to $142,000 for the same periodin 2005. The decrease in interest expense was due to lower average borrowingsand to a higher amount of capitalized interest in 2006, partially offset byhigher average interest rates. Capitalized interest was $304,000 for the firstquarter of 2006 compared to $140,000 for the first quarter of 2005. Our majorprojects under construction in 2006 include the Honolua Ridge Phase II, HonoluaVillage, and the new fresh pineapple processing facility. Our effectiveinterest rate on borrowings was 7.5% for the first quarter of 2006 compared to5.9% for the first quarter of 2005.

**AGRICULTURE**

| ** **                   | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------|------------|------------------------------------------------------|------------|
| ** **                   | ** ** | ** 2006 **                                 | ** ** | ** 2005 ** | ** ** | **  inc (dec)  ** | ** ** |
| ** **                   | ** ** | **(in millions)**                               | ** ** |
| *Revenues*                   |       | $                                                    | 15.9       | * * | $ | 15.8 | * * |   | $ | 0.1 |   |   |
| *% of consolidated revenues* | * *   | *27*                                                 | *%*        | *41* | *%* |   |   |   |   |
| *Operating  Loss*            |       | $                                                    | (2.3       | *)* | $ | (2.1 | *)* |   | $ | (0.2 | ) |   |

 

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The Agriculture segment produced an operating loss of$2.3 million for the first quarter of 2006 compared to an operating loss of$2.1 million for the first quarter of 2005. Revenues for the first quarter of2006 were $15.9 million or 1% higher than the first quarter of 2005.

The Agriculture segmentrevenues increased due to fresh pineapple sales more than offsetting lowerrevenues from canned pineapple. Operating losses reported by the Agriculturesegment in 2006 and 2005 include additional depreciation charges of $975,000and $264,000, respectively, related to the planned replacement of the currentfresh fruit packing and grading facility, cannery and can plant, and theaccounting systems, as mentioned above under *General andAdministrative*.

*Canned and FreshOperations*

The case volume of fresh pineapple sales increased by36% and the average revenue per case of fresh pineapple sold decreased by lessthan 1% in the first quarter of 2006 compared to the first quarter of 2005. Revenuesfrom fresh pineapple sales were approximately 42% of the Agriculture segmentnet sales for the first quarter of 2006, compared to approximately 32% for thefirst quarter of 2005.

The case volume of processed pineapple sales decreasedby 24% for the first quarter of 2006 as compared to the first quarter of 2005primarily reflecting our strategy to reduce supply to selected retail marketsegments. The average sales prices for our processed pineapple productsincreased by approximately 14% for the first quarter of 2006 compared to thefirst quarter of 2005.

Processed pineapple sold to the U. S. Government(primarily to the Department of Agriculture) comprised approximately 43% of ourcase volume of canned pineapple sales in the first quarter of 2006 compared to39% in the first quarter of 2005. The increase in the percentage of processedpineapple sales to the U. S. Government is a result of lower overall cannedpineapple sales and an increase in our participation in government programsthat purchase pineapple for school lunches, needy families and other governmentprograms.

The Agriculture segment cost of sales was lower by 7%in the first quarter of 2006 compared to the first quarter 2005, primarilyreflecting the reduced sales volume of processed pineapple partially offset bythe increased sales volume of fresh pineapple. The average per unit cost ofsales for processed pineapple was higher in 2006 compared to 2005 because ofthe reduced tonnage of fruit being processed. Rainfall at our pineappleplantations was considerably higher during March 2006, however plantingand harvesting schedules continued without significant disruptions or marketconsequences.

Agriculture segmentshipping and marketing cost increased by $127,000 or 6%, in the first quarterof 2006 as compared to the first quarter of 2005 principally reflecting thehigher sales volume of fresh pineapple sales, partially offset by the lowervolume of processed pineapple sales. The average shipping and selling cost forour fresh pineapple was approximately the same in the first quarter of 2006 asthe first quarter of 2005.

**RESORT**

| ** **                   | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------|------------|------------------------------------------------------|------------|
| ** **                   | ** ** | ** 2006 **                                 | ** ** | **  2005  ** | ** ** | **   inc   ** | ** ** |
| ** **                   | ** ** | **(in millions)**                               | ** ** |
| *Revenues*                   |       | $                                                    | 12.9       | * * |   | $ | 12.9 | * * |   |   | $ | — |   |   |
| *% of consolidated revenues* | * *   | *22*                                                 | *%*        | * * | *34* | *%* |   |   |   |   |   |
| *Operating  Profit*          |       | $                                                    | 0.4        | * * |   | $ | 0.3 | * * |   |   | $ | 0.1 |   |   |

 

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The Resort segment reported an operating profit of$430,000 for the first quarter of 2006 compared to $272,000 for the firstquarter of 2005. Resort segment revenues were $12.9 million for both the firstquarter of 2006 and 2005.

