Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

(Mark One)

For the quarterly period ended September 30, 20172019

OR

Commission file number 001-06510

MAUI LAND& PINEAPPLE COMPANY,INC.

(Exact name of registrant as specified in its charter)

200 Village Road, Lahaina,, Maui, Hawaii 96761

(Address of principal executive offices)

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

None

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

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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

MAUI LAND & PINEAPPLE COMPANY, INC.

AND SUBSIDIARIES

TABLE OF CONTENTS

SUPPLEMENTAL NON-CASH ACTIVITIES:

Property at September 30, 20172019 and December 31, 20162018 consisted of the following:

Land

Most of the Company’s 23,000Company’s 22,800 acres of land were acquired between 1911 and 1932 and is carried in its balance sheets at cost. Approximately 21,00020,700 acres of land are located in West Maui and comprise a largely contiguous parcel that extends from the shorelinesea to an elevation of approximately 5,700 feet. This parcel includes approximately 900 acres within the Kapalua Resort, a master-planned, destination resort and residential community located in West Maui encompassing approximately 3,000 acres. The Company’s remaining 2,0002,100 acres of land are located in Upcountry Maui in an area commonly known as HaliimaileHali’imaile and are mainly comprised of leased agricultural fields, including related processing and maintenance facilities.

Land Improvements

Land improvements are comprised primarily of roads, utilities, and landscaping infrastructure improvements at the Kapalua Resort. Also included is the Company’sCompany’s potable and non-potable water systems in West Maui. The majority of the Company’s land improvements were constructed and placed in service in the mid-to-late 1970’s or conveyed in 2017. Depreciation expense would be considerably higher if these assets were stated at current replacement cost.

Buildings

Buildings are comprised of restaurant, retail and light industrial spaces located at the Kapalua Resort and HaliimaileHali’imaile which are used in the Company’sCompany’s leasing operations. The majority of the buildings were constructed and placed in service in the mid-to-late 1970’s. Depreciation expense would be considerably higher if these assets were stated at current replacement cost.

Machinery and Equipment

Machinery and equipment are mainly comprised of zipline course equipment installed in 2008 at the Kapalua Resort and used in the Company’sCompany’s leasing operations. Also included are machinery and equipment used in the Company’s utilities operations.

5.ASSETS HELD FOR SALE AND REAL ESTATE SALES

Assets held for sale at September 30, 20172019 and December 31, 20162018 consisted of the following:

None of theThe above assets held for sale have not been pledged as collateral under the Company’sCompany’s credit facility.

The value of the Upcountry Maui, 33-acre parcel of agricultural land and wastewater treatment facility was considered fully impaired and written down to zero at March 31, 2019.

In April 2017, approximately $6.7 million of land improvements were conveyed to the Company by the owner of a 125-acre portion of the Company’s Kapalua Mauka project. The owner purchased the 125-acre property, commonly known as Mahana Estates, in 2009. As part of the sale, the owner agreed to subsequently develop and convey to the Company upon completion certain easements, subdivision and utility improvements related to the Mahana Estates property.6.LONG-TERM DEBT

In February 2017,Long-term debt is comprised of amounts outstanding under the Company sold the 15-acre Kapalua Golf Academy practice course located in the Kapalua Resort for $7.0 million to the owner of the Kapalua Plantation and Bay Golf Courses. The property was sold without any development entitlements. The sale resulted in a gain of approximately $6.4 million. The Company applied $5.6 million of the sale proceeds toward its revolving line of credit facility.

In August 2016, the Company sold a five-acre, fully-entitled 42-unit workforce housing project located in West Maui for $3.0 million. As part of the transaction, the buyer also agreed to provide to the Company 12 residential workforce housing credits by August 2021. The sale resulted in a gain of approximately $2.8 million. The Company utilized the proceeds from the sale to pay down its First Hawaiian Bank credit facility.

In June 2016, the Company sold a fully-entitled 304-acre working-class community project located in West Maui, commonly referred to as Pulelehua, for $15.0 million. The sale resulted in a gain of approximately $14.3 million. The Company utilized the proceeds from the sale to payoff the outstanding balance of a term loan.

