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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended SEPTEMBER 30, 2009

OR

Commission file number 001-06510

MAUI LAND & PINEAPPLE COMPANY, INC.

(Exact name of registrant as specified in its charter)

161 SOUTH WAKEA AVENUE, P. O. BOX 187, KAHULUI, MAUI, HAWAII 96733-6687

(Address of principal executive offices)

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

NONE

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

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 x  No o

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 o  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 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 o  No x

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

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MAUI LAND & PINEAPPLE COMPANY, INC.

AND SUBSIDIARIES

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PART I FINANCIAL INFORMATION

Item 1.  Financial Statements

MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See accompanying Notes to Condensed Consolidated Financial Statements.

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MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See accompanying Notes to Condensed Consolidated Financial Statements.

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MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

See accompanying Notes to Condensed Consolidated Financial Statements.

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MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)

(UNAUDITED)

For the Nine Months Ended September 30, 2009 and 2008

(in thousands)

See accompanying Notes to Condensed Consolidated Financial Statements.

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MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Supplemental Disclosures of Cash Flow Information—Interest (net of amounts capitalized) of $7,034,000 and $3,582,000 was paid during the nine months ended September 30, 2009 and 2008, respectively. Income tax refunds of 4,143,000 and $4,052,000 were received during the nine months ended September 30, 2009 and 2008, respectively.

Supplemental Non-Cash Investing and Financing Activities—

·                  Property acquired under capital leases was $698,000 and $1,697,000 during the nine months ended September 30, 2009 and 2008, respectively.

·                  Amounts included in trade accounts payable for additions to property and for other investing activities totaled $1,398,000 and $2,039,000 at September 30, 2009 and 2008, respectively.

See accompanying Notes to Condensed Consolidated Financial Statements.

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MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.                                      The accompanying unaudited condensed consolidated financial statements have been prepared by Maui Land & Pineapple Company, Inc. (together with its subsidiaries, the “Company”) in accordance with generally accepted accounting principles for interim financial information that are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and pursuant to the instructions to Form 10-Q and Article 10 promulgated by Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and notes to financial statements required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying condensed consolidated financial statements contain all normal and recurring adjustments necessary to fairly present the financial position, results of operations and cash flows for the interim periods ended September 30, 2009 and 2008. The financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2008. Subsequent events were evaluated through November 3, 2009, the date these condensed consolidated financial statements were issued.

LIQUIDITY

For the nine months ended September 30, 2009, the Company incurred a net loss of $92.9 million and had negative cash flows from operations of $19.6 million. At September 30, 2009, the Company had amounts outstanding under borrowing agreements of approximately $92.8 million; and approximately $15.6 million available under existing lines of credit and $855,000 in cash and cash equivalents; and a deficiency in stockholders’ equity (total liabilities exceeded total assets) of $60.1 million.

At September 30, 2009, the Company had $52.8 million of borrowings outstanding under agreements that were scheduled to mature in March 2010, with financial covenants requiring among other things, a minimum of $10 million in liquidity and a limitation on new indebtedness.  Failure to satisfy the minimum liquidity covenants or to otherwise default under one credit agreement could result in a default under both credit agreements as well as a default under the $40 million senior secured convertible notes. Defaults under the credit agreements could result in all outstanding borrowings becoming immediately due and payable. A default under the senior secured convertible notes could require the Company to redeem the notes at 115% of the outstanding amount of principal and accrued interest.

The Company’s cash outlook for the next twelve months and ability to continue to meet its financial covenants is highly dependent on selling certain real estate assets in a difficult market. If the Company is unable to meet its financial covenants resulting in the borrowings becoming immediately due, the Company would not have sufficient liquidity to repay such outstanding borrowings. In addition, the Company has an obligation to purchase the spa, beach club improvements and the sundry store from Kapalua Bay Holdings, LLC (Bay Holdings) at actual construction costs of approximately $35 million.  The Company is negotiating with the other members of Bay Holdings to restructure the purchase and sale of the assets and avoid immediate cash requirements.  The Company does not currently have the cash resources to complete the sale.  The Company is also subject to other commitments and contingencies that could negatively impact its future cash flows as described in Note 18.  These circumstances raise substantial doubt about the Company’s ability to continue as a going concern and there can be no assurance that the Company will be able to successfully achieve its initiatives discussed below in order to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