An increase in hotel and condominium room occupanciesat the Kapalua Resort, and to a somewhat lesser extent for Maui in general,largely drive the increase in resort activity as reflected by increased golfplay and merchandise sales. Hotel and condominium room occupancies at KapaluaResort of 82% in the first quarter of 2006 were 3% higher than those in thefirst quarter of 2005.

While revenues from theResort operations did not increase in the first quarter of 2006 compared to thefirst quarter of 2005, lower travel agent commission expense for the KapaluaVillas, partially offset by higher Villas staffing cost and increases in otheroperating expenses for the Kapalua Villas, resulted in the improved operatingprofit reported by the Resort segment.

*Golf, Merchandiseand Villas*

Revenues from golf operations increased by 2% for thefirst quarter of 2006 compared to the first quarter of 2005. Overall, paidrounds of golf decreased by 3%, and average green and cart fees increased by19% in the first quarter of 2006 compared to the first quarter of 2005. Greaterthan normal rainfall in March of 2006 negatively impacted the number ofpaid rounds of golf.

Resort merchandise sales for the first quarter of 2006were about 3% lower than sales in the first quarter of 2005 reflecting thereduction in rounds of golf played, the relatively nominal 3% increase inoccupancy levels at the resort, and the closure of one of our retail outlets(approximately 800 square feet) at the Kapalua Shops.

Revenues from the KapaluaVillas were approximately the same in the first quarter of 2006 compared to thefirst quarter of 2005 reflecting a higher average room rate, offset by a 9%decrease in occupied rooms. The average room rate at the Kapalua Villasincreased by 28% in the first quarter of 2006 compared to the first quarter of2005 reflecting an increase in direct bookings and a more aggressive pricingstrategy across all channels and product categories.

**COMMUNITY DEVELOPMENT**

| ** **                   | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------|------------|------------------------------------------------------|------------|
| ** **                   | ** ** | **  2006  **                     | ** ** | **  2005  ** | ** ** | **  inc  ** | ** ** |
| ** **                   | ** ** | **(in millions)**                               | ** ** |
| *Revenues*                   |       |                                                 | $          | 30.1 | * * |   |   | $ | 9.4 | * * |   | $ | 20.7 |   |
| *% of consolidated revenues* | * *   | * *                                             | *51*       | *%* | * * | * * | *25* | *%* | * * | * * | * * |
| *Operating  Profit*          |       |                                                 | $          | 23.4 | * * |   |   | $ | 3.9 | * * |   | $ | 19.5 |   |

 

The Community Development segment reported anoperating profit of $23.4 million for the first quarter of 2006 compared to $3.9million for the first quarter of 2005. Revenues from this operating segmentwere $30.1 million for the first quarter of 2006 compared to $9.4 million forthe first quarter of 2005.

The improved results forthe first quarter of 2006 primarily reflect the sale of approximately 1,800 acresof Upcountry Maui land described below.

*Real Estate Sales*

In the first quarter of 2006, we recognized revenuesof $22.9 million and a pre-tax gain of $21.5 million from the sale ofapproximately 1,800 acres of Upcountry Maui land. The land sold was considered 

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“non-core” to ourstrategic plan because it is not suitable for precision pineapple cultivationand is also not suitable for the creation of a new holistic community.

The sale of two lots at Honolua Ridge Phase II residentialsubdivision closed escrow in the first quarter of 2006. The subdivisionconsists of 25 agricultural lots, which began selling in August 2005 andthrough the end of the first quarter of 2006, nine lots had closed escrow. Revenuesand profit from this project are being recognized on a percentage-of-completionmethod, under which we recognized revenues of $5.7 million in the first quarterof 2006. Honolua Ridge Phase II was approximately 50% complete at March 31,2006. Our balance sheet at March 31, 2006 included deferred revenues of$11.0 million related to Honolua Ridge Phase II, which represent cash receivedfrom the sale of the lots that have not been recognized as revenues under thepercentage-of-completion method.

