**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-K**

**(Mark One)**

**x**                               ANNUAL REPORTPURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

**For the fiscal year ended December 31, 2005**

**OR**

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

**For the transition period from                    to                   **

**Commission file number 1-6510**

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

(Exactname of registrant as specified in its charter)

| **HAWAII**                                                      |   | **99-0107542**                       |
|-----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction  of incorporation or organization) |   | (IRS Employer Identification number) |
| **120 KANE STREET, P. O. BOX 187,  KAHULUI,  MAUI, HAWAII**     |   | **96733-6687**                       |
| (Address of principal executive offices)                        |   | (Zip Code)                           |

 

Registrant’stelephone number, including area code**  (808) 877-3351**

Securitiesregistered pursuant to Section 12(b) of the Act:

|                                 | **Title of Each Class** | ** **              | ** ** |  | **Name of Each Exchange on Which Registered** | ** ** |
|---------------------------------|-------------------------|-------------------------|------------|--|-----------------------------------------------|------------|
| Common Stock, without Par Value |                    | American Stock Exchange |

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act. Yes o   No x

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act. Yes o    No x

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x    No o

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. x

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and larger accelerated filer” in Rule 12b-2 of the ExchangeAct.

Largeaccelerated filer  o          Acceleratedfiler  x          Non-acceleratedfiler  o

Indicateby check mark whether the registrant is a shell Company in Rule 12b-2 of theExchange Act). Yes o    No x

Theaggregate market value, as of June 30, 2005, of the voting stock held bynon-affiliates of the registrant was $154,849,000 based upon the closing priceon the American Stock Exchange on such date. This computation assumes that alldirectors, executive officers and persons known to the Company to be thebeneficial owners of more than ten percent of the Company’s common stock areaffiliates. Such assumption should not be deemed conclusive for any otherpurpose.

AtFebruary 10, 2006, the number of shares outstanding of the registrant’scommon stock was 7,378,550.

**Documents incorporated by reference:**

Part III—Portionsof the proxy statement for the registrant’s annual meeting of stockholders tobe held on May 8, 2006, to be filed no later than 120 days after the closeof the registrant’s fiscal year ended December 31, 2005. Only those portionsof the proxy statement that are specifically incorporated by reference hereinshall constitute a part of this annual report.

 

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**TABLE OF CONTENTS**
| PART I   |                                                                                                                     |   |   |
|---------------|--------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Item 1.       | Business                                                                                                                 | 1      |   |
| Item 1A.      | Risk Factors                                                                                                             | 9      |   |
| Item  1B.     | Unresolved  Staff Comments                                                                                               | 12     |   |
| Item 2.       | Properties                                                                                                               | 12     |   |
| Item 3.       | Legal  Proceedings                                                                                                       | 13     |   |
| Item  4.      | Submission  of Matters to a Vote of Security Holders                                                                     | 13     |   |
| PART II  |                                                                                                                     |   |   |
| Item 5.       | Market  for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities | 14     |   |
| Item  6.      | Selected  Financial Data                                                                                                 | 15     |   |
| Item  7.      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                              | 16     |   |
| Item  7A.     | Quantitative  and Qualitative Disclosures About Market Risk                                                              | 31     |   |
| Item  8.      | Financial  Statements and Supplementary Data                                                                             | 34     |   |
| Item  9.      | Changes  in and Disagreement with Accountants on Accounting and Financial Disclosure                                     | 64     |   |
| Item  9A.     | Controls  and Procedures                                                                                                 | 64     |   |
| Item 9B.      | Other  Information                                                                                                       | 65     |   |
| PART III |                                                                                                                     |   |   |
| Item 10.      | Directors  and Executive Officers of the Registrant                                                                      | 65     |   |
| Item  11.     | Executive  Compensation                                                                                                  | 66     |   |
| Item  12.     | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                         | 66     |   |
| Item  13.     | Certain  Relationships and Related Transactions                                                                          | 66     |   |
| Item  14.     | Principal  Accountant Fees and Services                                                                                  | 66     |   |
| PART IV  |                                                                                                                     |   |   |
| Item 15.      | Exhibits  and Financial Statement Schedules                                                                              | 67     |   |
| SIGNATURES    | 70                                                                                                                       |   |

 

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**FORWARD-LOOKING STATEMENTS AND RISKS**

This and otherreports filed by the Maui Land & Pineapple Company, Inc. or theCompany with the Securities and Exchange Commission contain forward-lookingstatements intended to qualify for the safe harbor from liability establishedby the Private Securities Litigation Reform Act of 1995. These statements canbe identified by the fact that they do not relate strictly to historical orcurrent 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 or comparable terminology. Inparticular, they include, among others, statements relating to the:

·       timingand success of the Kapalua Bay Hotel redevelopment;

·       closingof lot sales at the Honolua Ridge agricultural subdivisions;

·       timing,cost and efficiency of the planned multi-commodity/multi-client processingfacility;

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

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

·       expectationsas to the Company’s cash commitments;

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

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

·       shiftingtowards greater levels of fresh fruit production;

·       futurecost of compliance with environmental laws;

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

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

In addition, from time 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 current expectations and projections about future events.

The Company cautions the reader that forward-lookingstatements involve risks and uncertainties that cannot be predicted orquantified and, consequently, actual results may differ materially from thoseexpressed or implied by such forward-looking statements. Such risks anduncertainties include, but are not limited to, the factors discussed in thesections entitled “Business,” “Risk Factors,” and “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” in this annual report, as well as other factors describedfrom time to time in the Company’s reports filed with the Securities andExchange Commission.

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**PART I**

**Item 1.**                        BUSINESS

**Overview**

Maui Land & Pineapple Company, Inc. (“Company”)is a Hawaii corporation, the successor to a business organized in 1909. TheCompany consists of a landholding and operating parent company and itsprincipal subsidiaries, including Maui Pineapple Company, Ltd. and Kapalua LandCompany, Ltd. The “Company,” as used herein, refers to the parent and all ofits subsidiaries.

The Company hasthree operating segments as follows:

·       *Agriculture.  *Previously called the “Pineapple”segment, the Agriculture segment primarily includes growing, packing,processing, and marketing of processed and fresh pineapple. The fruit grown bythe Company 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.

·       *Resort*.   The Resort segment includes the Company’songoing operations at the Kapalua Resort. These operations include threechampionship golf courses, a tennis facility, a vacation rental program,several retail outlets and Public Utilities Commission regulated water andsewage transmission operations.

·       *Community Development.  *Previously called the “Development”segment, the Community Development segment includes the Company’s real estateentitlement, development, construction, sales and leasing activities. Thissegment also includes the operations of Kapalua Realty Company, a generalbrokerage real estate company, located within Kapalua Resort. Beginning August 31,2004, the Community Development segment includes the Company’s investment inKapalua Bay Holdings, LLC, owner of the Kapalua Bay Hotel. See Other Assets—KapaluaBay Holdings, LLC, Note 3 to the Consolidated Financial Statements.

For additional financialinformation about these segments, see Operating Segments, Note 17 to theCompany’s Consolidated Financial Statements.

**2005 Business Development**

This is a summary of material business developments in2005. For more information about business developments in 2005, seeItem 7, “Management’s Discussion and Analysis of Financial Condition andResults of Operations,” in this annual report.

In 2005, considerable resources in terms of time andfunds were invested to position the Company for positive future results. Theyear was marked by continued restructuring, re-shaping and upgrading of theCompany’s processes and business segments. Throughout 2005, Company-wide actionto secure land entitlements for the Kapalua Mauka project, a plannedresidential community, was a top priority for management. Kapalua Mauka isconsidered by the Company as the single most important project that can fuelthe strategic direction that is envisioned for its agricultural and resortoperations in the next several years.

The change in zoning process for Kapalua Mauka endedin 2005 pending Maui County Council approval. In February 2006, theCompany received final zoning approval from the Maui County Council to changeKapalua Mauka’s zoning from “agricultural” to “West Maui Project District 2,”which allows a mix of up to 690 homes and condominiums, five acres ofcommercial space, and up to 27 holes of golf.

In February 2005, the Company’s Board ofDirectors approved the investment of $17.2 million for the construction of anew multi-commodity/multi-client processing facility that would replace theexisting 

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pineapple cannery atKahului, Maui and the fresh fruit packing facility located in Upcountry Maui. InJanuary 2006, modifications to the project scope, rising constructioncosts and other factors led management and the Board of Directors to concludethat the Company should first focus on completing the new fresh-packingfacility portion of the project and defer the remainder of the project. Theproject as revised includes the expenditure of $17.5 million for the newfresh-packing facility and the deferral of construction of the processed plantportion to 2007. The new facility will be constructed on a portion of thepresent cannery site in Kahului and is expected to reduce the Company’s overallcost structure by automating and integrating much of the fresh and processedfruit grading and packing operations. The revised project plan also includesthe expenditure of $6.9 million for construction of a new office area for theCompany’s corporate headquarters and support services—accounting, informationtechnology and human resources. This office area will be constructed within anexisting warehouse at the Kahului cannery and will utilize recycled materialsfrom the Kapalua Bay Hotel, which is scheduled for demolition in April 2006.

Other significanttransactions, events and key initiatives that took place in 2005 included:

·       TheCompany sold approximately 640 acres of Upcountry Maui land. The Company willre-invest the $28.2 million net cash sales proceeds from these transactions($26.9 million pre-tax gain) to strengthen its Agriculture segment operations,reposition the Resort operations and to increase investments in its CommunityDevelopment segment.

·       FromApril 1 through July 30, the Plantation Course was closed forregrassing of the greens, renovation of the fairway bunkers and other courseimprovements.

·       InJune, the newly renovated restaurant at the Bay Course Clubhouse opened undernew management.

·       Thesale of the agricultural home sites in Honolua Ridge Phase II began in August andseven lot sales closed escrow by year-end. Construction of the offsiteimprovements for this 25-lot residential subdivision, ranging in size from3 to 30 acres, began in August and is expected to be completed in October 2006.

·       Groundbreakingand a blessing for Honolua Village Phase I was held in September. Constructionof this 12,000 square foot commercial space in the Central Resort area is expectedto be completed in mid-2006.

·       In December, the Companyreceived a Special Management Area permit for the construction of new whole andfractional residences on the property that is presently the Kapalua Bay Hotel. Demolitionof the Kapalua Bay Hotel is planned for April 2006 and presales of thecondominiums will begin in May 2006. Construction is expected to continuethrough 2008.

**Description of Business**

***Agriculture***

Maui Pineapple Company, Ltd. is the operatingsubsidiary for the Company’s Agriculture segment. The Company owns and operates fullyintegrated facilities for the production of fresh and processed pineapple. TheCompany’s current strategy is to expand its presence in the fresh pineapplemarket, while selectively reducing its reliance on the processed pineapplemarket. 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 for processed pineapple that it serves.

The Company’s strategyfocuses on marketing only the highest quality fresh pineapple by using theprocessed pineapple operations to complement the fresh operations. The Companydirects fruit to either the processed or the fresh packing facility at the timeof harvest based on a variety of factors, including 

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marketconditions, fruit size and fruit quality. In 2005, sales of fresh pineapplerepresented approximately 34% of net pineapple sales compared to 24% in 2004and 18% in 2003. The transition of the Company’s Agriculture operationscontinues with an emphasis on automating many labor-intensive functions andupgrading the workforce through selective training and performance basedcompensation programs.

*Planting,Harvesting and Seasonality*

The fresh fruit market is a year-round business, whichrequires consistency of supply. Over the past two years, the Company has madesignificant progress in changing its agronomic practices and planting schedulesto produce a more consistent and predictable supply of fruit throughout theyear. In addition, the Company has made significant progress in implementingimproved crop maintenance and agronomic practices that are beginning to improveplant yields (tons of fruit per acre) and fruit quality. Planting andharvesting take place throughout the year. Two pineapple crops are normallyharvested from each new planting. The first, or plant crop, is harvestedapproximately 18 to 23 months after planting; the second, or ratoon crop, isharvested 12 to 14 months later. A third crop, the second ratoon, may beharvested 9 to 14 months later depending on a number of conditions.

The Company’s processed pineapple operations havehistorically had a seasonal operating cycle. The seasonality of the processingoperation is not only due to the pineapple’s natural tendency to ripen duringthe summer months, but also because the timing of initial planting andinitiation of flowering can promote ripening during the summer. During thesummer months, student labor for the harvesting and processing operations isalso more readily available. As the Company shifts its operations towards thefresh fruit market and accordingly adjusts its agronomic practices, theseasonality of the business is becoming less pronounced. In 2006, the Companyexpects to continue the transition of its pineapple operations with anincreased emphasis on the fresh fruit market.  The seasonality of the processing operationdoes not specifically affect sales or earnings because sales are driven byconsumer consumption and resupply orders by customers.

Theavailability of water for irrigation is critical to the cultivation ofpineapple. The Upcountry Maui area, in which the Company maintains aplantation, is susceptible to drought conditions, which can adversely affectpineapple operations by resulting in poor yields (tons per acre) and lowerrecoveries (the amount of saleable product per ton of fruit processed). Approximately85% of the fields in the Company’s Upcountry Maui plantation are equipped withdrip irrigation systems. The Company is also shifting more of its plantings toits West Maui plantation, which is less susceptible to drought conditions.

*Packing and CanneryFacilities*

Harvested pineapple is packed for fresh shipment atthe Company’s packing facility located at its Upcountry Maui plantation. Pineapplethat will be canned is processed at the Company’s cannery in Kahului where arange of processed pineapple products are produced, including solid pineapplein various grades and styles, juice and juice concentrates. The cannery islocated in a foreign trade zone and operates most of the year. The metalcontainers used in canning pineapple are produced in a Company-owned can plantat the cannery site. The metal is imported from manufacturers in Japan. Awarehouse is maintained at the cannery site for inventory purposes.

The Company is presentlyconstructing a new fresh fruit packing facility that will replace the facilityin Upcountry Maui. The new facility will be constructed on a portion of thepresent cannery site in Kahului and is expected to reduce the Company’s overallcost structure by integrating and automating much of the fresh and processedfruit grading and packing operations.

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*Products andDistribution*

The Company sells fresh whole pineapple from Hawaii toretail and wholesale grocers in Hawaii and the continental United States. Beginningin November 2005, the Company’s fresh premium pineapple is sold under the *Maui Gold*and Hawaiian GoldTM brand names. The Company sells processedpineapple products as *store-brand* pineapplewith 100% HAWAIIAN U.S.A. stamped on the can lid. Its products are soldprincipally to large grocery chains, other food processors, wholesale grocers,the United States government and to organizations offering a complete buyers’brand program to affiliated chains and wholesalers serving both retail and foodservice outlets. A substantial volume of the Company’s pineapple products ismarketed through food brokers, which is administered through the Company’ssales office in Concord, California.

The Company sells pineapple juice and pineapple juiceblended with orange juice in plastic polyethyleneteraphthalate bottles invarious sizes to large grocery chains in the continental United States. Thepineapple juice ingredients are shipped in bulk from the Company’s cannery onMaui to co-packers on the mainland that bottle the juice to the Company’sspecifications.

As a service to its customers, the Company maintainsinventories of its products in six public warehouses in the continental UnitedStates. The number of warehouses was reduced from 21 in 2004 to six in 2005. Thebalance of its products is shipped directly from Hawaii to its customers. TheCompany’s processed pineapple products are shipped from Hawaii by oceantransportation and are then transported by truck or rail to customers or topublic warehouses. Fresh whole pineapple is shipped by air or by oceantransportation.

In 2005, approximately 20United States customers accounted for approximately 28% of the Company’sprocessed and fresh pineapple sales. Sales of Hawaii grown pineapple tocustomers located in foreign countries, primarily to Japan and Canada, amountedto approximately 2% of the Company’s processed pineapple sales in 2005, 2004and 2003. Sales to the United States government, mainly the Department ofAgriculture, amounted to approximately 29%, 35% and 20% of processed pineapplesales in 2005, 2004 and 2003, respectively.

*Competition*

The Company sells its products in competition withboth foreign and United States companies. Its principal competitors are DoleFood Company, Inc., Del Monte Food Co., and Del Monte Fresh ProduceCompany, each of which produces substantial quantities of fresh and/orprocessed pineapple products, a significant portion of which is produced inCentral America and Southeast Asia. Other major sources of competition in theprocessed pineapple sector are Thailand and Indonesia. Foreign production hasthe advantage of lower land, water, labor and regulatory costs. The Company’sprincipal marketing advantages are the high quality of its fresh and processedpineapple, the relative proximity to the United States west coast fresh fruitmarket, and being the only processor of pineapple in the United States. Theprice of the Company’s products is influenced by supply and demand of pineappleproducts and other fruits and juices.

In February 2006, DelMonte Fresh Produce Company announced that it would end its pineappleproduction in Hawaii after the current growing cycle, which will be in 2008.

***Resort***

Kapalua Land Company, Ltd. is the operating subsidiaryof the Company’s Resort segment, which operates the Kapalua Resort, amaster-planned, golf resort community on Maui’s northwest coast. The KapaluaResort is part of approximately 22,500 acres of the Company’s land-holdings inWest Maui, most of which remain as open space.

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Presently, the Kapalua Resort development includes1,650 acres bordering the ocean with three white sand beaches and includes twohotels (The Ritz-Carlton, Kapalua and the Kapalua Bay Hotel), eight residentialsubdivisions, three championship golf courses (The Bay, The Village and ThePlantation), a ten-court tennis facility, a 22,000 square foot shopping center,several restaurants, over 700 single family residential lots, condominiums andhomes. The Company operates Kapalua Resort’s three golf courses, the tennisfacility, several retail shops, a vacation rental program (The Kapalua Villas),certain services to the Resort, and Public Utilities Commission regulated waterand sewage transmission operations that service the Kapalua Resort. The Companyhad 269 units in its Kapalua Villas short-term rental program at December 31,2005. The Company also manages The Kapalua Club, a membership program thatprovides certain benefits and privileges within the Kapalua Resort for itsmembers. The Kapalua Golf Academy, located at the Village Course on 23 acres ofland in the Central Resort area is a state-of-the-art teaching and practicefacility that was developed in conjunction with PGA Touring Professional HaleIrwin.

In 2005, the Company continued working on severalmajor new initiatives to improve and revitalize the Kapalua Resort. Some of thecurrent projects include new retail space, additional amenities, renovation ofcertain facilities and a trail system that will run along the ocean, throughthe mountains and encompass the entire resort. In 2005, the Resort segmentbegan to implement the Kapalua Gold program to upgrade and standardize TheKapalua Villas as well as other initiatives to enhance and improve the KapaluaResort. The Company completed the renovation of 7 Kapalua Gold Villas during2005.

The Company also utilizes nationally televisedprofessional golf tournaments as a major marketing tool for the Kapalua Resort.Since January 1999, Kapalua has hosted the Mercedes Championship, theseason opening event for the PGA TOUR. Through the non-profit organization,Kapalua Maui Charities, Inc., the Company has agreements withMercedes-Benz and the PGA TOUR to host and manage this event at the KapaluaResort through January 2010.

Other signatureevents of the Kapalua Resort include:

·       theCelebration of the Arts, an annual event held in April that pays tributeto the people, arts and culture of Hawaii through demonstrations in hula andchant, workshops in Hawaiian art, and one-on-one interaction with localartists;

·       theKapalua Wine & Food Festival, an annual event held in July thatattracts world-famous winemakers, chefs and visitors to Kapalua for a series ofwine tasting, festive gatherings and gourmet meals, celebrating in July 2006the event’s 25th anniversary;

·       LifeFestKapalua, a health and wellness event in September that features lectures,workshops and panels by some of the country’s leading wellness and fitnessexperts; and

·       WhaleQuestat Kapalua, a new annual event that commenced in February 2006 tocelebrate the annual migration of many North Pacific Humpback Whales toHawaiian waters through lectures, tours and educational workshops.

The Kapalua Resort facessubstantial competition from alternative visitor destinations and resortcommunities in Hawaii and throughout the world. The Kapalua Resort’s primaryresort competitors on Maui are located in Kaanapali, which is approximatelyfive miles from Kapalua, and Wailea on Maui’s south coast. The Kapalua Resort’stotal guestroom inventory accounts for approximately 8% of the legally zonedunits available in West Maui and approximately 5% of the total zoned inventoryon Maui.

***Community Development***

The Community Development segment is responsible forall of the Company’s real estate entitlement, development, construction, salesand leasing activities, and is focused primarily on the luxury real estatemarket within the central area of Kapalua Resort and affordable and moderatelypriced residential and 

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mixed use projects in WestMaui and Upcountry Maui. This segment also includes the operations of KapaluaRealty Company, a general brokerage real estate company, located within theKapalua Resort.

The Company is the ground lessor under long-term leasefor The Ritz-Carlton, Kapalua hotel and receives rental income from certainother commercial properties. In addition, in August 2004, the Companycontributed the fee interests in the land underlying the Kapalua Bay Hotel andthe Company’s interests in The Kapalua Shops to Kapalua Bay LLC, a wholly-ownedsubsidiary of Kapalua Bay Holdings, LLC (“Bay Holdings”) a limited liabilitycompany formed as a joint venture between the Company, Marriott InternationalInc. and Exclusive Resorts LLC. The Company has a 51% interest in and is themanaging member of Bay Holdings. The Kapalua Bay Hotel is managed by Marriottunder an agreement with Kapalua Bay LLC. See Other Assets—Kapalua Bay Holdings,LLC, Note 3 to the Consolidated Financial Statements.

The Company must obtain appropriate entitlements forland that it intends to develop. Securing proper land entitlement is a processthat requires obtaining county, state and federal approvals, which can takemany years to complete and entails a variety of risks. The entitlement processrequires that the Company satisfy all conditions and restrictions imposed inconnection with such governmental approvals, including among other things,construction of infrastructure improvements, payment of impact fees,restrictions on permitted uses of the land, and provision of affordable housing.The Company actively works with the community, regulatory agencies, andlegislative bodies at all levels of government in an effort to obtain necessaryentitlements consistent with the needs of the community.

TheCompany has (including property owned by Bay Holdings) approximately 1,700acres of land in Maui that are at various stages in the land entitlementprocess as follows:

| ** **                          | ** ** | **Number** | ** ** | **Zoned for** | ** ** |
|-------------------------------------|------------|------------|------------|--------------------|------------|
| **Location**                        | ** ** | ** ** | ** ** | **of Acres**  | ** ** | **Planned Use** | ** ** |
| Kapalua Resort                      |       |       | 894        |               |       |   | Yes |   |   |
| Other Kapalua Resort  and West Maui |       |       | 512        |               |       |   | No |   |   |
| Upcountry                           |       |       | 305        |               |       |   | No |   |   |
|                                     |            |            |            |                    |            |  |  |  |  |  |  |

 

The Company began sellingPhase I in 2004 and Phase II in 2005 of the Honolua Ridge subdivision at theKapalua Resort. These subdivisions total 50 agricultural lots rangingfrom three to 30 acres, with list sales prices ranging from $895,000 to $6.5million.

In 2004, the Company’s Board of Directors approvedmanagement’s plan to sell certain Upcountry Maui properties owned by theCompany. These properties primarily consist of land deemed unsuitable forprecision cultivation of pineapple and were also not suitable for creating newholistic communities. In 2005, the Company sold 640 acres of these propertiesin seven transactions that resulted in net cash sales proceeds of $28.2 million.See Real Estate Sales, Note 7 to the Consolidated Financial Statements.

Some of theprojects that the Community Development segment has in the planning stagesinclude:

·       *Kapalua Mauka*:   As presently planned,this project is comprised of 690 single and multi-family residential units andcommercial components. In February 2006, the Company received final zoningapproval from the County of Maui to change from “agricultural” to “West MauiProject District 2,” which allows a mix of up to 690 homes and condominiums,five acres of commercial space and up to 27 holes of golf.

·       *Honolua Village:*   This is thecommercial component of the central area of the Kapalua Resort. It is plannedto be built in two phases and will add approximately 50,000 square feet of newretail space to the Kapalua Resort, of which 22,000 is replacing the existingKapalua Shops, which will be closed, beginning in April 2006 in connectionwith the redevelopment of the Kapalua Bay Hotel. 

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The Village will alsoinclude apartments, condominiums and other resort related facilities.Construction of the first phase began in September 2005.

·       *Pulelehua:*   This will be a new traditional community for working families inWest Maui. It encompasses 312 acres and will include 13 acres for an elementaryschool, 882 dwelling units and 91 acres of usable open space. It willinclude a traditional village center with a mix of residential andneighborhood-serving commercial uses. Public hearings with the State Land UseCommission to change the State land use designation from agriculture to urbanare underway. Hearings with the County of Maui Planning Commission and the MauiCounty Council may occur later in 2006.

·       *Kapalua Bay Hotel*:   Bay Holdings hassecured entitlements to demolish the Kapalua Bay Hotel, which is presentlyestimated to start in April 2006, and to develop new transient andresidential units, condominium residences, an ocean-side spa and a beach club. In2005, this project received final Special Management Area approval from theCounty of Maui.

·       *Hali`imaile Town:*   This new town inUpcountry Maui will be a holistic traditional community where agriculture,education, and sustainability are core design elements. A series of communitydesign workshops is scheduled in March 2006 to involve the Maui communityin determining the vision for this expansion of the community. The publicapproval process for any plan to develop this area is expected to take severalyears and will be subject to urban growth boundary determination by the Countyof Maui when it updates the County General Plan over the next three years.

The price and market forluxury real estate on Maui has in the past been highly cyclical based uponinterest rates, the popularity of Hawaii as a vacation destination, the generalcondition of the economy in the United States and Asia, and the relationship ofthe dollar to foreign currencies. The Company’s Community Development segmentfaces substantial competition from other land developers on the island of Mauias well as in other parts of Hawaii and the mainland United States.

**Employees**

In 2005, the Companyemployed approximately 1,275 employees. Agricultural operations employed approximately370 full-time and approximately 365 seasonal or intermittent employees. Approximately65% of the Agricultural operations employees were covered by collectivebargaining agreements. Resort operations employed approximately 470 employees,of which approximately 10% were part-time employees and approximately 26% werecovered by collective bargaining agreements. The Community Development segmentemployed approximately 30 employees, and corporate and support servicesemployed approximately 40 employees in 2005.

**Other Information**

The Company’s Agriculture segment engages incontinuous research to develop techniques to reduce costs through cropproduction and processing innovations and to develop and perfect new products.Research and development expenses approximated $530,000 in 2005, $695,000 in2004 and $800,000 in 2003.

The Company has reviewed its compliance with federal,state and local provisions that regulate the discharge of materials into theenvironment or otherwise related to the protection of the environment. TheCompany does not expect any material future financial impact as a result ofcompliance with these laws.

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Pursuant to a settlementagreement with the County of Maui in 1999, the Company has a commitment untilDecember 1, 2039 to share with several chemical manufacturers in thecapital costs to install filtration systems in any future water wells if the presenceof a nematocide, commonly known as DBCP, exceeds specified levels, and for theongoing maintenance and operating costs for filtrations systems on existing andfuture wells. The Company paid $238,000 in 2005 for its share of the capitalcost to install a filtration system for an existing well. The Company is notpresently aware of any plans by the County of Maui to install other filtrationsystems or to drill any water wells in areas affected by agriculturalchemicals. For additional information, see Commitments and Contingencies, Note18 to the Consolidated Financial Statements.

**FinancialInformation about Geographic Areas**

Revenues and long-livedassets attributable to foreign countries were not material for the last threeyears. See Discontinued Operations, Note 4 to the Consolidated FinancialStatements.

