SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Act of 1934
For the fiscal year ended
December 31, 2000 Commission File Number 33-24180
AMFAC HAWAII, LLC
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(Exact name of registrant as specified in its charter)
Hawaii 36-3109397
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(State of organization) (I.R.S. Employer Identification No.)
900 N. Michigan Ave., Chicago, Illinois 60611
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312-440-4800
See Table of Additional Registrants Below.
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [ X ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. Not applicable.
As of March 23, 2001, all of Amfac Hawaii LLC's membership interest is
solely owned by Northbrook Corporation, an Illinois corporation, and not
traded on a public market.
The Additional Registrants listed on the following page meet the conditions
set forth in General Instruction 11(a) and (b) of Form 10-K and therefore
are filing this form with reduced disclosure format.
Certain pages of the prospectus of the registrant dated December 5, 1988
and filed with the Commission pursuant to Rules 424(b) and 424(c) under the
Securities Act of 1933 are incorporated by reference in Part III of this
Annual Report on Form 10-K.
ADDITIONAL REGISTRANTS (1)
Address, including,
zip code,
Exact name of State or other IRS and telephone number,
registrant as jurisdiction of Employer including area code of
specified in its incorporation or Identification registrant's principal
Charter organization Number executive offices
- --------------- --------------- ------------ -----------------------
Amfac Land Hawaii 99-0185633 900 North Michigan Avenue
Company, Limited Chicago, Illinois 60611
312/440-4800
Amfac Property Hawaii 99-0150751 900 North Michigan Avenue
Development Corp. Chicago, Illinois 60611
312/440-4800
Amfac Property Hawaii 99-0202331 900 North Michigan Avenue
Investment Chicago, Illinois 60611
Corp. (2) 312/440-4800
H. Hackfeld Hawaii 99-0037425 900 North Michigan Avenue
& Co., Ltd. Chicago, Illinois 60611
312/440-4800
Kaanapali Estate Hawaii 99-0176334 900 North Michigan Avenue
Coffee, Inc. Chicago, Illinois 60611
312/440-4800
Kekaha Sugar Hawaii 99-0044650 900 North Michigan Avenue
Company, Chicago, Illinois 60611
Limited 312/440-4800
The Lihue Hawaii 99-0046535 900 North Michigan Avenue
Plantation Chicago, Illinois 60611
Company, 312/440-4800
Limited
Oahu Sugar Hawaii 99-0105277 900 North Michigan Avenue
Company, Chicago, Illinois 60611
Limited 312/440-4800
Pioneer Mill Hawaii 99-0105278 900 North Michigan Avenue
Company, Chicago, Illinois 60611
Limited 312/440-4800
Puna Sugar Hawaii 99-0051215 900 North Michigan Avenue
Company, Chicago, Illinois 60611
Limited 312/440-4800
Waiahole Hawaii 99-0144307 900 North Michigan Avenue
Irrigation Chicago, Illinois 60611
Company, 312/440-4800
Limited
Waikele Golf Hawaii 99-0304744 900 North Michigan Avenue
Club, Inc. Chicago, Illinois 60611
312/440-4800
(1) The Additional Registrants listed are wholly-owned subsidiaries
(except as noted in (2)) of the registrant and are guarantors of
the registrant's Certificate of Land Appreciation Notes due 2008
(the "COLAs").
(2) Effective December 28, 2000, AF Investors, LLC made a capital
contribution to Amfac Property Investment Corp. ("APIC") in return
for 83.33% of the shares of APIC.
TABLE OF CONTENTS
Page
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PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . 15
PART II
Item 5. Market for the Company's and
Finance's Common Equity and Related
Security Holder Matters. . . . . . . . . . . . . 16
Item 6. Selected Financial Data. . . . . . . . . . . . . 16
Item 7. Management's Discussion and
Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . 17
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk. . . . . . . . . . . . . . . . 31
Item 8. Financial Statements and Supplementary Data. . . 32
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . 73
PART III
Item 10. Managers and Executive Officers of
the Registrant . . . . . . . . . . . . . . . . . 73
Item 11. Executive Compensation . . . . . . . . . . . . . 75
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . 76
Item 13. Certain Relationships and Related Transactions . 76
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K. . . . . . . . . . . . . . . 81
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 82
PART I
ITEM 1. BUSINESS
Amfac Hawaii, LLC ("AHI", and collectively with the Additional
Registrants, as their respective interests may appear, the "Company") is a
Hawaii limited liability company. AHI is wholly-owned by Northbrook
Corporation, a Delaware corporation ("Northbrook"). AHI filed in March
2001 to change its name from Amfac/JMB Hawaii, L.L.C. to Amfac Hawaii LLC
and expects the change to be accepted in the second quarter of 2001. The
primary business activities of the Company are land development and sales,
golf course management and agriculture. In September 2000, the Company
announced its plan to shut down the remaining sugar operations which
represented a substantial portion of its agriculture segment. The Company
owns, as of the date of this report, approximately 24,000 acres of land
primarily located on the islands of Maui and Kauai in the State of Hawaii.
Most of this land is held by the Company's wholly-owned subsidiaries. In
addition to its owned lands, the Company leases approximately 4,000 acres
of land that was primarily used in conjunction with its agricultural
operations. The Company's operations are subject to significant government
regulation.
In early March 1997, the Company restructured its operations into the
following six separate operating divisions: Sugar, Golf, Coffee, Water,
Land Management and Real Estate Development. The Company also formed a
corporate services division to provide accounting, MIS, human resources,
tax and other administrative services for the six operating divisions.
Some of these corporate services are provided by Northbrook and its
affiliates and the Company reimburses for those services at cost. At
December 31, 2000, the Company and its subsidiaries employed 305 persons.
In February 1998, the Company relocated the headquarters for its real
estate development division from Honolulu to Kaanapali, Maui. Due to poor
market conditions on Kauai, the focus of the Company's land development
operations is on Maui. The office relocation resulted in one-time
termination and relocation costs of approximately $.5 million during 1998.
Annual recurring cost savings are expected to be approximately $.7 million
from lower compensation, rent and other employee-related costs.
AHI is the successor to Amfac/JMB Hawaii, Inc. ("A/J Hawaii"). On
March 3, 1998, A/J Hawaii was merged (the "Merger") with and into the
Company pursuant to an Agreement and Plan of Merger dated February 27, 1998
(the "Merger Agreement") by and between A/J Hawaii and the Company (which
was then named Amfac/JMB Mergerco, L.L.C.). The Merger was consummated to
change AHI's form of entity from a corporation to a limited liability
company. AHI was a nominally capitalized limited liability company which
was formed on December 24, 1997, solely for the purpose of effecting the
Merger. AHI succeeded to all the assets and liabilities of A/J Hawaii in
accordance with the Hawaii Business Corporation Act and the Hawaii Uniform
Limited Liability Company Act. In addition, AHI, A/J Hawaii, The First
National Bank of Chicago (the "Trustee") and various guarantors entered
into a Second Supplemental Indenture dated as of March 1, 1998, pursuant to
which AHI expressly assumed all obligations of A/J Hawaii under the
Indenture dated as of March 14, 1989, as amended (the "Indenture") by and
among A/J Hawaii, the Trustee and the guarantors named therein and the
holders of Certificates of Land Appreciation Notes due 2008 Class A (the
"Class A COLAs") and the Certificates of Land Appreciation Notes Class B
(the "Class B COLAs" and, collectively, with the Class A COLAs the
"COLAs"). The Merger did not require the consent of the holders of the
COLAs under the terms of the Indenture. AHI has succeeded to A/J Hawaii's
reporting obligations under the Securities Exchange Act of 1934, as
amended. Unless otherwise indicated, references to the Company prior to
March 3, 1998 shall mean A/J Hawaii and A/J Hawaii's subsidiaries.
AHI will continue until at least December 31, 2027, unless earlier
dissolved. AHI's sole member, Northbrook, is not obligated for any debt,
obligation or liability of the Company. However, AHI and certain
additional subsidiaries are obligated to Northbrook and its affiliates for
the repayment of substantial loans and advances made to them.
The real estate development, golf course and agricultural operations
of the Company comprise its three primary industry segments, "Property",
"Golf" and "Agriculture", respectively. The Company segregates total
revenues, operating income (loss), total assets, capital expenditures and
depreciation and amortization by each industry segment. The Company owns
no patents, trademarks, licenses or franchises which are material to its
business.
All references to "Notes" are to Notes to the Consolidated Financial
Statements contained in this report.
PROPERTY SEGMENT.
The Company's Property segment is responsible for the following
operations: land planning; obtaining land use, zoning and other
governmental approvals; development activities; and the selling or
financing of developed and undeveloped land parcels. Land Management and
Real Estate Development operations make up the Property segment. In
general, the Company maintains and manages its land holdings until: (i)
conditions are favorable for their sale, or (ii) a feasible development
plan can be formed and approved. In the second circumstance, once the
Company has obtained the necessary development approvals ("entitlements"),
the Company may elect to either sell the land with its entitlements or
develop all or a portion of the land. In the past, the Company has
typically done "horizontal" development work, including site work (e.g.,
grading, excavation) and installation of infrastructure (i.e., roadways and
utilities). Once the horizontal development is complete, the Company
usually sells the "improved" development parcels to homebuilders, shopping
center or other commercial developers and others who will complete the
"vertical" development of the site consistent with the Company's original
development plans and the entitlements.
SALES OF AGRICULTURAL PROPERTIES. The Company has placed a
substantial portion of its land holdings on the market to generate cash to
finance the Company's operations and to meet debt service requirements.
During 2000, 1999 and 1998, the Company generated approximately $4.7
million, $9.3 million and $26.4 million, respectively, in revenue primarily
from the sale of unentitled, agricultural and conservation land parcels.
In 2001, through the date of this report, the Company has generated
approximately $18.6 million in revenue from agricultural land sales.
DEVELOPMENT. Company management considers development opportunities
for its land holdings. As development opportunities arise, management
typically prepares feasibility analyses to assess the profit potential of
the development. As part of the feasibility analyses, factors considered
include the location and physical characteristics of the property,
demographic patterns and perceived market demand, estimated project costs,
regulatory and environmental constraints and availability of utilities and
governmental services.
The Company may decide to develop the property itself or to sell the
property in bulk (with or without entitlements). Once a decision is made
to proceed with a development project, approvals must be obtained from both
the State and County governments in Hawaii. The State of Hawaii Land Use
Commission has classified all lands in Hawaii as urban, agricultural or
conservation. In general, only lands classified as urban can be developed.
Although in some cases agricultural lands can be used for lower density
residential developments, agricultural lands are typically not developed.
Conservation lands cannot be developed, and are typically located in
heavily forested, mountainous regions and along the coastline.
There are multiple layers of approvals required from the County
governments in Hawaii. Initially, a project must be included in the
"General" or "Community" plan for the applicable County. Next, the
developer must apply for formal zoning. In general, zoning classifications
are more detailed than either the State urbanization designation or the
general or community plans. Zoning normally addresses the specific use of
each parcel of land and the density of the development. The impact of the
development on the local community is normally assessed as part of the
zoning process. Zoning approvals in Hawaii are typically accompanied by
impact fees and required improvements to public facilities and
infrastructure, such as roadways, schools, utilities and parks that must be
paid for by the developer.
For oceanfront parcels, a special management area ("SMA") permit must
also be obtained from the County government. The SMA permitting process
allows the County an additional opportunity to review potential
environmental, ecological and other impacts from the development, and may
also result in additional conditions on, or concessions from, the
developer.
The ability of the Company to develop its properties may be materially
adversely affected by State or County restrictions or conditions that might
be imposed in certain communities having either inadequate public
infrastructure or local opposition to continued growth.
After all of the discretionary approvals described above have been
received, a subdivision approval must be obtained along with certain other
permits such as grading and building permits. Normally, these approvals
are more ministerial in nature. However, the Company has experienced
certain problems obtaining these permits in the past, which has imposed
significant additional costs on certain projects.