In the first quarter of2005, we were selling lots in Honolua Ridge Phase I and recognized revenues of$7.3 million on a percentage-of-completion method. Honolua Ridge Phase I wasapproximately 78% complete at the end of the first quarter of 2005 and 19 lotsales had closed escrow through that date. At March 31, 2006, all of theHonolua Ridge Phase I lots have been sold and construction of the project was100% complete.

*Realty and Leasing*

Kapalua Realty’s commission revenues from the resaleof residential units in the Kapalua Resort was lower by 80% in the firstquarter of 2006 compared to the first quarter in 2005 because of fewertransactions and lower average prices.

Revenues from leasingactivities increased by about 19% for the first quarter of 2006 compared to thefirst quarter of 2005. The increase primarily reflects increased percentagerents as a result of higher rental rates.

***LIQUIDITYAND CAPITAL RESOURCES***

*Debt Position*

At March 31, 2006, our total debt, includingcapital leases, was $20.6 million, compared to $11.1 million at December 31,2005. At March 31, 2006, the Company had unused long-term credit lines of$23.5 million.

We are in the process ofclosing a $19.5 million loan that will be secured by the new fresh processingequipment, facility and office space that are presently under construction. Theloan will require monthly principal and interest payments amortized over anaverage life of approximately 17 years. The loan is expected to close in early May 2006.

*Operating CashFlows*

In thefirst three months of 2006, consolidated net cash flows used in operatingactivities were $1.3 million, compared to $1.5 million used for the firstthree months of 2005. By operating segment, these cash flows were approximatelyas follows:

| ** **                 | ** ** | **Three Months Ended March 31,**                                                     | ** ** |
|----------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|
| ** **                 | ** ** | **        2006        ** | ** ** | **        2005        ** | ** ** |
| ** **                 | ** ** | **(in millions)**                                                                                   | ** ** |
| Agriculture                |       |                                                                                                     | $          | 0.9 |   |   |   | $ | (1.2 | ) |   |
| Resort                     |       |                                                                                                     | (0.3       | ) |   |   | (0.9 | ) |   |
| Community  Development     |       |                                                                                                     | 0.8        |   |   |   | 0.9 |   |   |
| Interest, taxes  and other |       |                                                                                                     | (2.7       | ) |   |   | (0.3 | ) |   |
| Total                      |       |                                                                                                     | $          | (1.3 | ) |   |   | $ | (1.5 | ) |   |

 

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Cash used in operating activities in the first quarterof 2005 for the Agriculture segment includes approximately $2 million ofpayments for payroll and accounts payable for 2004 operations. The reduction incash outflows from the Resort segment in the first quarter of 2006 was due to bettercollection of accounts receivable and a reduction in inventory purchases forlogo retail shops because of the anticipated closure of the Kapalua Bay Hotel,which is expected to significantly impact the visitor traffic through theadjacent retail shops.

Cash flows from operating activities in the CommunityDevelopment segment vary significantly with the amount of new real estateproduct sold and the amount of construction activity for real estateinventories. In the first quarter of 2006, closing of lot sales at HonoluaRidge Phase II resulted in $6.8 million of cash proceeds. In the firstquarter of 2005, the closing of lot sales at Honolua Ridge Phase I subdivisionresulted in cash proceeds of $2.9 million. Cash flows from the sales of lots in2006 and 2005 were partially offset by payments for construction of theimprovements.

The increase in cashoutflows for interest, taxes and other primarily reflect income tax payments of$2.4 million in the first quarter of 2006.

*Real Estate SalesProceeds*

In March 2006, wesold approximately 1,800 acres, which resulted in net sales proceeds of $21.9 millionthat that we intend to reinvest on a tax-deferred basis under Section 1031of the Internal Revenue Code. In the first quarter of 2006, the reinvestmentperiod expired on $5.2 million of proceeds from the previous sales ofproperties in 2005 and the funds were returned to us by the exchangeintermediary. At March 31, 2006, we had $33.0 million of real estate salesproceeds on deposit with an exchange intermediary.

*Future CashOutflows*

Contributions to pension plans and to otherpost-retirement plans are expected to be $2.6 million in 2006. We anticipatethat if we are not successful in reinvesting the sales proceeds from the landsales that closed in December 2005 and March 2006 on a tax-deferredbasis, then we would be required to make income tax payments of approximately$12 million with regard to those gains.