**Available Information**

The Company’s Internetaddress is *www.mauiland.com.* Reference in thisannual report to our website address does not constitute incorporation byreference of the information contained on the website. The Company makesavailable free of charge on or through its website its annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K,and amendments to those reports filed or furnished pursuant to Section 13(a) or15(d) of the Securities Exchange Act of 1934, as amended, or the ExchangeAct, as soon as reasonably practicable after the Company electronically filessuch material with, or furnishes it to, the Securities and Exchange Commission,or SEC. The Company also makes available through its website all filings of theCompany’s executive officers and directors on Forms 3, 4 and 5 under Section 16of the Exchange Act. These filings are also available on the SEC’s website at *www.sec.gov.*

**ExecutiveOfficers of the Company**

The Company’s executiveofficers as of March 3, 2006, are listed below. The current terms of theexecutive officers expire in May 2006, or at such time as their successorsare elected.
| David C. Cole (53)     |   | Mr. Cole has served as Chairman of the Company since  March 2004, and President and Chief Executive Officer of the Company since  October 2003.  Mr. Cole also serves as  Chairman of Sunnyside Farms, LLC, a specialty consumer products retailer and  supplier of premium organic meats and produce in Washington, Virginia since  1997; and President of Aquaterra, Inc. an investment management firm that  serves as managing general partner for Pan Pacific Ventures LP, Catalyst II  LLC and Aquaterra Partners LLC, partnerships with interests in software, real  estate, agriculture, retailing, and consumer products since 1997.  Mr. Cole also served as Chairman of Twin  Farms Collections, LLC a luxury resort in Barnard Vermont from 2001 to 2004. |
|------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Brian C. Nishida  (49) |   | Executive Vice  President/Agriculture since June 2004; President and Chief Executive  Officer, Maui Pineapple Company, Ltd. since January 2004; Vice President  and General Manager, Del Monte Fresh Produce (Hawaii) Inc. a vertically  integrated producer, marketer and distributor of fresh and fresh-cut prepared  fruit and vegetables, juices, beverages, snacks and desserts from 1985 to  2003.                                                                                                                                                                                                                                                                                                                                                              |

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| Robert M. McNatt (58)    |   | Executive Vice  President/Community Development since February 2005; Senior Vice  President/Land Planning & Development 2004 to 2005; Vice  President/Land Planning & Development 2001 to 2004; Vice  President/Development of Kapalua Land Company, Ltd., the land development and  resort operating subsidiary of the Company since 1996.                                                                                                                                                                                                                                                                                                                                       |
|--------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Fred W. Rickert  (62)    |   | Vice President/Chief  Financial Officer since September 2004; Acting Chief Financial Officer  July 2004 to September 2004; Vice President/Finance of Maui  Pineapple Company, Ltd., the operating subsidiary of the Company’s  Agriculture segment from April 2004 to July 2004; Chief Financial  Officer of the Port of Oakland, a municipal corporation with operations in  the Oakland International Airport, maritime operations, and commercial real  estate development 1996 to 2004; Vice President Accounting of PLM  International, Inc., an AMEX listed company syndicating partnerships for  transportation equipment operating leases, from 1990 to 1996. |
| Thomas H. Juliano  (56)  |   | President and Chief  Executive Officer, Kapalua Land Company, Ltd. since June 2005; Vice  President/Hospitality of Vail Resorts Inc., the largest operator of ski  resorts in North America from October 2001 to June 2005. Vice  President of Mace Pacific Holdings LLC, a resort development company from  2000 to 2001.                                                                                                                                                                                                                                                                                                                                                                |
| Dennis  Stoltenberg (56) |   | Vice President/Human  Resources since January 2005; Vice President, Human Resources of GE  Access, a high end complex solutions international distribution company from  1998 to December 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

 

**Item 1A.**                RISKFACTORS

**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 financialresults.

**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 decrease. 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 effect on our results of operations or financial condition. Inaddition, equity real estate investments may be difficult to sell quickly andwe may not be able to adjust our portfolio of properties quickly in response toeconomic or other conditions.

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**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 and other properties, as suitable opportunities arise, takinginto consideration the general economic climate. New project developments havea number 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, this could have a materially adverseaffect on the Company’s financial results.

**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 dependant on its Community Development operating segment. Thefinancial performance of our Community Development segment is closely relatedto the Company’s 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 materially adverse affect on the Company’sfinancial results.

**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 product may remain in inventory for much longer thanexpected or be sold at lower than expected returns, or even at a loss, whichcould impair the Company’s liquidity and ability to proceed with additionalland development projects and negatively affect the Company’s operatingresults.

**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 estateproduct faces competition from other luxury resort real estate properties onMaui, and from other luxury resort residential property in Hawaii and themainland United States. In many cases, the Company’s competitors are largerthan it is and have greater access to capital. If the 

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Companyis unable to compete with these larger competitors, its financial results couldbe 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. If the Company and other Maui businesses areunable to gain approvals from the government to allow for the expansion ofaffordable housing and to implement plans to provide a higher level of publicservices, including schools, further development in West Maui could be severelyrestricted, which in turn could have a materially adverse effect on the Company’soperations. While the Company proposes to pay its fair share for the provisionof affordable housing and the construction of infrastructure, there arepolitical factions in the County government who do not want any furtherdevelopment.

**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 the Company liable for the costs of removing orcleaning up hazardous or toxic substances on, under, or in property itcurrently owns or operates or that it previously owned or operated. These lawscould impose liability without regard to whether the Company knew of, or wasresponsible for, the presence of hazardous or toxic substances. The presence ofhazardous or toxic substances, or the failure to properly clean up suchsubstances when present, could jeopardize the Company’s ability to develop,use, sell or rent the real property or to borrow using the real property ascollateral. If the Company arranges for the disposal or treatment of hazardousor toxic wastes, it could be liable for the costs of removing or cleaning upwastes at the disposal or treatment facility, even if it never owned oroperated that facility. Certain laws, ordinances and regulations, particularlythose governing the management or preservation of wetlands, coastal zones andthreatened or endangered species, could limit the Company’s ability to develop,use, sell or rent its real property.

**TheCompany’s agriculture operations face significant competition from companieswith greater financial resources and from foreign competition with lower coststructures.**

The Company sells its products in competition withboth foreign and United States companies. Its principal competitors are threecompanies, Dole Food Company, Inc., Del Monte Food Co., and Del MonteFresh Produce Company, each of which produce substantial quantities of pineappleproducts, a significant portion of which is produced in Central America andSoutheast Asia. Other producers of pineapple products in Thailand and Indonesiaalso are a major source of competition. Producers of pineapple in foreigncountries have substantially lower land, water, labor and regulatory costs thanthe Company.

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 it cannot compete 

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effectivelywith these larger companies and lower cost producers, its financial resultscould be adversely affected.

**Weatherconditions such as drought, extreme cold and torrential rainfall can have anadverse impact on crop production.**

The fresh market requiressteady and predictable fruit delivery. The accelerated movement of processedproduct inventory has reduced sales stock. Adverse weather conditions mayinterrupt planting, growing and crop delivery and affect operating results. TheCompany has diversified growing regions to Central and West Maui to mitigatesome of this weather related risks.

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

The fresh and processedpineapple markets are highly competitive. A decline in the price of pineappleor increases in the price of fuel or packaging materials could adversely affectoperating results. Agricultural chemicals used in the past have resulted incontingent liabilities that could result in future claims against the Company.

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

The United Statesgovernment represented approximately 29%, 35% and 20% of the Company’sprocessed pineapple sales for 2005, 2004 and 2003, respectively. It isdifficult to predict whether the United States government will continue torepresent such a significant portion of our processed pineapple sales in thefuture because the Company does not have a long-term contract to supplypineapple to the government. If the Company were to lose this customer,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 Company’s CommunityDevelopment segment and the Resort segment are dependent on attracting visitorsto Kapalua and to Maui and the state of Hawaii as a whole. Economic factorsthat affect the number of visitors, their length of stay or expenditure levelswill affect our financial performance. Factors such as the cost of energy,events in the airline industry that affect passenger capacity or travelingcost, and the threat, or perceived threat, of heightened terrorist activity inthe United States, could affect a potential visitors’ choice of vacation destinationor second home location.

The Company’s agricultureoperations are dependent on ocean shipment and airfreight to transportprocessed and fresh pineapple to customers in the United States. Increases inthe cost of energy, and other factors that affect the cost and reliability ofocean shipment and airfreight will affect the financial results of the Company’sAgriculture segment.

**Item1B.**               UNRESOLVED STAFFCOMMENTS

Not applicable.

**Item 2.**                        PROPERTIES

The Company ownsapproximately 27,500 acres of land on Maui. Approximately 30% of the acreage isused directly or indirectly in the Company’s operations and the remaining landis primarily in pasture or forest reserve. This land, most of which wasacquired from 1911 to 1932, is carried on the Company’s balance sheet at cost. TheCompany believes it has clear and unencumbered marketable title to all suchproperty, except for the following:

·       aperpetual conservation easement granted to the State of Hawaii on a 13-acreparcel at Kapalua;

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·       certaineasements and rights-of-way that do not materially affect the Company’s use ofits property;

·       amortgage on approximately 3,300 acres used in Agriculture operations, whichsecures the Company’s $13.5 million revolving loan agreement;

·       amortgage on the three golf courses at Kapalua, which secures the Company’s $30million revolving credit facility;

·       apermanent conservation easement granted to The Nature Conservancy of Hawaii, anon-profit corporation, covering approximately 8,600 acres of forest reserveland;

·       asmall percentage of the Company’s land in various locations on which multipleclaims exist, for some of which the Company is securing clean title; and

·       amortgage on 249 acres of Company land that secures a $4.2 million loan to MauiPreparatory Academy, or MPA, a new private middle school in West Maui. TheCompany has an agreement to sell 15 acres of the parcel to MPA for $100, and isin the process of subdividing the parcel.

Approximately 22,500 acres of the Company’s land arelocated in West Maui, approximately 5,000 acres are located in Upcountry Mauiand approximately 27 acres are located in Kahului, Maui.

The 22,500 acres in West Maui comprise a largelycontiguous parcel that extends from the sea to an elevation of approximately5,700 feet and includes 10.6 miles of ocean frontage with approximately 3,300lineal feet along sandy beaches, as well as agricultural and grazing lands,gulches and heavily forested areas. The West Maui acreage includesapproximately 2,700 acres comprising the Company’s West Maui pineappleplantation and approximately 1,650 acres designated for the Kapalua Resort.

The Upcountry Maui property is situated at elevationsbetween 1,000 and 3,000 feet above sea level on the slopes of Haleakala. Approximately2,100 acres are used for the Company’s Agriculture operations in the Company’sUpcountry pineapple plantation and fresh fruit packing facility.

The Kahului acreage includes the Company’sadministrative offices, a can manufacturing plant and a pineapple cannery withinterconnected warehouses at the cannery site where finished product is stored.

Approximately 1,400 acresof leased land are used in the Company’s Agriculture operations under eightleases expiring at various dates through 2018. The Company paid $604,000 in2005 for the aggregate land rental for all leased land in agriculturalproduction.

**Item 3.**                        LEGALPROCEEDINGS

The Company is a party tovarious claims, complaints and other legal actions that have arisen in thenormal course of business from time to time. The Company believes the outcomeof these pending legal proceedings, in the aggregate, is not likely to have amaterial adverse effect on the operations or financial position of the Company.

**Item 4.**                        SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submittedto a vote of the Company’s stockholders during the fourth quarter of fiscalyear 2005.

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**PART** II

**Item 5.**                        MARKETFOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES

The Company’s common stock is traded on the AmericanStock Exchange under the symbol “MLP.” The Company did not declare anydividends in 2005 and 2004. The declaration and payment of cash dividends arerestricted by the terms of borrowing arrangements to 30% of prior year’s netincome. As of February 17, 2006, there were 428 shareholders of record.

Thefollowing chart reflects high and low sales prices during each of the quartersin 2005 and 2004:

| ** ** | ** ** | ** ** | ** ** | **First**   | ** ** | **Second**  | ** ** | **Third**   | ** ** | **Fourth**  | ** ** |
|------------|------------|------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** ** | ** ** | ** ** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
| 2005       |       | High       |       |        | $          | 47.20       |       |        |       | $           | 44.35      |   |   |   | $ | 39.30 |   |   |   | $ | 35.75 |   |   |
|       |       | Low        |       |        | 36.26      |        |       |        | 36.34      |        |       |   | 29.60 |   |   |   | 26.75 |   |   |
| 2004       |       | High       |       |        | $          | 39.65       |       |        |       | $           | 37.40      |   |   |   | $ | 33.95 |   |   |   | $ | 41.95 |   |   |
|       |       | Low        |       |        | 31.00      |        |       |        | 30.60      |        |       |   | 29.20 |   |   |   | 31.00 |   |   |

 

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**Item6.**                        SELECTEDFINANCIAL DATA

Theselected financial data set forth below for the five years endedDecember 31, 2005, should be read in conjunction with the ConsolidatedFinancial Statements and accompanying notes thereto.

| ** **                                         | ** ** | **2005**                                                                          | ** ** | **2004**  | ** ** | **2003**  | ** ** | **2002**  | ** ** | **2001**  | ** ** |
|----------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|-----------|------------|
| ** **                                         | ** ** | **(Dollars in Thousands Except Per Share Amounts)** | ** ** |
| *FOR THE YEAR*                                     |       |                                                                              |       |      |       |      |       |      |       |      |       |
| Summary of Operations                              |       |                                                                              |       |      |       |      |       |      |       |      |       |
| Operating revenues                                 |       | $                                                                                 | 186,680    |      | 153,249    |      | $          | 151,333   |       | $         | 147,627    |   | $ | 158,956 |   |
| Cost of sales                                      |       | 73,537                                                                            |       | 71,226    |       | 74,832    |       | 79,582    |       | 81,297    |       |
| Operating expenses                                 |       | 36,418                                                                            |       | 36,177    |       | 33,188    |       | 32,888    |       | 33,279    |       |
| Shipping and marketing                             |       | 14,446                                                                            |       | 15,621    |       | 19,379    |       | 18,746    |       | 17,520    |       |
| General and  administrative                        |       | 38,425                                                                            |       | 29,347    |       | 30,537    |       | 22,679    |       | 18,425    |       |
| Equity in earnings  (losses) of affiliates         |       | (484                                                                              | )          | (727      | )          | 12,678    |       | (1,178    | )          | 5,543     |       |
| Interest expense                                   |       | (521                                                                              | )          | (1,159    | )          | (2,526    | )          | (2,389    | )          | (2,820    | )          |
| Interest income                                    |       | 443                                                                               |       | 23        |       | 167       |       | 114       |       | 65        |       |
| Income tax (expense)  benefit                      |       | (8,723                                                                            | )          | 528       |       | (1,500    | )          | 3,697     |       | (3,507    | )          |
| Income (loss) from  continuing operations          |       | 14,569                                                                            |       | (457      | )          | 2,216     |       | (6,024    | )          | 7,716     |       |
| Discontinued operations,  net of income taxes(1)   |       |                                                                              |       | 74        |       | 3,781     |       | 315       |       | (148      | )          |
| Net income (loss)                                  |       | 14,569                                                                            |       | (383      | )          | 5,997     |       | (5,709    | )          | 7,568     |       |
| Earnings Per Common Share—Basic               |       |                                                                              |       |      |       |      |       |      |       |      |       |
| Income (loss) from  continuing operations          |       | 2.02                                                                              |       | (.06      | )          | .31       |       | (.83      | )          | 1.07      |       |
| Discontinued operations,  net of income taxes      |       | —                                                                            |       | .01       |       | .52       |       | .04       |       | (.02      | )          |
| Net income (loss)                                  |       | 2.02                                                                              |       | (.05      | )          | .83       |       | (.79      | )          | 1.05      |       |
| Other Data                                         |       |                                                                              |       |      |       |      |       |      |       |      |       |
| Cash dividends declared                            |       | —                                                                            |       | —    |       | —    |       | —    |       | —    |       |
| Depreciation                                       |       | $                                                                                 | 14,263     |      | $          | 10,040    |       | $         | 12,184     |      | $          | 11,072 |   | $ | 10,226 |   |
| Return on beginning  stockholders’ equity     |       | 20.3                                                                              | %          | (0.5      | )%         | 9.6       | %          | (7.8      | )%         | 11.5      | %          |
| Percent of net income  (loss) to revenues          |       | 0.8                                                                               | %          | (0.2      | )%         | 4.0       | %          | (3.9      | )%         | 4.8       | %          |
| *AT YEAR END*                                      |       |                                                                              |       |      |       |      |       |      |       |      |       |
| Current assets  less current liabilities(2)   |       | $                                                                                 | 8,900      |      | $          | 11,184    |       | $         | 23,567     |      | $          | 25,502 |   | $ | 25,463 |   |
| Ratio of current  assets to current liabilities(2) |       | 1.2                                                                               |       | 1.3       |       | 1.9       |       | 1.9       |       | 2.1       |       |
| Property, net of  accumulated depreciation         |       | $                                                                                 | 96,935     |      | $          | 93,897    |       | $         | 95,048     |      | $          | 112,198 |   | $ | 113,046 |   |
| Total assets                                       |       | 185,999                                                                           |       | 160,923   |       | 161,680   |       | 184,195   |       | 176,433   |       |
| Long-term debt and  capital leases                 |       | 10,284                                                                            |       | 13,953    |       | 22,996    |       | 43,252    |       | 39,581    |       |
| Stockholders’ equity                          |       |                                                                              |       |      |       |      |       |      |       |      |       |
| Amount                                             |       | 91,180                                                                            |       | 71,621    |       | 71,544    |       | 62,739    |       | 73,419    |       |
| Per common share                                   |       | $                                                                                 | 12.57      |      | $          | 9.91      |       | $         | 9.94       |      | $          | 8.72 |   | $ | 10.20 |   |
| Common shares  outstanding                         |       | 7,254,779                                                                         |       | 7,226,550 |       | 7,195,800 |       | 7,195,800 |       | 7,195,800 |       |

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(1)   In 2003,the Company sold the Napili Plaza and substantially all of its Costa Ricanpineapple assets. The operating results of these operations and the gains fromthe sales of these assets are reported as discontinued operations. Prior periodamounts have been restated for comparability.

(2)   Current assets less current liabilities and the ratioof current assets to current liabilities for 2005 and 2004 are relatively lowprimarily because of an increase in deferred revenues related to the HonoluaRidge lot sales. See Deferred Revenues, Note 6 to the Consolidated FinancialStatements.

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**Item 7.**                        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 Agriculture, Resort and CommunityDevelopment.

*Agriculture*

Previously called the “Pineapple”segment, the Agriculture segment primarily includes growing, packing,processing, and marketing of processed and fresh pineapple. The fruit grown bythe Company 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.

*Resort*

The Resort segmentincludes the Company’s ongoing operations at the Kapalua Resort. Theseoperations include three championship golf courses, a tennis facility, avacation rental program, several retail outlets and Public Utilities Commissionregulated water and sewage transmission operations.

*CommunityDevelopment*

Previously called the “Development”segment, the Community Development segment includes the Company’s real estateentitlement, development, construction, sales and leasing activities. Thissegment also includes the operations of Kapalua Realty Company, a generalbrokerage real estate company, located within Kapalua Resort. Beginning August 31,2004, the Community Development segment includes the Company’s investment inKapalua Bay Holdings, LLC, owner of the Kapalua Bay Hotel. See Other Assets—KapaluaBay Holdings, LLC, Note 3 to the Consolidated Financial Statements.

***Current Developments***

In 2005, considerable resources in terms of time andfunds were invested to position the Company for positive future results. Theyear was marked by continued restructuring, re-shaping and upgrading of theCompany’s processes and business segments. Throughout 2005, Company-wide actionto secure land entitlements for the Kapalua Mauka project, a plannedresidential community, was a top priority for management. Kapalua Mauka isconsidered by the Company as the single most important project that can fuelthe strategic direction that is envisioned for its agricultural and resortoperations in the next several years.

The change in zoning process for Kapalua Mauka ended2005 pending Maui County Council approval. In February 2006, The Companyreceived final zoning approval from the Maui County Council to change KapaluaMauka’s zoning from “agricultural” to “West Maui Project District 2,” whichallows a mix of up to 690 homes and condominiums, five acres of commercialspace, and up to 27 holes of golf.

In February 2005, the Company’s Board ofDirectors approved the investment of $17.2 million for the construction of anew multi-commodity/multi-client processing facility that would replace theexisting pineapple cannery at Kahului, Maui and the fresh fruit packingfacility located Upcountry Maui. In January 2006, modifications to theproject scope, rising construction costs and other factors led management andthe Board of Directors to conclude that the Company should first focus oncompleting the new fresh-packing facility portion of the project and defer theremainder of the project. The project as revised includes the expenditure of$17.5 million for the new fresh-packing facility and the deferral ofconstruction of the processed plant portion to 2007. The new facility will beconstructed on a portion of the 

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present cannery site inKahului and is expected to reduce the Company’s overall cost structure byautomating and integrating the fresh and processed grading and packingoperations. The revised project plan also includes the expenditure of $6.9million for construction of a new office area for the Company’s corporateheadquarters and support services—accounting, information technology and humanresources. This office area will be constructed within an existing warehouse atthe Kahului cannery and will utilize recycled materials from the Kapalua BayHotel, which is scheduled for demolition in April 2006.

Other significanttransactions, events and key initiatives that took place in 2005 included:

·       TheCompany sold approximately 640 acres of Upcountry Maui land. The Company willre-invest the $28.2 million net cash sales proceeds from these transactions($26.9 million pre-tax gain) to strengthen its Agriculture segment operations,reposition the Resort operations and to increase investments in its CommunityDevelopment segment.

·       FromApril 1 through July 30, the Plantation Course was closed forregrassing of the greens, renovation of the fairway bunkers and other courseimprovements.

·       InJune, the newly renovated restaurant at the Bay Course Clubhouse opened undernew management.

·       Thesale of the agricultural home sites in Honolua Ridge Phase II began in August andseven lot sales closed escrow by year-end. Construction of the offsiteimprovements for this 25-lot residential subdivision, ranging in sizefrom 3 to 30 acres, began in August and is expected to be completed in October 2006.

·       Groundbreakingand a blessing for Honolua Village Phase I was held in September. Constructionof this 12,000 square foot commercial space in the Central Resort area isexpected to be completed in mid-2006.

·       In December, the Companyreceived a Special Management Area permit for the construction of new whole andfractional residences on the property that is presently the Kapalua Bay Hotel. Demolitionof the Kapalua Bay Hotel is planned for April 2006 and presales of thecondominiums will begin in May 2006. Construction is expected to continuethrough 2008.

RESULTS OF OPERATIONS

Comparison of Years Ended December 31,2005 and 2004

CONSOLIDATED

| ** **                  | ** ** | **Years Ended December 31,**                                      | ** ** | **Change**                                                                       | ** ** |
|-----------------------------|------------|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                  | ** ** | **      2005      ** | ** ** | **      2004      ** | ** ** | **inc** | ** ** | **%** | ** ** |
| ** **                  | ** ** | **(Dollars in Millions, Except  Per Share Amounts)**    | ** ** |
| *Consolidated  Revenues*    |       |                                                                             | $          | 186.7                                                                            |       |   |   | $ | 153.2 |   |   | $ | 33.5 |   | 22 | % |
| *Net  Income (Loss)*        |       |                                                                             | $          | 14.6                                                                             |       |   |   | $ | (0.4 | ) |   | $ | 15.0 |   |   |   |
| *Earnings Per Common Share* |       |                                                                             | $          | 2.02                                                                             |       |   |   | $ | (0.05 | ) |   | $ | 2.07 |   |   |   |

 

The Company reported netincome of $14.6 million ($2.02 per share) for 2005 compared to a net loss of$383,000 ($.05 per share) for 2004. Consolidated revenues were $186.7 millionfor 2005, an increase of 22% from $153.2 million for 2004. The improved resultsin 2005 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. Included inincome for 2005 are charges of approximately $7.4 million (pre-tax) related tothe restructuring of the Company’s processes and operations.

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*General andAdministrative*

In 2005, general and administrative expenses increasedby 31% to $38.4 million compared to $29.3 million for 2004.

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

| ** **                                  | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                  | ** ** | **2005**                                    | ** ** | **2004** | ** ** | **inc (dec)** | ** ** |
| ** **                                  | ** ** | **(Dollars in Millions)**         | ** ** |
| Salaries and  wages                         |       | $                                           | 9.0        |   | $ | 6.2 |   |   | $ | 2.8 |   |   |
| Depreciation and  asset write offs          |       | 7.3                                         |       | 3.4 |   |   | 3.9 |   |   |
| Professional and  other outside services    |       | 7.1                                         |       | 3.8 |   |   | 3.3 |   |   |
| Medical insurance  premiums                 |       | 3.7                                         |       | 4.4 |   |   | (0.7 | ) |   |
| Employee  incentives and stock compensation |       | 3.1                                         |       | 2.1 |   |   | 1.0 |   |   |
| Employee  severance expense                 |       | 0.9                                         |       | 2.1 |   |   | (1.2 | ) |   |
| Other (net)                                 |       | 7.3                                         |       | 7.3 |   |   | — |   |   |
| Total                                       |       | $                                           | 38.4       |   | $ | 29.3 |   |   | $ | 9.1 |   |   |

 

The increase in salaries and wages is primarily theresult of additional employees in the Community Development segment in 2005. Expansionof the Community Development staff was necessary in order to accomplish theprojects and initiatives for this segment. The increase in employee incentivesand stock compensation expense was principally the result of accruals forperformance-based incentives, reflecting the Company’s increased emphasis onperformance-based pay plans.

The decrease in medical insurance premiums in 2005largely reflects the reduction in the work force in the Agriculture segmentthat occurred in 2004 and in 2005. Employee severance expense was lower in 2005because of management changes at the corporate level in 2004. In addition,employee severance charges, arising from reduction in the work force in theAgriculture segment, were approximately $1.3 million in 2004, compared to$520,000 in 2005.

The increase in depreciation and asset write offs chargedto general and administrative expenses primarily relate to: (1) accelerationof depreciation charges on certain assets from the current cannery, can plantand fresh fruit processing facility; (2) acceleration of depreciationcharges on the Company’s integrated accounting system; (3) write off ofassets related to the Company’s payroll and human resource accounting system;and (4) the write off of other assets that the Company has ceased to use.

The Company is currently constructing a processingfacility to replace its fresh fruit packing plant, and has plans to beginconstruction of a multi-commodity/multi-client processing facility to replaceits cannery and can plant in 2007. In 2005, the Company began to evaluate theAgriculture segment assets and record depreciation charges related to thechange in estimated useful life of these assets. The Company estimated thatAgriculture segment assets with a net book value of approximately $5.4 millionwill be expensed over the 34-month period ending December 31, 2007. Thisresulted in additional depreciation charges of $2.7 million in 2005.

In 2005, as the Company evaluated its businesses,operations and processes it became evident that the accounting systemscurrently in use are not able to meet the Company’s needs. The Company’spayroll and human resource accounting functions were outsourced to a thirdparty provider at the end of 2005 and the net book value of the relatedin-house systems was written off. In the fourth quarter of 2005, the Companyconcluded plans to replace the other primary accounting systems that it isusing and began to accelerate the depreciation of the existing accountingsystems. Current plans are to conclude the implementation of new accountingsystems in 2006. Evaluation of the Company’s fixed assets in 2005 also resultedin the identification of assets that the Company will no longer use because ofchanges in plans and operations. In 

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2005, the Company expensed$4.0 million for these asset write offs and acceleration of depreciation foraccounting systems.