The Company has aCompany’s $15.0 million revolving line of credit facility with First Hawaiian Bank (Credit Facility). The Credit Facility matures on December 31, 2019 and provides for two optional one-year extension periods. Interest on borrowingsborrowings is at LIBOR plus 3.50% (4.46%, or 5.60% and 5.84%, at September 30, 2017).2019 and December 31, 2018, respectively. The Company has pledged its 800-acre Kapalua Mauka project and approximately 30,000 square feet of commercial leased space in the Kapalua Resort as security for the Credit Facility. Net proceeds from the sale of any collateral are required to be repaid toward outstanding borrowings and will permanently reduce the Credit Facility’s revolving commitment amount. There are no commitment fees on the unused portion of the Credit Facility.

The terms of the Credit Facility include various representations, warranties, affirmative, negative and financial covenants and events of default customary for financings of this type. Financial covenants include a minimumminimum liquidity (as defined) of $1.0$2.0 million, a maximum of $45.0 million in total liabilities, and a limitation on new indebtedness.

The Company believes that it is in compliance with the covenants under the Credit Facility.Facility as of September 30, 2019.

The Company’sCompany’s directors, officers and certain members of management receive a portion of their compensation in shares of the Company’s common stock granted under the Company’s 2017 Equity and Incentive Award PlansPlan (Equity Plans)Plan). Share-based compensation is valued based on the average of the high and low share price on the date of grant. Shares are issued upon execution of agreements reflecting the grantee’s acceptance of the respective shares subject to the terms and conditions of the Equity Plans.Plan. Restricted shares issued under the Equity PlansPlan vest quarterly and have voting and regular dividend rights but cannot be disposed of until such time as they are vested. All unvested restricted shares are forfeited upon the grantee’s termination of directorship or employment from the Company.

Each ofShare-based compensation is determined and awarded annually to the Company’s non-employee directors and certain members of management receive restricted shares of common stock annually. Share-based compensations totaled $327,000 and $123,000 for the nine months ended September 30, 2017 and 2016, respectively, for vesting of restricted shares granted.

The Company’sCompany’s officers and certain members of management receive share-based compensation based on their achievement of certain predefined performance goals and objectives under an incentive compensation plan.the Equity Plan. Such share-based compensation is comprised of an annual incentive paid in shares of common stock and a long-term incentive paid in restricted shares vesting quarterly over a period of three years.

Share-based compensationscompensation totaled $1,065,000$1,346,000 and $741,000$1,206,000 for the nine months ended September 30, 20172019 and 2016, respectively, for shares issued2018, respectively. Included in these amounts were $511,000 and the vesting$402,000 of restricted shares granted toof common stock which vested during the Company’s officersfirst nine months of 2019 and certain members2018, respectively.

Accrued retirement benefits at September 30, 2019 and December 31, 2018 consisted of management.the following:

The Company has a defined benefit pension plan which covers substantially all of its former bargaining and non-bargaining full-time, part-time and intermittent employees. In 2011, pension benefits under the plan were frozen. The Company also has unfunded non-qualified retirement plans covering twelve of its former executives. The non-qualified retirement plans were frozen in 2009 and future vesting of additional benefits was discontinued.

Accrued retirement benefits at September 30, 2017 and December 31, 2016 consisted of the following:

The net periodic benefit costs for pension and postretirement benefits for the three and nine months ended September 30, 20172019 and 20162018 were as follows:

The Company uses a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company’s effective tax rate for 20172019 and 20162018 reflects the recognition of expected federal alternative minimum tax liabilities and interim period tax benefits and changes to its tax valuation allowance.

In accordance with The Tax Cuts and Jobs Act of 2017, the Company expects to fully utilize the special alternative minimum taxeliminated $91.3 million of Alternative Minimum Tax (AMT) net operating loss carryforwardcarry forwards at December 31, 2018 and recognized as income tax benefit $5.0 million from 2008 which allows for 100% offsetits unused AMT credit carry forwards. The Company expects to receive 50%, or $2.5 million, of said credit in 2020 and the alternative minimum taxable income in subsequentremaining balance to be received over the following two years. Subsequent to the full utilization of the 2008 carryforward balance, the Company can only offset the normally allowed 90% of alternative minimum taxable income with net operating loss carryforwards from other years.

The Company’sCompany’s reportable operating segments are comprised of the discrete business units whose operating results are regularly reviewed by the Company’s Chief Executive Officer – its chief decision maker – in assessing performance and determining the allocation of resources. The Company’s reportableReportable operating segments are as follows:

The Company’sCompany’s reportable operating segment results are measured based on operating income (loss), exclusive of interest, depreciation, general and administrative, share-based compensation, pension and other postretirement expenses.