The following table shows the entitlement status of the Company's land
holdings (in acres) as of December 31, 2000.
State Classification County Zoning
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Urban Agri. Cons. Hotel Com. Res. Agri. Cons.
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Maui 873 4,575 4,886 92 25 1,009 5,026 4,183
Kauai 691 8,700 9,760 -- 319 301 8,662 9,868
Oahu 152 -- -- -- 13 -- -- 139
Hawaii 24 -- -- -- 4 20 -- --
----- ------ ------ ----- ----- ----- ------ ------
Total 1,740 13,275 14,646 92 361 1,330 13,688 14,190
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Explanations for the abbreviations used above are as follows:
Agri. - Agricultural
Com. - Commercial/Industrial
Res. - Residential (single or multi-family)
Cons. - Conservation/Preservation/Open space
The Company's development projects are described in Item 2 below.
The Company plans to focus its future development activities on its
Maui land holdings located adjacent to the Kaanapali Beach Resort. As a
result, the primary competition for the Company's development activities is
expected to come from similar types of master-planned resort developments
at the Kapalua and Wailea resorts on Maui. To a lesser extent, competition
also comes from other master-planned resort communities located on the
islands of Kauai and Hawaii, as well as from other states or countries
offering resort-type properties.
MARKET CONDITIONS, REGULATORY APPROVALS AND DEVELOPMENT COSTS. There
are a number of current factors that have negatively impacted the Company's
development and land sale activities, including the market conditions, the
difficulty in obtaining regulatory approvals, the high development cost of
required infrastructure and the Company's operating deficits in its other
business segments. As a result, the planned development of many of the
Company's land holdings and the ability to generate cash flow from these
land holdings have become long-term in nature, but the Company has found it
necessary to sell certain parcels in order to raise cash prior to being
able to realize their full economic potential through the entitlement
process.
The Hawaii economy experienced a downturn beginning in late 1990 after
the Persian Gulf War, a recession in Japan and a slowdown in California's
economy. The real estate market in Hawaii was negatively impacted by these
events as demonstrated by general decreases in the volume of real estate
transactions and a stagnation or decrease in the value and pricing for
certain types of real estate. Economic trends in recent years in Japan and
much of Southeast Asia contributed to poor market conditions. The Company
believes that improvements in tourism arrivals and the length of stay (in
Hawaii) are also important to improving Hawaii's economy and its real
estate market.
Although there can be no assurance that Hawaii's real estate market
will improve in the near term, there have been recent improvements in
certain sectors, especially in the areas of primary and secondary
residential homes and condominiums. There has also been a number of sales
of resort properties during the past couple years at improved prices over
those experienced in the early and mid-1990's, but still at levels below
replacement cost of many of the properties. Despite these improvements,
the real estate market, and especially the market for unimproved land, has
not improved to levels experienced during the late 1980's. Additionally,
there can be no assurance that any possible recovery of Hawaii's real
estate market can be sustained.
The current regulatory approval process for a development project can
take three to five years or more and involves substantial expense. There
is no assurance that all necessary approvals and permits will be obtained
with respect to the Company's current and future projects. Generally,
entitlements are extremely difficult to obtain in Hawaii. There is often
significant opposition to proposed developments from numerous groups -
including native Hawaiians, environmental organizations, various community
and civic groups, condominium associations and politicians advocating
no-growth policies, among others.
The Company is subject to a number of statutes imposing registration,
filing and disclosure requirements with respect to its residential real
property developments including, among others, the Federal Interstate Land
Sales Full Disclosure Act, the Federal Consumer Credit Protection Act,
federal and state environmental statutes and the State Uniform Land Sales
Practices Act.
GOLF SEGMENT.
The Company's Golf segment is responsible for the management and
operation of the Company's golf course facilities. As of December 31,
2000, the Company owns or has a minority interest investment in three
18-hole golf courses. To be competitive, the Company offers discounted
rates for Hawaii residents. Improvements in the number of tourist arrivals
and length of stay (in Hawaii) may be critical to improving performance of
the Company's golf courses. There can be no assurance that such
improvements will occur in the near term.
The Company is obligated to make interest payments under a $66 million
loan made to Amfac Property Investment Corp., which formerly was a wholly-
owned subsidiary of the Company and in which the Company currently owns an
approximate 17% interest. The loan is secured by the two Kaanapali golf
courses and is non-recourse as to principal payments. Due to insufficient
cash flow generated by the two Kaanapali golf courses and because of
disagreements with the lender over, among other things, lender's failure to
grant required easements, the Company did not pay the required interest
payments due in 2000 on the loan secured by these golf courses. The lender
issued a default notice. Pursuant to an agreement between the lender and
the Company, the Company paid approximately $3.8 million in September 2000
to the lender for a portion of the past due interest amounts and the lender
had agreed to temporarily suspend its action to realize upon its security
until March 26, 2001. This date has not been extended. Subsequent to
September 2000 through the date of this report, additional payments
aggregating approximately $1.7 million have been made to the lender. In
December 2000, AF Investors, LLC ("AF Investors") an affiliate of
Northbrook acquired an 83.33% ownership interest in APIC. APIC is
currently pursuing renegotiation of the loan. (See note 6 of Notes to
Consolidated Financial Statements of the Company.)
The two golf courses located at the Kaanapali Beach resort on West
Maui face strong competition from other resort courses on Maui, such as
those at Kapalua and Wailea. In addition, the Company's golf course
located at Waikele in central Oahu competes with other privately owned and
municipal golf courses on Oahu. To a lesser extent, all three of the
courses face competition from golf courses on the other islands in the
State of Hawaii.
A significant portion of golf revenues for the Company's 18-hole
course on Oahu have been from eastbound (primarily Japanese) tour groups.
Recent economic trends in Japan and much of Southeast Asia have contributed
to fewer Far East visitors and less rounds being played at the higher
visitor rates.
AGRICULTURE SEGMENT.
The Company's Agriculture segment is responsible for activities
related to the cultivation, processing and sale of sugar cane, coffee and
other diversified agriculture. Prior to the fourth quarter 2000 shut down
of the Lihue Plantation Company, Limited ("Lihue") and Kekaha Sugar
Company, Limited ("Kekaha Sugar") plantations on Kauai, Agriculture's
revenues were primarily derived from the sale of raw sugar. As of the date
of this report, approximately 1,500 acres of the Company's land holdings
are utilized for coffee and other diversified agriculture. The remaining
approximately 26,500 acres of land owned and/or leased by the Company are
predominantly conservation land that do not generate significant revenues
or land previously utilized by sugar operations all of which ceased by the
end of 2000.
During the third quarter, management announced the shut down of its
remaining sugar plantations on Kauai. The decision was made as a result of
significant losses incurred during 2000 and in prior years and the
expectation that such losses would continue for the foreseeable future.
The losses resulted from a significant drop in the domestic price of raw
sugar and lower sugar yields. The Company completed its final harvest and
processed the sugar cane at the Lihue plantation mill, which ceased
operations in November 2000.
SUGAR OPERATIONS IN HAWAII. The sugar industry in Hawaii has
experienced significant difficulties for a number of years which were
compounded by the significant drop in sugar prices in 2000. Growers in
Hawaii have long struggled with high costs of production, which have led to
the closure of most of Hawaii's plantations, including the Company's Oahu
Sugar Company, Limited ("Oahu Sugar") plantation in 1995, its Pioneer Mill
Company Limited ("Pioneer Mill") plantation on Maui in 1999 and its
remaining sugar plantations on Kauai in November 2000.
The Company is currently using portions of the land at Pioneer Mill
for diversified agriculture.
DIVERSIFIED AGRICULTURE. The Company has considered various uses for
its agricultural lands, such as alternative crops. The Company still
continues to explore alternative crops, including cultivating approximately
430 acres of specialty coffee trees on Maui.
The Company has received "matching funds" of approximately $2 million
under the federal Rural Economic Transaction Assistance - Hawaii program.
The Company planted several new agricultural crops on Kauai and Maui using
these "matching funds", including seed corn, sweet corn and alfalfa. At
this time, the Company has successfully planted and cultivated these crops
on Maui. However, the success of the diversified agriculture program is
contingent upon the ability of the Company to continue to market and sell
these agricultural products at favorable prices. In total, the Company has
approximately 1,500 acres devoted to diversified agriculture, including
coffee.
POWER PRODUCTION. The Company historically has been involved in the
production of energy through the burning of bagasse, the fibrous by-product
of sugar cane processing, in the sugar plantations' boilers. The Company
generated electrical energy and steam for the sugar plantations' own
consumption and for sale to the local public utilities, pursuant to power
purchase agreements entered into with the local utilities. Gross revenues
from the Company's operations at its Lihue power plant totaled
approximately $5.2 million, $5.1 million and $4.3 million for 2000, 1999
and 1998, respectively. Revenues are significantly smaller from the Kekaha
power plant (and formerly from the Pioneer Mill power plant) since the
contract with the local utility does not require the Company to commit to a
certain level of capacity for power production and, therefore, the Company
receives a significantly lower rate for its power sales.
Due to the Company's shut down of sugar operations on Kauai, the by-
product burned to fuel the Lihue power plant is no longer available and
alternative fuels will have to be used. The Company renegotiated the power
purchase agreement with the local utility. As a result of the
renegotiation, the Company does not expect power production costs to have a
significant affect on future operations.
WATER RESOURCES. The Company has in the past needed to maintain
access to significant water sources to conduct its agricultural operations
and, in many cases, must demonstrate a sufficient supply of water in order
to obtain land development permits. To distribute most of this water, the
Company owns extensive civil engineering improvements including tunnels,
ditches, reservoirs and pumps. The Company believes that it has sufficient
water resources for its present uses. Most of the Company's water is
currently used for irrigating diversified agricultural crops.
As the Company's sugar production decreased, the Company's water needs
also decreased. Subject to significant state regulatory restrictions,
excess water may be used for other purposes and the Company plans to
explore alternative uses for such water.
ITEM 2. PROPERTIES
LAND HOLDINGS.
The major real properties owned by the Company are described below by
island.
(a) OAHU.
After the closure of the Oahu Sugar plantation in 1995, the Company
began developing the 64-acre mill site located in Waipahu, which is
approximately 10 miles west of downtown Honolulu near Pearl Harbor. The
Company received county zoning approval for a light industrial subdivision
on the property.
In December 1996, Amfac Property Development Corp. ("APDC"), a wholly-
owned subsidiary of the Company, obtained a $10.0 million loan facility
from City Bank. Prior to this time, APDC had obtained title to the mill
site property from Oahu Sugar in order to facilitate its development of
such subdivision. The loan is secured by a mortgage on property under
development at the Oahu Sugar mill-site and is "Senior Indebtedness" (as
defined in the Indenture). The loan was originally scheduled to mature on
December 1, 1998. In November 1998, APDC sold certain Oahu Sugar mill-site
property which served as collateral for the $10.0 million City Bank loan
for an approximate sales price of $7.7 million in cash plus 2% of the gross
sales price of subsequent parcel sales of all or any portion of the
property by the purchaser. The bank required $6.0 million of the sales
proceeds as a principal reduction on the loan in order to release the
collateral. APDC received a one-year extension on the $4.0 million
remaining balance of the loan which is secured by another parcel at the
mill-site. The extended loan bore interest at the bank's base rate plus
1.25% and was scheduled to mature on December 1, 1999. APDC reached an
agreement with the bank for an additional one year extension on $3.0
million of the $4.0 million loan. APDC made a $1.0 million loan repayment
on December 2, 1999. The new extended loan bore interest at the bank's
base rate plus 1.25% and matured on December 1, 2000. In January 2001,
APDC reached an agreement with the bank for an extension until December 1,
2001 with a principal payment of $.150 million upon execution of the
agreement. The newly extended loan bears interest at the bank's base rate
of 9.5% at December 31, 2000 plus 2%. Upon maturity of the loan, it is not
expected that APDC will have the funds necessary to pay the remaining
balance of the loan without sale of the remaining mill site land. If such
loan cannot be further extended, it would likely result in APDC no longer
having an ownership interest in the property.