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 Section 404of the Sarbanes-Oxley Act. The increase in professional services also reflectscharges incurred in 2005 for modifications and adjustments to the Company’sintegrated accounting system and additional training of the Company’s employeeson use of the system. Reduction in staffing and staff turnover, particularly inthe Agriculture segment, necessitated re-training of the staff.

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$521,000 for 2005 was lower by 55% compared to 2004. The decrease in interestexpense was due to lower average borrowings and to a higher amount ofcapitalized interest in 2005 (see Liquidity and Capital Resources, *Debt Position*). Capitalized interest was $742,000 for 2005compared to $199,000 for 2004, primarily as a result of construction activitiesat the Kapalua Resort. The Company’s average interest rate on borrowings was6.7% in 2005 compared to 5.5% in 2004, due to higher borrowing rates fromfinancial institutions.

AGRICULTURE

| ** **                   | ** ** | **Years Ended December 31,**                          | ** ** | **Change**                                                           | ** ** |
|------------------------------|------------|----------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                   | ** ** | **     2005     ** | ** ** | **     2004     ** | ** ** | **dec** | ** ** | **%** | ** ** |
| ** **                   | ** ** | **(Dollars in Millions)**                                  | ** ** |
| *Revenues*                   |       |                                                                 | $          | 74.5                                                                 | * *   |   |   | $ | 80.0 | * * |   |   | $ | (5.5 | ) |   | -7% |   |
| *% of consolidated revenues* | * *   | * *                                                             | *40*       | *%*                                                                  | * *   | * * | *52* | *%* |   |   |   |   |   |   |   |
| *Operating Loss*             |       |                                                                 | $          | (11.4                                                                | )          |   |   | $ | (10.8 | ) |   |   | $ | (0.6 | ) |   |   |   |

 

The Agriculture segment produced an operating lossfrom continuing operations of $11.4 million for 2005 compared to an operatingloss of $10.8 million for 2004. Revenues for 2005 of $74.5 million were 7% lowerthan 2004.

Lower Agriculture segmentrevenues in 2005 was due to a reduced sales volume of processed pineapple,which was partially offset by increased fresh pineapple sales volume and higheraverage prices for both processed and fresh pineapple in 2005.

*Non-Recurring Items*

·       The operating loss for 2005includes $4.5 million for asset write offs and additional depreciation chargesfor assets where the estimated useful lives were reduced because of changes inthe operations of the Agriculture segment, as mentioned in *General and Administrative* above. Theoperating loss for 2004 included $1.3 million of asset write offs related tothe restructuring of the Agriculture segment operations.

·       Revenues for 2005 include$3.1 million received from the U. S. Customs Service compared to $1.7 millionreceived from this program in 2004. These cash distributions were made pursuantto the Continued Dumping and Subsidy Offset Act of 2000, or the CDSOA, whichallows for distribution of antidumping duties to injured domestic producers. Thedistributions are recorded as “Other Income” in the Company’s ConsolidatedStatements of Operations.

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Anti-dumping duties have been in effect on processedpineapple fruit imported from Thailand since 1995. In late 2004, theantidumping duty order on several Thailand exporters of processed pineapple,which together accounted for more than 50% of the Thailand exports to theUnited States, was revoked. As a result, these Thailand exporters no longerhave antidumping duties assessed on their exports to the United States. Theserevocations have had, and will continue to have, an effect on the amount offunds collected and distributed to the Company under the CDSOA.

*Fresh and ProcessedOperations*

The case volume of fresh pineapple sales increased by25% in 2005 compared to 2004. Revenues from fresh pineapple sales wereapproximately 34% and 24% of the Agriculture segment net sales for 2005 and2004, respectively. The Company’s average revenue per box of fresh pineapplesales increased by approximately 6% in 2005 compared to 2004 primarilyreflecting the improved quality of its products and related marketing efforts.

The case volume of processed pineapple sales decreasedby 27% for 2005 compared to 2004, primarily reflecting the Company’s strategyto sharply reduce supply to selected retail market segments. This market refinementhas resulted in the average sales prices for the Company’s processed pineappleproducts to increase by approximately 7% for 2005 compared to 2004. The Companyimplemented price increases for its processed product lines in March, June andAugust of 2004, and in August 2005.

Processed pineapple sold to the U. S. Government,primarily to the Department of Agriculture, comprised approximately 40% of theCompany’s case volume of processed pineapple sales in 2005 compared toapproximately 35% in 2004. The increase in the percentage of processedpineapple sales to the U. S. Government is a result of lower overall processedpineapple sales and an increase in the Company’s participation in governmentprograms that purchase pineapple for school lunches, needy families and othergovernment programs.

The Agriculture segment cost of sales was lower by 12%for 2005 as compared to 2004, primarily reflecting lower sales volume ofprocessed pineapple. The average per unit cost of sales was higher in 2005compared to 2004 because the impact of a liquidation of inventory based on theLIFO (last-in, first-out) method of accounting for inventories was higher in2004 than in 2005. Cost of sales in 2005 and 2004 would have been higher by$2.9 million and $6.8 million, respectively, based on current costs.

Agriculture shipping andmarketing cost decreased by $1.1 million (9%) in 2005, compared to 2004,largely reflecting the lower sales volume of processed pineapple, partiallyoffset by increased ocean and airfreight shipping costs per unit. Increased useof surface shipment, instead of the higher cost air shipment, was alsoresponsible for the lower cost in 2005. The Company’s changes in cultivationpractices, harvesting methods, and post-harvest handling have extended the shelflife of fresh fruit products enabling the company to increase its reliance onsurface transport to reach North American markets. In 2005, the Company shippedapproximately 87% of its *Maui Gold* freshpineapple by surface, rather than by air, compared to about 72% in 2004. Reductionsin the work force at the Company’s sales and marketing office and an increasein shipments directly to the Company’s customers (as opposed to interim storageof inventory in public warehouses), also contributed to lower shipping andmarketing costs in 2005.

*Outlook*

The Company plans tocomplete the new fresh fruit packing facility by mid-2006 and expectsthat significant processing efficiencies will be gained when the new facilityis in use. The Agriculture segment intends to continue planning and costing forthe cannery and can plant aspects of the new processing facility, but does notexpect to commence for that portion of the project until 2007. The segment will

20

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continueto refine its agronomic practices to produce a consistently premium product andcontinue its marketing efforts to obtain a larger percentage of directcustomers.

RESORT

| ** **                   | ** ** | **Years Ended December 31,**                                      | ** ** | **Change**                                                                       | ** ** |
|------------------------------|------------|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                   | ** ** | **      2005      ** | ** ** | **      2004      ** | ** ** | **inc (dec)** | ** ** | **%** | ** ** |
| ** **                   | ** ** | **(Dollars in Millions)**                                              | ** ** |
| *Revenues*                   |       |                                                                             | $          | 43.2                                                                             | * *   |   |   | $ | 42.4 | * * |   |   | $ | 0.8 |   |   |   | 2 | % |   |
| *% of consolidated revenues* | * *   | * *                                                                         | *23*       | *%*                                                                              | * *   | * * | *28* | *%* |   |   |   |   |   |   |   |   |   |
| *Operating Loss*             |       |                                                                             | $          | (5.5                                                                             | )          |   |   | $ | (4.6 | ) |   |   | $ | (0.9 | ) |   |   |   |   |   |

 

The Resort segment reported an operating loss of $5.5million for 2005 compared to an operating loss of $4.6 million for 2004. Resortrevenues of $43.2 million for 2005 were 2% higher than 2004.

Hotel and condominium room occupancies at the KapaluaResort, and to a somewhat lesser extent for Maui in general, largely drive theincrease in resort activity as reflected by increased golf play, merchandisesales and lease revenues. Hotel and condominium room occupancies at KapaluaResort increased by 10% in 2005 compared to 2004. Occupancies for the island ofMaui increased by 2% and for the State of Hawaii, occupancies increased by 5%in 2005 compared to 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 Kapalua Resort were attributable to increases in staffing at the KapaluaVillas, and higher fuel and utility costs, repairs and maintenance costs,Kapalua Resort Association dues, and increased costs for outside consultants.Marketing expenses were higher in 2005 compared to the prior year because ofincreased staffing and events reflecting greater emphasis on marketing theKapalua Resort.

*Golf, Merchandiseand Villas*

Revenues from golf operations increased by 2% in 2005compared to 2004. Lost revenues from the closure of the Plantation Course wereoffset by higher average green fees. Overall, paid rounds of golf decreased by9% for 2005 compared to 2004. Average green and cart fees increased by 11% in2005 compared to 2004.

The closure of the Plantation Course fromApril 1, 2005 through July 30, 2005 also negatively affected theKapalua Resort’s merchandise sales, which decreased by approximately 2% for2005 compared to 2004. Increased sales at Kapalua Resort’s other retailoutlets, in part attributed to higher room occupancies, partially offset theeffect of the Plantation Course closure.

Gross revenues from theKapalua Villas increased by approximately 8% for 2005 compared to 2004,reflecting both higher average room rates and occupancies.

*Outlook*

The Company considers the upgrading of the KapaluaResort with the current and planned projects and initiatives, key to sustainedand increased revenues streams from the Resort segment. The Company expects toassist owners in the renovation of up to 70 Kapalua Gold Villa units in 2006.

In 2006, demolition of theKapalua Bay Hotel, construction of the new residences at the Kapalua Bay Hotelsite and Honolua Village in the Central Resort, as well as the various otherconstruction projects that will be taking place at Kapalua Resort may detractfrom the guest experience and thereby negatively 

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affectthe Company’s financial results. However, the Company believes that the risk ofnot moving forward with these projects to upgrade and add amenities to theKapalua Resort facilities is far greater to the long-term success ofKapalua Resort and the Company as a whole.

**COMMUNITY DEVELOPMENT**

| ** **                   | ** ** | **Years Ended December 31,**                                      | ** ** | **Change**                                                                       | ** ** |
|------------------------------|------------|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                   | ** ** | **      2005      ** | ** ** | **      2004      ** | ** ** | **inc** | ** ** | **%** | ** ** |
| ** **                   | ** ** | **(Dollars in Millions)**                                              | ** ** |
| *Revenues*                   |       |                                                                             | $          | 68.7                                                                             | * *   |   |   | $ | 30.6 | * * |   |   | $ | 38.1 |   |   | 125 | % |
| *% of consolidated revenues* | * *   | * *                                                                         | *37*       | *%*                                                                              | * *   | * * | *20* | *%* |   |   |   |   |   |   |   |
| *Operating Profit*           |       |                                                                             | $          | 40.5                                                                             | * *   |   |   | $ | 15.7 | * * |   |   | $ | 24.8 |   |   |   |   |

 

The Community Developmentsegment reported an operating profit of $40.5 million for 2005 compared to$15.7 million for 2004. Revenues from this operating segment were $68.7 millionfor 2005 compared to $30.6 million for 2004.

Operating profit for 2005includes $454,000 of losses from the Company’s equity interest in Kapalua BayHoldings, LLC, compared to losses of $779,000 for 2004.

*Real Estate Sales*

Revenues for 2005 include$32.2 million from the sale of approximately 640 acres of land in UpcountryMaui, which resulted in operating profit of $26.9 million. Of these 640 acres,approximately 88 acres of the land had been previously been planned fordevelopment and subsequent bulk sale, potentially in 2007. The remainingproperty was comprised of agricultural lands and property that had beenearmarked for disposition as “non-core” to the Company’s strategic plan. TheCompany has other under-performing fields and pasturelands leased toother parties in Upcountry Maui, as well as other real estate that has beenassessed as non-core that may also be disposed of in 2006 and 2007. See RealEstate Sales, Note 7 to the Consolidated Financial Statements.

Revenues for 2005 alsoinclude $30.8 million from the sale of agricultural lots at the Honolua RidgePhase I and II residential subdivisions. Revenues and profit from theseprojects are being recognized using the percentage-of-completion method as thesubdivision improvements are completed. At December 31, 2005, HonoluaRidge Phase I was substantially complete and Honolua Ridge Phase II, whichbegan construction in August 2005, was approximately 35% complete. TheCompany’s balance sheet at December 31, 2005, includes $10.1 million ofdeferred revenues (current liability) related to Honolua Ridge and $1.9 millionof deferred profit (offset against the related note receivable, which isincluded in non-current other assets) related to a June 2005 sale ofUpcountry Maui properties. See Real Estate Sales, Note 7 to the ConsolidatedFinancial Statements.

Honolua Ridge Phase Ibegan sales in July of 2004 and 17 lots were sold in 2004. Revenues of$17.8 million were recognized in 2004 using the percentage of completionmethod. Revenues for 2004 also include $4.3 million from the March 2004sale of a 6.5-acre parcel at Kapalua and $603,000 from the May 2004sale of a custom home at Pineapple Hill Estates that the Company constructed aspart of a joint venture.

Real estate developmentand sales are cyclical and depend on a number of factors. Results for oneperiod are therefore, not necessarily indicative of future performance trendsfor this segment.

*Realty and Leasing*

Kapalua Realty’s commission income from the resale ofresidential units in the Kapalua Resort was lower in 2005 compared to 2004,primarily because of fewer transactions, partially offset by higher averageresale prices in 2005.

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Revenues from leasing activities decreased by about30% for 2005 compared to 2004. The decrease primarily reflects the absence oflease revenues from the Kapalua Shops retail leases and from the Kapalua BayHotel ground lease, which were contributed to Kapalua Bay LLC in August 2004.

Comparison of Years Ended December 31,2004 and 2003

**CONSOLIDATED**

| ** **                   | ** ** | **Years Ended December 31,**                                         | ** ** | **Change**                                                                       | ** ** |
|------------------------------|------------|-------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                   | ** ** | **      2004      **    | ** ** | **      2003      ** | ** ** | **inc (dec)** | ** ** | **%** | ** ** |
| ** **                   | ** ** | **(Dollars in Millions,   Except Per Share Amounts)** | ** ** |
| *Consolidated  Revenues*     |       |                                                                                | $          | 153.2                                                                            |       |   |   | $ | 151.3 |   |   |   | $ | 1.9 |   |   |   | 1 | % |   |
| *Net Income (Loss)*          |       |                                                                                | $          | (0.4                                                                             | )          |   |   | $ | 6.0 |   |   |   | $ | (6.4 | ) |   |   |   |   |   |
| *Earnings  Per Common Share* |       |                                                                                | $          | (0.05                                                                            | )          |   |   | $ | 0.83 |   |   |   | $ | (0.88 | ) |   |   |   |   |   |

 

The Company reported a netloss for 2004 of $383,000 ($0.05 per share) compared to net income of $6.0million ($0.83 per share) for 2003. The sale of Honolua Ridge agricultural lotsbegan in July 2004, and contributed $12.4 million to 2004 operating profitfor the Community Development segment. Contributions to operating profit fromHonolua Ridge lot sales were largely offset by operating losses from theCompany’s Agriculture and Resort segments.

*General andAdministrative Expenses*

Consolidated general and administrative expensesdecreased by $1.2 million (4%) in 2004 to $29.3 million from $30.5 millionin 2003.

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

| ** **                                  | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                  | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **inc (dec)** | ** ** |
| ** **                                  | ** ** | **(Dollars in Millions)**         | ** ** |
| Salaries and  wages                         |       | $                                           | 6.2        |   | $ | 7.1 |   |   | $ | (0.9 | ) |   |
| Depreciation and  asset write offs          |       | 3.4                                         |       | 5.0 |   |   | (1.6 | ) |   |
| Professional and  other outside services    |       | 3.8                                         |       | 5.4 |   |   | (1.6 | ) |   |
| Medical insurance  premiums                 |       | 4.4                                         |       | 4.1 |   |   | 0.3 |   |   |
| Employee  incentives and stock compensation |       | 2.1                                         |       | 0.1 |   |   | 2.0 |   |   |
| Employee  severance expense                 |       | 2.1                                         |       | 2.6 |   |   | (0.5 | ) |   |
| Other (net)                                 |       | 7.3                                         |       | 6.2 |   |   | 1.1 |   |   |
| Total                                       |       | $                                           | 29.3       |   | $ | 30.5 |   |   | $ | (1.2 | ) |   |

 

The reduction in salaries in2004 is primarily due to reductions in force in the Agriculture segment. Thedecrease in professional services largely reflects expenses incurred in 2003for legal fees and consultant costs related to lawsuits in the Agriculturesegment, partially offset by increased costs in 2004 for outside consultantsprimarily related to the Company’s restructuring efforts and new businessinitiatives. The Agriculture segment lawsuits were settled in 2003. The Company beganstock compensation incentives for certain of its key managers and executives inthe fourth quarter of 2003.

Thewrite-off of assets relates primarily to the Agriculture segment. In 2004,the Company evaluated the fixed assets used in its Agriculture operations in aneffort to determine the most efficient usage of its assets based on the plannedreduction in processed pineapple production, the shift in planting for thefresh fruit market, and changes in agronomic practices. In September 2004,the Company decided to abandon certain assets because they were in excess ofthe Agriculture division’s current needs. In October 2003, the 

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Company ceased productionof its fresh-cut pineapple products and abandoned that product line. Fixedassets, inventory and supplies related to the fresh-cut production totaling$1.5 million were written off in the fourth quarter of 2003.

General &administrative expenses are incurred at the corporate level and at the businesssegment level. In October 2004, the Company began to allocate allcorporate general and administrative expenses to its business segments andprior year amounts were restated for comparability. Such allocations areconsistent with management’s evaluation of the business segments.

*Interest Expense*

Consolidated interestexpense decreased by 54% to $1.2 million in 2004 compared to $2.5 million in2003 primarily because of lower average borrowings and a higher amount ofinterest capitalized in 2004. In 2004, interest was capitalized on expendituresfor construction of the infrastructure improvements for the Honolua Ridgesubdivision. The Company’s average interest rates on borrowings were .5% higherin 2004 than in 2003.

**AGRICULTURE**

| ** **                   | ** ** | **Years Ended December 31,**              | ** ** | **Change**                                               | ** ** |
|------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                   | ** ** | **    2004    ** | ** ** | **    2003    ** | ** ** | **dec** | ** ** | **%** | ** ** |
| ** **                   | ** ** | **(Dollars in Millions)**                      | ** ** |
| *Revenues*                   |       |                                                     | $          | 80.0                                                     | * *   |   |   | $ | 100.5 | * * |   | $ | (20.5 | ) | -20% |   |
| *% of consolidated revenues* | * *   | * *                                                 | *52*       | *%*                                                      | * *   | * * | *66* | *%* |   |   |   |   |   |
| *Operating Loss*             |       |                                                     | $          | (10.8                                                    | )          |   |   | $ | (4.8 | ) |   | $ | (6.0 | ) |   |   |

 

The Agriculture segmentincurred an operating loss of $10.8 million for 2004 compared to an operatingloss of $4.8 million for 2003. Agriculture segment revenues for 2004 decreasedby $20.5 million (20%) to $80.0 million compared to $100.5 million for 2003. Thedecline in 2004 results was partially due to lower sales volumes and highercosts as described further in the paragraphs that follow. The followingnon-recurring gains reduced the operating loss from continuing operations in2004 and 2003:

*Nonrecurring Items*

·       In December 2004 the Companyreceived $1.7 million from the U.S. Customs Service compared to $5.4 millionfrom this program in 2003. These cash distributions were made pursuant to theCDSOA, which allows for distribution of antidumping duties to injured domesticproducers. The distributions are recorded as “Other Income” in the Company’sConsolidated Statements of Operations.

·       Other income for 2003 alsoincluded non-recurring cash receipts of $2.9 million related to the settlementof certain lawsuits. Legal fees and consultant costs related to these issueswere $2.5 million in 2003.

·       InOctober 2003, the Company decided to cease production of its fresh-cutpineapple products and to abandon that product line. Pursuant to this decision,$1.5 million of fixed assets, inventory and supplies related to this productline were written off in the fourth quarter of 2003. Approximately 1% ofAgriculture net sales for 2003 were from fresh-cut pineapple products.

*DiscontinuedOperations*

In December 2003, inconnection 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 

24

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wastransferred to the buyer. Theassets sold in 2003 had a carrying value of $6.5 million and the Companyrecognized a gain from the sale of $2.9 million (after reduction for the 49%minority interest). In 2004, the sale of the remaining two parcels closedresulting in a gain of $839,000 (after reduction for the 49% minority interest).The operating results of the Costa Rican pineapple operations prior to the saleand the gains on the asset sales are reported as Discontinued Operations andprior period amounts have been restated for comparability. See DiscontinuedOperations, Note 4 to the Consolidated Financial Statements.

*Processed and FreshPineapple Operations*

The volume of processed pineapple sales decreased by27% for 2004 as compared to 2003, in large part reflecting the Company’sstrategy to sharply reduce supply to selected market segments. This marketrefinement has resulted in the average sales prices for the Company’s processedpineapple products to increase by approximately 9% in 2004 compared to 2003. TheCompany implemented price increases for its processed product lines in March 2004,June 2004 and August 2004.

Increased sales to the U.S. Government partiallyoffset the reduction in sales volume to other sectors of the market. Sales tothe U.S. government represented approximately 35% of net processed pineapplesales in 2004, compared to approximately 20% in 2003.

The sale of fresh pineapple represented approximately24% of net pineapple sales in 2004 compared to 18% in 2003. The volume of freshpineapple sales increased by 15% in 2004 compared to 2003. Although the averagesales prices for fresh pineapple in 2004 were about 5% lower than in 2003, theCompany’s net return (after shipping cost) on fresh pineapple sales was about4% higher in 2004 reflecting a decrease in the cost of shipping due to a changeby the Company in the mode of transportation to deliver product as describedfurther below. The decrease in fresh fruit sales prices in 2004 reflect theover-supply market conditions in July and August due to precociousfruiting, particularly in Costa Rica, and highly competitive market conditionsduring the 2004 holiday season.

Natural fruit differentiation, more commonly known asprecocious fruiting, is a weather-related phenomenon experienced in commercialpineapple production. The effect is that pineapple plants begin to fruitnaturally, usually during the summer, rather than under inducement. During thesummer of 2004, precocious fruiting impacted nearly all fresh pineapple growingregions, including Maui, thus creating over-supply in all markets.

Agriculture cost of sales decreased by 11% in 2004compared to 2003 primarily because of the reduction in processed pineapple casesales volume. The Company’s pineapple inventories are maintained on a last-in,first-out, or LIFO method of accounting. Therefore, in periods of risingprices, current production costs are higher than the average per unit values ininventory. In 2004, there was a partial liquidation of LIFO inventoriesresulting in lower production costs from prior years being included in cost ofsales. Cost of sales would have been higher by $6.8 million based on 2004production costs.

The average per unit cost of sales is higher in 2004than 2003 because of increased costs incurred at the plantations and higher perunit cannery costs. In 2004, the Company increased the total number of acresplanted, with emphasis on Hawaiian GoldTM and organic pineapple. In 2004, theCompany expended approximately $5.0 million (more than twice the average of theprior two years) for field preparation, crop maintenance, seed development andother expenditures in order to accomplish the Agriculture segment productiongoals, which were to improve the quality and consistency of its products,improve yields and mitigate the precursor conditions of precocious fruiting. Thesecosts were included in cost of sales for 2004 because, under the Company’saccounting method, all pineapple production costs incurred at the plantationare charged to the cost of crops harvested for the year. In addition, highercost was incurred to harvest because of the precocious fruiting that occurredin the summer of 2004.

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Rainfall at the Company’s pineapple plantations,particularly in the first 5 months of 2004, increased by as much as 300% ascompared to the average for the last five years. This resulted in a delay ofthe Company’s pineapple planting schedule and increased 2004 costs as theplantations caught up with the planned planting schedules.

The Agriculture segmentshipping and marketing costs decreased by $5.1 million (31%) in 2004 comparedto 2003. The reduction in these costs is due to the streamlining of processedpineapple sales distribution, resulting in a lower average per unit shippingcost. The reduction in fresh pineapple shipping costs in 2004 versus 2003 wasdue to greater use of surface shipment to the West Coast of the United Statesfor the Company’s fresh pineapple. In 2004, the Company shipped approximately54% of its whole fresh pineapple by surface rather than by air. Airfreight wasused in 2004 to mitigate the reduced shelf life of precocious fruit and toavoid the unloading delays at the harbor serving southern California. In 2003,the Company shipped about 18% of its fresh whole pineapple by surface. Theincreased use of surface shipment in 2004, which is substantially less costly,was possible partially because of the extended shelf life of the fruit resultingfrom improved post-harvest practices. The increased use of surface shipmentreduced the average per unit fresh fruit shipping cost in 2004 by approximately24% compared to 2003.

**RESORT**

| ** **                   | ** ** | **Years Ended December 31,**                                      | ** ** | **Change**                                                                       | ** ** |
|------------------------------|------------|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                   | ** ** | **     2004       ** | ** ** | **      2003      ** | ** ** | **inc (dec)** | ** ** | **%** | ** ** |
| ** **                   | ** ** | **(Dollars in Millions)**                                              | ** ** |
| *Revenues*                   |       |                                                                             | $          | 42.4                                                                             | * *   |   |   | $ | 39.5 | * * |   |   | $ | 2.9 |   |   |   | 7 | % |   |
| *% of consolidated revenues* | * *   | * *                                                                         | *28*       | *%*                                                                              | * *   | * * | *26* | *%* |   |   |   |   |   |   |   |   |   |
| *Operating  Loss*            |       |                                                                             | $          | (4.6                                                                             | )          |   |   | $ | (4.4 | ) |   |   | $ | (0.2 | ) |   |   |   |   |   |

 

In 2005, responsibility for the real estate leasingactivity that was accounted for in the Resort segment was transferred to theCommunity Development segment and amounts for 2004 and 2003 were restated forcomparability. 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.

The Resort segment produced an operating loss of $4.6million for 2004, compared to an operating loss of $4.4 million for 2003. Revenuesfrom the resort segment increased by $2.9 million (7%) to $42.4 million in 2004compared to $39.5 million for 2003.

Operating profit for 2004 from the Resort’s golf andmerchandise operations exceeded 2003. Improved results from these operationswere partially offset by lower lease revenues and lower results from the Villasrental operations. The Resort also had higher operating and general andadministrative expenses in 2004 because of costs for previously deferredmaintenance of facilities, expenses incurred to enforce and protect the Kapaluatrade name, and increased fuel and energy cost. Rainfall at the Kapalua Resortthrough the first five months of 2004 was up to 300% higher than the averagefor the prior five years and negatively affected the Resort segment’s operatingresults.

Hotel and condominium roomoccupancies at the Kapalua Resort, and to a somewhat lesser extent for Maui ingeneral, largely drives the resort activity as reflected by golf play,merchandise sales, and lease revenues from the hotel ground leases and theretail outlets. Hotel and condominium room occupancies at Kapalua Resortincreased by 9% in 2004 compared to 2003. Occupancies for the island of Mauiincreased by 4% and for the State of Hawaii occupancies increased by 6%compared to 2003.

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*Golf, Merchandiseand Villas*

Revenues from golf operations increased by 6% for 2004compared to the same periods in 2003, as the number of paid rounds of golf andthe average green fees each increased by approximately 3%. Promotional programsin 2004 to increase golf play and Kapalua Villa occupancies reduced the averagegreen fees for most of 2004. Increased revenues from the golf operations werepartially offset by higher expenses due to new union contracts for the golfmaintenance employees as of June 2003 and for the golf services employeesas of March 2004.

Merchandise sales increased by 13% in 2004 compared to2003 due primarily to the increased number of visitors to Kapalua and toadditional retail floor space with the opening of the Kapalua Collections storeat the end of the first quarter of 2003.