In response to these circumstances, the Company is undertaking several financial and strategic initiatives to reduce cash commitments and generate cash flow from a variety of sources, including the sale of several real estate assets. In the third quarter of 2009, the Company concluded the sale of two properties that resulted in total cash proceeds (net of selling costs) of $11.5 million, and in October 2009, the Company entered into revised revolving credit agreements (see Note 12).  The Company’s $45 million line of credit was increased to $50 million, the maturity extended from March 2010 to March 2011, and the minimum liquidity requirement was reduced from $10 million to $8 million.  The maturity and liquidity covenant of the Company’s $25 million line of credit was similarly amended.  In March 2009, the Company sold the Plantation Golf Course (PGC) and repaid $45 million of debt (Note 10).  The Company has renegotiated agreements to eliminate approximately $6 million of 2009 cash commitments (net of cancellation fees); and is currently in the process of negotiating additional deferrals of 2009 payments into 2010 and later. In addition, the Company has taken several other actions to reduce cash outflows including reducing its total number of employees by approximately 183, or 23%, in the first

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nine months of 2009, as well as other measures to reduce operating expenses. The Company is actively in the process of attempting to sell several selected real estate assets to provide additional liquidity and to further reduce debt.  The Company is also working on engaging third parties to operate certain of its operations in order to reduce overhead and cash requirements and may conclude an equity financing transaction.

There can be no assurance that the Company will be able to sell real estate assets at acceptable prices, or at all, or that it will be able to maintain compliance with financial covenants or to continue as a going concern.  Failure to sell real estate assets or to maintain compliance with financial covenants would have a material adverse impact on its financial condition and results of operations and raises substantial doubt about the Company’s ability to continue as a going concern.

2.                                      The Company’s reports for interim periods utilize numerous estimates of production cost, general and administrative expenses, and other costs for the full year. Future actual amounts may differ from the estimates. Amounts in the interim reports are not necessarily indicative of results for the full year.

3.                                      Net loss was equal to comprehensive loss for the interim periods ended September 30, 2009 and 2008.

4.                                      The effective tax rate for 2009 reflects the recognition of expected federal alternative minimum tax liabilities and interim period tax benefits and additions to the tax valuation allowance. The effective tax rate for 2008 differs from the statutory federal rate primarily because of the state tax provision and state tax credits.

5.                                      Accounts and notes receivable are reflected net of allowance for doubtful accounts of $435,000 and $658,000 at September 30, 2009 and December 31, 2008, respectively.

6.                                      Inventories as of September 30, 2009 and December 31, 2008 were as follows:

7.                                      Impairment Charges

In June 2009, the Company recorded a charge of $1.9 million representing the adjustment of its real estate held for sale to its estimated fair value less cost to sell. The impairment relates to the Company’s Kahului property on which improvements for the fresh fruit processing plant were constructed. Also in June 2009, the Company wrote off $14.2 million of deferred development costs. Due to changing market conditions, several project development plans have been written off because the projects, as currently designed, are no longer feasible. In addition, projects that are no longer compatible with the Company’s future real estate development expectations have been abandoned and all related predevelopment costs have been written off.

8.                                      Average Common Shares Outstanding Used to Compute Earnings Per Share

Potentially dilutive shares arising from non-qualified stock options to purchase common stock, non-vested restricted stock, and common stock issuable upon assumed conversion of convertible debt, are not included in the number of diluted common shares because to do so would have an antidilutive effect on the loss per share amounts (i.e., decrease loss per common share).

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9.                                      Recently Issued Accounting Pronouncements

In December 2008, the Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Codification (ASC) Topic 715-20-65-2, effective for fiscal years ending after December 15, 2009, to require an employer to disclose investment policies and strategies, categories, fair value measurements, and significant concentrations of risk among its postretirement benefit plan assets.  The Company is currently evaluating the effect that this amendment will have on the consolidated financial statements.

In June 2009, the FASB issued FASB Statement No. 167, Amendments to FASB Interpretation No. 46R (not yet incorporated into ASC). FASB Statement No. 167 amends the consolidation guidance applicable to variable interest entities and requires enhanced disclosures about an enterprise’s involvement in a variable interest entity. FASB Statement No. 167 also requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity. FASB Statement No. 167 is effective beginning January 1, 2010. The Company is currently reviewing the effect of FASB Statement No. 167 will have on its consolidated financial statements.

10.                               Real Estate Sales

In September 2009, the Company sold approximately 128 acres of land including a portion of the Kapalua Mauka planned project and a residential property in Upcountry Maui and recognized revenues of $11.7 million and a pre-tax gain of approximately $6.8 million.