The Company expects to market the remaining mill site land in bulk.
The Company does not anticipate expending funds for additional
infrastructure at this development.
The Company also owns the Waikele Golf Course located at the Company's
completed Waikele project. Waikele is located directly north of the Oahu
Sugar mill site development in central Oahu. The Waikele Golf Course has
experienced a significant drop in play from eastbound (primarily Japanese)
tour groups which has depressed rounds played, average rate and, as a
result, net operating income. The Company has developed and implemented
marketing plans to attempt to return the golf course to its previous levels
of profitability. However, these programs have had limited success to date
due to additional competition from new and existing golf courses and
continued softness in the Japanese tour group market. At this point, it is
difficult to predict if and when previous levels of sales and profitability
can be achieved again. The Waikele Golf Course generated approximately
$4.6 million, $4.5 million and $5.0 million, respectively, in revenues
during 2000, 1999 and 1998.
(b) MAUI.
As of December 31, 2000, the Company owns approximately 10,000 acres
of land on the island of Maui, most of which are classified as agricultural
land (approximately 4,600 acres) and conservation land (approximately 4,900
acres) for State and County purposes. All of the Company's land holdings
are located in West Maui near the Lahaina and the Kaanapali Beach Resort
areas.
In August 2000, the Company sold approximately 1,600 acres of
agricultural land in Kahoma for $3.8 million. In January 2001, the Company
sold approximately 5,500 acres of agricultural and conservation land in
Launiupoko for $14.5 million.
As of December 31, 2000, the Company has an approximately 16.7%
ownership interest in Amfac Property Investment Corp. ("APIC"). APIC owns
and operates the Royal Kaanapali Golf Courses ("RKGC"), which are two
18-hole golf courses located at the Kaanapali Beach Resort on West Maui.
The courses occupy approximately 320 acres of land. The two Kaanapali golf
courses generated approximately $10.4 million, $10.3 million and $9.5
million, respectively, in revenues during 2000, 1999 and 1998. (Reference
is made to Note 6 concerning the default notice issued by the lender
concerning the indebtedness secured by the golf courses.)
In general, the development of the Company's land on Maui is expected
to be long-term in nature as it is intended for resort and resort-related
uses, which for most of the 1990's has been a relatively slow market.
The Company has determined that the focus of its future development
efforts should be on its Kaanapali/Honokowai land holdings (approximately
4,300 acres) on Maui. Although additional governmental approvals are
required for most of these lands, approximately 900 acres of the Company's
Kaanapali/Honokowai land holdings already have some form of entitlements.
The Company believes its development efforts are best concentrated in this
area where it has certain development approvals already secured and where
successful resort development has occurred during the past thirty years.
In 1999, the Company began a new approach to planning for its
Kaanapali lands referred to as community-based planning ("CBP"). The
Company works to involve members from all aspects of the West Maui
community in developing an acceptable plan for the Company's Kaanapali land
holdings. CBP differs from simply obtaining public input in that CBP
actually gives the community a direct role in the Company's planning
process. CBP has been used successfully in several communities on the
mainland such as in the Weston, Florida development being completed by an
affiliate of Northbrook. Management is optimistic that a plan can be
developed that meets the Company's long-term financial objectives and will
be supported by a broad cross section of the community. (See also
discussion of land sales in "Management Discussion and Analysis of
Financial Condition and Results of Operations - General".)
The projects located in the Kaanapali/Honokowai area that are currently
owned by the Company are described in greater detail below.
KAANAPALI GOLF ESTATES. The Company is marketing Kaanapali Golf
Estates ("KGE"), a residential community that is part of the Kaanapali
Beach Resort in West Maui. KGE is divided into several parcels and the
Company sells the parcels through bulk parcel sales. The remaining parcels
available for sale in the residential community total approximately 114
acres.
During 1998, the Company generated revenue of approximately $2.3
million from the sale of the remaining 14 lots at Parcel 17B. In May 1998,
the Company sold Parcel 18, an 18-lot subdivision in KGE, in bulk for $1.8
million. In October 1999, the Company sold in bulk the 17-acre Parcel 21
for $4.5 million. In January 2000, the Company sold the 17-acre Parcel 16
for $3.5 million and in July 2000, the Company sold the 19-acre Parcel
19/20 for $3.5 million.
NORTH BEACH. In December 2000, the Company sold (to a timeshare
company) the 14-acre KOR site for a gross selling price of $19.5 million.
In addition, the timeshare company received a five-year option to purchase
Lot 2 at Kaanapali North Beach. The option purchase price is based on the
number of units entitled at the time of closing (if an exercise of the
option were to take place). The Company currently expects the purchase
price to be in the range of $9.0 million. The remaining three North Beach
lots (including Lot 2) total approximately 82 acres. In October 1998, the
Company received the final Maui County approval (an SMA permit) needed to
develop the Kaanapali Ocean Resort ("KOR"), a 280 unit time share project
on the 14 acre Lot 1 ("KOR Site") of Kaanapali North Beach. Under an
agreement that preceded the sale to the timeshare company, the Company is
required to begin construction of improvements for a 13-acre public park at
Wainee, Maui. The park land and improvements will be donated by the
Company to the County of Maui.
The Company's remaining North Beach properties are subject to a
mortgage held by an affiliate of Northbrook with the outstanding principal
and accrued interest aggregating approximately $5.6 million. The affiliate
deferred amounts due under the note until a modification was negotiated
effective December 29, 2000. For a further description of such
modification see Note 4 of Notes to Consolidated Financial Statements.
NORTH BEACH MAUKA. The Company has plans for an additional 18-hole
golf course, condominiums, commercial/retail and residential uses. The
Company also plans to evaluate adding a significant time-share component to
the development plans for this 318-acre parcel. Currently, the Company has
Community Plan approvals and R-3 zoning (residential, minimum 10,000 square
foot lots) for North Beach Mauka. State urbanization is required, along
with final zoning and subdivision.
PUUKOLII VILLAGE. The Company has regulatory approval to develop a
project, known as "Puukolii Village", on approximately 249 acres located
"Mauka" ("towards the mountains") of Kaanapali Beach Resort. A significant
portion of this project will be affordable housing. Development of most of
Puukolii Village cannot commence until after completion of the planned
Lahaina/Kaanapali bypass highway. As such, development of this parcel is
not assured and expected to be long term in any event.
MAUI INFRASTRUCTURE COSTS. In connection with certain of the
Company's land use approvals on Maui, the Company has agreed to provide
affordable housing and to participate in the funding of the design and
construction of the planned Lahaina/Kaanapali bypass highway. The Company
has entered into an agreement with the State of Hawaii Department of
Transportation covering the Company's participation in the design and
construction of the bypass highway. In conjunction with state urbanization
of the Company's Kaanapali Golf Estates project, the Company committed to
spend up to $3.5 million (of which approximately $.9 million has been spent
as of December 31, 2000) toward the design of the highway. Due to lengthy
delays by the State in the planned start date for the bypass highway, the
Company funded approximately $1.2 million for the engineering and design of
the widening of the existing highway through the Kaanapali Beach Resort.
The Company believes this $1.2 million will be credited against the $3.5
million commitment discussed above. The Company has also committed another
$6.7 million for the construction of the bypass highway, subject to the
Company obtaining future entitlements on Maui and the actual construction
of the bypass highway. The development and construction of the bypass
highway is expected to be a long-term project that will not be completed
until the year 2007 or later, if ever.
The Company has reached an agreement with Maui County subject to final
regulatory approval, pursuant to which the Company has agreed to convey the
Pioneer Mill office building and five acres of agricultural land in
satisfaction of employee housing requirements affecting North Beach Makai
and affordable housing requirements affecting Kaanapali Golf Estates
parcels.
(c) KAUAI.
At December 31, 2000, the Company owns approximately 19,200 acres of
land on the island of Kauai, the vast majority of which is classified and
zoned, by the State of Hawaii and the County of Kauai respectively, as
agricultural and conservation lands. There are large contiguous parcels
which comprise the bulk of these Kauai land holdings, located in
Lihue/Hanamaulu on the eastern side of Kauai. Large portions of the
agricultural lands were used for sugar cane cultivation, and portions of
the conservation lands were utilized by the Company's sugar plantations to
collect, store and transmit irrigation water from mountainous areas to the
sugar cane fields.
The Company has state urbanization and county zoning for a 552 acre
master-planned community known as the Lihue/Hanamaulu Town Expansion, which
includes approximately 1,800 affordable and market rate residential units,
commercial and industrial facilities and a number of community and other
public uses. The Company does not plan to pursue subdivision and building
permits for this project until the real estate market on Kauai improves.
In September 2000, the Company sold a 14-acre parcel at Hanamaulu on
Kauai for $.6 million.
The Company has 18,000 acres of land currently listed for sale on
Kauai. (See also discussion of land sales in the "Liquidity and Capital
Resources" section below.)
LEASES.
The Company's two plantation subsidiaries, Lihue Plantation and Kekaha
Sugar, leased some agricultural lands from unrelated third parties in 2000.
Certain of such leases provided the Company, as lessee, with licenses for
water use. Almost all of the leased land of the Company was used in
connection with the cultivation of sugar cane. Most of the leases provided
that the Company pay fixed annual minimum rents (ranging from $10 to $28
per usable acre), plus additional rents based upon a percentage of gross
receipts above a specified level. During the past three years, the Company
has paid only minor amounts of percentage rent on the leases (listed
below). Due to the shutdown of the Company's remaining sugar plantations,
the Company does not expect to renew the remaining two leases upon their
expiration.
The following summary lists the material land leases of the Company's
subsidiaries, as lessees, and certain material terms thereof as of the date
of this report:
Sugar Cane
Expiration Acreage in Gross Minimum
Plantation Date Cultivation Acreage Rent
---------- ------------- ----------- ------- --------
Lihue 12/15/02 0 3,106 $ 20,630
Lihue 9/17/01 0 670 $ 9,208
OTHER PROPERTY.
In addition to the real property discussed above, the Company also
owns two sugar mills, each with its own power plant. The mills and power
plants are located in Kekaha and Lihue, Kauai. Each of these facilities was
involved in the production of raw sugar from sugar cane and the production
of electrical and steam power until their closings in late 2000. As
described above, the Lihue power plant continues to operate pursuant to a
modified agreement with the local electric utility, which expires of the
end of 2002.
An approximately 460 acre parcel was sold in March of 2001, for a
gross sale price of approximately $3.4 million.
ITEM 3. LEGAL PROCEEDINGS
APIC had not paid the ERS the minimum interest payments due on
January 1, April 1, July 1 and October 1, 2000. A default notice from the
ERS was received which notice included an acceleration of all amounts due
under the loan and the ERS filed to realize upon their security (Employees'
Retirement System of the State of Hawaii v. Amfac/JMB Hawaii, LLC, et. al.,
Civil No. 00-1-2597-08, First Circuit Court, State of Hawaii). Pursuant to
an agreement between the ERS and APIC approximately $3.8 million was paid
in September 2000, to the ERS for a portion of the past due interest
amounts and the ERS has agreed to temporarily suspend its action to realize
upon its security until March 26, 2001. This date has not been extended.
Subsequent to September 2000 through the date of this report, additional
payments aggregating approximately $1,700 million have been made to the
lender. Renegotiation of the loan terms is currently underway. Attempts
are also being made to obtain the other easements which the Company and
APIC believe the ERS is obligated to provide. There can be no assurance
that such negotiations will result in a definitive agreement to settle the
disputes with the ERS concerning this loan. Reference is made to Note 6 of
Notes to the Consolidated Financial Statements.