Revenues from the KapaluaVillas increased by 7% in 2004 compared to 2003, primarily reflecting increasedoccupancies. The average daily room rates in 2004 were about 1% lower than 2003.Occupancy at the Kapalua Villas increased by approximately 13% in 2004 comparedto 2003. Contribution to operating profit from the Villas was approximately$500,000 lower in 2004 compared to 2003. Lower results from the Villasoperations were largely due to maintenance and other expenditures to upgradeand improve the facilities, and the level of service provided by the KapaluaVillas.

**COMMUNITY DEVELOPMENT**

| ** **                   | ** ** | **Years Ended December 31,**                                      | ** ** | **Change**                                                                       | ** ** |
|------------------------------|------------|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                   | ** ** | **      2004      ** | ** ** | **      2003      ** | ** ** | **inc** | ** ** | **%** | ** ** |
| ** **                   | ** ** | **(Dollars in Millions)**                                              | ** ** |
| *Revenues*                   |       |                                                                             | $          | 30.6                                                                             | * *   |   |   | $ | 9.5 | * * |   | $ | 21.1 |   | 222 | % |
| *% of consolidated revenues* | * *   | * *                                                                         | *20*       | *%*                                                                              | * *   | * * | *6* | *%* |   |   |   |   |   |
| *Operating Profit*           |       |                                                                             | $          | 15.7                                                                             | * *   |   |   | $ | 2.6 | * * |   | $ | 13.1 |   |   |   |

 

In 2005, responsibility for the real estate leasingactivity that was accounted for in the Resort segment was transferred to theCommunity Development segment and amounts for 2004 and 2003 were restated forcomparability. The Community Development segment as reorganized is comprised ofall of the Company’s real estate entitlement, development, construction, salesand leasing activities. The Community Development segment also includes theCompany’s 51% equity interest in the owner and operator of the Kapalua BayHotel. See Other Assets—KapaluaBay Holdings, LLC, Note 3 to the Consolidated Financial Statements.

The Community Development segment reported anoperating profit of $15.7 million compared to an operating profit of $2.6million for 2003. Revenues from this segment were $30.6 million for 2004compared to $9.5 million for 2003.

The Community Developmentsegment operating profit for 2004 includes $779,000 of losses from the Company’sequity investment in Kapalua Bay Holdings, LLC.

*Real Estate Sales*

Operating profit for 2004 includes $17.2 million fromthe sales of real estate compared to $1.7 million in 2003. In July 2004,sales of lots at the Honolua Ridge agriculture subdivision began and throughyear-end 2004, the sale of 17 lots had closed escrow. Revenues and profitfrom Honolua Ridge are being recognized using the percentage-of-completionmethod; thus $11.4 million of the sales proceeds received from the closing oflot sales at Honolua Ridge were recorded as deferred revenues on the Company’sbalance sheet and revenues of $17.8 million were recognized in 2004. Constructionof the subdivision improvements began in June 2004 and as of December 31,2004, the improvements were approximately 60% complete. In May 2004, thesale of a custom home at Pineapple Hill Estates that the Company 

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constructed as part of ajoint venture closed escrow resulting in operating profit of $810,000 to theCommunity Development segment. In March 2004, the sale of a 6.5-acrelot at Kapalua closed escrow resulting in operating profit of $4.0 million.

Operating results for 2003includes the sale of 32 lots in the Company’s Kapua Village employeesubdivision, contributing revenues of $2.9 million in 2003. Kapua Village is a45-lot employee subdivision developed by the Company. Sales began in December 2002and were completed in the third quarter of 2003. Results for 2003 also includerevenues of $655,000 from the sale of one lot in the Pineapple Hill Estatessubdivision at Kapalua.

*Realty and Leasing*

Kapalua Realty’s commission income from the resale ofresidential units in the Kapalua Resort increased by over 100% in 2004 comparedto 2003 reflecting both an increase in the number of residential units beingresold and an increase in the average price of the transactions.

On August 31, 2004,the Company contributed the fee interest in the land underlying the Kapalua BayHotel (and the ground lease was concurrently cancelled) and the landlord’sinterest in the Kapalua Shops in exchange for a 51% ownership interest inKapalua Bay Holdings, LLC (Bay Holdings). Bay Holdings purchased the KapaluaBay Hotel on the same date. See Other Assets—Kapalua Bay Holdings, LLC, Note 3to the Consolidated Financial Statements. Annual contribution to operating profit from the land lease and theKapalua Shops was approximately $800,000 in 2004 and $930,000 in 2003.

**COMMERCIAL &PROPERTY**

The Company no longer maintains a Commercial &Property segment. Except for the nonrecurring items reported for 2003 below, in2004, the Company’s commercial and property rentals and land entitlementactivities previously reported under the Company’s former Commercial &Property segment are reported in the Community Development segment and allprior period amounts were restated for comparability.

The Commercial &Property segment reported an operating profit from continuing operations of$230,000 for 2004 and $12.6 million for 2003. Operating revenues attributableto this segment were $176,000 in 2004 and $1.8 million in 2003.

*Nonrecurring items*

·       In September 2003, theQueen Ka`ahumanu Center was sold for $75 million. Kaahumanu Center Associates,or KCA, a limited partnership in which the Company was the general partner,owned the Center. The Company’s equity in earnings of KCA was $12.7 million in2003 (reflecting the gain from the sale of the Center). By agreement betweenthe partners, KCA was dissolved upon the sale of the Center and the Company’saccumulated losses recognized in excess of its investment of $11.8 million wererecognized as income (included in equity in earnings). The Company, as managingpartner, was charged with winding up the affairs of the partnership. Finaldistributions were made to the partners in May 2005.

·       In August 2003, the Companysold the Napili Plaza for $7.1 million. The gain from this sale of $1.9 millionand the results of operations prior to the sale are reported as DiscontinuedOperations. Prior period amounts have been restated for comparability. SeeDiscontinued Operations, Note 4 to the Consolidated Financial Statements.

The Napili Plaza and theCompany’s investment in Kaahumanu Center Associates were the two primary assetsin the Commercial & Property segment.

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**LIQUIDITYAND CAPITAL RESOURCES**

*Debt Position*

At December 31, 2005, the Company’s total debt,including capital leases, was $11.1 million, a reduction of $6.1 million from December 31,2004. During 2005, net cash proceeds to the Company of $29.1 million (excludingcash held at exchange intermediary) from the sale of real estate were partiallyused to repay debt. These cash proceeds included the closing of 15 lot sales atHonolua Ridge Phases I and II and cash proceeds from some of the sales ofUpcountry Maui land.

In May 2005, the Company increased its revolvingcredit agreement to $30 million, extended the maturity of the revolving periodfrom December 2005 to April 2008, and removed the option to convertto a three-year term loan at the end of the revolving period. Thesemodifications to the revolving credit agreement were made because the immediateavailability of funds is expected to be necessary for interim funding of theCompany’s various construction projects.

In September 2005,the Company’s $13.5 million term loan was restated and amended to convert it toa revolving facility through June 2009. The change was made to give theCompany greater flexibility in its borrowings.

*Operating CashFlows*

Operatingactivities for 2005 provided $9.6 million of net cash flows compared to $27.6million in 2004 and $16.2 million in 2003. By business segment, these cashflows were approximately as follows:

| ** **                                   | ** ** | **2005**                            | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------------|------------|-------------------------------------|------------|----------|------------|----------|------------|
| ** **                                   | ** ** | **(Dollars in Millions)** | ** ** |
| Agriculture                                  |       | $                                   | 4.7        |     | $          | 8.2      |       | $ | 15.2 |   |
| Resort                                       |       | 2.1                                 |       | 1.5      |       | 2.6      |       |
| Community Development                        |       | 14.2                                |       | 28.9     |       | 4.4      |       |
| Corporate expense, taxes, interest and other |       | (11.1                               | )          | (11.0    | )          | (6.0     | )          |
| Total                                        |       | $                                   | 9.9        |     | $          | 27.6     |       | $ | 16.2 |   |

 

The Agriculture segment cash flows from operatingactivities in 2005 include $3.1 million of government subsidies compared to$1.7 million in 2004 and $5.4 million in 2003. Cash flows for 2004 include $9.6million from the reduction in trade receivables as a result of sales late in2003 that were collected in early 2004. In addition, 2003 includes cash fromoperating activities of the Company’s Costa Rican operations, which wereapproximately $2.3 million.

The Community Development segment cash flows fromoperating activities generally vary with the amount of new real estate productavailable for sale. In 2004, the Company began sales and construction ofinfrastructure of Honolua Ridge Phase I, a 25 agricultural lot residentialsubdivision and 17 lot sales closed escrow in 2004. The remaining 8 lots closedescrow in 2005. In 2005, the Company began the sales and construction ofinfrastructure for Phase II of the Honolua Ridge agricultural lots, and 7 lotssales closed escrow in 2005. Cash outflows for these projects wereapproximately $8 million in 2004 and $12 million in 2005.

Taxes and interest paid in2005 was $747,000 compared to $3.6 million in 2004 and $2.1 million in 2003. Cashoutflows from corporate operating activities increased by $4.2 million in 2005compared to 2004 primarily reflecting higher overall general and administrativeexpenses as explained in *General andAdministrative* in an earlier section of this annual report, and inparticular increased cash outflows for outside consultants. In addition, othercash receipts from operating activities in 2003 includes $1.3 million relatedto the sale of Queen Ka`ahumanu Center.

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*Non-Recurring CashFlows—Investing Activities*

In 2005, proceeds from the disposal of property of$14.3 million represent partial proceeds from the sale of Upcountry Mauiacreage. At the end of 2005, the remaining cash from these sales of $13.9million were held by an exchange intermediary pending reinvestment in otherlong lived assets.

In 2005, cash flows used in investing activitiesincluded $16.9 million for additions to fixed assets and $5.0 million fordeferred development costs.

Cash used ininvesting activities for 2004 included the following non-recurringtransactions:

·       $3.9million for the purchase of ten acres in West Maui, was paid inJanuary 2004;

·       $1.9million was expended in June 2004 for the purchase of three industriallots on Oahu, which were exchanged with the State of Hawaii for 223 acres atKapalua located adjacent to the Company’s Kapalua Mauka project;

·       TheCompany made a $500,000 cash contribution for a 51% membership interest inKapalua Bay Holdings, LLC. See Other Assets, Kapalua Bay Holdings, LLC, Note 3to the Consolidated Financial Statements);

·       $500,000was invested in Series A preferred convertible stock of the HawaiiSuperferry in May 2004; and

·       Cash distributions totaling$5.7 million were paid to the minority shareholders of the Company’s CostaRican subsidiary.

*Future CashOutflows*

The Company expects to make income tax payments inMarch 2006 of approximately $2.4 million related to 2005 income.Contributions to the Company’s defined benefit pension plans are expected to beapproximately $1.9 million in 2006.

Capital expenditures for 2006 include $6.9 million forthe construction of a new office area for the Company’s corporate headquartersand support services—accounting, information technology and human resources.This office area will be constructed within an existing warehouse at theKahului cannery and will utilize recycled materials from the Kapalua Bay Hotel,which is scheduled for demolition in April 2006. The new office area isexpected to be completed by year-end 2006. The Company also expects to spendapproximately $4 million on implementation of new systems to replace theCompany’s existing accounting and information systems. The new systems areexpected to be fully implemented around mid-year 2006.

Capital expenditures in 2006 for the new freshpineapple packaging facility is expected to be approximately $12 million. Thefresh fruit packaging facility is expected to be in service by July 2006.In addition, the Agriculture segment expects to have capital expenditures ofapproximately $7.3 million of which about $3.2 million is for the replacementof existing equipment and facilities.

The Resort segment capital expenditures for 2006 areexpected to be approximately $11.6 million of which approximately 50% is forthe renovation, refurbishment, or replacement of existing facilities andequipment. Most of the remaining 2006 capital expenditures relate to facilitiesfor new initiatives.

In 2006, expenditures for the completion of HonoluaRidge Phase II are expected to be approximately $13.7 million. The Companyanticipates that much of these expenditures will be funded by sales of theremaining 18 lots. Expenditures in 2006 for other Community Development segmentcapital projects, deferred development costs and investments are expected to beapproximately $43 million. In connection with the planning for the variousprojects, the Company will analyze the feasibility of proceeding with eachproject and will seek project specific non-recourse financing for some of thecapital projects.

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At December 31, 2005,the Company had unused long-term credit lines of $33.5 million. The Companybelieves that cash flows from operations will be sufficient to meet future debtservice for existing long-term debt. The Company believes that additionalfinancing will be necessary to fund capital expenditures and other constructionprojects in 2006 and is in the process of seeking specific financing for someof its investments and construction projects. The Company also believes that(although no assurances can be given), because of the significant debtreduction that it achieved in 2004 and 2005, it will be able to obtain thenecessary financing for any new capital projects.

**Item 7A.**                QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s primary market risk exposure with regardto financial instruments is due to changes in interest rates. The Companymanages this risk by monitoring interest rates and future cash requirements andevaluating opportunities to refinance borrowings at various maturities andinterest rates. At December 31, 2005, 96% of the Company’s borrowingscarried interest rates that were periodically adjustable to the prime rate, orto a LIBOR rate, and 4% carried interest at fixed rates. The average interest rateon the Company’s debt outstanding at December 31, 2005 was 6.65% and thefair value of the Company’s debt was $10,811,000. Based on debt outstanding atthe end of 2005, a hypothetical increase in interest rates of 100 basis pointswould increase the Company’s interest expense by approximately $100,000 and ahypothetical decrease in interest rates of 100 basis points would increase thefair value of the Company’s long-term debt by approximately $74,000. AtDecember 31, 2005, the fair value of the Company’s long-term debt wasapproximately equal to it fair value.

The Company does notbelieve that the market risk exposure due to foreign exchange transactionswould have a material impact on the Company’s consolidated financialstatements.

**ContractualObligations**

Followingare summaries of the Company’s contractual obligations as of December 31,2005 (in thousands):

| ** **                                      | ** ** | ** ** | ** ** | **Payment due by period (years)** | ** ** |
|-------------------------------------------------|------------|------------|------------|-------------------------------------------------------|------------|
| ** **                                      | ** ** | ** ** | ** ** | **Less**                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Contractual Obligations**                | ** ** | ** ** | ** ** | **Total**                                             | ** ** | **Than 1** | ** ** | **1-3** | ** ** | **4-5** | ** ** | **After 5** | ** ** |
| Long-term debt                                  |       | $          | 10,818     |                                                  | $          | 534 |   | $ | 10,284 |   | $ | — |   | $ | — |   |
| Capital lease obligations  (including interest) |       | 305        |       | 305                                                   |       | — |   | — |   | — |   |
| Interest on long  term debt(1)                  |       | 2,586      |       | 665                                                   |       | 1,285 |   | 636 |   | — |   |
| Operating leases(2)                             |       | 3,369      |       | 551                                                   |       | 1,113 |   | 577 |   | 1,128 |   |
| Purchase commitments(2)                         |       | 29,407     |       | 29,036                                                |       | 371 |   | — |   | — |   |
| Other long-term  liabilities(3)                 |       | 5,076      |       | 533                                                   |       | 1,185 |   | 1,159 |   | 2,199 |   |
| Total                                           |       | $          | 51,561     |                                                  | $          | 31,624 |   | $ | 14,238 |   | $ | 2,372 |   | $ | 3,327 |   |
|                                                 |            |            |            |                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Future interest paymentson long term debt was calculated assuming that future interest rates equal therates at December 31, 2005.

(2)          These operating leasesand purchase commitments are not reflected on the consolidated balance sheetsunder accounting principles generally accepted in the United States of America.

(3)          Amountsconsist primarily of payments due under the Company’s deferred compensationplan, unfunded pension payments and severance plans. Where pension paymentswere for lifetime, payments were estimated for 5 additional years.

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**CRITICAL ACCOUNTING POLICIES ANDESTIMATES**

The Company’saccounting policies are described in Summary of Significant AccountingPolicies, Note 1 to the Consolidated Financial Statements (included in Item 8).The preparation of financial statements in conformity with generally acceptedaccounting principles require the use of accounting estimates. Some of theseestimates and assumptions involve a high level of subjectivity and judgment andtherefore the impact of a change in these estimates and assumptions couldmaterially affect the amounts reported in the Company’s financial statements.The accounting policies and estimates that the Company has identified ascritical to the consolidated financial statements were as follows:

·       Thepercentage of completion method is used to recognize revenues (and profits)from the sale of residential land parcels where the Company is obligated toconstruct improvements (roads, sidewalks, drainage, and utilities) after theclosing of the sale. Under this method, revenues are recognized over theimprovement period on the basis of costs incurred as a percentage of totalcosts to be incurred. Changes in the total estimated cost expected to beincurred could be affected by conditions not anticipated that could result inhigher or lower cost to complete the improvements.

·       In2005 and 2004, the Company recognized revenues using thepercentage-of-completion method for the sales of lots in the Honolua RidgePhase I and II residential subdivisions. At December 31, 2005,construction of the improvements for Honolua Ridge Phase I was substantiallycomplete and Phase II was estimated to be 35% complete. The estimate of thepercentage of completion was based on costs incurred through year-end 2005 pluscosts to be incurred in future years (including costs for contracts that havenot yet been consummated). This estimate could be affected by construction orland 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.

·       Inconnection with one of the 2005 sales transactions of Upcountry Maui land, theCompany and the buyer executed a Water Development Agreement. Based on theestimated cost to drill the new water well and construct a storage tank and theestimated water flow from the future well, costs were allocated to the salestransaction. The profit from the sale has been allocated between the landparcels sold and the agreement to provide the water source, and the portionrelated to the water source ($1.9 million) has been deferred pendingperformance of the Company’s obligations under the agreement. The estimates ofthe costs of the water source could differ from actual costs because finalcontracts with the County of Maui and with the outside contractors forcompletion of the water source have not yet been consummated.

·       Deferreddevelopment costs, principally predevelopment costs and offsite developmentcosts related to various projects in the planning stages by the Company’sDevelopment segment, totaled $12.1 million at year-end 2005. Such amounts arecarried on the balance sheet at the lower of cost or estimated fair value.Based on the Company’s future development plans for Kapalua and otherproperties, and the estimated value of these future projects, management hasconcluded that these deferred costs will be recoverable from future developmentprojects. The volatility of this assumption arises because of the long-termnature of the Company’s development plans and the uncertainty of when or ifcertain parcels will be developed. Approximately $3.5 million of the Resortdeferred development costs relate to a fee paid by the Company to the County ofMaui for future sewerage capacity. Management estimates that the capacity inthe sewerage system will be available for future development projects.

·       TheCompany’s Agriculture segment is currently constructing a processing facilityto replace its fresh fruit packing plant, and has plans to begin constructionof a multi-commodity/multi-client processing facility to replace its canneryand can plant in 2007. In early 2005, the Company began to evaluate theAgriculture segment assets and recorded depreciation charges related to thechange in 

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estimated useful life ofthese assets. The Company estimates that Agriculture segment assets with a netbook value of approximately $5.4 million will be expensed over the 34-monthperiod ending December 31, 2007. This estimate could be affected bychanges in the estimated completion dates of the new facilities.

·       Pensionexpense for the Company’s two defined benefit pension plans utilize actuarialestimates of employees’ expected service period, age at retirement, andcompensation levels, as well as estimates as to employee turnover, the longterm rate of return on investments and other factors. Other post retirementbenefits for life insurance and health care utilize actuarial estimates as tothe retirees’ life span, the cost of future health insurance premiums andutilization of health benefits by the employees. In addition, both pension andother post retirement expenses are sensitive to the discount rate utilized.This rate should be commensurate to the interest rate yield of a high qualitycorporate fixed income investment portfolio. These assumptions are subject tothe risk of change as they require significant judgment and have inherentuncertainties that management or its consulting actuaries may not control oranticipate.

·       The allowance for doubtfulaccounts is calculated based on assumptions determined by management as to itsportfolio of accounts receivable. It is based on knowledge that management hasabout specific accounts and on historical levels of uncollectible accounts.These assumptions are subject to the risk of change because of the amount ofjudgment required as well as the inherent risk of using the past to forecastthe future.

**IMPACT OF INFLATION AND CHANGINGPRICES**

The Company uses the LIFO method of accounting for itspineapple inventories. Under this method, the cost of products soldapproximates current cost and, during periods of rising prices, the endinginventory is reflected at an amount below current cost. See Inventories, Note 2to the Consolidated Financial Statements for a discussion of the effects of thecurrent year’s LIFO liquidation. The replacement cost of pineapple inventorywas $10 million at December 31, 2005, which is $5 million more than theamount reflected in the consolidated financial statements.

Most of the land owned by the Company was acquiredfrom 1911 to 1932 and is carried at cost. A small portion of “Real Estate Heldfor Sale” represents land cost. Replacements and additions to Pineappleoperations occur every year and some of the assets presently in use were placedin service in 1934. At Kapalua, some of the fixed assets were constructed andplaced in service in the mid-to-late 1970s. Depreciation expense would beconsiderably higher if fixed assets were stated at current cost.

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**Item 8.**                        FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

To the Board of Directors and Stockholders of**Maui Land & Pineapple Company, Inc.Kahului, Hawaii

We have audited the accompanying consolidated balancesheets of Maui Land & Pineapple Company, Inc. and subsidiaries(the “Company”) as of December 31, 2005 and 2004, and the relatedconsolidated statements of operations, comprehensive income (loss),stockholders’ equity, and cash flows for each of the three years in the periodended December 31, 2005. Our audits also included the financial statementschedule listed in the Index at Item 15. We also have audited management’sassessment, included in the accompanying Management’s Report on InternalControl over Financial Reporting, that the Company maintained effectiveinternal control over financial reporting as of December 31, 2005, basedon the criteria established in *Internal Control—IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission. The Company’s management is responsible for thesefinancial statements and financial statement schedule, for maintainingeffective internal control over financial reporting, and for its assessment ofthe effectiveness of internal control over financial reporting. Ourresponsibility is to express an opinion on these financial statements andfinancial statement schedule, an opinion on management’s assessment, and anopinion on the effectiveness of the Company’s internal control over financialreporting based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement and whether effective internal control over financial reportingwas maintained in all material respects. Our audit of financial statementsincluded examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, and evaluating the overallfinancial statement presentation. Our audit of internal control over financialreporting included obtaining an understanding of internal control overfinancial reporting, evaluating management’s assessment, testing and evaluatingthe design and operating effectiveness of internal control, and performing suchother procedures as we considered necessary in the circumstances. We believethat our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reportingis a process designed by, or under the supervision of, the company’s principalexecutive and principal financial officers, or persons performing similarfunctions, and effected by the company’s board of directors, management, andother personnel to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.A company’s internal control over financial reporting includes thosepolicies and procedures that (1) pertain to the maintenance of recordsthat, in reasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internalcontrol over financial reporting, including the possibility of collusion orimproper management override of controls, material misstatements due to erroror fraud may not be prevented or detected on a timely basis. Also, projectionsof any evaluation of the effectiveness of the internal control over financialreporting to future periods are subject to the risk that 

34

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the controls may becomeinadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.

In ouropinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of Maui Land &Pineapple Company, Inc. and subsidiaries as of December 31, 2005 and2004, and the results of their operations and their cash flows for each of thethree years in the period ended December 31, 2005, in conformity withaccounting principles generally accepted in the United States of America. Also,in our opinion, such financial statement schedule, when considered in relationto the basic consolidated financial statements taken as a whole, presentsfairly, in all material respects, the information set forth therein. Also, inour opinion, management’s assessment that the Company maintained effectiveinternal control over financial reporting as of December 31, 2005, isfairly stated, in all material respects, based on the criteria established in *Internal Control—Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission. Furthermore,in our opinion, the Company maintained, in all material respects, effectiveinternal control over financial reporting as of December 31, 2005, basedon the criteria established in *Internal Control—IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission.
| /s/ DELOITTE & TOUCHE LLP |   |
|------------------------------------|--------|
| Honolulu, Hawaii                   |
| March 3,  2006                |

 

35

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**MAUI LAND & PINEAPPLE COMPANY,INC. & SUBSIDIARIESCONSOLIDATED STATEMENTSOF OPERATIONS**

| ** **                                                                                | ** ** | **Years Ended December 31,**     | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                | ** ** | **2005**                                        | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                | ** ** | **(Dollars in Thousands Except** | ** ** |
| ** **                                                                                | ** ** | **Per Share Amounts)**                | ** ** |
| OPERATING REVENUES                                                                        |       |                                            |       |   |   |   |   |
| Net sales                                                                                 |       | $                                               | 149,204    |   | $ | 115,715 |   | $ | 109,116 |   |
| Operating income                                                                          |       | 33,679                                          |       | 35,182 |   | 33,246 |   |
| Other income                                                                              |       | 3,797                                           |       | 2,352 |   | 8,971 |   |
| Total Operating  Revenues                                                                 |       | 186,680                                         |       | 153,249 |   | 151,333 |   |
| OPERATING COSTS AND  EXPENSES                                                             |       |                                            |       |   |   |   |   |
| Cost of sales                                                                             |       | 73,537                                          |       | 71,226 |   | 74,832 |   |
| Operating  expenses                                                                       |       | 36,418                                          |       | 36,177 |   | 33,188 |   |
| Shipping and  marketing                                                                   |       | 14,446                                          |       | 15,621 |   | 19,379 |   |
| General and  administrative                                                               |       | 38,425                                          |       | 29,347 |   | 30,537 |   |
| Total Operating  Costs and Expenses                                                       |       | 162,826                                         |       | 152,371 |   | 157,936 |   |
| Operating Income  (Loss)                                                                  |       | 23,854                                          |       | 878 |   | (6,603 | ) |
| Equity in  earnings (losses) of affiliates                                                |       | (484                                            | )          | (727 | ) | 12,678 |   |
| Interest expense                                                                          |       | (521                                            | )          | (1,159 | ) | (2,526 | ) |
| Interest income                                                                           |       | 443                                             |       | 23 |   | 167 |   |
| Income (Loss) From  Continuing Operations                                                 |       |                                            |       |   |   |   |   |
| Before Income Taxes                                                                       |       | 23,292                                          |       | (985 | ) | 3,716 |   |
| Income Tax  Expense (Benefit)                                                             |       | 8,723                                           |       | (528 | ) | 1,500 |   |
| Income (Loss) From Continuing Operations                                                  |       | 14,569                                          |       | (457 | ) | 2,216 |   |
| Income From  Discontinued Operations (net of income tax expense of $-0-, $46, and $3,019) |       | —                                          |       | 74 |   | 3,781 |   |
| NET INCOME (LOSS)                                                                         |       | $                                               | 14,569     |   | $ | (383 | ) | $ | 5,997 |   |
| BASIC EARNINGS PER  COMMON SHARE                                                          |       |                                            |       |   |   |   |   |
| Continuing Operations                                                                     |       | $                                               | 2.02       |   | $ | (0.06 | ) | $ | 0.31 |   |
| Discontinued Operations                                                                   |       | —                                          |       | 0.01 |   | 0.52 |   |
| Net Income (Loss)                                                                         |       | $                                               | 2.02       |   | $ | (0.05 | ) | $ | 0.83 |   |
| DILUTED EARNINGS PER  COMMON SHARE                                                        |       |                                            |       |   |   |   |   |
| Continuing Operations                                                                     |       | $                                               | 1.99       |   | $ | (0.06 | ) | $ | 0.31 |   |
| Discontinued Operations                                                                   |       | —                                          |       | 0.01 |   | 0.52 |   |
| Net Income (Loss)                                                                         |       | $                                               | 1.99       |   | $ | (0.05 | ) | $ | 0.83 |   |
| Average Common Shares  Outstanding                                                        |       |                                            |       |   |   |   |   |
| Basic                                                                                     |       | 7,229,457                                       |       | 7,197,808 |   | 7,195,800 |   |
| Diluted                                                                                   |       | 7,309,043                                       |       | 7,197,808 |   | 7,200,811 |   |