Reportable operating segment revenues and income for the three and nine months ended September 30, 20172019 and 20162018 were as follows:

There have been no changesOn December 31, 2018, the State of Hawaii Department of Health (“DOH”) issued a Notice and Finding of Violation and Order (“Order”) for alleged wastewater effluent violations related to the Company’s Upcountry Maui wastewater treatment facility. The facility was built in the status of commitments and contingencies as reported1960’s to serve approximately 200 single-family homes developed for workers in the Company’s Annual Reportformer agricultural operations. The facility is made up of two 1.5-acre wastewater stabilization ponds and surrounding disposal leach fields.

The Order resulted from an inspection by DOH officials in June 2018. The Order includes, among other requirements, payment of a $230,000 administrative penalty and development of a new wastewater treatment plant, which become final and binding – unless a hearing was requested to contest the alleged violations and penalties. The Company requested such a hearing, which was initially scheduled for September 2019 and has now been postponed by mutual agreement of the parties as the Company continues working with the DOH on Form 10-K fora previously-approved corrective action plan to resolve and remediate the fiscal year ended December 31, 2016. facility’s wastewater effluent issues.

The Company is presently unable to estimate the amount, or range of amounts, of any probable liability, if any, related to the Order and no provision has been made in the accompanying financial statements.

There are various other claims and legal actions pending against the Company. In the opinion of management, after consultation with legal counsel, the resolution of these other matters is not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.

GAAP establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements to enable the reader of the interim unaudited condensed consolidated financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. GAAP requires that financial assets and liabilities be classified and disclosed in one of the following three categories:

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

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

the consolidated interim balance sheets and consolidated interim statements of cash flows. The fair value of cash, receivables and payables approximate their carrying value due to the short-term nature of the instruments. The fair value of income tax receivables approximate their carrying value due to the certainty of collection or short-term nature of the instruments. The valuation is based on settlements of similar financial instruments all of which are short-term in nature and are generally settled at or near cost. The fair value of long-term debt was estimated based on borrowing rates currently available to the Company for long-term debt with similar terms and maturities. The carrying amount of long-term debt, which approximated fair value, was $1,235,000 at September 30, 20172019 and December 31, 2016 was $1.2 million and $6.9 million, respectively, which approximated fair value.2018. The fair value of long-term debt has been classified inwas measured using the level 2 category.inputs, noted above.

13.    ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

In February 2016, the FASB issued an ASU that sets out the principles for the recognition, measurement, presentation, and disclosure of leases for both parties to a lease agreement (i.e., lessees and lessors). Subsequently, the FASB issued additional ASUs that further clarified the original ASU. The ASUs became effective for us on January 1, 2019. Upon adoption of the lease ASUs on January 1, 2019, we elected the following practical expedients provided by these ASUs:

Lessor accounting

The Company recognized revenue from our lease agreements aggregating $5.2 million for the nine months ended September 30, 2019. This revenue consisted primarily of rental revenue, percentage rental revenue, and tenant recoveries.

The Company recognizes rental revenue from its operating leases on a straight-line basis over the respective lease terms. The Company commences recognition of rental revenue at the date the property is ready for its intended use and the tenant takes possession of or controls the physical use of the property.

Under the lease ASUs, each lease agreement will be evaluated to identify the lease components and nonlease components at lease inception. The total consideration in the lease agreement will be allocated to the lease and nonlease components based on their relative standalone selling prices. Lessors will continue to recognize the lease revenue component using an approach that is substantially equivalent to existing guidance for operating leases (straight-line basis).

On January 1, 2019, the Company elected the single component practical expedient, which requires the Company, by class of underlying asset, not to allocate the total consideration to the lease and nonlease components based on their relative stand-alone selling prices. This single component practical expedient requires the Company to account for the lease component and nonlease component(s) associated with that lease as a single component if (i) the timing and pattern of transfer of the lease component and the nonlease component(s) associated with it are the same and (ii) the lease component would be classified as an operating lease if it were accounted for separately. If it is determined that the lease component is the predominant component, the Company accounts for the single component as an operating lease in accordance with the new lease ASUs. Conversely, the Company is required to account for the combined component under the new revenue recognition ASUs if it is determined that the nonlease component is the predominant component.