On September 20, 1996, Oahu Sugar Company, Limited ("Oahu Sugar")
filed a lawsuit, Oahu Sugar v. Walter Arakaki and Steve Swift, Case No. 96-
3880-09, in the Circuit Court of the First Circuit, State of Hawaii. In
the lawsuit, Oahu Sugar alleged that it entered into an agreement to sell
to defendants certain sugar cane processing equipment at Oahu Sugar's sugar
cane mill in Waipahu. Oahu Sugar alleged that defendants failed to timely
dismantle and remove the equipment, as required by the agreement, and that
defendants were obligated to pay Oahu Sugar rent for the area occupied by
the equipment beyond the time provided for by the parties. Oahu Sugar
further alleged that it provided notice to defendants that Oahu Sugar was
entitled to treat the equipment as abandoned property and to sell the
equipment, because the equipment had not been removed from the property in
a timely fashion, as required by the parties' agreement. In its complaint,
Oahu Sugar sought, among other things, declaratory relief that it was
entitled to treat the equipment as abandoned, damages for breach of
contract, and rent under an unjust enrichment theory.
Defendants filed an answer, as amended, denying the substantive
allegations of Oahu Sugar's complaint and asserting various affirmative
defenses. In addition, the defendants filed a seven-count counterclaim
against Oahu Sugar. In the counterclaim, defendants alleged, among other
things, that Oahu Sugar failed to make the equipment available for removal
on a timely basis, and that Oahu Sugar otherwise improperly interfered with
defendants' plans for the removal and subsequent sale of the equipment. In
the counterclaim, defendants sought, among other things, general, special
and punitive damages, attorneys' fees, costs, and such other relief as the
Court may have deemed appropriate.
Oahu Sugar's declaratory relief claim was settled in advance of trial.
Oahu Sugar obtained dismissals and directed verdicts on six of defendants'
claims. The remaining portions of the complaint and counterclaim proceeded
to a jury trial and verdict. On December 2, 1999, the jury denied Oahu
Sugar relief on its remaining claims and awarded the defendants
approximately $2.6 million in damages on their counterclaim. On March 2,
2000, the trial court entered a judgment against Oahu Sugar for the $2.6
million in damages awarded by the jury. In addition, the trial court
awarded counterclaimants $751,000 in attorneys' fees, $28,000 in costs and
$866,000 in prejudgment interest. Oahu Sugar's post trial motions for
judgment as a matter of law and for a new trial were denied. Oahu Sugar
filed a notice of appeal. The defendants began efforts to collect the
amounts awarded to them. Defendants caused garnishee summons to be issued
to various affiliated and unaffiliated entities. The defendants scheduled
a debtor's examination for August 23, 2000 which was not concluded. The
Hawaii Supreme Court scheduled the case for an appellate conference and
mediation that was unsuccessful. Then, on January 3, 2001, the Hawaii
Supreme Court entered an order dismissing the appeal. The Supreme Court
held that it lacked jurisdiction over the appeal because the judgment
entered on March 2, 2000 was legally defective in that it did not identify
the claim for which judgment was entered or dismiss all of the other claims
and counterclaims of the parties. In light of the order of the Hawaii
Supreme Court, the parties filed legal briefs before the trial court to
have the court determine, among other things, whether a corrected judgment
consistent with the jury verdict may be entered as of March 2, 2000 or a
new judgment order is required. After hearing the arguments of the
parties, on March 19, 2001, the trial court ruled that it will not enter a
corrected judgment as of March 2, 2000 and that a new judgment order will
be required. Oahu Sugar anticipates that the new judgment in proper form
and consistent with the December 2, 1999 verdict will be submitted to the
trial court for entry in the near future. After the entry of an
appropriate judgment order, Oahu Sugar intends to pursue its remedies,
including an appeal. Oahu Sugar continues to believe that it is entitled
to affirmative relief on its complaint and that it has meritorious defenses
to the counterclaim that it intends to pursue on appeal. The Company,
however, can provide no assurances that it will be successful in obtaining
affirmative relief or overturning the verdict against Oahu Sugar. This
verdict, if upheld, could have a material adverse effect on the Oahu
Sugar's financial condition.
On or about December 15, 2000, Oahu Sugar and Amfac Property
Development Corp. ("APDC"), among others, were named in a lawsuit entitled
Walter Arakaki and Steve Swift v. Oahu Sugar Company, Limited et al., Civil
No. 00-1-3817-12, and filed in the Circuit Court of the First Circuit of
Hawaii. In the complaint, as amended, plaintiffs seek a declaration that
certain conveyances of real estate made by Oahu Sugar or APDC, since
December 1996, were allegedly fraudulent transfers made in violation of the
common law, the Hawaii fraudulent transfer act, and rights which they claim
arose in connection with the claims they filed in Oahu Sugar v. Walter
Arakaki and Steve Swift, Case No. 96-3880-09, discussed above. Plaintiffs
seek, among other things, injunctive and declaratory relief, compensatory
damages, punitive damages, orders of attachment against sales proceeds,
voidance of certain transfers, foreclosure and other remedies in connection
with various transfers of real estate made by Oahu Sugar to APDC, the Young
Men's Christian Association of Honolulu ("YMCA"), and the Filipino
Community Center, Inc. ("FCC"), among others, all over the years 1996-2000.
The YMCA and FCC have also been named defendants in this action and have
filed cross-claims for relief against Oahu Sugar and APDC for alleged
breach of warranty of title, indemnity and contribution in connection with
their respective transactions, and seeking, among other things, damages,
attorneys' fees, costs, and prejudgment interest. Oahu Sugar and APDC have
filed answers to the compliant, as amended, and the cross-claims. Oahu
Sugar and APDC believe they have meritorious defenses and intend to pursue
their defenses vigorously. However, there can be no assurances that this
case, when once adjudicated, will not have a material adverse effect on the
financial condition of Oahu Sugar or APDC.
On October 7, 1999, Oahu Sugar Company was named in a lawsuit
entitled, Akee, et al. v. Dow Chemical Company, et al., Civil No. 99-3757-
10, and filed in Hawaii State Court (Circuit Court of the First Circuit of
Hawaii). This multiple plaintiff toxic tort case named Oahu Sugar and a
number of additional defendants including several large chemical, petroleum
and agricultural companies. In March 2000, Oahu Sugar Company was
dismissed without prejudice.
On September 30, 1999, Oahu Sugar was one of several defendants named
in a lawsuit entitled, City and County of Honolulu v. Leppert, et al.
Civil No. CV 99 00670 ACK-FIY, and filed in the federal court, District of
Hawaii. The plaintiff asserts several causes of action including actions
for (1) clean-up and other response costs under the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA"); (2)
owner/operator liability, contribution and indemnity under Hawaii statutory
law; (3) strict liability for ultrahazardous activity; and (4) negligence.
Plaintiff alleges that defendant Oahu Sugar previously operated a sugar
mill on property currently owned by plaintiff, and used pesticides,
herbicides, fumigants, petroleum products and by-products and other
hazardous chemicals which were allegedly released into the soil and/or
groundwater at the subject property. Plaintiff seeks recovery of response
costs it has incurred and to be incurred, a declaration of the rights and
liabilities for past and any future claims, damages for lost property
value, technical consulting and legal costs in investigating the property,
increased construction costs, and attorneys' fees and costs. Two of the
other defendants, Clinton Churchill and David Heenan, as trustees under the
will and estate of James Campbell ("Campbell Estate"), have filed a third
party complaint, as amended, seeking indemnity and contribution from Oahu
Sugar arising from, among other things, a lease between Oahu Sugar and
Campbell Estate concerning the land which is allegedly contaminated. The
Campbell Estate has also filed a third party compliant, as amended, against
Northbrook Corporation ("Northbrook") seeking a defense and indemnity.
Campbell Estate, Oahu Sugar, and Northbrook filed cross motions for summary
judgment on the third party complaints. On October 27, 2000, the court
ruled that Oahu Sugar, under its 1970 amendment of lease with Campbell
Estate, and Northbrook, under its guaranty of the lease, have an obligation
to defend and indemnify the Campbell Estate for any environmental liability
under specified federal and state environmental law, negligence and strict
liability for ultrahazardous activity, assessed against Campbell Estate as
owner of the subject property due to actions taken by Oahu Sugar on the
property from 1970 forward, only, and not for activities occurring before
1970. The court also ruled that Campbell Estate is entitled to recover its
attorneys' fees, costs, and expenses incurred in establishing its right to
indemnity. On November 6, 2000, Campbell Estate filed a motion for
reconsideration to have the trial court reconsider that portion of its
ruling that relieves Oahu Sugar and Northbrook of the obligation to
indemnify Campbell Estate for the failure to eliminate and cleanup the
alleged contamination to the extent that it occurred prior to 1970. On or
about December 15, 2000, the trial court denied the motion for
reconsideration and the Campbell Estate is seeking to appeal the trial
court's order. The plaintiff on one hand and the Campbell Estate and Oahu
Sugar on the other filed cross motions for partial summary judgment. The
arguments on these motions are scheduled for early April 2001. Trial of
this matter is currently scheduled for September 2001. Oahu Sugar intends
to vigorously defend itself.
On September 30, 1999, Oahu Sugar was named in a related lawsuit
entitled, City and County of Honolulu v. Leppert, et al., Civil No. 99-
3678-09, and filed in Hawaii State Court, Circuit Court for the First
Circuit of Hawaii. Oahu Sugar has been served in this matter. This case is
the same case as the CERCLA action above, except that it asserts causes of
action under the Hawaii Environmental Response Law, the state law
equivalent of CERCLA. The alleged specific causes of action include actions
for (1) owner/operator liability, contribution and indemnity under Hawaii
Revised Statue Section 128D-18; (2) strict liability; (3) negligence, and,
(4) declaratory relief on state claims. On July 3, 2000, the Hawaii state
court issued a stay of this action, pending the outcome of the federal
litigation and subject to various other stated conditions. In any event,
Oahu Sugar intends to vigorously defend itself.
An insurance carrier for Oahu Sugar is partially funding the defense
of these environmental-related cases, subject to a reservation of rights.
Oahu Sugar can give no assurances as to the portion of defense costs and
indemnity costs, if any, that will ultimately be borne by the insurance
carrier.
These environmental-related lawsuits are in the beginning stages of
litigation. The Company believes that Oahu Sugar has meritorious defenses
to these lawsuits and Oahu Sugar will defend itself vigorously. However,
there can be no assurances that these cases (or any of them), when once
adjudicated, will not have a material adverse effect on the financial
condition of Oahu Sugar.
On May 10, 2000, Oahu Sugar was named in a civil action entitled,
Albert and Marciana Kalaikai v. Oahu Sugar, et. al., pending in the Circuit
Court of the First Circuit, State of Hawaii, Civil No. 00-1-1497-05. In
this case, plaintiffs seek damages for alleged asbestos related injuries
sustained, among other things, from exposure to asbestos-containing
products over the course of in excess of forty years and at numerous
locations including the Oahu Sugar mill site over the period of 1950-1960.
The case is in the beginning stages of litigation and Oahu Sugar intends to
defend itself vigorously.
Oahu Sugar is also a defendant in another alleged asbestos related
personal injury action entitled, Anthony Fiori and Stella Fiori v.
Raybestos-Manhattan, filed in the San Francisco County Superior Court, Case
No. 304868, filed on or about July 13, 1999. In the complaint, plaintiffs
seek $3.0 million in economic and non-economic damages, as well as $1.0
million in punitive damages, for injuries alleged sustained.
An insurance carrier for Oahu Sugar has agreed to defend Oahu Sugar in
the Kalaikai and Fiori cases, subject to a reservation of rights. Oahu
Sugar can give no assurances as to the portion of the defense costs and
indemnity costs, if any, that will be ultimately borne by the insurance
carrier.
Oahu Sugar is substantially without assets to satisfy any judgments in
these actions. However, the liability, if any, of Oahu Sugar in these
asbestos matters should not extend to AHI and its other subsidiaries.