 

See Notes to Consolidated Financial Statements

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**MAUI LAND & PINEAPPLE COMPANY,INC. & SUBSIDIARIESCONSOLIDATED STATEMENTSOF COMPREHENSIVE INCOME (LOSS)**

| ** **                                                               | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                               | ** ** | **2005**                                    | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                               | ** ** | **(Dollars in Thousands)**        | ** ** |
| Net Income (Loss)                                                        |       | $                                           | 14,569     |   | $ | (383 | ) | $ | 5,997 |   |
| Minimum pension  liability, net of taxes of $1,499, $(1,007), and $1,321 |       | 2,665                                       |       | (1,792 | ) | 2,690 |   |
| Foreign currency  translations                                           |       | —                                      |       | 111 |   | (77 | ) |
| Comprehensive Income  (Loss)                                             |       | $                                           | 17,234     |   | $ | (2,064 | ) | $ | 8,610 |   |

 

See Notes to Consolidated Financial Statements

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**MAUI LAND & PINEAPPLE COMPANY,INC. & SUBSIDIARIESCONSOLIDATED BALANCE SHEETS**

| ** **                                                                                                          | ** ** | **December 31,**                        | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                                                          | ** ** | **   2005   ** | ** ** | **    2004    ** | ** ** |
| ** **                                                                                                          | ** ** | **(Dollars in Thousands)**         | ** ** |
| ASSETS                                                                                                              |       |                                         |       |   |   |   |   |
| CURRENT ASSETS                                                                                                      |       |                                         |       |   |   |   |   |
| Cash and cash equivalents                                                                                           |       | $                                            | 7,216      |   |   | $ | 11,531 |   |   |
| Accounts receivable, less allowance of $265 and $825  for doubtful accounts                                         |       | 19,605                                       |       |   | 12,716 |   |   |
| Inventories                                                                                                         |       |                                         |       |   |   |   |   |
| Pineapple products                                                                                                  |       | 3,653                                        |       |   | 4,666 |   |   |
| Real estate held for sale                                                                                           |       | 5,651                                        |       |   | 2,966 |   |   |
| Merchandise, materials, and supplies                                                                                |       | 8,001                                        |       |   | 7,468 |   |   |
| Prepaid expenses and other assets                                                                                   |       | 1,310                                        |       |   | 2,299 |   |   |
| Deferred income taxes                                                                                               |       | 3,961                                        |       |   | 5,724 |   |   |
| Total Current Assets                                                                                                |       | 49,397                                       |       |   | 47,370 |   |   |
| OTHER ASSETS                                                                                                        |       | 39,667                                       |       |   | 19,656 |   |   |
| PROPERTY                                                                                                            |       |                                         |       |   |   |   |   |
| Land                                                                                                                |       | 10,332                                       |       |   | 9,024 |   |   |
| Land improvements                                                                                                   |       | 55,715                                       |       |   | 55,026 |   |   |
| Buildings                                                                                                           |       | 48,452                                       |       |   | 49,493 |   |   |
| Machinery and equipment                                                                                             |       | 110,525                                      |       |   | 124,765 |   |   |
| Construction in progress                                                                                            |       | 11,226                                       |       |   | 2,158 |   |   |
| Total Property                                                                                                      |       | 236,250                                      |       |   | 240,466 |   |   |
| Less accumulated depreciation                                                                                       |       | 139,315                                      |       |   | 146,569 |   |   |
| Net Property                                                                                                        |       | 96,935                                       |       |   | 93,897 |   |   |
| TOTAL                                                                                                               |       | $                                            | 185,999    |   |   | $ | 160,923 |   |   |
| LIABILITIES &  STOCKHOLDERS’ EQUITY                                                                   |       |                                         |       |   |   |   |   |
| CURRENT LIABILITIES                                                                                                 |       |                                         |       |   |   |   |   |
| Current portion of long-term debt                                                                                   |       | $                                            | 534        |   |   | $ | 3,026 |   |   |
| Current portion of capital lease obligations                                                                        |       | 303                                          |       |   | 288 |   |   |
| Trade accounts payable                                                                                              |       | 18,418                                       |       |   | 12,703 |   |   |
| Payroll and employee benefits                                                                                       |       | 4,676                                        |       |   | 5,491 |   |   |
| Income taxes payable                                                                                                |       | 2,518                                        |       |   | 175 |   |   |
| Deferred revenue                                                                                                    |       | 11,380                                       |       |   | 13,018 |   |   |
| Other accrued liabilities                                                                                           |       | 2,668                                        |       |   | 1,485 |   |   |
| Total Current Liabilities                                                                                           |       | 40,497                                       |       |   | 36,186 |   |   |
| LONG-TERM LIABILITIES                                                                                               |       |                                         |       |   |   |   |   |
| Long-term debt                                                                                                      |       | 10,284                                       |       |   | 13,568 |   |   |
| Capital lease obligations                                                                                           |       | —                                       |       |   | 385 |   |   |
| Accrued retirement benefits                                                                                         |       | 29,792                                       |       |   | 33,071 |   |   |
| Deferred income taxes                                                                                               |       | 8,924                                        |       |   | 3,037 |   |   |
| Other noncurrent liabilities                                                                                        |       | 4,805                                        |       |   | 2,551 |   |   |
| Total Long-Term Liabilities                                                                                         |       | 53,805                                       |       |   | 52,612 |   |   |
| MINORITY INTEREST IN SUBSIDIARY                                                                                     |       | 517                                          |       |   | 504 |   |   |
| COMMITMENTS AND  CONTINGENCIES                                                                                      |       |                                         |       |   |   |   |   |
| STOCKHOLDERS’ EQUITY                                                                                           |       |                                         |       |   |   |   |   |
| Common stock—no par value, 8,000,000 shares  authorized, 7,254,779 and 7,226,550 shares issued and outstanding |       | 14,186                                       |       |   | 13,335 |   |   |
| Additional paid in capital                                                                                          |       | 2,930                                        |       |   | 1,456 |   |   |
| Retained earnings                                                                                                   |       | 75,540                                       |       |   | 60,971 |   |   |
| Accumulated other comprehensive loss                                                                                |       | (1,476                                       | )          |   | (4,141 | ) |   |
| Stockholders’ Equity                                                                                           |       | 91,180                                       |       |   | 71,621 |   |   |
| TOTAL                                                                                                               |       | $                                            | 185,999    |   |   | $ | 160,923 |   |   |

 

See Notes to Consolidated Financial Statements

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**MAUI LAND & PINEAPPLE COMPANY,INC. & SUBSIDIARIESCONSOLIDATED STATEMENTSOF STOCKHOLDERS’ EQUITYFor the Three Years Ended December 31, 2005(Dollars and Shares in Thousand)**

| ** **                           | ** ** | ** **            | ** ** | ** **       | ** ** | ** **     | ** ** | ** **        | ** ** | **Accumulated** | ** ** |
|--------------------------------------|------------|-----------------------|------------|------------------|------------|----------------|------------|-------------------|------------|-----------------|------------|
| ** **                           | ** ** | ** **            | ** ** | ** **       | ** ** | **Additional** | ** ** | ** **        | ** ** | **Other**       | ** ** |
| ** **                           | ** ** | **Common Stock** | ** ** | **Paid in** | ** ** | **Retained**   | ** ** | **Comprehensive** | ** ** |
| ** **                           | ** ** | **Shares**            | ** ** | **Amount**       | ** ** | **Capital**    | ** ** | **Earnings**      | ** ** | **Income**      | ** ** |
| Balance,  December 31, 2002     |       |                  | 7,196      |             |       | $              | 12,455     |              |       | $               | —     |   |   | $ | 55,357 |   |   | $ | (5,073 | ) |   |
| Stock  compensation expense          |       |                  |       |             |       |           |       |              | 195        |            |       |   |   |   |   |   |   |
| Minimum pension  liability           |       |                  |       |             |       |           |       |              |       |            |       |   |   |   | 2,690 |   |   |
| Foreign currency  translations       |       |                  |       |             |       |           |       |              |       |            |       |   |   |   | (77 | ) |   |
| Net income                           |       |                  |       |             |       |           |       |              |       |            |       | 5,997 |   |   |   |   |   |
| Balance,  December 31, 2003     |       |                  | 7,196      |             |       | 12,455         |       |              | 195        |            |       | 61,354 |   |   | (2,460 | ) |   |
| Stock  compensation expense          |       |                  |       |             |       |           |       |              | 2,141      |            |       |   |   |   |   |   |   |
| Vested restricted  stock issued      |       |                  | 31         |             |       | 880            |       |              | (880       | )               |       |   |   |   |   |   |   |
| Minimum pension  liability           |       |                  |       |             |       |           |       |              |       |            |       |   |   |   | (1,792 | ) |   |
| Foreign currency  translations       |       |                  |       |             |       |           |       |              |       |            |       |   |   |   | 111 |   |   |
| Net Loss                             |       |                  |       |             |       |           |       |              |       |            |       | (383 | ) |   |   |   |   |
| Balance,  December 31, 2004     |       |                  | 7,227      |             |       | 13,335         |       |              | 1,456      |            |       | 60,971 |   |   | (4,141 | ) |   |
| Stock  compensation expense          |       |                  |       |             |       |           |       |              | 2,292      |            |       |   |   |   |   |   |   |
| Vested restricted  stock issued      |       |                  | 28         |             |       | 851            |       |              | (851       | )               |       |   |   |   |   |   |   |
| Minimum pension  liability           |       |                  |       |             |       |           |       |              |       |            |       |   |   |   | 2,665 |   |   |
| Tax benefit from  stock compensation |       |                  |       |             |       |           |       |              | 33         |            |       |   |   |   |   |   |   |
| Net income                           |       |                  |       |             |       |           |       |              |       |            |       | 14,569 |   |   |   |   |   |
| Balance,  December 31, 2005     |       |                  | 7,255      |             |       | $              | 14,186     |              |       | $               | 2,930      |   |   | $ | 75,540 |   |   | $ | (1,476 | ) |   |

 

See Notes to Consolidated Financial Statements

39

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**MAUI LAND & PINEAPPLE COMPANY,INC. & SUBSIDIARIESCONSOLIDATED STATEMENTSOF CASH FLOWS**

| ** **                                                                                | ** ** | **Years Ended December 31,** | ** ** |     |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|----------|
| ** **                                                                                | ** ** | **2005**                                    | ** ** | **2004** | ** ** | **2003** | ** ** |   |
| ** **                                                                                | ** ** | **(Dollars in Thousands)**        | ** ** |     |
| OPERATING ACTIVITIES                                                                      |       |                                        |       |     |   |   |   |   |
| Net Income (loss)                                                                         |       | $                                           | 14,569     |     | $ | (383 | ) | $ | 5,997 |   |   |
| Adjustments to reconcile net income (loss) to net  cash provided by operating activities: |       |                                        |       |     |   |   |   |   |
| Depreciation                                                                              |       | 14,263                                      |       | 10,040   |   | 12,184 |   |   |
| Stock based  compensation                                                                 |       | 2,292                                       |       | 2,141    |   | 195 |   |   |
| Equity in  (earnings) losses of affiliates                                                |       | 642                                         |       | 1,000    |   | (12,678 | ) |   |
| (Gain) loss on property  disposals                                                        |       | (25,361                                     | )          | 87       |   | (6,300 | ) |   |
| Deferred income  taxes                                                                    |       | 6,151                                       |       | (1,317   | ) | 589 |   |   |
| Changes in operating  assets and liabilities:                                             |       |                                        |       |     |   |   |   |   |
| Accounts  receivable                                                                      |       | (6,621                                      | )          | 11,349   |   | (3,893 | ) |   |
| Inventories                                                                               |       | (2,205                                      | )          | (699     | ) | 10,102 |   |   |
| Trade payable                                                                             |       | 2,685                                       |       | 141      |   | (699 | ) |   |
| Income taxes  payable                                                                     |       | 2,293                                       |       | (1,679   | ) | 4,467 |   |   |
| Deferred revenues                                                                         |       | (1,638                                      | )          | 11,830   |   | 100 |   |   |
| Other operating  assets and liabilities                                                   |       | 2,797                                       |       | (4,890   | ) | 6,122 |   |   |
| NET CASH PROVIDED  BY OPERATING ACTIVITIES                                                |       | 9,867                                       |       | 27,620   |   | 16,186 |   |   |
| INVESTING ACTIVITIES                                                                      |       |                                        |       |     |   |   |   |   |
| Purchases of  property                                                                    |       | (16,887                                     | )          | (11,360  | ) | (6,738 | ) |   |
| Proceeds from  disposals of property                                                      |       | 14,300                                      |       | 1,657    |   | 17,261 |   |   |
| Distribution from  affiliates                                                             |       | 75                                          |       | 433      |   |   |   |   |
| Contributions to  affiliates                                                              |       | (213                                        | )          | (1,090   | ) |   |   |   |
| Proceeds from  (payments for) other assets                                                |       | (5,277                                      | )          | (2,840   | ) | 3,258 |   |   |
| NET CASH PROVIDED  BY (USED IN) INVESTING ACTIVITIES                                      |       | (8,002                                      | )          | (13,200  | ) | 13,781 |   |   |
| FINANCING ACTIVITIES                                                                      |       |                                        |       |     |   |   |   |   |
| Proceeds from  long-term debt                                                             |       | 21,900                                      |       | 11,500   |   | 24,848 |   |   |
| Payments of  long-term debt                                                               |       | (27,678                                     | )          | (20,780  | ) | (44,912 | ) |   |
| Payments of  short-term debt                                                              |       | —                                      |       | —   |   | (2,897 | ) |   |
| Payments on  capital lease obligations                                                    |       | (402                                        | )          | (299     | ) | (291 | ) |   |
| Other                                                                                     |       | —                                      |       | (1,173   | ) | 490 |   |   |
| NET CASH USED IN  FINANCING ACTIVITIES                                                    |       | (6,180                                      | )          | (10,752  | ) | (22,762 | ) |   |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                                     |       | (4,315                                      | )          | 3,668    |   | 7,205 |   |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF YEAR                                           |       | 11,531                                      |       | 7,863    |   | 658 |   |   |
| CASH AND CASH EQUIVALENTS  AT END OF YEAR                                                 |       | $ 7,216                                |       | $        | 11,531 |   | $ | 7,863 |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                        |       |                                        |       |     |   |   |   |
| Cash paid (received)  during the year—                                               |       |                                        |       |     |   |   |   |
| Interest (net of  amount capitalized)                                                     |       | $                                           | 468        |     | $ | 1,184 |   | $ | 2,445 |   |
| Income taxes                                                                              |       | 279                                         |       | 2,450    |   | (312 | ) |
|                                                                                           |            |                                             |            |          |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**SUPPLEMENTALNON-CASH INVESTING AND FINANCING ACTIVITIES:**

·   Amounts included in accounts payable for additions toproperty and other investments totaled $1,701,000, $790,000 and $554,000 atDecember 31, 2005, 2004 and 2003, respectively.

·   In 2004, the company contributed property with a netbook value of $1.7 million to Kapalua Bay Holdings, LLC.  See Other Assets—Kapalua Bay Holdings, LLC,Note 3 to the Consolidated Financial Statements.

·   In 2005, additions to property include land valued at$350,000 that was received in connection with the sale of one of the landparcels in Upcountry Maui.  See RealEstate Sales, Note 7 to the Consolidated Financial Statements.

·   At December 31, 2005, $13.9 million of net cashproceeds were being held by an exchange intermediary pending investment on atax-deferred basis.

See Notes to Consolidated Financial Statements

40

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**MAUI LAND &PINEAPPLE COMPANY, INC. & SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**1.**                 SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

**CONSOLIDATION**

The consolidated financialstatements include the accounts of Maui Land & Pineapple Company, Inc.and its subsidiaries, primarily Maui Pineapple Company, Ltd. and Kapalua LandCompany, Ltd. The Company’s principal operations include production and sale ofpineapple products, resort operations, and real estate development and sales. Significantintercompany balances and transactions have been eliminated.

**COMPREHENSIVEINCOME**

Comprehensive incomeincludes all changes in Stockholders’ Equity, except those resulting fromcapital stock transactions. Comprehensive income includes the minimum pensionliability (see Employee Benefits Plan, Note 9) and foreign currency translationadjustments.

**CASHAND CASH EQUIVALENTS**

Cash and cash equivalentsinclude cash on hand, deposits in banks and commercial paper with originalmaturities of three months or less.

**INVENTORIES**

Inventories of tinplate, cans, ends and processedpineapple products are stated at cost, not in excess of market value, using thedollar value last-in, first-out (“LIFO”) method.

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 accrual method is the most appropriate methodof accounting for the costs of growing pineapple because of the pineapple’scrop cycle (18 to 48 months) and the uncertainties about fruit quality and thenumber of crops to be harvested from each planting (one to three crops). AICPAStatement of Position No. 85-3 (SOP), *Accountingby Agricultural Producers and Agricultural Cooperatives*, states thatall direct and indirect costs of growing crops should be accumulated andgrowing crops should be reported at the lower of cost or market. However, theSOP does not apply to growers of pineapple and sugarcane in tropical regionsbecause tropical agriculture (of which pineapple and sugarcane production inHawaii are examples) differs greatly from agriculture in temperate regions ofthe mainland United States. The Company’s growing (unharvested) crops at December 31,2005, consisted of approximately 5,500 acres in various stages of growth thatwill be harvested principally in the years 2006 through 2008, and are expectedto yield an average of approximately 33 tons per acre. At December 31,2004, growing crops consisted of approximately 4,200 acres that will beharvested in the years 2005 through 2007, and are expected to yield an averageof approximately 26 tons per acre. The estimated average yield of tons per acrereflects the Company’s expectation that it will harvest second ratoon crops(fruit from the third harvest), which yield less tons per acre.

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Real estate held for sale is stated at the lower ofcost or fair value less cost to sell. These costs generally include directon-site construction costs, offsite improvement cost, planning and permittingcosts for the project, and the cost of the land.

Merchandise, materials andsupplies are stated at cost, not in excess of market value, using the retailand average cost methods. Merchandise inventories are retail inventories heldfor sale at the Kapalua Resort. Materials and supply inventories includeamounts for both the Agriculture and the Resort segments.

**OTHERASSETS**

Deferred costs are primarily real estate developmentcosts related to various projects at the Kapalua Resort that will be allocatedto future income-producing development projects.

Cash surrender value of life insurance policies isreflected net of loans against the policies.

Investments in affiliates,partnerships, and limited liability companies, over which the Company does notexercise control, are generally accounted for using the equity method.

**PROPERTYAND DEPRECIATION**

Property is stated at cost.Major replacements, renewals and betterments are capitalized while maintenanceand repairs that do not improve or extend the life of an asset are charged toexpense as incurred. When property is retired or otherwise disposed of, thecost of the property and the related accumulated depreciation are written offand the resulting gains or losses are included in income. Depreciation isprovided over estimated useful lives of the respective assets using thestraight-line method.

**LONG-LIVEDASSETS**

Long-lived assets andcertain intangibles held and used by the Company are reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amountof an asset may not be recoverable. When such events or changes occur, anestimate of the future cash flows expected to result from the use of the assetsand their eventual disposition is made. If the sum of such expected future cashflows (undiscounted and without interest charges) is less than the carryingamount of the asset, an impairment loss is recognized in an amount by which theassets’ net book values exceed their fair values.

**EMPLOYEEBENEFIT PLANS**

The Company’s policy is to fund pension cost at a levelat least equal to the minimum amount required under federal law, but not morethan the maximum amount deductible for federal income tax purposes.

Deferred compensation plans for certain managementemployees provide for specified payments after retirement. The present value ofestimated payments to be made is accrued over the period of active employment. In1998, future benefits under these plans were terminated (see Employee BenefitPlans, Note 9).

The estimated cost ofproviding postretirement health care and life insurance benefits is accruedover the period employees render the necessary services.

**REVENUERECOGNITION**

Net sales primarily include the sales of pineapple,retail merchandise at the Kapalua Resort and real estate inventories. Operatingincome primarily includes income from the golf course operations, income 

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from the Kapalua Villasrental program, lease revenues, real estate commission income and gains fromthe sale of non-core land parcels (land not used in the Company’s coreoperations).

Revenues from the sale of pineapple products arerecognized when title to the product is transferred to the customer. The timingof transfer of title varies according to the shipping and delivery terms of thesale.

Sales of real estate are recognized as revenues in theperiod in which sufficient cash has been received, collection of the balance isreasonably assured and risks of ownership have passed to the buyer. The Company uses thepercentage-of-completion method to recognize revenues and profits from the saleof residential land parcels where the Company is obligated to constructimprovements (roads, sidewalks, drainage, and utilities) after the closing ofthe sale. Under this method, revenues are recognized over the constructionimprovement period on the basis of costs incurred as a percentage of expectedtotal costs to be incurred.

Rental income is recognized on a straight-line basisover the terms of the leases.

Revenues from otheractivities are recognized when delivery has occurred or services have beenrendered, the sales price is fixed or determinable, and collectibility isreasonably assured.

**INTERESTCAPITALIZATION**

Interest costs arecapitalized during the construction period of major capital projects.

**ADVERTISING AND RESEARCH ANDDEVELOPMENT**

The costs of advertisingand research and development activities are expensed as incurred.

**LEASES**

Leases that transfersubstantially all of the benefits and risks of ownership of the property areaccounted for as capital leases. Amortization of property under capital leasesis included in depreciation expense. Other leases are accounted for asoperating leases. Rentals under operating leases are recognized on astraight-line basis.

**INCOMETAXES**

The Company’s provision for income taxes is calculatedusing the liability method. Deferred income taxes are provided for alltemporary differences between the financial statement and income tax bases ofassets and liabilities using tax rates enacted by law or regulation. Avaluation allowance is established for deferred income tax assets if managementbelieves that it is more likely than not that some portion or all of the assetwill not be realized through future taxable income.

The Company’s Federal,State, and foreign income tax filings are subject to examination by the taxauthorities. Although the Company believes that its tax positions are fullysupportable, the Company has recorded an estimated liability for certain taxcontingencies because, in the event of tax examinations, certain positions arelikely to be challenged and the Company’s positions may not be fully sustained.The estimated tax liability is periodically reviewed and adjusted for changesin facts and circumstances (e.g., progress of audits, new or revised case law,expiration of statute of limitations). If events occur and the payment of theseamounts proves to be unnecessary, the reversal of the liabilities would resultin tax benefits being recognized in the period when the Company determines thatthe liabilities are no longer necessary. If the Company’s estimate of taxliabilities proves to be less than the ultimate result, a further charge toexpense would occur.

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**STOCKCOMPENSATION PLANS**

Stock-based compensationis accounted for in accordance with the fair value based method prescribed byFASB Statement No. 123, *Accounting forStock-Based Compensation*. Under the fair value based method,compensation cost is measured at the grant date based on the fair value of theaward, and is recognized as expense over the service period for stock optionsand at the time performance conditions are achieved for performance-basedrestricted stock grants. An amount equal to such compensation expense iscredited to Additional Paid in Capital or to Common Stock.

**FOREIGNCURRENCY TRANSLATION**

The assets and liabilitiesof the Company’s majority owned subsidiary in Costa Rica are translated intoUnited States dollars at exchange rates in effect at the balance sheet date,and revenues and expenses are translated at weighted average exchange rates ineffect during the period. Translation adjustments are reported as othercomprehensive income (loss) and accumulated in Stockholders’ Equity, whichtotaled $-0-, $111,000 and $(77,000) for the years ended December 31,2005, 2004 and 2003, respectively. Transaction gains and losses that arise fromexchange rate changes on transactions denominated in a currency other than thefunctional currency are included in income as incurred. During 2005, 2004 and2003 such transaction gains and losses were not material.

**USE OFESTIMATES**

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses duringthe reporting periods. Future actual amounts could differ from these estimates.

**NEWACCOUNTING PRONOUNCEMENTS**

In December 2004, the Financial AccountingStandards Board issued FASB Statement No. 153, *Exchanges of Nonmonetary Asset—an amendment of APB Opinion No. 29*.This Statement addresses the accounting for reciprocal transfers ofnon-monetary assets and is effective for reporting periods beginning after June 15,2005. This Statement did not affect the Company’s consolidated financialstatements.

In December 2004, theFinancial Accounting Standards Board issued FASB Statement No. 123(revised December 2004), *Share-BasedPayment*. This Statement will require that the Company estimate theforfeiture of equity instruments rather than recording forfeitures as theyoccur. The Statement will be effective for the Company beginning January 1,2006 and is not expected to have a material impact on the Company’sconsolidated financial statements.

**EARNINGSPER COMMON SHARE**

Basic earnings per share is computed by dividing netincome by the weighted-average number of common shares outstanding. Dilutedearnings per share is computed similar to basic earnings per share except thatthe denominator is increased to include the number of additional common sharesthat would have been outstanding if the dilutive potential common shares fromstock-based compensation arrangements had been issued.

Diluted earnings per common share is computed on theassumption that the shares of nonvested restricted stock are issued for anamount based on the grant date market price of the shares and that theoutstanding stock options are exercised. The treasury stock method is appliedto determine the number of potentially dilutive shares.

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Potentially dilutivecommon shares from stock-based compensation arrangements are not included inthe number of diluted common shares for 2004, because to do so would have anantidilutive effect on the net loss per share. The potentially dilutive commonshares were 106,817 for 2004. In 2005 and 2003, the potentially dilutive commonshares were included in the earnings per share computation.

**2.**                 INVENTORIES

Agricultureproduct inventories were comprised of the following components at December 31,2005 and 2004:

| ** **       | ** ** | **2005**                             | ** ** | **2004** | ** ** |
|------------------|------------|--------------------------------------|------------|----------|------------|
| ** **       | ** ** | **(Dollars in Thousands)** | ** ** |
| Finished Goods   |       | $                                    | 2,425      |     | $          | 3,477 |   |
| Work In Progress |       | 367                                  |       | 438      |       |
| Raw Materials    |       | 861                                  |       | 751      |       |
| Total            |       | $                                    | 3,653      |     | $          | 4,666 |   |

 

The replacement cost ofAgriculture product inventories at year-end approximated $10 million in 2005and $13 million in 2004. In 2005 and 2004, there were partial liquidations ofLIFO inventories; thus, cost of sales included prior years’ inventory costs,which were lower than current costs. Had current costs been charged to cost ofsales, income from continuing operations before income taxes for 2005 wouldhave decreased by $2.9 million; and the loss from continuing operations beforeincome taxes for 2004 would have increased by $6.8 million.