On March 27, 2009, the Company sold the land, improvements, structures and fixtures comprising the PGC for $50 million in cash. Concurrent with the closing of the sale, the Company entered into an agreement (Ground Lease) to leaseback the PGC for an initial period of two years for an annual net rental payment of $4 million, payable monthly in advance. The Company also entered into an agreement to leaseback the portion of the Plantation Clubhouse comprising the retail shop for a period of five years, which will commence when the Ground Lease expires or is otherwise terminated. The Ground Lease requires the Company to replace the irrigation system at the PGC at its own cost and expense, subject to a cap of $5 million. Because of the Company’s continuing involvement associated with the obligation to replace the irrigation system, the sale and leaseback of the PGC has been accounted for as a financing transaction and, accordingly, the net proceeds received have been recorded as a non-current liability on the consolidated balance sheet and no gain will be recognized until the irrigation system replacement project has been completed. Expected date of completion is August 2010. In consideration for the release of the PGC from the collateral for the Company’s $90 million revolving line of credit with Wells Fargo Bank and certain other lenders, upon closing of the sale, $45 million of the net proceeds were used to partially repay borrowings under this line and the credit limit available under this facility was reduced to $45 million.

11.                               Investments in Affiliates

KAPALUA BAY HOLDINGS, LLC

In September 2009, Bay Holdings recorded impairment losses totaling $208.8 million to reflect an impairment of the carrying value of its real estate inventories (whole and fractional condominium units) held for sale.  The impairment losses reflect higher default rates on actual whole and fractional unit closings than was anticipated once construction was completed in June 2009, and also reflects a change in forecasted sales revenue on the unsold whole and fractional units that substantially reduces expected margins for those remaining units. The Company’s equity in income (losses) of Bay Holdings for the third quarter of 2009 and 2008 was $(22.8) million and $5.1 million, respectively.  For the nine months ended September 30, 2009 and 2008, the Company’s equity in the income (losses) of Bay Holdings was $(47.2) million (including an impairment charge of $21.3 million recorded by the Company in June 2009) and $26.5 million, respectively.  The equity in the losses of Bay Holdings recorded by the Company was limited to the remaining investment carrying value on the Company’s consolidated balance sheet including its unsecured loan to Bay Holdings of $3.6 million and also included the Company’s estimated share of its completion and recourse guarantees which resulted in the Company recording a liability for $2.5 million.  The Company has no funding commitments relating to Bay Holdings beyond this amount.  As a result, the Company’s carrying value of its investment in Bay Holdings and its $3.6 million loan due from Bay Holdings were written down to zero and, accordingly, the Company does not expect to recover any amounts from its investment in Bay Holdings.  As of September 30, 2009, unrecognized losses attributable to Bay Holdings totaled $89.5 million.

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In June 2009, the Company recorded an impairment charge of $21.3 million to reflect what management believed to be an impairment in the carrying value of its investment in Bay Holdings. The six residential buildings comprised of 146 units in the project were substantially complete in June 2009, and through September 30, 2009, 19 (84 total) of the whole ownership condominium units and 62 (744 total) fractional units have closed escrow. The beachclub facility and the spa opened in early July 2009.

Upon formation of Bay Holdings in 2004, the Company’s non-monetary contributions to Bay Holdings, including a 21-acre land parcel, were valued at $25 million by the members through arms-length negotiations. The land contribution was recorded by the Company in its investment carrying value in Bay Holdings at historical cost, which was nominal, and Bay Holdings recorded the contribution at its fair value of $25 million. In 2007, Bay Holdings began to recognize revenues and profit from binding sales contracts on the whole and fractional ownership condominiums on the percentage-of-completion method. As Bay Holdings recognized revenues, the Company recognized a proportionate amount of the unrealized appreciation of the fair value of the land and other non-monetary contributions and other deferred costs related to the joint venture.  As a result of the reduction of the Company’s investment to zero in September 2009, amounts previously deferred for the value of the land and other non-monetary contributions have also been reduced to zero and the Company does not anticipate that it will be able to recognize the value of these contributions.

Through September 30, 2009, the Company has made cash contributions to Bay Holdings of $53.2 million and an uncollateralized loan of $3.6 million that accrued interest at 16%.  These amounts are not expected to be realized by the Company and have been reduced to zero due to the impairment charges and equity in losses from Bay Holdings recorded through September 2009 as discussed above.