On or about February 23, 2001 Kekaha Sugar Co., Ltd. received a letter
from the Hawaii Department of Health ("HDOH") assigning the Kekaha Sugar
Co., Ltd. site a high priority status based on HDOH's review of available
environmental data. In the letter, HDOH identified five major areas of
potential environmental concern including the former wood treatment plant,
the herbicide mixing plant, the seed dipping plant, the settling pond, and
the Kekaha Sugar Mill. While setting forth specific concerns, the HDOH
reserved the right to designate still further areas of potential concern
which might require further investigation and possible remediation. HDOH
further reserved the right to modify its prioritization of the site should
conditions warrant. The assignment of the high priority status will likely
result in a high degree of oversight by the HDOH as the issues raised are
studied and addressed. Kekaha Sugar Co., Ltd. will respond to the letter.
Kekaha Sugar Co., Ltd. is substantially without assets and further pursuit
of this matter by HDOH could have a materially adverse effect on the
financial condition of Kekaha Sugar Co., Ltd.
On or about February 23, 2001, Lihue Plantation Co., Ltd. received a
similar letter from the HDOH assigning the Lihue Plantation Co., Ltd. site
a high priority status based on HDOH's review of available environmental
data. In the letter, HDOH identified four major areas of potential
environmental concerning including the Lihue herbicide mixing plant, the
seed dipping plant, the settling pond and the Lihue Sugar Mill. While
setting forth specific concerns, the HDOH reserved the right to designate
still further areas of potential concern which might require further
investigation and possible remediation. HDOH further reserved the right to
modify its prioritization of the site should conditions warrant. As noted
above, the high priority assignment will likely result in a high degree of
oversight by the HDOH as the issues raised are studied and addressed.
APDC has submitted a proposal to the HDOH to treat chlorinated
solvents which have been discovered in the groundwater at the former Oahu
Sugar Waipahu Sugar Mill site. The contamination does not appear in high
concentrations, but nevertheless will likely require some form of
remediation. APDC has recommended to HDOH a process of remediation that
will use hydrogen releasing compounds to consume and destroy the
contamination in the known areas of contamination. At this point, APDC is
unable to identify with certainty the treatment options that will be
approved by HDOH or the cost of same.
As a result of an administrative order issued it Oahu Sugar Company by
the Hawaii Department of Health, Order No. CH 98-0012, dated January 27,
1998, Oahu Sugar is currently engaged in environmental site assessment of
lands it leased from the U.S. Navy and located on the Waipio Peninsula.
Sampling is underway and the investigation is otherwise still in its
preliminary stages.
Other than as described above, the Company is not involved in any
material pending legal proceedings, other than ordinary routine litigation
incidental to its business. The Company and/or certain of its affiliates
have been named as defendants in several pending lawsuits. While it is
impossible to predict the outcome of such routine litigation that is now
pending (or threatened) and for which the potential liability is not
covered by insurance, the Company is of the opinion that the ultimate
liability from any of this litigation will not materially adversely affect
the Company's results of operations or its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
1999 and 2000.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED SECURITY HOLDER MATTERS
The Company is wholly-owned by Northbrook. There is no public market
for the Company's membership interest.
ITEM 6. SELECTED FINANCIAL DATA
AMFAC HAWAII, LLC
For the years ended December 31, 2000, 1999, 1998, 1997 and 1996
(Dollars in Thousands)
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Total revenues
(c) . . . . . . . $ 75,208 67,872 99,654 86,383 97,406
======== ======== ======== ======== ========
Net income
(loss) (d). . . . $(51,799) (19,873) (41,735) (25,572) (34,166)
======== ======== ======== ======== ========
Net income
(loss) per
share (b)
Total assets . . . $252,287 359,694 431,080 464,245 483,605
======== ======== ======== ======== ========
Amounts due
affiliates -
Senior debt
financing . . . . $192,555 172,965 110,325 125,290 103,579
======== ======== ======== ======== ========
Certificate of
Land Apprecia-
tion Notes. . . . $139,413 139,413 220,692 220,692 220,692
======== ======== ======== ======== ========
(a) The above selected financial data should be read in
conjunction with the financial statements and the related notes appearing
elsewhere in this annual report on Form 10-K.
(b) The Company is a wholly-owned subsidiary of Northbrook;
therefore, net loss per share is not presented.
(c) Total revenues includes interest income of $85 in 2000, $785 in
1999, $976 in 1998, $386 in 1997 and $463 in 1996.
(d) In 1999, the Company recognized an extraordinary gain from the
extinguishment of debt of $11,265 (after reduction of income taxes of
$7,203) which is reflected in 1999 net income (loss).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
All references to "Notes" herein are to Notes to Consolidated
Financial Statements contained in this report.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL.
In addition to historical information, this Annual Report contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act 1995. These statements are based on management's
current expectations about its businesses and the markets in which the
Company operates. Such forward-looking statements are not guarantees of
future performance and involve known and unknown risks, uncertainties or
other factors which may cause actual results, performance or achievements
of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Actual operating results may be affected by various factors
including, without limitation, changes in national and Hawaiian economic
conditions, competitive market conditions, uncertainties and costs related
to and the imposition of conditions on receipt of governmental approvals
and costs of material and labor, all of which may cause such actual results
to differ materially from what is expressed or forecast in this report.
During the third quarter, management announced the shutdown of its
remaining sugar plantations on Kauai. The decision was made as a result of
significant losses incurred during 2000, and the expectation that such
losses would continue for the foreseeable future. The losses resulted from
a significant drop in the domestic price of raw sugar and lower sugar
yields. The Company completed its final harvest of sugar cane in November
2000. As a consequence of the shutdown, the Company incurred significant
employee and other closing costs in 2000. The Company estimated the
pricing for the possible sale or lease of the field and equipment,
negotiated the majority of the employee termination costs and substantially
completed the negotiations with the local utility company (and expects no
significant future costs related to the power sale agreement).
The Company faces large contingent cash expenditures for (i) the cost
of the litigation and environmental matters described in Item 3. "Legal
Proceedings" and (ii) the cost of environmental clean up relating to the
land and mill sites associated with Oahu, Kekaha, Lihue and Pioneer Mill
plantations and buildings which could be significant but are presently not
determinable. It is difficult to predict the ultimate outcome of these
various contingencies, any of which could have a material adverse effect on
the financial condition of the Company.
The Company continues to face a severe liquidity shortage. The
Company sold a portion of its North Beach property on Maui in the fourth
quarter of 2000, a parcel on Maui near Lahaina in the first quarter of
2001, and a parcel in Hanamaulu, Kauai, also in the first quarter of 2001.
However, the Company believes that, in the absence of additional land
sales, additional senior debt borrowings from Northbrook or its affiliates
will be necessary to meet its COLA related obligations and its short-term
and long-term liquidity needs.
As reflected in the Company's December 31, 2000, balance sheet,
approximately $187,095 of Senior Debt owed to affiliates of the Company is
categorized as a current liability. The classification as a current
liability results from defaults that occurred under such Senior Debt due to
actions taken by ERS to realize upon indebtedness owed to it by APIC, and
due to the adverse verdict in the Oahu Sugar V. Arakaki and Swift lawsuit
described under Item 3. "Legal Proceedings". Under the Restructuring
Agreement, effective as of December 29, 2000, among the Company, certain of
the Company's subsidiaries and certain holders of Senior Debt affiliated
with Northbrook, the parties have agreed that the defaults described above
shall continue but that the Senior Debt holders will not exercise their
remedies against the Company and its subsidiaries based upon those defaults
until either ERS obtains a judgment against or attempts to exercise
remedies against APIC or its assets or unless necessary to protect their
superior rights under the Senior Debt against the plaintiffs in the
Swift/Arakaki lawsuit. There can be no assurance that the Senior Debt
holders will not accelerate the Senior Debt, either because of actions by
ERS or the opponents in the Swift/Arakaki lawsuit or because of additional
defaults arising under the Senior Debt.
In the absence of additional land and business sales or financing from
third parties (which has generally not been obtainable), the Company
believes that additional Senior Debt borrowings from Northbrook or its
affiliates will be necessary to meet its short-term and long-term liquidity
needs. Northbrook and its affiliates have made such borrowings available to
the Company in the past (but are under no obligation to do so in the
future). In addition, there is no assurance that Northbrook or its
affiliates will have the financial capability or willingness to made such
funds available to the Company in the future. During the year ended
December 31, 2000, the Company borrowed approximately $5.6 million from
Northbrook for the Mandatory Base Interest payments related to the COLAs
due in 2000. During the year ended December 31, 2000, the Company borrowed
an additional $4.3 million from Northbrook to fund capitalizable property
development and agriculture disbursements. The borrowings were repaid with
interest in January 2001. To the extent that Northbrook or its affiliates
made such borrowings available to the Company during 2000, any such
borrowings were required to be (i) to be "Senior Indebtedness" (as defined
in the Indenture), (ii) to accrue interest at the rate of prime plus 1%,
and (iii) to have principal and interest fully repayable by February 28,
2001 (see Note 4 for a description of the amendments to such notes).
Moreover, as a condition to the additional Senior Debt loans made by
Northbrook and its affiliates commencing in 1999, the Company has agreed to
make all of the remaining unencumbered real and personal property assets of
the Company security for all of the Senior Debt held by Northbrook and its
affiliates. All such Senior Debt, which as of December 31, 2000 had an
outstanding balance of principal and accrued interest of approximately
$192.6 million, is senior in priority to the COLA's and is guaranteed by
each of the Registrants except Waikele Golf Club, Inc.
In recent years, the Company has funded its significant cash
requirements primarily through Senior Debt borrowings from Northbrook and
its affiliates and from revenues generated by the development and sale of
its properties. Significant short-term cash requirements relate to the
funding of agricultural deficits including shut down costs related to the
Lihue and Kekahu sugar plantations, interest expenses and overhead
expenses. At December 31, 2000, the Company had unrestricted cash and cash
equivalents of approximately $9.7 million. Such funds were used to pay
down certain Senior Debt advances in January 2001. The Company intends to
use its cash reserves to meet its short-term liquidity requirements
including its anticipated expenditures for project costs. However, there
can be no assurance that new financings can be obtained or property sales
completed if the current cash reserves fall short of the Company's short-
term liquidity needs.
The Company's land holdings on Maui and Kauai are its primary sources
of future land sale revenues. However, due to current market conditions,
the difficulty in obtaining land use approvals and the high development
costs of required infrastructure, the Company does not believe that it will
be able to generate significant amounts of cash in the short-term from the
development of these lands. As a result, the Company is also marketing
certain unentitled agricultural and conservation parcels to generate cash.
The Company has listed for sale the bulk of its remaining land
holdings on Kauai, which aggregate approximately 18,000 acres. Management
is exploring the possible sale of other parcels on Maui and Oahu with
prospects that the Company has identified through its own extensive network
of contacts in the real estate business. Additionally, it is well known
throughout the real estate industry in Hawaii that the Company has been
aggressively marketing and selling land and, thus, management receives a
significant number of direct inquiries from brokers and prospective
purchasers. From time to time certain of the Company's lands are under
contract for sale. However, the contracts typically have due diligence
investigation periods which allow the prospective purchasers to terminate
the agreements. There can be no assurance that any signed contracts for
sale will in fact close under the original terms and conditions or any
other terms or that the Company will be successful in selling the land at
an acceptable price.
During 2000, the Company generated $31.9 million from the sale of
approximately 1,700 acres on Maui and Kauai. These sales include $19.5
million from the sale of Lot 1 at North Beach Makai (December 2000), $7.0
million from the sales of Parcel 16 and Parcel 19/20 at Kaanapali Golf
Estates, $3.9 million from the sale of 1,600 acres of agriculture zoned
land on Maui and $1.5 million from various other land sales.
During 1999, the Company generated gross sale proceeds of $14.9
million from the sale of approximately 2,200 acres on Maui and Kauai,
including the sale of Kapaa 1400 on Kauai for $4.4 million (November 1999)
and the sale of a 17 acre parcel in Kaanapali Golf Estates on Maui for $4.5
million (October 1999).