**3.**                 OTHER ASSETS

OtherAssets at December 31, 2005 and 2004 consisted of the following:

| ** **                                             | ** ** | **2005**                             | ** ** | **2004** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------|------------|----------|------------|
| ** **                                             | ** ** | **(Dollars in Thousands)** | ** ** |
| Deferred costs                                         |       | $                                    | 12,831     |     | $          | 10,284 |   |
| Cash surrender  value of life insurance policies (net) |       | 1,518                                |       | 1,542    |       |
| Pension asset                                          |       | 1,866                                |       | 2,414    |       |
| Investment in  Kapalua Bay Holdings, LLC               |       | 2,518                                |       | 2,170    |       |
| Cash held by  exchange intermediary (Note 7)           |       | 13,854                               |       | —   |       |
| Notes receivable  from real estate sales (Note 7)      |       | 3,411                                |       | —   |       |
| Other                                                  |       | 3,669                                |       | 3,246    |       |
| Total                                                  |       | $                                    | 39,667     |     | $          | 19,656 |   |

 

Cash surrender value oflife insurance policies is stated net of policy loans, totaling $619,000 at December 31,2005 and 2004. The policy loans bear interest at 5.75% to 8% and are payableupon the death of the insured or cancellation of the policies. The Company owns the insurance policies andthe related cash surrender values, and has directly borrowed against such cashsurrender values for general operating purposes. The loans were not provided byor on behalf of the Company to our officers and/or directors. The Company hasno intention of repaying such loans during the next year and has the right tooffset the loans against the proceeds received on maturity or cancellation ofthe policies; accordingly, the loans are presented as a reduction of therespective cash surrender values included in other noncurrent assets on theCompany’s balance sheet.

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**KAPALUABAY HOLDINGS, LLC**

On August 31, 2004, the Company, MarriottInternational Inc. (“Marriott”) and Exclusive Resorts LLC (“ER”), throughwholly owned affiliates, entered into an agreement to form Kapalua BayHoldings, LLC (“Bay Holdings”). A 47% shareholder of the Company throughrelated companies is the majority owner of ER. Bay Holdings also formed awholly-owned, single member limited liability company, Kapalua Bay LLC (“KapaluaBay”).

On August 31, 2004, Kapalua Bay completed thepurchase of the leasehold interest in the land (“ground lease”) and hotelimprovements of the Kapalua Bay Hotel (“KBH”) from YCP Kapalua L.P. and YCPKapalua Operator, Inc. for $48.3 million. The Company was the lessor underthe ground lease with YCP. The purpose for the acquisition is to redevelop thesite and construct whole and fractional residential units for sale to thepublic. The plan is to operate the hotel and adjacent retail shops until early April 2006,demolish these improvements, and then begin construction of the residentialunits. During the period prior to the demolition, Bay Holdings will prepare thedevelopment plans, obtain the required governmental approvals, and preparemarketing and sales plans.

In connection with the formation of Bay Holdings andKapalua Bay, the Company contributed $500,000 of cash to Bay Holdings andcontributed to Kapalua Bay: (1) its lessor’s interest under the groundlease; (2) its fee interest in the 21-acre land parcel underlyingthe KBH (ground lease concurrently cancelled); (3) its rights andinterests as landlord of the adjacent retail shops (“Shops”), including theretail leases; and (4) the payment, on behalf of Kapalua Bay, of $574,000of costs relating to the acquisition of KBH. The Shops’ improvements will alsobe demolished, and Bay Holdings will construct an ocean-side spa and beach clubon the site. The Company will purchase the spa and beach club at Bay Holdings’actual construction costs. The members (owners) valued these non-monetarycontributions at $25 million through arms-length negotiations. In exchange forits $25.5 million contribution to Bay Holdings and Kapalua Bay, the Companyreceived 51% of the outstanding membership interests of Bay Holdings. Marriottcontributed $17.0 million of cash to Bay Holdings for 34% of the outstandingmembership interests in Bay Holdings, and ER contributed $7.5 million of cashto Bay Holdings for 15% of the outstanding membership interests in BayHoldings.

The Company recorded its non-monetary capitalcontributions to Bay Holdings at the carrying values (carryover historical costbasis) of the assets contributed because the contributions are not theculmination of an earnings process. The historical cost basis of the land isnominal because it was acquired in the early 1900s. The net book value of theShops was $1.7 million at the date of contribution, and the costs paid onbehalf of Kapalua Bay of $574,000 are also included in the Company’s investmentaccount. In 2005, the Company capitalized an additional $109,000 of costs paidon behalf of Kapalua Bay and reclassified property with a net book value of$390,000 to the Company’s investment account. The unrecognized (and unrealized)appreciation relating to the contributed land parcel is estimated atapproximately $24.6 million (based on arms-length negotiations between the BayHoldings members), and will be recognized as income as Bay Holdings sells theresidential units. The Company believes that the recognition of income at thetime of sale satisfies the realization criteria because the earnings process iscomplete and the amount of income is determinable and collectible. The costs ofthe other components in the Company’s investment account (Shop improvements andcosts paid on behalf of Bay Holdings) will be charged to expense in asystematic manner as Bay Holdings sells the residential units. The Company willinclude the income and expenses relating to these non-monetary contributions aspart of its equity in the income of Bay Holdings.

In connection with the transaction, Kapalua Baysecured a $45 million credit agreement with two lenders. The credit agreementhas an initial term of two years, is secured by a mortgage on the KBH, and isnon-recourse to the Company, except for its obligations under a $5.0 millionindemnity and guaranty agreement. Under the agreement, the Company and the BayHoldings members are responsible for (and guarantee payment to the lenders of)their pro rata share of costs and losses incurred by the lenders as a 

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result of the occurrenceof specified triggering events during the term of the agreement. Some of thetriggering events include fraudulent misrepresentation, misapplication ofrental and insurance proceeds, failure to pay insurance premiums or to maintainspecified insurance coverage’s, and failure to remain adequately capitalized. Themaximum future payments the Company could be required to make is $2.55 million,plus interest. The Company has recognized a liability of $180,000, representingthe estimated fair value of its indemnitor’s obligation. Kapalua Bay drew down$26 million under the credit agreement and used the cash contributions made bythe members to conclude the purchase of the KBH. In 2005, the $45 millioncredit agreement was reduced to $42.3 million. Also, in 2005, Kapalua Bay drewdown an additional $3.5 million under the credit agreement, and amountsavailable under the credit agreement at December 31, 2005 were $10.5million.

Marriott has an agreement with Bay Holdings to operateand manage the KBH. The Company has been designated as the managing member ofBay Holdings and as such will manage the affairs of the entity. Profits andlosses of Bay Holdings will be allocated in proportion to the members’ownership interest, which approximate the estimated cash distributions to themembers.

The Company has an agreement with Bay Holdings toprovide entitlement services relating to the receipt of governmental permitsand authorizations required for the development projects. The fee to theCompany for these services is $450,000, which in lieu of cash payment, will bedeemed to be contributed to the Company’s capital account in Bay Holdings intwo equal installments on September 1, 2005 and September 1, 2006. In2005, the Company recorded 49% (amount attributable to the other members) ofthe fee earned.

Bay Holdings is not a variable interest entity, asdefined in FASB Interpretation No. 46, *Consolidation of VariableInterest Entities*. The Company accounts for its investment in BayHoldings using the equity method of accounting because, although it has theability to exercise significant influence over operating and financialpolicies, it does not control Bay Holdings through a majority voting interest. Underthe LLC agreement, major decisions require the approval of either 75% or 100%of the membership interests.

TheCompany’s 2005 and 2004 equity in the loss of Bay Holdings was $454,000 and$779,000 (pre-tax), respectively. Summarized balance sheet information for BayHoldings as of December 31, 2005 and 2004 and operating information for2005 and for the period from August 31, 2004 (date of formation) to December 31,2004 follows:

| ** **                   | ** ** | **2005**                             | ** ** | **2004** | ** ** |
|------------------------------|------------|--------------------------------------|------------|----------|------------|
| ** **                   | ** ** | **(Dollars in Thousands)** | ** ** |
| Current assets               |       | $                                    | 4,013      |     | $          | 3,985 |   |
| Property and  equipment, net |       | 25,139                               |       | 27,150   |       |
| Other assets, net            |       | 55,336                               |       | 47,149   |       |
| Total Assets                 |       | $                                    | 84,488     |     | $          | 78,284 |   |
| Current liabilities          |       | $                                    | 7,088      |     | $          | 3,562 |   |
| Noncurrent  liabilities      |       | 29,493                               |       | 26,250   |       |
| Total Liabilities            |       | $                                    | 36,581     |     | $          | 29,812 |   |
| Members’ Capital        |       | $                                    | 47,907     |     | $          | 48,472 |   |

 

| ** **          | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------|------------|----------|------------|----------|------------|
| Revenues            |       | $        | 24,490     |     | $          | 5,939 |   |
| Costs and  Expenses |       | 25,380   |       | 7,467    |       |
| Net Loss            |       | $        | (890       | )        | $          | (1,528 | ) |

 

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**KAAHUMANUCENTER ASSOCIATES**

Kaahumanu Center Associates (“KCA”) was a 50/50partnership between the Company as general partner and the Employees’Retirement System of the State of Hawaii (“ERS”) as a limited partner. KCA wasthe owner and operator of Queen Ka`ahumanu Center, a regional shopping centerin Maui. In September of 2003, KCA sold the shopping center for $75million. Upon closing of the sale, the Company received a cash distribution of$3.3 million, which primarily represented the repayment of cash advances,management fees, electricity and reimbursable costs.

By agreement between the partners of KCA, thepartnership was dissolved upon the closing of the sale and the Company asmanaging partner proceeded to wind up the affairs of the partnership. Thewinding up period, as defined by agreement, was completed in May 2005 andall remaining assets were distributed to the partners.

As a result of the dissolution of the partnership, theCompany’s accumulated equity in the losses of KCA in excess of its investmentwas reversed in the third quarter of 2003. The reversal of these losses in 2003of $11.8 million was credited to equity in earnings of affiliates.

The Company had a long-term agreement with KCA tomanage Queen Ka`ahumanu Center. As manager, the Company provided alladministrative and on-site personnel and incurred other costs and expenses,primarily insurance, which were reimbursable by KCA. The Company generated aportion of the electricity used by Queen Ka`ahumanu Center. In accordance withthe limited partnership agreement, the partners could make cash advances to KCAin order to avoid a cash flow deficit. In 2003, reimbursements from KCA forpayroll and other costs and expenses totaled $1,894,000 and the Company chargedKCA $1,801,000 for electricity and management fees. The Company’s pre-tax shareof income (losses) from KCA was $(25,000), $146,000 and $852,000, respectively,for 2005, 2004 and 2003.

Summarizedbalance sheet information for KCA as of December 31, 2004 included currentassets of $1,713,000, current liabilities of $86,000, and partners’ capital of$1,627,000. Operating information for each of the three years in the periodended December 31, 2005 follows:

| ** **          | ** ** | **2005**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------|------------|--------------------------------------|------------|----------|------------|----------|------------|
| ** **          | ** ** | **(Dollars in Thousands)** | ** ** |
| Revenues            |       | $                                    | —     |     | $          | 473      |       | $ | 14,509 |   |
| Costs and  Expenses |       | 49                                   |       | 181      |       | 12,805   |       |
| Net Income (Loss)   |       | $                                    | (49        | )        | $          | 292      |       | $ | 1,704 |   |

 

**4.**                 DISCONTINUEDOPERATIONS

In August 2003, the Company sold the NapiliPlaza, which was one of two major assets in the Company’s Commercial &Property operating segment. The assets sold had a net book value of $4.4million, which was comprised principally of buildings and land improvements. TheCompany’s gain from the transaction of $1.9 million and the results ofoperations prior to the sale is reported as discontinued operations and priorperiods have been restated for comparability.

In the fourth quarter of 2003, in connection with theCompany’s plan to cease a substantial portion of its foreign pineappleoperations, the Company entered into an agreement to sell substantially all ofthe assets of its 51% owned Costa Rican pineapple subsidiary for $15.3 million.The sale closed in December 2003 and title to all but two parcels of landwas transferred to the buyer. The sales agreement provided for withholding of$3.1 million of the sales price pending the transfer of title to the remainingproperties. The assets sold in December 2003 had a net book value of $6.5million, and consisted primarily of inventories, land, buildings, and machineryand equipment. Accordingly, in 2003, $12.2 million of the total sales price wasrecognized and the Company recorded a gain of $2.9 million (after reduction for49% 

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minority interest). In2003, the gain from the asset sales and most of the components of the CostaRican pineapple operations were reported as discontinued operations. Theportion of the operations that the Company planned to continue was classifiedin continuing operations. In 2004, the Company recorded pre-tax gains of$839,000 (after reduction for 49% minority interest), after title to theremaining two land parcels transferred to the buyers.

In the first quarter of 2004, the Company ceased theremainder of its foreign pineapple operations. As a result, the amountspreviously reported as discontinued operations for 2003 have been restated toinclude results for the operations ceased in 2004.

Therevenues and income before tax relating to these two discontinued operationswere as follows:

| ** **           | ** ** | **2004**                             | ** ** | **2003** | ** ** |
|----------------------|------------|--------------------------------------|------------|----------|------------|
| ** **           | ** ** | **(Dollars in Thousands)** | ** ** |
| Revenues             |       |                                 |       |     |       |
| Napili Plaza         |       | $                                    | —     |     | $          | 2,591 |   |
| Pineapple subsidiary |       | 2,036                                |       | 17,019   |       |
| Total                |       | 2,036                                |       | 19,610   |       |
| Income before taxes  |       |                                 |       |     |       |
| Napili Plaza         |       | 2                                    |       | 1,982    |       |
| Pineapple subsidiary |       | 118                                  |       | 4,819    |       |
| Total                |       | $                                    | 120        |     | $          | 6,801 |   |

 

**5.**                 FINANCINGARRANGEMENTS

During 2005, 2004 and 2003, the Company had averageborrowings outstanding of $16.3 million, $20.4 million, and $45 million,respectively, at average interest rates of 6.7%, 5.5% and 5%, respectively.

Long-termdebt at December 31, 2005 and 2004 consisted of the following (interestrates represent the rates at December 31):

| ** **                                         | ** ** | **2005**                             | ** ** | **2004** | ** ** |
|----------------------------------------------------|------------|--------------------------------------|------------|----------|------------|
| ** **                                         | ** ** | **(Dollars in Thousands)** | ** ** |
| Revolving loan,  5.5% to 7.25% and 5.01% to 5.98%  |       | $                                    | 10,000     |     | $          | 14,250 |   |
| Equipment loans,  5.3% to 6.84% and 2.07% to 7.48% |       | 818                                  |       | 2,344    |       |
| Total                                              |       | 10,818                               |       | 16,594   |       |
| Less current  portion                              |       | 534                                  |       | 3,026    |       |
| Long-term debt                                     |       | $                                    | 10,284     |     | $          | 13,568 |   |

 

The Company has a $13.5 million revolving loan that issecured by certain parcels of the Company’s real property on Maui. InSeptember 2005, the loan was restated and amended to convert it from aterm loan to a revolving facility, and all amounts outstanding as ofJune 2009 are due and payable. Commitment fees of .25% to .40% are payableon the unused portion of the revolving facility. At the Company’s option,interest rates on advances are adjustable to the prime rate or based onone-month to one-year Libor rates. The agreement includes certain financialcovenants, including the maintenance of a minimum net worth and interestcoverage ratio, maximum funded debt to capitalization ratio, and limits oncapital expenditures and the payment of dividends.

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The Company has a revolving credit agreement withparticipating banks under which it may borrow up to $30 million in revolvingloans through April 2008, and amounts outstanding at that time are due andpayable. This agreement was amended in April 2005 to increase the totalcommitment from $15 million to $30 million, to extend the revolving loan periodfrom December 2005 to April 2008, and to delete the 3-year termloan conversion option that was available at the end of the revolving period. Commitmentfees of .25% are payable on the unused portion of the revolving credit line. Atthe Company’s option, interest on advances is at the prime rate or based onone- to six-month Libor rates. The loan is collateralized by the Company’sthree golf courses at the Kapalua Resort. The agreement contains certainfinancial covenants, including the maintenance of consolidated net worth atcertain levels, minimum interest coverage ratio, limits on the incurrence ofother indebtedness, and the sale of assets. Declaration and payment of cashdividends is restricted to 30% of prior year’s net income.

The Company has agreements that provide for term loansthat were used to purchase equipment for the Company’s Agriculture and Resortoperations. At December 31, 2005, these loans were principally at fixedinterest rates and mature through December 2008. Some of the agreementsinclude financial covenants that are similar to those in the Company’srevolving credit agreement.

Maturities of long-termdebt during the next five years, from 2006 through 2010, are as follows:$534,000, $233,000, $51,000, $10,000,000 and $-0-.

**6.**                 DEFERRED REVENUES

In 2005 and 2004, theCompany recognized revenues and profits using the percentage of completionmethod for sales of seven lots and 17 lots, respectively, that closed escrow in the Honolua Ridge Phase Iand Phase II subdivisions at the Kapalua Resort. Construction of theimprovements for Phase I was substantially complete in November 2005. At December 31,2005, construction of the improvements for Phase II was estimated to beapproximately 35% complete and total costs for Phase II are estimated to be$21.1 million, and consist primarily of executed contracts with contractors. PhaseII is expected to be completed by October 2006. Costs are allocated to eachlot sold based on relative sales values. In 2005, lot sales proceeds fromHonolua Ridge Phase I and II of $25.5 million and $5.3 million, respectively,were recognized as revenues. In 2004, sales proceeds from Honolua Ridge totaled$29.2 million, of which $17.8 million was recognized as revenues. At December 31,2005 and 2004, deferred revenues for Honolua Ridge of $9.9 million and $11.4million, respectively, were included in liabilities.

**7.**                 REAL ESTATE SALES

In 2005, the Company sold approximately 640 acres ofUpcountry Maui properties in seven transactions that resulted in net cash salesproceeds of $28.2 million. Some of the proceeds have been or are expected to bere-invested on a tax deferred basis (Internal Revenue Code Section 1031exchange). Proceeds of $2.6 million were used to purchase property to be usedin the Company’s operations and, as of December 31, 2005, $13.9 millionwas on deposit with a qualified exchange intermediary. The Company held notesreceivable for $2.5 million related to two of the sales, which were collectedin January 2006. Part of the consideration for one of the salestransactions was a one-acre parcel of land in West Maui valued at $350,000. Thegain on these sales recognized for financial statement purposes was $26.9 million.

One of the 2005 land sales involved three parcels ofapproximately 129 acres of Upcountry Maui land for $14 million, comprised of$11 million in cash and a promissory note for $3 million. In connection withthe sale, the Company and the buyer executed a Water Development Agreement. Underthe agreement, the Company will drill a new water well and construct a storagetank and a transmission line that would connect to the County of Maui watersystem. The well and storage tank will be constructed on a separate land parcelof Company-owned land. After the County’s approval of the completed project,the Company will dedicate the facilities to the County for use as part of theCounty’s Upcountry water system. In 

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exchange for thededication, the Company expects to receive access to a specified quantity ofwater. Based on estimates of the cost to construct the water source and on thepotential water flow from the well, the estimated water source cost wasallocated between the three parcels sold and other Company projects in theUpcountry area. Profit of $7.0 million on the transaction was allocated to thesale of the land parcels and $1.9 million was allocated to subsequentconstruction of the water source. Both of these activities will have the samerate of gross profit pursuant to the provisions of SFAS No. 66, *Accounting for Sales of Real Estate*. The $3.0 million notereceivable is due on the date the buyer receives its allocated water source;accordingly, the $1.9 million of gross profit relating to construction of thewater source will be recognized in future periods based on performance.

The Company has a bindingcontract for the sale of approximately 1,800 acres of Upcountry Maui land thatis scheduled to close in March 2006. The Company expects to realize cashproceeds and report a net gain of approximately $21 million. This parcel iscurrently cultivated in pineapple, and the Company will leaseback the parcelfor approximately one year.

**8.**                 LEASINGARRANGEMENTS

**LESSEE**

The Company has capital leases, primarily on equipmentused in Agriculture operations, which expire at various dates through 2006. At December 31,2005 and 2004, property included capital leases of $1,715,000 (beforeaccumulated depreciation of $1,168,000 and $883,000, respectively). Future minimumrental payments under capital leases aggregate $305,000 (including $2,000representing interest) and are payable in 2006.

The Company has variousoperating leases, primarily for land used in Agriculture operations, whichexpire at various dates through 2018. Total rental expense under operatingleases was $880,000 in 2005, $829,000 in 2004 and $826,000 in 2003. Futureminimum rental payments under operating leases aggregate $3,369,000 and arepayable during the next five years (2006 to 2010) as follows: $551,000,$563,000, $550,000, $299,000, $278,000, respectively, and $1,128,000thereafter.

**LESSOR**

TheCompany leases land and land improvements, primarily to hotels at Kapalua, andspace in buildings, primarily to retail tenants. These operating leases generallyprovide for minimum rents and, in most cases, percentage rentals based ontenant revenues. In addition, the leases generally provide for reimbursement ofcommon area maintenance and other expenses. Total rental income under theseoperating leases was as follows:

| ** **          | ** ** | **2005**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------|------------|--------------------------------------|------------|----------|------------|----------|------------|
| ** **          | ** ** | **(Dollars in Thousands)** | ** ** |
| Minimum rentals     |       | $                                    | 433        |     | $          | 968      |       | $ | 1,284 |   |
| Percentage  rentals |       | 1,674                                |       | 2,292    |       | 2,322    |       |
| Total               |       | $                                    | 2,107      |     | $          | 3,260    |       | $ | 3,606 |   |

 

As discussed in Other Assets, Note 3, in connectionwith the formation of Bay Holdings on August 31, 2004, the Companycontributed to Kapalua Bay its fee interest in the land underlying the hotel(hotel ground lease concurrently cancelled) and its landlord’s interests in TheShops (including retail leases). Rental income from these leases was $1,098,000in 2004 and $1,435,000 in 2003.

Property at December 31, 2005 and 2004 includesleased property of $9,609,000 and $6,967,000, respectively (before accumulateddepreciation of $4,430,000 and $4,294,000, respectively).

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Future minimum rentalincome aggregates $3,366,000 and is receivable during the next five years (2006to 2010) as follows:  $561,000, $365,000,$374,000, $376,000, $325,000, respectively, and $1,365,000 thereafter.

**9.**                 EMPLOYEEBENEFIT PLANS

The Company has defined benefit pension plans coveringsubstantially all full-time, part-time and intermittent employees. Pensionbenefits are based primarily on years of service and compensation levels. TheCompany has defined benefit postretirement health and life insurance plans thatcover primarily non-bargaining salaried employees and certain bargaining unitemployees. Postretirement health and life insurance benefits are principallybased on the employee’s job classification at the time of retirement and onyears of service.

The projected benefit obligation, accumulated benefitobligation and fair value of plan assets for pension plans with accumulatedbenefits in excess of plan assets were $33,737,000, $30,407,000 and$25,750,000, respectively as of December 31, 2005 and $53,170,000,$48,638,000 and $41,456,000, respectively, as of December 31, 2004.

The accumulated postretirement benefit obligation forhealth care as of December 31, 2005 was determined using a health carecost trend rate of 7.5% in 2005 and decreasing by .5% each year through 2011,and 5% thereafter. The effect of a 1% annual increase in these assumed costtrend rates would increase the accrued postretirement benefit obligation byapproximately $2,698,000 as of December 31, 2005, and the aggregate of theservice and interest cost for 2005 by approximately $282,000. A 1% annualdecrease would reduce the accrued postretirement benefit obligation byapproximately $2,167,000 as of December 31, 2005, and the aggregate of theservice and interest cost for 2005 by approximately $222,000.

Special termination benefits in 2005 and 2004 relateto enhanced pension benefits as a result of management changes.

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Changesin benefit obligations and changes in plan assets for 2005 and 2004 and thefunded status of the plans and amounts recognized in the balance sheets as of December 31,2005 and 2004 were as follows:

| ** **                                                                              | ** ** | **Pension Benefits**            | ** ** | **Other Benefits** | ** ** |
|-----------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-------------------------|------------|
| ** **                                                                              | ** ** | **2005**                             | ** ** | **2004**                | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                              | ** ** | **(Dollars in Thousands)** | ** ** |
| Change in benefit  obligations:                                                         |       |                                 |       |                    |       |   |   |   |   |
| Benefit obligations at beginning of year                                                |       | $                                    | 53,170     |                    | $          | 47,464 |   | $ | 16,234 |   | $ | 15,146 |   |
| Service cost                                                                            |       | 1,605                                |       | 1,679                   |       | 390 |   | 326 |   |
| Interest cost                                                                           |       | 3,024                                |       | 2,932                   |       | 950 |   | 860 |   |
| Actuarial (gain) loss                                                                   |       | (3,531                               | )          | 3,941                   |       | 460 |   | 473 |   |
| Special termination benefits                                                            |       | 185                                  |       | 106                     |       | — |   | 55 |   |
| Benefits paid                                                                           |       | (3,171                               | )          | (2,952                  | )          | (651 | ) | (626 | ) |
| Benefit obligations at end of year                                                      |       | $                                    | 51,282     |                    | $          | 53,170 |   | $ | 17,383 |   | $ | 16,234 |   |
| Change in plan assets:                                                                  |       |                                 |       |                    |       |   |   |   |   |
| Fair value of plan assets at beginning of year                                          |       | $                                    | 41,456     |                    | $          | 38,207 |   | $ | — |   | $ | — |   |
| Actual return on plan assets                                                            |       | 3,486                                |       | 4,556                   |       | — |   | — |   |
| Employer contributions                                                                  |       | 1,202                                |       | 1,645                   |       | 651 |   | 626 |   |
| Benefits paid                                                                           |       | (3,171                               | )          | (2,952                  | )          | (651 | ) | (626 | ) |
| Fair value of plan assets at end of year                                                |       | $                                    | 42,973     |                    | $          | 41,456 |   | $ | — |   | $ | — |   |
| Funded status                                                                           |       | $                                    | (8,309     | )                       | $          | (11,713 | ) | $ | (17,383 | ) | $ | (16,234 | ) |
| Unrecognized  actuarial (gain) loss                                                     |       | 6,829                                |       | 11,002                  |       | (3,209 | ) | (3,882 | ) |
| Unrecognized net  transition obligation                                                 |       | 180                                  |       | 204                     |       | — |   | — |   |
| Unrecognized  prior service cost                                                        |       | 285                                  |       | 332                     |       | (161 | ) | (289 | ) |
| Net amounts  recognized                                                                 |       | $                                    | (1,015     | )                       | $          | (175 | ) | $ | (20,753 | ) | $ | (20,405 | ) |
| Amounts recognized in  balance sheets consist of:                                       |       |                                 |       |                    |       |   |   |   |   |
| Pension asset before minimum liability adjustment                                       |       | $                                    | 1,080      |                    | $          | 1,930 |   | $ | — |   | $ | — |   |
| Accrued benefit liability                                                               |       | (2,095                               | )          | (2,105                  | )          | (20,753 | ) | (20,405 | ) |
| Intangible asset                                                                        |       | 256                                  |       | 537                     |       | — |   | — |   |
| Minimum liability adjustment                                                            |       | (2,562                               | )          | (7,007                  | )          | — |   | — |   |
| Accumulated other comprehensive loss (before income  taxes)                             |       | 2,306                                |       | 6,470                   |       | — |   | — |   |
| Net amounts  recognized                                                                 |       | $                                    | (1,015     | )                       | $          | (175 | ) | $ | (20,753 | ) | $ | (20,405 | ) |
| Increase  (decrease) in minimum liability included in other comprehensive income        |       | $                                    | (4,164     | )                       | $          | 2,799 |   | $ | — |   | $ | — |   |
| Weighted average  assumption used to determine benefit obligations at December 31: |       |                                 |       |                    |       |   |   |   |   |
| Discount rate                                                                           |       | 5.88                                 | %          | 6.00                    | %          | 5.88 | % | 6.00 | % |
| Rate of compensation  increase                                                          |       | 3.50                                 | %          | 3.50                    | %          | 3.50 | % | 3.50 | % |

 

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Netperiodic benefit costs for 2005, 2004 and 2003 included the followingcomponents:

| ** **                                | ** ** | **2005**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------|------------|--------------------------------------|------------|----------|------------|----------|------------|
| ** **                                | ** ** | **(Dollars in Thousands)** | ** ** |
| Pension benefits:                         |       |                                 |       |     |       |     |       |
| Service cost                              |       | $                                    | 1,605      |     | $          | 1,679    |       | $ | 1,669 |   |
| Interest cost                             |       | 3,024                                |       | 2,932    |       | 2,771    |       |
| Expected return on plan assets            |       | (3,232                               | )          | (2,991   | )          | (2,858   | )          |
| Amortization of net transition obligation |       | 25                                   |       | 25       |       | 25       |       |
| Amortization of prior service cost        |       | 47                                   |       | 45       |       | 46       |       |
| Special termination benefits              |       | 185                                  |       | 106      |       | 577      |       |
| Recognized net actuarial loss             |       | 389                                  |       | 436      |       | 621      |       |
| Net expense                               |       | $                                    | 2,043      |     | $          | 2,232    |       | $ | 2,851 |   |
| Other benefits:                           |       |                                 |       |     |       |     |       |
| Service cost                              |       | $                                    | 389        |     | $          | 326      |       | $ | 184 |   |
| Interest cost                             |       | 950                                  |       | 860      |       | 849      |       |
| Amortization of prior service cost        |       | (128                                 | )          | (128     | )          | (128     | )          |
| Special termination benefits              |       | —                               |       | 55       |       | 68       |       |
| Recognized net actuarial gain             |       | (202                                 | )          | (279     | )          | (371     | )          |
| Net expense                               |       | $                                    | 1,009      |     | $          | 834      |       | $ | 602 |   |

 

| ** **                                                                      | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Weighted average  assumptions used to determine net periodic benefit cost: |       |     |       |     |       |     |       |
| Pension benefits:                                                               |       |     |       |     |       |     |       |
| Discount rate                                                                   |       | 6        | %          | 6.25     | %          | 6.75     | %          |
| Expected long-term return on plan assets                                        |       | 8        | %          | 8        | %          | 9        | %          |
| Rate of compensation increase                                                   |       | 3% - 4.5 | %          | 3% - 4.5 | %          | 3% - 4.5 | %          |
| Other benefits:                                                                 |       |     |       |     |       |     |       |
| Discount rate                                                                   |       | 6        | %          | 6.25     | %          | 6.75     | %          |
| Rate of  compensation increase                                                  |       | 3.5      | %          | 3.5      | %          | 3.5      | %          |

 

The expected long-term rate of return on plan assetswas based on historical total returns of broad equity and bond indices for tento fifteen year periods, weighted against the Company’s targeted pension assetallocation ranges. These rates were also compared to historical rates of returnon hypothetical blended funds with 60% equity securities and 40% bondsecurities.