As a result of this assessment, rental revenues and tenant recoveries from the lease of real estate assets that qualify for this expedient are accounted for as a single component under the new lease ASUs, with tenant recoveries primarily as variable consideration. Tenant recoveries that do not qualify for the single component practical expedient and are considered nonlease components are accounted for under the revenue recognition ASUs. The Company's operating leases commencing or modified after January 1, 2019, for which the Company is the lessor are expected to qualify for the single component practical expedient accounting under the new lease ASUs. The adoption of this guidance did not have a material impact on the Company's financial statements.

Costs toexecuteleases

The new lease ASUs require that lessors and lessees capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease (e.g. commissions paid to leasing brokers). Under the new lease ASUs, allocated payroll costs and other costs such as legal costs incurred as part of the leasing process prior to the execution of a lease will no longer qualify for classification as initial direct costs but will instead be expensed as incurred. Under the package of practical expedients that the Company elected on January 1, 2019, it is not required to reassess whether initial direct leasing costs capitalized prior to the adoption of the new lease ASUs in connection with the leases that commenced prior to January 1, 2019, qualify for capitalization under the new lease ASUs. Effective January 1, 2019, costs that the Company incurs to negotiate or arrange a lease regardless of its outcome, such as fixed employee compensation, tax, or legal advice to negotiate lease terms, and costs related to advertising or soliciting potential tenants are expensed as incurred.

Lessee accounting

Under the new lease ASUs, lessees are required to apply a dual approach by classifying leases as either finance or operating leases based on the principle of whether the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, which corresponds to a similar evaluation performed by lessors. In May 2014,addition to this classification, a lessee is also required to recognize a right-of-use asset and a lease liability for all leases regardless of their  classification, whereas a lessor is not required to recognize a right-of-use asset and a lease liability for any operating leases.

For the nine months ended September 30, 2019, the Company recognized rent expense of approximately $34,000 for these leases. As of September 30, 2019, the remaining contractual payments under the office and equipment leases are $32,000. All of the aforementioned leases for which the Company is the lessee are currently classified as operating leases. A right-of-use asset and lease liability has been recorded in Other noncurrent assets and Other noncurrent liabilities, respectively

Under the package of practical expedients that the Company elected upon adoption of the new lease ASUs, all of its operating leases existing as of January 1,2019, for which the Company is the lessee, continue to be classified as operating leases subsequent to the adoption of the new lease ASUs. The Company has also evaluated the effect of the  new lease ASUs on the calculation of its debt covenants as of September 30, 2019 and noted no significant effect on the calculation.

ASU No. 2016-13:

In June 2016, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).2016-13, Financial Instruments-Credit Losses. This ASU replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires that an entity use the defined five step processconsideration of a broader range of information to recognize revenue. The ASU also requires additional disclosures and is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period. While the Company continues to assess its contracts with customers, it does not currently expect a material impact on results of operations, cash flows or financial position. The Company expects the consolidated financial statement disclosures over revenue recognition will expand in order to comply with the ASU.

In March 2017, FASB issued ASU No. 2017-07, Compensation-Retirement Benefits. This ASU aims to improve the presentation of the net periodic pension cost and net periodic postretirement benefit cost by requiring the reporting of the service cost component in the same line item or items as other compensation costs arising from services rendered by employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operationsdetermine credit loss estimates. This ASU will be effective for public business entities for annual reporting periods beginning after December 15, 2017.2019 for SEC filers except for smaller reporting companies, whose effective date will be periods beginning after December 15, 2022. The Company is in the process of assessing the impact of ASU No, 2017-07No. 2016-13 on operating results from its financial statements.real estate, leasing, utilities, and resort amenities segments.

In May 2017,ASU 2018-14:

On August 28, 2018, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718) Scope2018-14 which amends ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The ASU’s changes related to disclosures are part of Modification Accounting.the FASB’s disclosure framework project which was aimed to improve the effectiveness of disclosures in notes to financial statements. This ASU clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The standard is effective for interim andpublic business entities for annual reporting periods beginning after December 15, 2017,2020, with early adoption permitted. The Company is inexpects to adopt the process of assessing the impact of ASU No, 2017-09new disclosure requirements on its financial statements.January 1, 2021.