During 1998, the Company generated gross sale proceeds of $41.3
million of land sales, of which approximately $16 million came from the
sale of the 6,700 acre Kealia parcel in June 1998. The Company received
$5.6 million in cash at closing, $5.6 million from subsequent installment
payments, and the remaining $4.8 million in March 1999. The sale of the
740-acre Olowalu parcel on Maui closed in September 1998 for a sales price
of $9.6 million, paid in full at closing. In November 1998, the Company
received approximately $7.7 million in cash from the sale of certain
property at the former Oahu Sugar millsite. The Company used a portion of
the proceeds to pay down $6 million on the Company's $10 million City Bank
loan and received a one-year extension on the repayment of the $4 million
remaining balance (as discussed below). Additionally in 1998, the Company
generated approximately $4.1 million of lot sales at Kaanapali Golf Estates
and approximately $3.0 million from the sales of primarily unentitled
agricultural and conservation land parcels on Kauai and Hawaii.
The Company's Property segment expended approximately $3.7 million,
$3.7 million and $7.0 million in project costs during 2000, 1999 and 1998,
respectively, and anticipates expending approximately $9.0 million in
project costs during 2001. As of December 31, 2000, contractual
commitments related to project costs totaled approximately $1.3 million.
However, the Company also has made a number of commitments to fund certain
infrastructure costs relating to the future construction of a new
Lahaina/Kaanapali bypass highway on Maui, that could require additional
significant expenditures in the longer term should such highway be built
(see discussion of Maui Infrastructure Costs above).
In December 1996, Amfac Property Development Corp. ("APDC"), a wholly-
owned subsidiary of the Company, obtained a $10 million loan facility from
City Bank. Prior to this time, APDC had obtained title to the mill site
property from Oahu Sugar in order to facilitate its development of a
subdivision. The loan is secured by a mortgage on property under
development at the Oahu Sugar mill-site (the sugar plantation was closed in
1995), and is "Senior Indebtedness" (as defined in the Indenture). The loan
originally was scheduled to mature on December 1, 1998. In November 1998,
APDC sold certain mill-site property which served as collateral for the $10
million City Bank loan for an approximate sales price of $7.7 million in
cash plus 2% of the gross sales price of subsequent parcel sales of all or
any portion of the property by the purchaser. The bank required $6 million
of the sales proceeds as a principal reduction on the loan in order to
release the collateral. APDC received a one-year extension on the $4
million remaining balance of the loan which is secured by another parcel at
the mill-site. The extended loan bore interest at the bank's base rate
plus 1.25% and was scheduled to mature on December 1, 1999. APDC has
reached an agreement with the bank for an additional one year extension on
$3 million of the $4 million loan. APDC made a $1 million loan payment on
December 2, 1999. The new extended loan bore interest at the bank's base
rate (9.5% at December 31, 2000) plus 1.25% and matured on December 1,
2000. In January 2001, APDC reached an agreement with the Bank for an
extension until December 1, 2001 with a principal payment of $.150 million
upon execution of the agreement. The newly extended loan bears interest at
the bank's base rate plus 2%. Upon maturity of the loan, it is not
expected that APDC will have the funds necessary to pay the remaining
balance of the loan without sale of the remaining millsite land. If such
loan cannot be further extended, it would likely result in APDC no longer
having an ownership interest in the property.
In September 1998, the Company purchased Tobishima Pacific, Inc.'s
("TPI") 50% ownership interest in the 96-acre beachfront parcel (commonly
referred to as Kaanapali North Beach) for $12.0 million. The Company paid
$2.4 million in cash and signed a note for $9.6 million. The note is
secured by a mortgage on the property and was in favor of TPI and is
"Senior Indebtedness" (as defined in the Indenture). The note was payable
in five annual installments in the principal amount of $1.9 million
beginning in September 1999. The note bore interest of 8.5% and is payable
quarterly. In January 1999, the Company paid TPI approximately $2.2
million on its note to release Lot #1 for the Kaanapali Ocean Resort and
the new 10-acre public recreation area at North Beach and an additional
$1.9 million in September 1999 as required under the terms of the note. In
October 2000, an affiliate of Northbrook purchased the note for the
outstanding principal and accrued interest aggregating approximately $5.6
million. The Company was negotiating to restructure the debt and the
affiliate agreed to defer the amounts due under the note until the
restructuring was complete. On December 29, 2000, the note was amended to
require quarterly interest payments beginning March 31, 2001 and two
scheduled principal payments of $2.7 each in September of 2002 and 2003
(see Note 4 for further description of such amendment).
Under a December 29, 2000, Restructuring Agreement, the Company and
certain of its subsidiaries agreed to terminate their prior tax agreement
so that the Company and its subsidiaries would be responsible for paying
their own income taxes on taxable income generated in 2001 and thereafter.
The Company and subsidiaries also agreed to make prepayments of certain
amounts on the Senior Debt notes of net property sale proceeds remaining
after providing reserves for anticipated cash needs for the 12 months
following the property sales. The Company and subsidiaries further agreed
to provide additional security for the Senior Debt. In exchange, the
Senior Debt holders agreed to release their liens on Company and subsidiary
properties to effectuate sales of properties, provided that there is no
default on the Senior Debt and provided that the sale realizes fair value.
The Senior Debt holders further agreed to modify for the Company's and the
subsidiaries' benefit the repayment provisions on some of the Senior Debt.
(See Note 4 for a further description of the Senior Debt.) The Senior Debt
holders also agreed to contribute to the Company's capital Senior Debt in
the amount of $15 million immediately and agreed to contribute an
additional $25 million of Senior Debt on December 31, 2006, if the new tax
agreement remains in effect at that time. Finally, the Senior Debt holders
agreed to contribute certain other amounts to the Company to fund a
significant portion of the costs associated with the shutdown of the Lihue
and Kekaha sugar operations, as described below.
Pursuant to the terms of the Restructuring Agreement, Northbrook agreed
that it would cause the Northbrook sponsored pension plan to distribute
amounts to fund certain of the Company's costs related to employee
termination that resulted from the shutdown of the remaining sugar
plantations on Kauai. Approximately $5.5 million of such costs were paid
in 2000 and contributed to capital by Northbrook. An additional $4.2
million of anticipated costs has been reflected as a liability in the
accompanying December 31, 2000 financial statements and will be contributed
to capital when the amounts are paid. The Restructuring Agreement also
required the Company to put aside $8 million as restricted cash for the
purpose, among other things, of meeting certain liabilities.
Lihue Plantation on Kauai suffered a breakdown of its power-generating
turbine in February 2000. The turbine repair costs were covered by
insurance (net of a $.5 million policy deductible) and the Company believes
that the lost profits are also covered by insurance (although there can be
no assurance that all of the lost profits will be so covered). Lihue
Plantation has completed the repair of the turbine and has incurred
expenditures of approximately $2.1 million in connection with the turbine
repair and certain other related expenditures. As of December 31, 2000,
Lihue Plantation has received $1.9 million in advances against the claim
from the insurance carriers.
2000 COMPARED TO 1999
During 2000, cash decreased $.3 million from December 31, 1999. Net
cash used in operating activities of $9.5 million and investing activities
of $5.0 million was partially offset by cash provided by financing
activities of $14.2 million.
During 2000, net cash flow used in operating activities was $9.5
million, as compared to $4.5 million net cash flow provided by operations
in 1999. The $13.5 million decrease in net cash flow provided by
operations was due primarily to (i) the increase in the operating loss
after adjustments for noncash items of $29.6 million in 2000 compared to
$18.4 million in 1999 primarily due to the $10.8 million increase in
agriculture operating loss primarily the result of losses incurred related
to sugar operations, (ii) an increase of $7.8 million in restricted cash in
2000 compared to a decrease of $1.0 million in 1999, (iii) a decrease in
receivables of $.01 million compared to a decrease of $10.3 million in 1999
(1999 receivables activity discussed below) and (iv) partially offset by a
decrease in inventory balances of $29.5 million in 2000 compared to $13.9
million in 1999 primarily due to the increased volume of land sales and a
decrease in agriculture inventory primarily the result of the shutdown of
sugar operations on Kauai in 2000.
During 2000, net cash flow used in investing activities was $5.0
million, as compared to $8 million provided in 1999. The $13.0 million
increase in cash used in investing activities was due to (i) a decrease in
cash provided from net property sales, disposal and retirements of $1.1
million in 2000 compared to $12.7 million in 1999 which included the stock
sale of Kaanapali Water Company and the asset sale of WIC's Waiahole ditch
in 1999 and (ii) an increase in other assets of $2.6 million in 2000
primarily due to expenditures related to future land sales compared to a
decrease in other assets of $.1 million in 1999.
During 2000, net cash flow provided by financing activities was $14.2
million, as compared to $27.2 million used in 1999. The $41.4 million
increase in cash provided from financing activities was due to (i) $40.3
million used in 1999 to redeem the Class B COLAS on June 1, 1999, (ii) $6.7
million used in 1999 to decrease long-term debt compared to $.3 million in
2000 and (iii) $14.5 million in cash advances from affiliates in 2000
compared to $21.2 million in 1999.
1999 COMPARED TO 1998
During 1999, cash decreased by $14.6 million from December 31, 1998.
Net cash provided by operating activities of $4.5 million and investing
activities of $8.0, was offset by cash used in financing activities of
$27.2 million.
During 1999, net cash flow provided by operating activities was $4.5
million, as compared to $6.8 million in 1998. The $2.3 million decrease in
cash flow provided by operating activities was due primarily to (i) a $13.9
million decrease in inventories during 1999 as compared to a decrease of
$46.9 million during 1998 due to the decrease in the volume of land sales
in 1999 and a decrease in agricultural inventories primarily as a result of
the shutdown of sugar operations at the Maui plantation and a decrease in
the acres planted at the Kauai plantations, (ii) a decrease of $2.2 million
in amounts due to affiliates as result of repayments to an affiliate
compared to a $1.6 million increase in 1998, (iii) a partial offset
resulting from a $10.3 million decrease in receivables in 1999 related
primarily to the collection of $7.6 million in receivables related to prior
year land sales and a $2.4 million decrease in receivables related to sugar
operations compared to the $6.5 million increase in receivables in 1998,
(iv) also partially offset by an increase in accrued expenses of $2.7
million as a result of provisions made for certain litigation matters
offset in part by a decrease in the interest accrued on the COLA notes, and
(v) an $13.5 million decrease in the Company's net loss (after adjusting
for items not requiring or providing cash) in 1999 as compared to 1998.
During 1999, net cash flow provided by investing activities was $8.0
million as compared to $15.8 million used during 1998. The $23.8 million
increase in net cash provided by investing activities was principally due
to (i) a $14.5 million decrease in property additions primarily due to the
1998 acquisition of Tobishima Pacific, Inc.'s 50% ownership interest in
North Beach (as discussed above), and (ii) a $12.2 million increase in net
property sales, disposals and retirement due primarily to the stock sale of
Kaanapali Water Corporation and the asset sale of WIC's Waiahole Ditch.
During 1999, net cash flow used in financing activities was $27.2
million compared to $26.6 million provided in 1998. The $53.8 million
decrease in cash provided from financing activities is due primarily to
$40.3 million cash used to redeem the Class B COLAs on June 1, 1999
(discussed below) offset in part by $21.3 million in cash advances from
affiliates compared to $24.8 million in cash advances from affiliates
during 1998 and a $6.7 million decrease in net long-term debt as compared
to a net increase of $1.9 million in 1998.