TheCompany’s pension plan weighted-average asset allocations at December 31,2005 and 2004, by asset category, was as follows:

| **Asset Category** | ** ** | ** ** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------|------------|------------|------------|----------|------------|----------|------------|
| Equity securities       |       |       | 67         | %        |       |     | 69         | % |   |
| Debt securities         |       |       | 32         | %        |       |     | 30         | % |   |
| Real estate             |       |       | —     |     |       |     | —     |   |   |
| Other                   |       |       | 1          | %        |       |     | 1          | % |   |

 

A pension committee consisting of certain seniormanagement employees administers the Company’s defined benefit pension plans. Thepension plan assets are allocated among approved asset types based on assetallocation guidelines and investment and risk-management guidelines set by thepension committee, and subject to liquidity requirements of the plans. Thepension committee has set the following asset mix 

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guidelines: equities 20%to 60%; fixed income securities 20% to 50%; international securities 0% to 10%;private partnerships 0% to 15%; and cash or equivalents 0% to 100%.

TheCompany expects to contribute $1.9 million to its defined benefit pension plansand $727,000 to its other postretirement benefit plans in 2006. Estimatedfuture benefit payments, which include expected future service, are as follows:

| ** **  | ** ** | **Pension    Benefits  ** | ** ** | **Other    Benefits  ** | ** ** |
|-------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| ** **  | ** ** | **(Dollars in Thousands)**          | ** ** |
| 2006        |       |                                          | $          | 2,842                                       |       |   |   | $ | 727 |   |   |
| 2007        |       |                                          | 2,835      |                                        |       |   | 751 |   |   |
| 2008        |       |                                          | 2,851      |                                        |       |   | 785 |   |   |
| 2009        |       |                                          | 2,871      |                                        |       |   | 820 |   |   |
| 2010        |       |                                          | 2,927      |                                        |       |   | 841 |   |   |
| 2011 - 2015 |       |                                          | 15,649     |                                        |       |   | 4,726 |   |   |

 

The Company has investment and savings plans thatallow eligible employees on a voluntary basis to make pre-tax contributions oftheir cash compensation. Substantially all employees are eligible toparticipate in one or more plans. No Company contributions were made to theseplans in 2005, 2004 and 2003.

The Company has an Employee Stock Ownership Plan (“ESOP”)for non-bargaining salaried employees and for bargaining unit clericalemployees of Maui Pineapple Company, Ltd. Effective December 31, 1999, theCompany’s Board of Directors approved a plan amendment to freeze the ESOP. Accordingly,after 1999, there were no further contributions to the ESOP and no additionalemployees became participants of the plan. On March 1, 2004, the Company’sBoard of Directors voted to terminate the ESOP. The Company is in the processof distributing all of the ESOP’s assets to the participants.

On October 1, 1998,deferred compensation plans that provided for specified payments afterretirement for certain management employees were amended to eliminate futurebenefits. At the termination date, these employees were given credit forexisting years of service and future vesting of additional benefits wasdiscontinued. The present value of the benefits to be paid is being accruedover the period of active employment. As of December 31, 2005 and 2004,deferred compensation plan liabilities totaled $1,848,000 and $2,030,000,respectively.

**10.**          STOCKCOMPENSATION PLANS

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 (the “Stock Plan”) was approvedby its shareholders on December 11, 2003 and includes 500,000 shares ofcommon stock authorized for issuance. The Compensation Committee of the Boardof Directors is charged with administering the Stock Plan, and at itsdiscretion can determine the employees, directors and independent contractorsto whom awards under this plan will be granted. The vesting requirements, termsof the grants of options or other equity instruments, and other terms of thegrants generally follow certain guidelines, but can vary by grant according tothe discretion of the Committee. Generally, the options granted to employeesexpire ten years from the date of grant and vest over a five-year period.

In October 2003, the Company entered into anon-qualified stock option agreement with the Company’s President and ChiefExecutive Officer under which 200,000 shares of common stock were granted tohim in 2003. The term of the options expire ten years from the date of grantand the options will vest and become exercisable over a three-year period fromthe date of grant.

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Asummary of changes in outstanding options under the stock option plans is asfollows:

| ** **                                   | ** ** | **2005**   | ** ** | **2004**                                        | ** ** | **2003**   | ** ** |
|----------------------------------------------|------------|------------|------------|-------------------------------------------------|------------|------------|------------|
| ** **                                   | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price ($)** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price ($)** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price ($)** | ** ** |
| Outstanding at  beginning of year  | ** ** | 424,500    |       |                                            | 26.35      |       |       | 225,000 |   |   | 20.59 |   |   | — |   |   | — |   |   |
| Granted                                      |       | 220,000    |       |                                            | 34.95      | ** ** |       | 257,000 |   |   | 32.69 | ** ** |   | 225,000 |   |   | 20.59 | ** ** |   |
| Exercised                                    |       | —     |       |                                            | —     | ** ** |       | — |   |   | — | ** ** |   | — |   |   | — | ** ** |   |
| Forfeited                                    |       | 31,000     |       |                                            | 35.22      | ** ** |       | 57,500 |   |   | 32.17 | ** ** |   | — |   |   | — | ** ** |   |
| Outstanding at end of  year                  |       | 613,500    |       |                                            | 28.99      | ** ** |       | 424,500 |   |   | 26.35 | ** ** |   | 225,000 |   |   | 20.59 | ** ** |   |

 

Theweighted average grant-date fair value of options granted during 2005, 2004 and2003 where the exercise price equals, exceeds and is less than the market priceof the stock on the date of grant, and the related weighted average exerciseprices were as follows:

| ** ** | ** ** | **2005**                     | ** ** | **2004**                                        | ** ** | **2003**                     | ** ** |
|------------|------------|------------------------------|------------|-------------------------------------------------|------------|------------------------------|------------|
| ** ** | ** ** | **Fair  Value  of  Options** | ** ** | **Weighted  Average  Exercise  Price ($)** | ** ** | **Fair  Value  of  Options** | ** ** | **Weighted  Average  Exercise  Price ($)** | ** ** | **Fair  Value  of  Options** | ** ** | **Weighted  Average  Exercise  Price ($)** | ** ** |
| Equals     |       |                         | 12.80      |                                            |       |                         | 35.01      |   |   |   | 10.47 |   |   |   | 32.49 |   |   |   | — |   |   |   | — |   |   |
| Exceeds    |       |                         | —     |                                            |       |                         | —     |   |   |   | 10.55 |   |   |   | 37.99 |   |   |   | 10.77 |   |   |   | 20.59 |   |   |
| Less Than  |       |                         | 16.72      |                                            |       |                         | 33.75      |   |   |   | 14.43 |   |   |   | 27.91 |   |   |   | — |   |   |   | — |   |   |

 

Thefollowing table summarizes the information about options as of December 31,2005.

| ** **                                  | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|---------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| **Exercise Price Range ($)** | ** ** | ** **                   | ** ** | **Number of  Shares**   | ** ** | **Weighted  Average  Exercise  Price ($)** | ** ** | **Weighted-  Average  Remaining  Contractual  Life** | ** ** | **Number of  Shares** | ** ** | **Weighted  Average  Exercise  Price ($)** | ** ** |
| 19.70 - 19.70                               |       |                         | 200,000    |                         |       |   | 19.70 |   |   |   | 7.17 |   |   |   | 133,333 |   |   |   | 19.70 |   |   |
| 19.71 - 28.00                               |       |                         | 180,000    |                         |       |   | 27.32 |   |   |   | 8.00 |   |   |   | 37,000 |   |   |   | 27.58 |   |   |
| 28.01 - 38.00                               |       |                         | 193,500    |                         |       |   | 36.49 |   |   |   | 8.75 |   |   |   | 25,700 |   |   |   | 35.86 |   |   |
| 38.01 - 46.61                               |       |                         | 40,000     |                         |       |   | 46.61 |   |   |   | 9.16 |   |   |   | — |   |   |   | — |   |   |
| 19.70 - 46.61                               |       |                         | 613,500    |                         |       |   | 28.99 |   |   |   | 8.04 |   |   |   | 196,033 |   |   |   | 23.31 |   |   |
|                                             |            |                              |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Forthe years ended December 31, 2005, 2004, and 2003 the fair value of theCompany’s stock-based awards to employees was estimated using a Black-Scholesoption pricing model and the following weighted average assumptions:

| ** **                         | ** ** | **Stock Options** | ** ** |
|------------------------------------|------------|------------------------|------------|
| ** **                         | ** ** | **2005**               | ** ** | **2004** | ** ** | **2003** | ** ** |
| Expected life of  options in years |       | 5                      |       | 3.9 |   | 2.4 |   |
| Expected  volatility               |       | 33.4                   | %          | 38.1 | % | 37.5 | % |
| Risk-free  interest rate           |       | 4.1                    | %          | 2.8 | % | 2.2 | % |
| Expected dividend yield            |       | —                 |       | — |   | — |   |

 

There were 123,771 and 170,000 shares of restrictedstock outstanding as of December 31, 2005 and 2004, respectively. Theweighted average grant-date fair value of the restricted stock granted duringthe years ended December 31, 2005, 2004 and 2003 was $39.00, $32.70 and$27.60 per share, respectively.

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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. Thestock has been issued in the President and Chief Executive Officer’s name andhe is entitled to vote the stock and receive any dividends that may be paid,but the stock certificate is held in escrow by the Company. In 2005 and 2004,14,175 and 25,000 shares, respectively, were vested by the CompensationCommittee. At December 31, 2003, there was insufficient evidence todetermine whether the restricted shares would vest, and no compensation expensewas recognized for the restricted stock in 2003.

The total expenserecognized for stock-based employee compensation was $2,047,000 and $1,821,000for 2005 and 2004, respectively.

**11.**          MINORITYINTEREST IN SUBSIDIARY

In February 1999,Royal Coast Tropical Fruit Company, Inc. (a wholly owned subsidiary ofMaui Pineapple Company, Ltd.) obtained a 51% ownership interest in a new CostaRican subsidiary. The subsidiary’s purpose was to produce fresh pineapple forsale to customers in the east coast of the United States and in Western Europe.As mentioned in Discontinued Operations, Note 4, in December 2003, theCompany sold substantially all of the assets of the Costa Rican pineapplesubsidiary, and the related operations were classified as discontinuedoperations. The minority stockholders’ share of the 2004 and 2003 pre-taxincome was $751,000 and $4,050,000, respectively.

**12.**          INCOMETAXES

Thecomponents of the income tax provision (benefit) were as follows:

| ** **                                           | ** ** | **2005**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------------|------------|--------------------------------------|------------|----------|------------|----------|------------|
| ** **                                           | ** ** | **(Dollars in Thousands)** | ** ** |
| Current                                              |       |                                 |       |     |       |     |       |
| Federal                                              |       | $                                    | 2,562      |     | $          | 603      |       | $ | 2,997 |   |
| State                                                |       | 10                                   |       | 232      |       | 656      |       |
| Foreign                                              |       | —                               |       | —   |       | 277      |       |
| Total                                                |       | 2,572                                |       | 835      |       | 3,930    |       |
| Deferred                                             |       |                                 |       |     |       |     |       |
| Federal                                              |       | 5,267                                |       | (713     | )          | 684      |       |
| State                                                |       | 884                                  |       | (604     | )          | (95      | )          |
| Total                                                |       | 6,151                                |       | (1,317   | )          | 589      |       |
| Total provision (benefit)                            |       | 8,723                                |       | (482     | )          | 4,519    |       |
| Less total  provision for discontinued operations    |       | —                               |       | 46       |       | 3,019    |       |
| Total provision  (benefit) for continuing operations |       | $                                    | 8,723      |     | $          | (528     | )          | $ | 1,500 |   |

 

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Reconciliation between the total provision and the amount computedusing the statutory federal rate of 34% in 2005 and 2004, and 35% in 2003follows:

| ** **                                                                   | ** ** | **2005**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------------|------------|----------|------------|----------|------------|
| ** **                                                                   | ** ** | **(Dollars in Thousands)** | ** ** |
| Federal provision  (benefit) at statutory rate                               |       | $                                    | 7,919      |     | $          | (294     | )          | $ | 3,680 |   |
| Adjusted for State  income taxes, net of effect on federal income taxes |       | 605                                  |       | (223     | )          | 405      |       |
| Federal research credits                                                     |       | —                               |       | (25      | )          | (48      | )          |
| Foreign income tax                                                           |       | —                               |       | —   |       | 277      |       |
| Other                                                                        |       | 199                                  |       | 60       |       | 205      |       |
| Total provision  (benefit)                                                   |       | $                                    | 8,723      |     | $          | (482     | )          | $ | 4,519 |   |

 

Deferredtax assets and liabilities were comprised of the following temporarydifferences as of December 31, 2005 and 2004:

| ** **                                        | ** ** | **2005**                             | ** ** | **2004** | ** ** |
|---------------------------------------------------|------------|--------------------------------------|------------|----------|------------|
| ** **                                        | ** ** | **(Dollars in Thousands)** | ** ** |
| Accrued  retirement benefits                      |       | $                                    | 10,227     |     | $          | 9,866 |   |
| Minimum tax  credit carry forwards                |       | 447                                  |       | 904      |       |
| Accrued  liabilities                              |       | 1,643                                |       | 2,008    |       |
| Deferred revenue                                  |       | 2,459                                |       | 2,819    |       |
| Inventory                                         |       | 165                                  |       | 257      |       |
| Allowance for  doubtful accounts                  |       | 128                                  |       | 223      |       |
| Stock  compensation                               |       | 1,102                                |       | 470      |       |
| Net operating  loss and tax credit carry forwards |       | 380                                  |       | 375      |       |
| Total deferred tax assets                         |       | 16,551                               |       | 16,922   |       |
| Deferred condemnation proceeds                    |       | (6,460                               | )          | (5,503   | )          |
| Tax deferred land  sales                          |       | (6,136                               | )          | —   |       |
| Property net book  value                          |       | (3,533                               | )          | (4,995   | )          |
| Income from  investments                          |       | (356                                 | )          | (391     | )          |
| Agriculture  marketing costs                      |       | (165                                 | )          | (181     | )          |
| Other                                             |       | (4,864                               | )          | (3,165   | )          |
| Total deferred tax liabilities                    |       | (21,514                              | )          | (14,235  | )          |
| Net deferred tax  (liabilities) assets            |       | $                                    | (4,963     | )        | $          | 2,687 |   |

 

A valuation allowance against deferred tax assets asof December 31, 2005 and 2004 is not considered necessary, as the Companybelieves it is more likely than not the deferred tax assets will be fullyrealized through future taxable income.

Net operating loss and tax credit carry forwards forState income tax purposes amounted to $5.3 million at December 31, 2005and expire in 2007 through 2015. The Company’s State of Hawaii income taxreturns for 2000, 2001 and 2002 are under examination by the Department ofTaxation. The tax auditor’s reports on these examinations have not been issuedand the Company presently cannot predict the outcome of these examinations. TheCompany’s federal income tax returns have been reviewed through 2002.

Income before income taxesfrom foreign sources totaled $-0-, $118,000, and $4,819,000 in2005, 2004 and 2003, respectively.

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**13.**          INTERESTCAPITALIZATION

Interest cost incurred(continuing and discontinued operations) in 2005, 2004 and 2003 was $1,263,000,$1,358,000 and $2,695,000, respectively, of which $742,000, $199,000 and$40,000 respectively, were capitalized.

**14.**          ADVERTISINGAND RESEARCH AND DEVELOPMENT

Advertisingexpense totaled $2,262,000 in 2005, $1,882,000 in 2004 and $1,774,000 in 2003. Researchand development expenses totaled $530,000 in 2005, $695,000 in 2004 and$800,000 in 2003.

**15.**          CONCENTRATIONSOF CREDIT RISK

Asubstantial portion of the Company’s trade receivables results from sales ofpineapple products, primarily to food distribution customers in the UnitedStates and the United States government. Credit is extended after evaluatingcreditworthiness and no collateral generally is required from customers.

**16.**          DISCLOSUREABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Except as indicated below,the carrying amount of the Company’s financial instruments approximates fairvalue.

**Non-CurrentNotes Receivable:**

The current value of theseassets was estimated based on rates that would be currently available forsimilar transactions. The carrying amount of these assets at December 31,2005 was $5,335,000 and the fair value was $5,300,000.

**Long-Term Debt:**

The fair value of long-termdebt was estimated based on rates currently available to the Company for debtwith similar terms and remaining maturities. The carrying amount of long-termdebt at December 31, 2005 and 2004 was $10,818,000 and $16,594,000,respectively, and the fair value was $10,811,000 and $17,256,000, respectively.

**17.**          OPERATINGSEGMENTS

The Company’s reportable operating segments areAgriculture, Resort, Community Development and Commercial & Property. Eachsegment is a line of business requiring different technical and marketingstrategies.

Agriculture (previously called “Pineapple” segment)primarily includes growing, packing and processing and marketing processed andfresh pineapple products.

Resort includes the ongoing operations at the KapaluaResort on Maui. These operations include three championship golf courses, atennis facility, a vacation rental program, ten retail outlets and PublicUtilities Commission regulated water and sewage transmission operations.

Community Development (previously called “Development”segment) includes the Company’s real estate entitlement, development,construction, sales and leasing activities. This segment also includes theoperations of Kapalua Realty Company, a general brokerage real estate company,located within Kapalua Resort, and as of August 31, 2004, the Company’sinvestment in Kapalua Bay Holdings, LLC, owner of the Kapalua Bay Hotel (seeOther Assets, Note 3).

Commercial & Property previously included theCompany’s investment in Kaahumanu Center Associates (KCA) and Napili Plazashopping center. KCA sold the Kaahumanu Shopping Center in September 2003, andKCA was dissolved as of May 2005. The Napili Plaza was sold in August 2003 andis 

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reported in DiscontinuedOperations. The Company’s investment in KCA and the Napili Plaza were the twoprimary assets of the Commercial & Property segment. See Other Assets, Note3 and Discontinued Operations, Note 4 to the Consolidated Financial Statements.

The accounting policies ofthe segments are the same as those described in Summary of SignificantAccounting Policies, Note 1.

Thefinancial information for each of the Company’s reportable operating segmentsfor 2005, 2004, and 2003follows:

| ** **                                              | ** ** | ** **                           | ** ** | ** ** | ** ** | **Community**   | ** ** | **Commercial**          | ** ** | ** ** | ** ** | ** **       | ** ** |
|---------------------------------------------------------|------------|--------------------------------------|------------|------------|------------|-----------------|------------|-------------------------|------------|------------|------------|------------------|------------|
| ** **                                              | ** ** | **Agriculture**                      | ** ** | **Resort** | ** ** | **Development** | ** ** | **& Property** | ** ** | **Other**  | ** ** | **Consolidated** | ** ** |
| ** **                                              | ** ** | **(Dollars in Thousands)** | ** ** |
| ***2005***                                              |       |                                 |       |       |       |            |       |                    |       |       |       |             |       |   |   |   |   |   |   |   |   |
| Operating revenues(1)                                   |       |                                 | $          | 74,501     |       |            | $          | 43,198                  |       |       | $          | 68,662           |       |   |   | $ | 122 |   |   | $ | 197 |   |   | $ | 186,680 |   |   |
| Operating profit  (loss)(2)(3)                          |       |                                 | (11,383    | )          |       | (5,538          | )          |                    | 40,466     |       |       |             | 63         |   |   | (238 | ) |   | $ | 23,370 |   |   |
| Interest expense                                        |       |                                 |       |       |       |            |       |                    |       |       |       |             |       |   |   |   |   |   | (521 | ) |   |
| Interest income                                         |       |                                 |       |       |       |            |       |                    |       |       |       |             |       |   |   |   |   |   | 443 |   |   |
| Income before income  taxes and discontinued operations |       |                                 |       |       |       |            |       |                    |       |       |       |             |       |   |   |   |   |   | $ | 23,292 |   |   |
| Depreciation                                            |       |                                 | 9,615      |       |       | 4,203           |       |                    | 312        |       |       |             | —     |   |   | 133 |   |   | 14,263 |   |   |
| Equity in earnings  (losses) of affiliates              |       |                                 | 25         |       |       | —          |       |                    | (484       | )          |       |             | (25        | ) |   | — |   |   | (484 | ) |   |
| Investment in affiliates                                |       |                                 | —     |       |       | —          |       |                    | 2,332      |       |       |             | —     |   |   | — |   |   | 2,332 |   |   |
| Segment Assets(4)                                       |       |                                 | 52,511     |       |       | 55,622          |       |                    | 38,471     |       |       |             | 244        |   |   | 39,151 |   |   | 185,999 |   |   |
| Expenditures for segment  assets                        |       |                                 | 7,327      |       |       | 3,986           |       |                    | 8,702      |       |       |             | —     |   |   | 4,101 |   |   | 24,116 |   |   |
| ***2004***                                              |       |                                 |       |       |       |            |       |                    |       |       |       |             |       |   |   |   |   |   |   |   |   |
| Operating revenues(1)                                   |       |                                 | $          | 80,003     |       |            | $          | 42,425                  |       |       | $          | 30,625           |       |   |   | $ | 176 |   |   | $ | 20 |   |   | $ | 153,249 |   |   |
| Operating profit  (loss)(2)(3)                          |       |                                 | (10,766    | )          |       | (4,565          | )          |                    | 15,737     |       |       |             | 230        |   |   | (485 | ) |   | $ | 151 |   |   |
| Interest expense                                        |       |                                 |       |       |       |            |       |                    |       |       |       |             |       |   |   |   |   |   | (1,159 | ) |   |
| Interest income                                         |       |                                 |       |       |       |            |       |                    |       |       |       |             |       |   |   |   |   |   | 23 |   |   |
| Loss before income taxes  and discontinued operations   |       |                                 |       |       |       |            |       |                    |       |       |       |             |       |   |   |   |   |   | $ | (985 | ) |   |
| Depreciation                                            |       |                                 | 5,757      |       |       | 3,961           |       |                    | 317        |       |       |             | —     |   |   | 5 |   |   | 10,040 |   |   |
| Equity in earnings  (losses) of affiliates              |       |                                 | (64        | )          |       | —          |       |                    | (809       | )          |       |             | 146        |   |   | — |   |   | (727 | ) |   |
| Investment in affiliates                                |       |                                 | 87         |       |       | —          |       |                    | 1,930      |       |       |             | 146        |   |   | — |   |   | 2,163 |   |   |
| Segment Assets(4)                                       |       |                                 | 58,692     |       |       | 55,601          |       |                    | 17,476     |       |       |             | 532        |   |   | 28,622 |   |   | 160,923 |   |   |
| Expenditures for segment  assets                        |       |                                 | 3,570      |       |       | 2,820           |       |                    | 3,416      |       |       |             |       |   |   | 7,550 |   |   | 17,356 |   |   |
| ***2003***                                              |       |                                 |       |       |       |            |       |                    |       |       |       |             |       |   |   |   |   |   |   |   |   |
| Operating revenues(1)                                   |       |                                 | $          | 100,508    |       |            | $          | 39,483                  |       |       | $          | 9,504            |       |   |   | $ | 1,838 |   |   | $ | — |   |   | $ | 151,333 |   |   |
| Operating profit  (loss)(2)(3)                          |       |                                 | (4,761     | )          |       | (4,448          | )          |                    | 2,641      |       |       |             | 12,643     |   |   | — |   |   | $ | 6,075 |   |   |
| Interest expense                                        |       |                                 |       |       |       |            |       |                    |       |       |       |             |       |   |   |   |   |   | (2,526 | ) |   |
| Interest income                                         |       |                                 |       |       |       |            |       |                    |       |       |       |             |       |   |   |   |   |   | 167 |   |   |
| Income before income  taxes and discontinued operations |       |                                 |       |       |       |            |       |                    |       |       |       |             |       |   |   |   |   |   | $ | 3,716 |   |   |
| Depreciation                                            |       |                                 | 7,776      |       |       | 3,822           |       |                    | 395        |       |       |             | 191        |   |   | — |   |   | 12,184 |   |   |
| Equity in earnings  (losses) of affiliates              |       |                                 | 47         |       |       | —          |       |                    | (20        | )          |       |             | 12,651     |   |   | — |   |   | 12,678 |   |   |
| Investment in affiliates                                |       |                                 | 317        |       |       | —          |       |                    | 333        |       |       |             | —     |   |   | — |   |   | 650 |   |   |
| Segment Assets(4)                                       |       |                                 | 81,888     |       |       | 54,623          |       |                    | 11,835     |       |       |             | 100        |   |   | 13,234 |   |   | 161,680 |   |   |
| Expenditures for segment assets                         |       |                                 | 3,916      |       |       | 2,200           |       |                    | 891        |       |       |             | 28         |   |   | 585 |   |   | 7,620 |   |   |

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(1)    Amountsare principally revenues from external customers and exclude equity in earningsof affiliates and interest income. Intersegment revenues were insignificant. Salesto a single customer in the Agriculture segment accounted for 11.2%, 13.8% and10.0%, respectively, of consolidated operating revenues for 2005, 2004 and 2003.Sales of Hawaii grown pineapple to customers located in foreign countries wereapproximately $1.1 million in 2005, 2004 and 2003.