As of January 1, 2008, Bay Holdings adopted FASB ASC Topic 360-20-40-50 through ASC Topic 360-20-40-55, (formerly, Emerging Issues Task Force (EITF) Issue No. 06-8, Applicability of the Assessment of a Buyer’s Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales of Condominiums). The cumulative effect of adopting the Topic  of $12.5 million was recorded as a reduction to Bay Holdings’ January 1, 2008 retained earnings, and the Company recorded its proportionate share of this adjustment of $4,622,000 (net of income tax effect) to its opening retained earnings for 2008.

In July 2006, Bay Holdings entered into a syndicated construction loan agreement with Lehman Brothers Holdings Inc. (Lehman) for the lesser of $370 million or 61.6% of the total projected cost of the project. Lehman’s commitment under the loan agreement was approximately 78% of the total. The loan is collateralized by the project assets, including the fee simple interest in the land owned by Bay Holdings, the adjacent spa parcel owned by the Company, and all of the sales contracts. On September 15, 2008 Lehman filed a petition under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court, and on February 11, 2009, Bay Holdings, Lehman, other lenders under the loan agreement, Swedbank and MH Kapalua Venture, LLC, an affiliate of Marriott, entered into an Amended and Restated Construction Loan Agreement. Pursuant to the amended loan agreement, the aggregate amount that Bay Holdings may borrow, including amounts previously funded under the loan agreement is approximately $354.5 million.

The Company and the other members of the joint venture continue to guarantee to the lenders completion of the project and each member’s pro rata share of costs and losses incurred by the lender as a result of the occurrence of specified triggering events during the term of the Amended Loan Agreement. The members’ guarantee to the lender does not include payment in full of the loan. The Company has recognized a liability of $2.5 million as of September 30, 2009, representing the estimated fair value of its obligation under these provisions.

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Summarized operating information for Bay Holdings is as follows:

12.                               Debt

In October 2009, the Company entered into an amended and restated line of credit agreement with Wells Fargo.  The agreement principally increases the secured revolving line of credit from $45 million to $50 million, extends the maturity date of the credit agreement from March 2010 to March 2011, and re-sets financial covenants.  As amended, the agreement provides that interest on loan draws accrue interest based on the LIBOR market index or applicable LIBOR rate, plus 4.25%, subject to a minimum interest rate of 5.5%.  The financial covenants include a minimum liquidity (as defined in the agreement) of $8 million and maximum total liabilities of $240 million.  In connection with the sale of PGC, the Company applied $45 million of proceeds against outstanding borrowings under this line of credit, which was partially collateralized by the PGC, and the available credit was reduced from $90 million to $45 million.

Also in October 2009, the Company entered into an amendment of its $25 million secured revolving credit line with American AgCredit, FLCA.  The amendment principally extends the maturity of the credit agreement from March 2010 to March 2011, increases the interest rate on borrowings by 75 to 200 basis points, subject to a minimum interest rate of 5.5%, and re-sets financial covenants.  The financial covenants include a minimum liquidity (as defined in the agreement) of $8 million, maximum total liabilities of $240 million, and limitations on capital expenditures.

13.                               Stock-Based Compensation

The total compensation expense recognized for stock-based compensation was $1,239,000 and $1,786,000 for the nine months ended September 30, 2009 and 2008, respectively, and $270,000 and $544,000 for the three months ended September 30, 2009 and 2008, respectively. The total tax benefit related thereto was $445,000 and $643,000 for the nine months ended September 30, 2009 and 2008, respectively, and $97,000 and $196,000 for the three months ended September 30, 2009 and 2008, respectively. Recognized stock compensation was reduced for estimated forfeitures prior to vesting primarily based on historical annual forfeiture rates of approximately 4.0% and 4.1%, as of September 30, 2009 and 2008, respectively. Estimated forfeitures will be reassessed in subsequent periods and may change based on new facts and circumstances.

Stock Options

A summary of stock option award activity as of and for the nine months ended September 30, 2009 is presented below:

(1)                                  For in-the-money options

(2)                                  Options expected to vest reflect estimated forfeitures

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Additional stock option information for the nine months ended September 30, 2009 and 2008 is as follows:

For the nine months ended September 30, 2009 and 2008, the fair value of the Company’s stock options awarded was estimated using the Black-Scholes option pricing model and the following weighted average assumptions:

As of September 30, 2009, there was $888,000 of total unrecognized compensation expense for awards granted under the stock option plans that is expected to be recognized over a weighted average period of 2.0 years.