COLA RELATED OBLIGATIONS. As of December 31, 1998, the Company
redeemed the Class B COLAs that were "put" to a wholly-owned subsidiary of
Northbrook for repurchase in partial consideration for (a) the agreements
by the Company's affiliates, Fred Harvey Transportation Company ("Fred
Harvey") and AF Investors, to defer until December 31, 2001 all interest
accruing from January 1, 1998 through December 31, 2001 and relating to the
approximately $99,595 of Senior Indebtedness of the Company then owing to
Fred Harvey and the approximately $47.7 million of Senior Indebtedness of
the Company then owing to AF Investors (see below); and (b) Northbrook's
agreeing to cause approximately $55.1 million of the Company's indebtedness
that was senior to the COLAs to be contributed to the capital of the
Company. The redemption was completed on June 1, 1999. In connection with
the foregoing deferral of interest and contribution of capital, the Company
agreed to secure the Senior Debt held by Northbrook and its affiliates
substantially all assets of the Company to the extent such security was
requested by Northbrook and its affiliates and was permitted under any
other secured debt of the Company held by third parties. In connection
therewith, Northbrook and its affiliates have obtained, or are in the
process of obtaining mortgages or other security interests in substantially
all of the real and personal property of the Registrants other than the
golf course properties. As a result of the contribution, in the Company's
December 31, 1998 balance sheet, the "Amounts due to affiliates - Senior
Debt financing" were decreased, and the Company's "Member's equity
(deficit)" was increased, by approximately $55.1 million. The deferral of
interest, together with this contribution to capital, were made as part of
the Company's effort to alleviate significant liquidity constraints and
continue to meet the Value Maintenance Ratio requirement under the
Indenture. As discussed above, effective December 29, 2000, the Company
entered into a restructuring agreement with the certain other parties,
including the holders of the Senior Debt by which Northbrook made
additional capital contributions to the Company to total approximately $25
million (including approximately $10.0 million related to employee
termination costs) and agreed to contribute an additional portion of the
Senior Debt to the Company, with a balance of principal and interest of $25
million as of such date, on December 31, 2006, so long as the new tax
agreement entered into under the Restructuring Agreement is still in force.
The COLAs were issued in units consisting of one Class A COLA and one
Class B COLA. As of December 31, 2000, the Company had approximately
155,271 Class A COLAs and approximately 123,554 Class B COLAs outstanding,
with a principal balance of approximately $78 million and $62 million,
respectively. At December 31, 2000, the cumulative interest paid per
Class A COLA and Class B COLA was approximately $245 and $245,
respectively.
As of December 31, 1998, under the terms of the Indenture, the Company
elected to offer to redeem (the "Class B COLA Redemption Offer") all
Class B COLAs from the registered holders, thereby eliminating AJF's
Class B COLA repurchase obligation with respect to such holders as of
June 1, 1999. Pursuant to the Class B COLA Redemption Offer mailed on
March 15, 1999 to the COLA holders, and in accordance with the terms of the
Indenture, the Company was therefore obligated to purchase any and all
Class B COLAs submitted pursuant to the Class B COLA Redemption Offer at a
price of $410 per Class B COLA.
The Class B COLA Redemption Offer terminated on April 15, 1999 in
accordance with its terms and with the Indenture. Approximately 162,559
Class B COLAs were submitted for repurchase pursuant to the Class B
Redemption Offer of which approximately 98,229 Class B COLAs were submitted
for repurchase by persons unaffiliated with the Company and which required
an aggregate cash payment by the Company of approximately $40.3 million on
June 1, 1999. On June 1, 1999, the Company borrowed approximately $21.3
million from AF Investors to redeem a portion of the Class B COLAs pursuant
to the Class B COLA Redemption Offer. Pursuant to the terms of the
Indenture, such amount borrowed from AF Investors is Senior Indebtedness
that matures on December 31, 2008 and bears interest at a rate per annum of
prime (9.50% at December 31, 2000) plus 1% (see deferral of interest
discussion - Note 4). Additional interest may be payable on such Senior
Indebtedness upon its maturity based upon fair market value, if any, of the
Company's equity at that time. AF Investors submitted approximately 64,330
of its 89,325 Class B COLAs for repurchase pursuant to the Class B
Redemption Offer and AF Investors agreed to take back Senior Debt of the
Company of approximately $26.4 million in lieu of cash. Such Senior
Indebtedness matures on December 31, 2008 and bears interest at a rate per
annum equal to the prime rate (9.50% at December 31, 2000) plus 1% (see
deferral of interest discussion - Note 4). Additional interest may be
payable on such Senior Indebtedness upon its maturity based upon the fair
market value, if any, of the Company's equity at that time. AF Investors'
Class B COLAs were contributed by Amfac Finance Limited Partnership ("Amfac
Finance"), an Illinois Limited partnership and an affiliate of the Company,
to AF Investors in December 1998.
As a result of the Class B COLA repurchases, the Company retired
approximately $81.3 million face value of COLA debt and correspondingly
recognized a financial statement gain of approximately $14.6 million of
which $8.8 million was attributable to the retirement of COLA debt held by
persons unaffiliated with the Company. Such financial statement gain was
reduced by applicable income taxes of approximately $7.2 million, the
write-off of an applicable portion of deferred financing costs and other
expenses of approximately $3.8 million increased by the reversal of
previously accrued deferred contingent base interest of approximately $7.6
million resulting in a financial statement extraordinary gain of approxi-
mately $11.3 million. The tax payable on the gain (approximately $2.0
million) related to the Class B COLAs which were submitted for repurchase
by persons unaffiliated with the Company pursuant to the Class B COLA
Redemption Offer is not indemnified under the tax agreement with Northbrook
effective with respect to such year (see Note 1).
On January 30, 1998, Amfac Finance extended a tender offer to purchase
(the "Class B Tender Offer") up to $65.4 million principal amount of
separately certificated Class B COLAs ("Separate Class B COLAs") for cash
at a unit price of $375 to be paid by Amfac Finance on each Separate
Class B COLA tendered on or about March 24, 1998. The maximum cash to be
paid under the Class B Tender Offer was approximately $49.0 million
(130,842 Separate Class B COLAs at a unit price of $375 each).
Approximately 62,857 Separate Class B COLAs were submitted to Amfac Finance
for repurchase pursuant to the Class B Tender Offer, requiring an aggregate
payment by Amfac Finance of approximately $23.6 million on March 31, 1998.
In addition, on October 23, 1998, Amfac Finance extended a Tender Offer to
purchase (the "Class A/B Tender Offer") up to approximately $22.5 million
principal amount of jointly certificated Class A and B COLAs (together
"COLA Units") for cash at a unit price of $460 to be paid by Amfac Finance
on each COLA Unit on or about December 23, 1998. The maximum cash to be
paid under the Class A/B Tender Offer was approximately $12.2 million
(26,600 COLA Units at a unit price of $460 for each COLA Unit).
Approximately 26,468 COLA Units were submitted to Amfac Finance for
repurchase pursuant to the Class A/B Tender Offer, requiring an aggregate
payment by Amfac Finance of approximately $12.2 million on December 23,
1998. Neither the Class B nor the Class A/B Tender Offer reduced the
outstanding indebtedness of the Company. In December 1998, Amfac Finance
contributed its COLAs to AF Investors. The COLAs still held by AF
Investors remain outstanding pursuant to the terms of the Indenture.
Except as provided in the last sentence of this paragraph, AF Investors is
entitled to the same rights and benefits of any other holder of COLAs. As
discussed above, AF Investors submitted approximately 64,330 of its 89,325
Class B COLAs for repurchase pursuant to the Class B COLA Redemption Offer.
AF Investors agreed to take back senior debt of the Company for the portion
of Class B COLAs so put in lieu of cash. Because AF Investors is an
affiliate of the Company, AF Investors will not be able to participate in
determining whether the holders of the required principal amount of debt
under the Indenture have concurred in any direction, waiver or consent
under the terms of the Indenture.
As a result of the Class B and Class A/B Tender Offers, the Company
recognized approximately $7.9 million and $14.3 million, respectively, of
taxable gain in accordance with income tax regulations for certain
transactions with affiliates. Such gain is treated as cancellation of
indebtedness income for income tax purposes only and, accordingly, the
income taxes related to the Class B Tender Offer (approximately $3.1
million) and Class A/B Tender Offer (approximately $5.7 million) were, or
will be, indemnified by Northbrook through the tax agreement between
Northbrook and the Company effective with respect to such year (see
Note 1).
Subsequent to the completion of the Class B COLA Redemption Offer and
the Class B and Class A/B Tender Offers, the Company has continued to
experience significant operating losses, which have made it necessary for
the Company to raise cash by selling certain land parcels and incurring in
the interim additional Senior Debt made available by Northbrook. Such
sales have been conducted during a period when local real estate markets
were not strong and often the land sold was not entitled. Such factors
have had a material adverse effect on the Company's liquidity and equity
value. Even through the Restructuring Agreement discussed above provided
the Company with cash flow relief and a reduction in the amount of Senior
Debt outstanding, the holders of the COLAs and the Company's equity holders
remain subordinated to a significant amount of indebtedness. Thus, there
can be no assurance that in the event of a liquidation of the Company in
the short term, such COLA holders and equity holders would realize proceeds
from such a liquidation.
Pursuant to the terms of the Indenture, the Company is required to
maintain a Value Maintenance Ratio (defined in the Indenture) of 1.05 to
1.00. Such ratio is equal to the relationship of the Company's Net Asset
Value to the sum of: (i) the outstanding principal amount of the COLAs,
(ii) any unpaid Base Interest that is required to be paid, and (iii) the
outstanding principal balance of any Indebtedness incurred to redeem COLAs
(the "COLA Obligation"). Net Asset Value represents the excess of the Fair
Market Value (as defined in the Indenture) of the gross assets of the
Company over the liabilities of the Company other than the COLA obligations
and certain other liabilities. The COLA Indenture requires the Company to
obtain independent appraisals of the fair market value of the gross assets
used to calculate the Value Maintenance Ratio as of December 31 in each
even-numbered calendar year.
The Company has decided to forego contracting for independent
appraisals to determine the appraised value of substantially all of its
assets as of December 31, 2000. Not obtaining appraisals, with the
resultant inability to provide an Officers' Certificate determining the
Value Maintenance Ratio, could become an event of default, as defined by
the Indenture, should the holders of a majority of COLA principal notify
the Trustee that such holders consider such non-compliance with the
Indenture to be an event of default or should the Trustee declare an event
of default. Should an event of default result, and if left uncured for a
period of thirty days, the COLAs would become immediately due and payable.
Such event would likely cause many of the Company's other obligations to go
into default. Among other things, if the COLAs become immediately due and
payable, all Senior Debt of Northbrook and its affiliates would become
immediately due and payable.
The Company uses the effective interest method and as such interest on
the COLAs is accrued at the Mandatory Base Interest rate (4% per annum).
The Company has not generated a sufficient level of Net Cash Flow to incur
or pay Contingent Base Interest (interest in excess of 4%) on the COLAs
(see Note 5) from 1990 through 2000. Contingent Base Interest through 2008
is due and payable only to the extent of Net Cash Flow. Net Cash Flow for
any period is generally an amount equal to 90% of the Company's net cash
revenues, proceeds and receipts after payment of cash expenditures,
excluding federal and state income taxes and after the establishment by the
Company of reserves. At December 31, 2008, certain levels of Contingent
Base Interest may also be due and payable to the extent of Maturity Market
Value. Maturity Market Value generally means 90% of the excess of the Fair
Market Value of the Company's assets at maturity over its liabilities,
including Qualified Allowance (described below), but only to the extent
earned and payable from Net Cash Flow generated through maturity) at
maturity. Approximately $91.9 million of cumulative deficiency of deferred
Contingent Base Interest related to the period from August 31, 1989 (Final
Issuance Date) through December 31, 2000 has not been accrued in the
accompanying consolidated financial statements as the Company believes that
it is not probable at this time that a sufficient level of Net Cash Flow
will be generated in the future or that there will be sufficient Maturity
Market Value as of December 31, 2008 (the COLA maturity date) to pay any
such unaccrued deferred Contingent Base Interest. The following table is a
summary of Mandatory Base Interest and deferred Contingent Base Interest
(i.e. not currently due and payable) for the years ended December 31, 2000,
1999 and 1998 (dollars are in millions):
2000 1999 1998
------ ------ ------
Mandatory Base Interest paid . . . . . . . $ 5.6 7.2 8.8
Contingent Base Interest due and paid. . . -- -- --
Cumulative deferred Contingent Base
Interest . . . . . . . . . . . . . . . . $ 91.9 83.5 120.7
Net Cash Flow was $0 for 2000, 1999 and 1998.