(2)    “Operating profit (loss)” is total operating revenues,less operating costs and expenses, plus equity in earnings and losses ofaffiliates (excludes interest income, interest expense and income taxes).

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(3)    In 2004, the Company began to allocate all corporategeneral and administrative expenses to its operating segments and prior yearamounts were restated for comparability. Such allocations are consistent withmanagement’s evaluation of the operating segments.

(4)    “Segment assets” are located in the United States. “Other”assets are corporate and non-segment assets.

**18.**          COMMITMENTSAND CONTINGENCIES

Pursuant to a 1999settlement agreement with the County of Maui, the Company and several chemicalmanufacturers have agreed that until December 1, 2039, they will pay for90% of the capital cost to install filtration systems in any future water wellsif the presence of a nematocide commonly known as DBCP exceeds specifiedlevels, and for the ongoing maintenance and operating cost for filtrationsystems on existing and future wells. The Company estimated its share of thecost to operate and maintain the filtration systems for the existing wells andits share of the cost of a letter of credit used to secure its obligations, andrecorded a liability of $250,000 in 1999. The Company recognized an additionalliability and expense of $48,000 and $167,000 in 2005 and 2004, respectively,and paid $238,000 in 2005 for its share of the capital costs to install afiltration system for an existing well. The Company is presently not aware ofany plans by the County of Maui to install other filtration systems or to drillany water wells in areas affected by agricultural chemicals. Accordingly, areserve for costs relating to any future wells was not recorded because theCompany was not able to reasonably estimate the amount of liability (if any).

In 2001, in connectionwith pre-development planning for a land parcel in Upcountry Maui, pesticideresidues in the parcel’s soil were discovered in levels that are in excess ofFederal and Hawaii State limits. Studies by environmental consultants, inconsultation with the State Department of Health, indicate that remediationprobably will be necessary. Based on the possible land use alternatives and theremediation alternatives proposed by the environmental consultants, estimatesof the future remediation cost range from -0- to $3.5 million, anda liability for this remediation was not recorded. In June 2005, theCompany sold this land parcel and the buyer will be responsible for any futuresoil remediation.

The Company has a 51%membership interest in Kapalua Bay Holdings LLC (“Bay Holdings”). Kapalua BayLLC, which is a wholly owned subsidiary of Bay Holdings, secured a $45.0million loan in connection with its purchase of the Kapalua Bay Hotel assets. TheCompany and the other Bay Holdings’ members (owners) executed a $5.0 millionindemnity and guaranty agreement, pursuant to which each member is responsiblefor (and guarantees payment to the lenders of) their pro rata share of costsand losses 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 mattersnoted above, there are various other claims and legal actions pending againstthe Company. In the opinion of management, after consultation with legalcounsel, the resolution of these other matters is not expected to have a materialadverse effect on the Company’s financial position or results of operations.

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

At December 31, 2005,the Company had commitments under signed contracts totaling $29,408,000, whichprimarily relate to real estate development projects.

**19.**          RELATEDPARTY TRANSACTIONS

In 2005, the Companypurchased a residential property in Upcountry Maui that includes a house andcottage on approximately 4 acres of land for $2.6 million. The purchase wasmade to provide housing for one of its executive officers, and the Companyentered into a one-year rental agreement at $4,000 per month with the officer.

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**QUARTERLYEARNINGS(unaudited)**

| ** **                                              | ** ** | **First**                                                                         | ** ** | **Second**                                | ** ** | **Third**   | ** ** | **Fourth**  | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------|------------|-------------|------------|
| ** **                                              | ** ** | **  Quarter  **                                               | ** ** | **   Quarter  ** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
| ** **                                              | ** ** | **(Dollars in Thousands Except Per Share Amounts)** | ** ** |
| ***2005***                                              |       |                                                                              |       |                                      |       |        |       |        |       |   |   |   |   |
| Net sales                                               |       |                                                                              | $          | 27,470                                    |       |        |       | $           | 43,809     |   |   | $ | 35,510 |   | $ | 42,415 |   |
| Gross profit                                            |       |                                                                              | 11,827     |                                      |       |        | 24,054     |        |       | 16,940 |   | 22,846 |   |
| Income from continuing operations after taxes           |       |                                                                              | 1,255      |                                      |       |        | 6,484      |        |       | 2,004 |   | 4,826 |   |
| Net income                                              |       |                                                                              | 1,255      |                                      |       |        | 6,484      |        |       | 2,004 |   | 4,826 |   |
| Net income per common share                             |       |                                                                              | $          | .17                                       |       |        |       | $           | .90        |   |   | $ | .28 |   | $ | .67 |   |
| ***2004***                                              |       |                                                                              |       |                                      |       |        |       |        |       |   |   |   |   |
| Net sales                                               |       |                                                                              | $          | 30,257                                    |       |        |       | $           | 20,994     |   |   | $ | 26,320 |   | $ | 38,144 |   |
| Gross profit                                            |       |                                                                              | 12,962     |                                      |       |        | 7,013      |        |       | 9,917 |   | 14,597 |   |
| Income (loss) from continuing operations after taxes    |       |                                                                              | 1,458      |                                      |       |        | (2,347     | )           |       | (2,233 | ) | 2,665 |   |
| Income (loss) from discontinued operations after  taxes |       |                                                                              | 60         |                                      |       |        | (26        | )           |       | 80 |   | (40 | ) |
| Net income (loss)                                       |       |                                                                              | 1,518      |                                      |       |        | (2,373     | )           |       | (2,153 | ) | 2,625 |   |
| Net income (loss)  per common share                     |       |                                                                              | $          | .21                                       |       |        |       | $           | (.33       | ) |   | $ | (.30 | ) | $ | .36 |   |

 

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**SCHEDULE II**

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

**AND SUBSIDIARIES**

**VALUATION AND QUALIFYING ACCOUNTS**

**FORTHE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003**

| ** **                           | ** ** | ** **                           | ** ** | ** **         | ** ** | **ADDITIONS**         | ** ** | ** **     | ** ** | ** **      | ** ** |
|--------------------------------------|------------|--------------------------------------|------------|--------------------|------------|-----------------------|------------|----------------|------------|-----------------|------------|
| ** **                           | ** ** | ** **                           | ** ** | **ADDITIONS**      | ** ** | **(DEDUCTIONS)**      | ** ** | ** **     | ** ** | ** **      | ** ** |
| ** **                           | ** ** | **BALANCE AT**                  | ** ** | **(DEDUCTIONS)**   | ** ** | **TO OTHER**     | ** ** | ** **     | ** ** | **BALANCE**     | ** ** |
| ** **                           | ** ** | **BEGINNING**                        | ** ** | **TO COSTS**  | ** ** | **ACCOUNTS**          | ** ** | **DEDUCTIONS** | ** ** | **AT END** | ** ** |
| **DESCRIPTION**                      | ** ** | ** **                           | ** ** | **OF PERIOD** | ** ** | **AND EXPENSES** | ** ** | **(describe)** | ** ** | **(describe)**  | ** ** | **OF PERIOD** | ** ** |
| ** **                           | ** ** | **(Dollars in Thousands)** | ** ** |
| Allowance for Doubtful  Accounts     |       |                                 |       |               |       |                  |       |           |       |            |       |   |   |   |   |   |   |   |   |   |   |
| 2005                                 |       |                                 | $          | 825                |       |                  |       | $              | (98        | )               |       |   | $ | — |   |   |   | $ | (462 | )(b) |   |   | $ | 265 |   |   |
| 2004                                 |       |                                 | 994        |               |       |                  | 620        |           |       |            | 15         | (a) |   |   | (804 | )(b) |   |   | 825 |   |   |
| 2003                                 |       |                                 | 590        |               |       |                  | 546        |           |       |            | 3          | (a) |   |   | (145 | )(b) |   |   | 994 |   |   |
| Reserve for  Environmental Liability |       |                                 |       |               |       |                  |       |           |       |            |       |   |   |   |   |   |   |   |   |   |   |
| 2005                                 |       |                                 | $          | 420                |       |                  |       | $         | 48         | (d)             |       |   | $ | — |   |   |   | $ | (238 | )(c) |   |   | $ | 230 |   |   |
| 2004                                 |       |                                 | 250        |               |       |                  | 176        | (d)            |       |            | —     |   |   |   | (6 | )(c) |   |   | 420 |   |   |
| 2003                                 |       |                                 | 250        |               |       |                  | 6          |           |       |            | —     |   |   |   | (6 | )(c) |   |   | 250 |   |   |
|                                      |            |                                      |            |                    |            |                       |            |                |            |                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(a)           Recoveries.

(b)          Write off ofuncollectible accounts.

(c)           Payments.

(d)          Primarily accrued forinstallation of filtration equipment.

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**Item 9.**                        CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

**Item 9A.**                CONTROLSAND PROCEDURES

The Company’s management, with the participation ofthe Company’s Chief Executive Officer and Chief Financial Officer, has evaluatedthe effectiveness of the Company’s disclosure controls and procedures (as suchterm is defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended) as of the end of the periodcovered by this report.

Based upon the foregoing, the Company’s ChiefExecutive Officer and Chief Financial Officer concluded that, as of such date,the Company’s disclosure controls and procedures were effective to ensure thatinformation required to be disclosed by the Company in its Exchange Act reportsis recorded, processed, summarized and reported within the time periodsspecified in applicable SEC rules and forms.

The report of the Company’s management on the Company’sinternal control over financial reporting follows this Item 9A.

There have been no changesin the Company’s internal controls over financial reporting (as such term isdefined in Rules 13a-15(f) under the Exchange Act) during the fiscalfourth quarter that has materially affected, or is reasonably likely tomaterially affect, the Company’s internal controls over financial reporting.

*MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIALREPORTING*

The Management of Maui Land & Pineapple Company, Inc.has the responsibility for establishing and maintaining adequate internal controlover financial reporting. Internal control over financial reporting is definedin Rule 13a- 15(f) and 15d- 15(f) under the Securities ExchangeAct of 1934, as amended, as a process designed by, or under the supervision of,the company’s principal executive and principal financial officers and effectedby the company’s board of directors, management and other personnel to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withaccounting principles generally accepted in the United States of America andincludes those policies and procedures that:

·       Pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of assets of the company;

·       Provide reasonable assurancethat transactions are recorded as necessary to permit preparation of financialstatements in accordance with accounting principles generally accepted in theUnited States of America, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and

·       Provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use ordisposition of the company’s assets that could have a material effect on theconsolidated financial statements.

Because ofits inherent limitations, internal control over financial reporting onlyprovides reasonable assurance with respect to financial statement presentationand preparation. Projections of any evaluation of effectiveness to futureperiods are subject to the risks that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies orprocedures may deteriorate.

Management assessed the effectiveness of the Company’sinternal control over financial reporting as of December 31, 2005. Inmaking this assessment, Management used the criteria set forth by the 

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Committee of SponsoringOrganizations of the Treadway Commission (COSO) in *InternalControl-Integrated Framework.*Based on its assessments, Managementbelieves that, as of December 31, 2005, the Company’s internal controlover financial reporting is effective. The Company’s independent registeredpublic accounting firm, Deloitte & Touche LLP, has issued an auditreport on Management’s assessment of the Company’s internal control overfinancial reporting. That report appears on pages 34-35 of this Form 10-K.

*MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING*

Managementis also responsible for preparing the accompanying consolidated financialstatements and related notes accurately and objectively. The statements havebeen prepared in accordance with accounting principles generally accepted inthe United States of America, consistently applied, and necessarily includeamounts based on judgments and estimates made by Management. Management alsoprepared the other information in this Form 10-K and is responsiblefor its accuracy and consistency with the consolidated financial statements.

The Company’sconsolidated financial statements have been audited by Deloitte &Touche LLP and its report appears on pages 34-35 of this Form 10-K. Managementhas made available to Deloitte & Touche LLP all of the Company’sfinancial records and related data. Furthermore, Management believes that allrepresentations made to Deloitte & Touche LLP during its audit werevalid and appropriate.

The Board of Directors, through itsAudit Committee (composed solely of independent directors), oversees Management’sresponsibilities in the preparation of the consolidated financial statements. TheAudit Committee appoints the independent auditors, subject to shareholderratification. The Audit Committee meets regularly with the external andinternal auditors to evaluate the effectiveness of their work in dischargingtheir respective responsibilities and to assure their independent and freeaccess to the Committee.
| /s/ DAVID C. COLE                                         |     | /s/ FRED W. RICKERT                       |
|-----------------------------------------------------------|----------|-------------------------------------------|
| *Chairman, President &  Chief Executive Officer* | * * | *Vice  President/Chief Financial Officer* |
| March 3, 2006                                        |     | March 3,  2006                       |

 

**Item 9B.**               OTHER INFORMATION

None.

**PART III**

**Item 10.**                 DIRECTORSAND EXECUTIVE OFFICERS OF THE REGISTRANT

The information set forth under “—Section 16(a) Beneficial OwnershipReporting Compliance” and “Election of Directors” through “—CertainTransactions” in the Maui Land &Pineapple Company, Inc. Proxy Statement, to be filed no later than 120days after the close of the registrant’s fiscal year ended December 31,2005, is incorporated herein by reference.

The Company’s Board ofDirectors approved the Amended Code of Ethics in November 2005 that coversthe Principal Executive Officer, Principal Financial Officer, PrincipalAccounting Officer and all other employees of the Company. A copy of the Codeof Ethics will be furnished, free of charge, upon written request to: CorporateSecretary, Maui Land & Pineapple Company, Inc., P. O. Box 187, Kahului,Hawaii 96733-6687; or email: investor.info@mlpmaui.com.

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**Item 11.**                 EXECUTIVECOMPENSATION

The information set forthunder “Executive Compensation” and “—Director Compensation” in the Maui Land &Pineapple Company, Inc. Proxy Statement, to be filed no later than 120days after the close of the registrant’s fiscal year ended December 31,2005, is incorporated herein by reference.

**Item 12.**                 SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

The information set forthunder “Security Ownership of Certain Beneficial Owners and Management andSecurities Authorized for Issuance Under Equity Compensation Plans” in the MauiLand & Pineapple Company, Inc. Proxy Statement, to be filed nolater than 120 days after the close of the registrant’s fiscal year ended December 31,2005, is incorporated herein by reference.

**Item 13.**                 CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS

The information set forthunder “Certain Relationship and Related Transactions and “—Compensation Committee Interlocks andInsider Participation” in the Maui Land & Pineapple Company, Inc.Proxy Statement, to be filed no later than 120 days after the close of theregistrant’s fiscal year ended December 31, 2005, is incorporated hereinby reference.

**Item 14.**                 PRINCIPALACCOUNTANT FEES AND SERVICES

Information set forth under “Independent RegisteredPublic Accounting Firm” in the Maui Land & Pineapple Company, Inc.Proxy Statement, to be filed no later than 120 days after the close of theregistrant’s fiscal year ended December 31, 2005, is incorporated hereinby reference.

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**PART IV**

**Item 15.**                 EXHIBITSAND FINANCIAL STATEMENT SCHEDULES

**1.****                 FinancialStatements**

Thefollowing Financial Statements of Maui Land & Pineapple Company, Inc.and subsidiaries and Report of Independent Registered Public Accounting Firmare included in Item 8 of this report:
| Consolidated Statements of  Operations for the  Years Ended December 31, 2005, 2004 and 2003                  |   |   |
|--------------------------------------------------------------------------------------------------------------------|--------|--------|
| Consolidated  Balance Sheets, December 31, 2005 and 2004                                                      |   |   |
| Consolidated Statements of Comprehensive Income (Loss)  for the Years  Ended December 31, 2005, 2004 and 2003 |   |   |
| Consolidated Statements of  Stockholders’ Equity for the Years  Ended December 31, 2005, 2004 and 2003   |   |   |
| Consolidated Statements of  Cash Flows for the Years  Ended December 31, 2005, 2004 and 2003                  |   |   |
| Notes to Consolidated Financial Statements                                                                         |   |   |

 

**2.****                 FinancialStatement Schedules**

The followingFinancial Statement Schedule of Maui Land & Pineapple Company, Inc.and subsidiaries is filed herewith:

II.             Valuationand Qualifying Accounts for the Years Ended December 31, 2005, 2004 and2003.

**3.****                 Exhibits**
| 3.1  |   | Restated Articles of Association, as of  February 24, 2000. (Filed as Exhibit 3(i) to Form 10-K  for the year ended December 31, 1999 and incorporated herein by  reference.)                                                                                                                                                                             |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2  |   | Articles of Amendment to  Restated Articles of Association. (Filed as Exhibit 3.1(i) to  Amendment No. 1 to Registration Statement on Form 8-A/A, File  No. 001-06510, filed January 5, 2004, and incorporated herein  by reference.)                                                                                                                |
| 3.3  |   | Bylaws (Amended as of  December 11, 2003). (Filed as Exhibit 3.1(ii) to Amendment  No. 1 to Registration Statement on Form 8-A/A, File  No. 001-06510, filed January 5, 2004, and incorporated herein  by reference.)                                                                                                                           |
| 4.1  |   | Amended and Restated  Revolving Credit Agreement, dated as of May 17, 2005. (Filed as Exhibit (4) to  Form 10-Q for the quarter ended June 30, 2005 and  incorporated herein by reference.)                                                                                                                                                               |
| 4.2  |   | Bridge Loan Agreement  between Pacific Coast Farm Credit Services, ACA and Maui Land &  Pineapple Company, Inc., dated December 30, 1998. (Filed as Exhibit 4.2(i) to  Form 10-K for the year ended December 31, 1998 and  incorporated herein by reference.)                                                                               |
| 4.3  |   | Revolving line of Credit  Loan Agreement between American AgCredit, FLCA, successor in interest to  Pacific Coast Farm Credit Services, ACA and Maui Land & Pineapple  Company, Inc., dated as of September 1, 2005. (Filed as  Exhibit (4) to Form 10-Q for the quarter ended  September 30, 2005 and incorporated herein by reference.)   |
| 10.1 |   | Second Amended and  Restated Hotel Ground Lease (The Ritz-Carlton, Kapalua) between Maui  Land & Pineapple Company, Inc. (Lessor) and RCK Hawaii, LLC dba  RCK Hawaii-Maui (Lessee), effective as of January 31, 2001. (Filed as  Exhibit 10.2(i) to Form 10-K for the year ended  December 31, 2000 and incorporated herein by reference.) |

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| 10.2†  |   | Executive Deferred Compensation Plan (revised as of  8/16/91). (Filed as Exhibit (10)A to Form 10-Q for the  quarter ended September 30, 1994 and incorporated herein by reference.)                                                                                                                                                                                                                         |
|-------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.3†  |   | Supplemental Executive  Retirement Plan (effective as of January 1, 1988). (Filed as  Exhibit (10)B to Form 10-K for the year ended  December 31, 1988 and incorporated herein by reference.)                                                                                                                                                                                                           |
| 10.4†  |   | Restated and Amended  Change-In-Control Severance Agreement (Warren A. Suzuki, Vice President/Land  Management), dated as of March 16, 1999. (Filed as Exhibit 10.3  (viii) to Form 10-K for the year ended December 31, 1998  and incorporated herein by reference.)                                                                                                                              |
| 10.5†  |   | Executive Severance  Plan, as amended through November 6, 1998. (Filed as Exhibit 10.3 (x) to  Form 10-K for the year ended December 31, 1998 and  incorporated herein by reference.)                                                                                                                                                                                                         |
| 10.6†  |   | Employment Agreement  effective as of October 6, 2003 by and between Maui Land &  Pineapple Company, Inc. and David C. Cole. (Filed as  Exhibit 10.3(viii) to Form 10-K for the year ended December 31,  2003 and incorporated herein by reference.)                                                                                                                                 |
| 10.7†  |   | Maui Land &  Pineapple Company, Inc. Stock Option Agreement for David Cole, dated  October 6, 2003. (Filed as Exhibit 10.3 (ix) to Form 10-K  for the year ended December 31, 2003 and incorporated herein by  reference.)                                                                                                                                                           |
| 10.8†  |   | Maui Land &  Pineapple Company, Inc. Restricted Share Agreement for David Cole, dated  October 6, 2003. (Filed as Exhibit 10.3(x) to Form 10-K  for the year ended December 31, 2003 and incorporated herein by  reference.)                                                                                                                                                         |
| 10.9†  |   | Maui Land &  Pineapple Company Inc. 2003 Stock and Incentive Compensation Plan. (Filed as  Appendix B to Definitive Proxy Statement on Schedule 14A dated  November 7, 2003 and incorporated herein by reference.)                                                                                                                                                                                            |
| 10.10† |   | Employment Separation  Agreement (Paul J. Meyer, Executive Vice President/Finance) dated  February 13, 2004. (Filed as Exhibit (10)A. to Form 10-Q  for the quarter ended March 31, 2004 and incorporated herein by  reference.)                                                                                                                                                                        |
| 10.11       |   | Hotel Ground Lease  between Maui Land & Pineapple Company, Inc. and The KBH  Company. (Filed as Exhibit (10)B to Form 10-Q for the quarter  ended September 30, 1985 and incorporated herein by reference.)                                                                                                                                                                                    |
| 10.12       |   | Third Amendment of Hotel  Ground Lease, dated and effective as of September 5, 1996. (Filed as  Exhibit (10)A to Form 10-Q for the quarter ended  September 30, 1996 and incorporated herein by reference.)                                                                                                                                                                                             |
| 10.13       |   | Kapalua Bay  Hotel & Villas, Purchase and Sale Agreement and Escrow Instructions,  Between YCP Kapalua L.P. and YCP Kapalua Operator, Inc., collectively,  as seller, and Maui Land & Pineapple Company, Inc. as  Purchaser, as of April 30, 2004. (Filed as Exhibit (10)(A) to  Form 10-Q for the quarter ended June 30, 2004 and  incorporated herein by reference.) |
| 10.14       |   | Limited Liability  Company Agreement of Kapalua Bay Holdings, LLC, dated August 31, 2004.  (Filed as Exhibit (10)(A) to Form 10-Q for the quarter  ended September 30, 2004 and incorporated herein by reference.)                                                                                                                                                                                 |

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| 10.15 |   | First Amendment to Purchase and Sale Agreement and  Joint Escrow Instructions, entered into as of August 6, 2004, by and  among YCP Kapalua L.P., and YCP Kapalua Operator, Inc., and Maui  Land & Pineapple Company, Inc. (Filed as  Exhibit (10)(B) to Form 10-Q for the quarter ended  September 30, 2004 and incorporated herein by reference.) |
|-------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.16 |   | Termination of Hotel  Ground Lease, effective as of August 31, 2004.  Exhibit (10)(C) to Form 10-Q for the quarter ended  September 30, 2004.                                                                                                                                                                                                                          |
| 10.17 |   | Settlement Agreement and  Release of All Claims (Board of Water Supply of the County of Maui vs. Shell  Oil Company, et al.). (Filed as Exhibit 10.5(i) to Form 10-K  for the year ended December 31, 1999 and incorporated herein by  reference.)                                                                                                                          |
| 10.18 |   | Summary of Terms of  Consulting Agreement Between Maui Land & Pineapple  Company, Inc. and Director Thomas M. Gottlieb, effective as of  June 15, 2004. (Filed as Exhibit (10)(B) to Form 10-Q  for the quarter ended June 30, 2004 and incorporated herein by  reference.)                                                                              |
| 10.19 |   | Cancellation of  Consulting Agreement between the Maui Land & Pineapple  Company, Inc. and Thomas M. Gottlieb, entered into on October 29,  2004, and effective as of September 15, 2004. (Filed as  Exhibit (10)(A) to Form 8-K dated November 1, 2004  and incorporated herein by reference.)                                                     |
| 11.   |   | Statement re computation  of per share earnings. See Earnings Per Common Share under Note 1 to the  Consolidated Financial Statements.                                                                                                                                                                                                                                                          |
| 21.*  |   | Subsidiaries of Maui  Land & Pineapple Company, Inc.                                                                                                                                                                                                                                                                                                                              |
| 23.*  |   | Consent of  Deloitte & Touche LLP, Independent Registered Public Accounting  Firm, dated March 3, 2006.                                                                                                                                                                                                                                                                           |
| 31.*  |   | Rule 13a-14(a) Certifications.                                                                                                                                                                                                                                                                                                                                                        |
| 32.** |   | Section 1350  Certifications.                                                                                                                                                                                                                                                                                                                                                              |
| 99.*  |   | Financial Statements for  Kapalua Bay Holdings, LLC for the year ended December 31, 2005 and the  period from August 31, 2004 (date of inception) through  December 31, 2004.                                                                                                                                                                                                    |

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*                    Filedherewith.

**             Furnished herewithand not “filed” for purposes of Section 18 of the Securities Exchange Actof 1934, as amended

†                    Managementcontract or compensatory plan or arrangement required to be filed as an exhibitto this Form pursuant to Item 15(c) of Form 10-K.

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized, on March 13, 2006.

|   | MAUI  LAND &  PINEAPPLE  COMPANY, INC. |
|--------|-----------------------------------------------------------|
|   | By                                                        | /s/  DAVID C. COLE |
|   |                                                      | David C. Cole |
|   |                                                      | *President &  Chief Executive Officer* |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the Registrant and inthe capacities and on the dates indicated.

| By     |   | /s/ DAVID  C. COLE                                          |   | Date   |   | March 13,  2006 |
|--------|--------|-------------------------------------------------------------|--------|--------|--------|----------------------|
|   |   | David C. Cole, Chairman of the Board,  President & |   |   |   |                 |
|   |   | Chief Executive Officer                                     |   |   |   |                 |
|   |   | (Principal Executive Officer)                               |   |   |   |                 |
| By     |   | /s/ JOHN H. AGEE                                            |   | Date   |   | March 13,  2006 |
|   |   | John H. Agee, Director                                      |   |   |   |                 |
| By     |   | /s/ WALTER A. DODS, JR.                                     |   | Date   |   | March 13,  2006 |
|   |   | Walter A. Dods, Jr., Director                          |   |   |   |                 |
| By     |   | /s/ THOMAS M. GOTTLIEB                                      |   | Date   |   | March 13,  2006 |
|   |   | Thomas M. Gottlieb, Director                                |   |   |   |                 |
| By     |   | /s/ DAVID A. HEENAN                                         |   | Date   |   | March 13,  2006 |
|   |   | David A. Heenan, Director                                   |   |   |   |                 |
| By     |   | /s/ KENT T. LUCIEN                                          |   | Date   |   | March 13,  2006 |
|   |   | Kent T. Lucien, Director                                    |   |   |   |                 |
| By     |   | /s/ DUNCAN  MACNAUGHTON                                |   | Date   |   | March 13,  2006 |
|   |   | Duncan MacNaughton, Director                                |   |   |   |                 |
| By     |   | /s/ FRED E. TROTTER III                                     |   | Date   |   | March 13,  2006 |
|   |   | Fred E. Trotter III, Director                               |   |   |   |                 |
| By     |   | /s/ FRED W. RICKERT                                         |   | Date   |   | March 13,  2006 |
|   |   | Fred W. Rickert, Vice President/Chief Financial  Officer    |   |   |   |                 |
|   |   | (Principal Financial Officer)                               |   |   |   |                 |
| By     |   | /s/ ADELE H. SUMIDA                                         |   | Date   |   | March 13,  2006 |
|   |   | Adele H. Sumida, Controller & Secretary            |   |   |   |                 |
|   |   | (Principal Accounting Officer)                              |   |   |   |                 |

 

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