Restricted Stock

In the nine months ended September 30, 2009, 444,250 shares of restricted stock that vest as service requirements are met were granted to certain directors and management; and 15,000 shares of restricted stock that will vest as performance measures are met were granted to one management employee. In the first nine months of 2009, 23,006 shares (net of shares withheld for payment of income taxes) of restricted stock vested as directors’ and management service requirements were met; and 19,785 shares (net of shares withheld for payment of income taxes) of previously granted restricted stock vested in connection with the termination of the Company’s former President and Chief Executive Officer in May 2009. The weighted average grant-date fair value of restricted stock granted during the nine months ended September 30, 2009 and 2008 was $6.31 and $24.42 per share, respectively.

A summary of the activity for restricted stock awards as of and for the nine months ended September 30, 2009 is presented below:

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14.                               Components of Net Periodic Benefit Cost

The net periodic benefit costs for pension and other post-retirement benefits for the three months and nine months ended September 30, 2009 and 2008 were as follows:

In 2009, minimum required contributions to the Company’s defined benefit pension plans are expected to be $2.1 million. To date in 2009, the Company has made pension plan contributions totaling $1.7 million and has failed to pay a quarterly contribution due in October of $404,000.  The Company will be required to pay interest to the pension plans for contributions that have been deferred.  On August 3, 2009, the Company’s Board of Directors approved a plan amendment to freeze future benefit accruals under the non-bargaining defined benefit pension plan effective December 31, 2009. The Company expects to contribute $835,000 to its other post-retirement benefit plans in 2009.

15.                               Fair Value Measurements

In its ongoing business operations, the Company’s primary market risk exposure with regard to financial instruments is due to changes in interest rates. The Company manages this risk by monitoring interest rates and future cash requirements and evaluating opportunities to refinance borrowings at various maturities and interest rates. The Company also utilizes interest rate swaps or other derivatives to reduce risks associated with changes in interest rates.

The Company adopted FASB ASC Topic 820-10 (formerly, FASB Statement No. 157, Fair Value Measurements), on January 1, 2008 for its financial assets and liabilities and on January 1, 2009 for its nonfinancial assets and liabilities, and there was no material impact to the consolidated financial statements. FASB ASC Topic 820-10 applies to all assets and liabilities that are being measured and reported on a fair value basis. FASB ASC Topic 820-10 requires new disclosure that establishes a framework for measuring fair value in GAAP, and expands disclosure about fair value measurements. This statement enables the reader of the 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. The statement requires that assets and liabilities carried at fair value 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.

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In July 2008, the Company issued $40 million in senior secured notes that are convertible into the Company’s common stock. The conversion features related to the notes gave rise to a derivative liability carried at fair value.

In January 2008, the Company entered into interest rate swap agreements to reduce future cash flow variability for approximately two years on $55 million of variable rate debt. The effect of the agreements is to convert variable-rate interest, which was previously tied to 1-, 2-, 3- and 6-month LIBOR terms, to an average fixed-rate interest of approximately 2.9%, before applicable interest rate spreads. The transactions were not designated as hedges, and, accordingly, the gains and losses resulting from the change in fair value from these interest rate swaps are recognized currently in interest expense.

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

(1)                                  Fair value measurements derived using significant other inputs (Level 2).

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

Long-Term Debt:

The fair value of long-term debt was estimated based on rates currently available to the Company for debt with similar terms and remaining maturities. The carrying amount of long-term debt at September 30, 2009 and December 31, 2008 was $86,303,000 and $133,959,000, respectively, and the fair value was $84,932,000 and $126,708,000, respectively.

In June 2009, long-lived assets currently classified as held for sale, with a carrying amount of $17.1 million were written down to estimated fair value less costs to sell of $15.2 million (based on Level 3 inputs), resulting in a loss of $1.9 million which was recorded as impairment losses in the second quarter of 2009 (see Note 7). The fair value was estimated based on the fair values of similar assets and recent offers received for the property as well other market information.

16.                               Income Taxes

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. Interest accrued related to unrecognized tax benefits is recognized as interest expense and penalties are recognized in general and administrative expense in the Company’s consolidated statement of operations; and such amounts are included in income taxes payable on the Company’s consolidated balance sheet.

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At September 30, 2009, the Company had a liability of $945,000 for unrecognized tax benefits and interest thereon of $1.5 million. At September 30, 2009, $13.3 million of unrecognized tax benefits represented taxes on revenues for which the timing of the taxability is uncertain and the liability for such taxes has been recognized as deferred tax liabilities. The acceleration of the recognition of such income would not affect the estimated annual effective tax rate, but would accelerate the payment of income taxes to earlier periods and would result in additional interest expense.

17.                               Operating Segment Information