Consolidated capital expenditures (property, plant andequipment) for 2006 are expected to be approximately $66 million of whichapproximately $13 million is for the fresh fruit processing facility that willreplace the existing fresh fruit packing facility at our Upcountry Mauiplantation and $10 million are for the replacement of other existing equipmentand facilities. We expect to incur approximately $6 million for deferreddevelopment costs, which will be reclassified to inventories or to fixed assetsif and when the projects receive the necessary governmental entitlements andmanagement approvals to proceed. In connection with the planning for thevarious projects, we will analyze the feasibility of proceeding with eachproject and will seek project specific non-recourse financing for some of thecapital projects.

Expenditures for HonoluaRidge Phase II, which we began selling in 2005, are expected to beapproximately $13.5 million in 2006. These expenditures for subdivisioninfrastructure improvements to date have been funded by proceeds from pre-saleof the lots. Sixteen lots in Phase II remain to be sold at March 31, 2006,with one of those in escrow and to close in May.

**FORWARD-LOOKINGSTATEMENTS**

This and otherreports filed by us, with the Securities and Exchange Commission containforward-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,” 

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“expect,”“believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue” or “pursue,”or the negative or other variations thereof or comparable terminology. Inparticular, they include, among others, statements relating 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 pineapple processingfacility;

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

·       thetiming and success of the Kapalua Resort initiatives to enhance and improve theresort and the Kapalua Villas;

·       expectationsas to our cash commitments;

·       expectationsas to our cash flows from operating and investing activities;

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

·       shiftingtowards greater levels of fresh fruit production;

·       thefuture cost of compliance with environmental laws; and

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

In addition, from time to time, we may publishforward-looking statements as to those matters or other aspects of ouranticipated financial performance, business prospects, new products, marketinginitiatives 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. We undertake no obligation to publicly update any forward-lookingstatements, whether as a result of new information, future events or otherwise.We have based these forward-looking statements on our current expectations andprojections about future events.

We caution the reader thatforward-looking statements involve risks and uncertainties that cannot bepredicted or quantified and, consequently, actual results may differ materiallyfrom those expressed or implied by such forward-looking statements. Such risksand uncertainties include, but are not limited to, the factors discussed in thesection entitled “Management’s Discussion and Analysis of Financial Conditionand Results  of Operations” in thisquarterly report, as well as other factors described from time to timein our reports filed with the SEC.

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

Our primary market riskexposure with regard to financial instruments is to changes in interest rates. Weattempt to manage this risk by monitoring interest rates and future cashrequirements, and evaluating opportunities to refinance borrowings at variousmaturities and interest rates. There were no material changes to our marketrisk exposure during the first quarter of 2006.

**Item 4.**                        Controlsand Procedures

We maintain disclosure controls and procedures (assuch term is defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended) that are designed to ensurethat information required to be disclosed in our Exchange Act reports isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms, and that such information is 

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accumulated andcommunicated to our management, including our Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regarding requireddisclosure.

In designing and evaluating the disclosure controlsand procedures, our management recognizes that any controls and procedures, nomatter how well designed and operated, can provide only reasonable assurance ofachieving the desired control objectives, and our management necessarily wasrequired to apply its judgment in evaluating the cost-benefit relationship ofpossible controls and procedures.

As required by Rule 13a-15(b) and 15d-15(b) underthe Exchange Act, we carried out an evaluation, under the supervision and withthe participation of our management, including our Chief Executive Officer andChief Financial Officer, of the effectiveness of the design and operation ofour disclosure controls and procedures as of the end of the fiscal quartercovered by this report. Based upon the foregoing, our Chief Executive Officerand Chief Financial Officer concluded that our disclosure controls andprocedures were effective to ensure that information required to be disclosedby us in our Exchange Act reports is recorded, processed, summarized andreported within the time periods specified in applicable SEC rules andforms.

There have been no changes in our internal controlsover financial reporting during the most recent fiscal quarter that havematerially affected, or are reasonably likely to materially affect, ourinternal controls over financial reporting.

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**PART II   OTHERINFORMATION**

**Item 6.**                        Exhibits

The followingexhibits are filed herewith:

(10)     Material Contracts

(A)       Purchaseand Sale Agreement effective as of March 14, 2006, by and between Maui Land &Pineapple Company, Inc. and David C. Cole and Margaret Cole.

(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.                         |
|------------------|-----------------------------------------------------------------------|
| May 9, 2006 |                                                                  | /s/ ROBERT I. WEBBER |
| Date             | Robert I. Webber                                                      |
| ** **       | *Chief Financial Officer/Senior Vice President  Business Development* |
| ** **       | (Principal Financial Officer)                                         |
|                  |                                                                       |  |

 

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