Cumulative deferred Contingent Base Interest as discussed above is
calculated based upon the face amount of Class A and Class B COLAs
outstanding. The face amount of COLAs outstanding decreased to
approximately $139.4 million at December 31, 1999 from approximately $220.7
million at December 31, 1998 resulting from the retirement of approximately
$81.3 million face of COLAs pursuant to the Class B COLA Redemption Offer
discussed below, and accordingly, the Cumulative deferred Contingent Base
Interest decreased from $120.7 million at December 31, 1998 to $83.5
million at December 31, 1999.
With respect to any calendar year, JMB Realty Corporation ("JMB"), an
affiliate of the Company, or its affiliates may receive a Qualified
Allowance in an amount equal to 1.5% per annum of the Fair Market Value of
the gross assets of the Company (other than cash and cash equivalents and
certain other types of assets as provided for in the Indenture) for
providing certain advisory services to the Company. The aforementioned
advisory services, which are provided pursuant to a 30-year Services
Agreement entered into between the Company and JMB in November 1988,
include making recommendations in the following areas: (i) the construction
and development of real property; (ii) land use and zoning changes; (iii)
the timing and pricing of properties to be sold; (iv) the timing, type and
amount of financing to be incurred; (v) the agricultural business; and (vi)
the uses (agricultural, residential, recreational or commercial) for the
land. For the years 1999, 2000 and 2001, JMB has agreed that the amount of
the Qualified Allowance to be calculated shall not exceed the lesser of the
amount described in the preceding sentence and $5 million. As the Fair
Market Value was not determined as of December 31, 2000, no Qualified
Allowance is considered to result for 2000 unless and until such amount may
be determined in the future. However, the Qualified Allowance shall be
earned and paid for any year prior to maturity of the COLAs only if the
Company generates sufficient Net Cash Flow to pay Base Interest for such
year in an amount equal to 8%. Any portion of the Qualified Allowance not
paid for any year shall cumulate without interest and JMB or its affiliates
shall be paid such deferred amount in succeeding years, only after the
payment of all Contingent Base Interest for such succeeding year and then,
only to the extent that Net Cash Flow exceeds levels specified in the
Indenture.
A Qualified Allowance for 1989 of approximately $6.2 million was paid
on February 28, 1990. Approximately $79.1 million of Qualified Allowance
related to the period from January 1, 1990 through December 31, 2000 has
not been earned and paid, and is payable only to the extent that future Net
Cash Flow is sufficient. Accordingly, because the Company does not believe
it is probable at this time that a sufficient level of Net Cash Flow will
be generated in the future to pay the Qualified Allowance, the Company has
not accrued for any Qualified Allowance payments in the accompanying
consolidated financial statements. JMB has informed the Company that no
incremental costs or expenses have been incurred relating to the provision
of these advisory services. The Company believes that using an incremental
cost methodology is reasonable. The following table is a summary of the
Qualified Allowance for the years ended December 31, 2000, 1999 and 1998
(dollars are in millions):
2000 1999 1998
------ ------ ------
Qualified Allowance calculated . . . . . . $ -- 5.0 9.8
Qualified Allowance paid . . . . . . . . . -- -- --
Cumulative deficiency of
Qualified Allowance at
end of year. . . . . . . . . . . . . . . $ 79.1 79.1 74.1
After the maturity date of the COLAs, JMB will continue to provide
advisory services pursuant to the Services Agreement, the Qualified
Allowance for such years will continue to be 1.5% per annum of the Fair
Market Value of the gross assets of the Company and its subsidiaries, and
the Qualified Allowance will continue to be payable from the Company's Net
Cash Flow. Upon the termination of the Services Agreement, if there has not
been sufficient Net Cash Flow to pay the cumulative deficiency in the
Qualified Allowance, if any, such amount would not be due or payable to
JMB.
Upon maturity, holders of COLAs will be entitled to receive the
remaining outstanding principal balance of the COLAs plus unpaid Mandatory
Base Interest plus additional interest equal to certain levels of unpaid
Contingent Base Interest, to the extent of the Maturity Market Value of the
Company's assets at maturity over its liabilities (including Qualified
Allowance, but only to the extent earned and payable from Net Cash Flow
generated through maturity) at maturity, which liabilities have been
incurred in connection with its operations), plus 55% of the remaining
Maturity Market Value. The Company does not anticipate that cash flow or
market value levels will result in any amounts accruing to the benefit of
the COLA holders, primarily as a result of the significant amount of Senior
Indebtedness.
RESULTS OF OPERATIONS
GENERAL:
AHI and its subsidiaries report its taxes as a part of the
consolidated tax return for Northbrook. Through December 31, 2000, AHI and
its subsidiaries had entered into a tax indemnification agreement with
Northbrook, which indemnified AHI and its subsidiaries for all past,
present and future federal and state income tax liabilities (other than
income taxes which are directly attributable to cancellation of
indebtedness income caused by the repurchase or redemption of securities as
provided for in or contemplated by the Repurchase Agreement). For taxable
years commencing in 2001 and thereafter, AHI and Northbrook entered into a
tax sharing agreement in December 2000 effectively providing that AHI will
be responsible for its federal and state income tax liability on its
separate company taxable income.
Current and deferred taxes have been allocated to the Company as if
the Company were a separate taxpayer in accordance with the provisions of
SFAS No. 109 - Accounting for Income Taxes. However, to the extent the tax
indemnification agreement did not require the Company to actually pay
income taxes, current taxes payable or receivable (excluding income taxes
which are directly attributable to cancellation of indebtedness income
caused by the repurchase or redemption of securities as provided for in or
contemplated by the Repurchase Agreement) have been reflected through
December 31, 2000 as deemed contributions to additional paid-in
capital/member's equity (deficit) or distributions from related earnings
(deficit)/member's equity (deficit) in the accompanying consolidated
financial statements.
SENIOR DEBT. Interest expense increased for the year ended
December 31, 2000 as compared to the year ended December 31, 1999 due to an
increased senior debt financing from affiliates balance attributable to new
Senior Debt fundings and interest on deferred interest amounts. Interest
expense decreased for the year ended December 31, 1999 as compared to the
year ended December 31, 1998 due to Northbrook's contribution of senior
debt to capital discussed above.
The following table sets forth operating results by industry segment
(see Note 12), for the years indicated (in 000's):
2000 1999 1998
-------- -------- --------
Agriculture Segment:
Revenues. . . . . . . . . . . . . . . $ 22,283 30,074 34,551
Cost of sales . . . . . . . . . . . . 41,207 37,885 33,534
-------- ------- -------
(18,924) (7,811) 1,017
Operating Expenses:
Reduction in carrying value of
assets in sugar operations. . . . . (22,000) -- --
Other . . . . . . . . . . . . . . . . (3,501) (4,160) (5,066)
-------- ------- -------
Operating loss . . . . . . . . . . . . . (44,425) (11,971) (4,049)
-------- -------- --------
Golf Segment:
Revenues. . . . . . . . . . . . . . . 14,990 14,832 14,485
Cost of sales . . . . . . . . . . . . 9,177 8,867 9,911
-------- ------- -------
5,813 5,965 4,574
Operating expenses. . . . . . . . . . (1,929) (1,926) (1,861)
-------- ------- -------
Operating income. . . . . . . . . . . 3,884 4,039 2,713
-------- ------- -------
Property Segment:
Revenues. . . . . . . . . . . . . . . 37,850 22,181 49,642
Cost of sales . . . . . . . . . . . . 33,209 17,221 57,657
-------- ------- -------
4,641 4,960 (8,015)
Operating expenses:
Reduction to carrying value of
investments in real estate. . . . (15,853) (11,360) (16,805)
Other . . . . . . . . . . . . . . . (6,076) (5,761) (7,290)
-------- ------- -------
Operating loss. . . . . . . . . . . . (17,288) (12,161) (32,110)
-------- ------- -------
Unallocated operating expenses
(primarily overhead). . . . . . . . . (1,557) (1,760) (2,349)
-------- ------- -------
Total operating loss . . . . . . . . . . . $(59,386) (21,853) (35,795)
======== ======= =======
The variances in the above-noted results of operations for the
Agriculture segment, Golf segment and the Property segment are discussed in
the following sections.
AGRICULTURE SEGMENT:
The Company's Agriculture segment has been responsible for activities
related to the cultivation, processing and sale of sugar cane, coffee and
diversified agriculture. Agriculture's revenues were primarily derived from
the Company's sale of its raw sugar. Reference is made to the "Liquidity
and Capital Resources" section of "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a discussion of the
shutdown of the Company's remaining sugar operations on Kauai.
As part of the Company's agriculture operations, the Company entered
into commodities futures contracts and options in raw sugar as deemed
appropriate to reduce the risk of future price fluctuations. These futures
contracts and options were accounted for as hedges and, accordingly, gains
and losses were deferred and recognized in cost of sales as part of the
production cost. The Company closed all of its futures and options
contracts prior to the end of 2000.
2000 COMPARED TO 1999
During 2000 and 1999, agriculture revenues were $22.3 and $30.0
million, respectively.
Agriculture revenues decreased in 2000 as compared to 1999 due to the
decrease in tons of sugar sold of approximately 53,000, a 29% decrease over
the same period in 1999. This decrease in tons is partially due to the
shutdown of sugar operations at Pioneer Mill, which completed its final
harvest in September 1999, the decrease in tons produced and the timing of
sugar production deliveries. The average price per ton of sugar sold for
2000 of approximately $327 represents a 6% decrease over the average price
during 1999. The Company harvested 9,402 and 14,579 acres during 2000 and
1999, respectively.
Agriculture cost of sales increased in 2000 as compared to 1999
primarily due to employment related termination costs related to the
shutdown of sugar operations on Kauai in 2000.
The increase in the operating loss of $44.4 million during 2000 as
compared to $12 million during 1999, is due primarily to a reduction in the
carrying value of assets in sugar operations of $22 million and employment
related termination costs of $10 million associated with the shutdown of
sugar operations on Kauai in 2000. Additional factors attributed to the
increase in the operating loss is the decrease in the average price of
sugar sold and the decrease in tons of sugar sold and produced without a
commensurate decrease in expenses.
1999 COMPARED TO 1998
Agricultural revenues and cost of sales decreased in 1999 as compared
to the 1998 due to the decrease in tons sold. During 1999, the Company
sold approximately 75,000 tons of sugar, a 14% decrease over the same
period in 1998 due in part to the timing of deliveries of raw sugar to
California and Hawaiian Sugar Company. The average price of sugar sold
during 1999 of approximately $348 represents a 4% decrease over the average
price during 1998. The Company harvested approximately 14,600 and 9,700
acres during 1999 and 1998, respectively.
The increase in the operating loss of $12.0 million during 1999 as
compared to $4.0 million during 1998, reflects costs associated with the
shutdown of sugar operations at certain of the Company's plantations and
the decrease in the average price of sugar sold.
GOLF SEGMENT:
The Company's golf segment is responsible for the management and
operation of the two Kaanapali Golf Courses in Kaanapali, Maui and the
Waikele Golf Club on Oahu. As of December 31, 2000, the Company owns or
has a minority interest investment in the three golf courses.
2000 COMPARED TO 1999
Golf revenues were $15 million during 2000 compared to $14.8 million
during 1999. Approximately 184,000 rounds of golf were played during 2000
compared to 187,000 rounds during 1999. Golf revenues increased slightly
during 2000 over 1999 despite the decrease in rounds played, primarily due
to an increase in the average rate per round of approximately 8%.
Golf cost of sales were $9.2 million during 2000 compared to $8.9
million during 1999. Golf operating expenses of $1.9 million during 2000
and 1999, consisted primarily of depreciation expense.
Golf operating income of $3.9 million during 2000 remained relatively
unchanged from $4.0 million during 1999.
1999 COMPARED TO 1998
Golf revenues were $14.8 million during 1999 as compared to $14.5
million during 1998. Approximately 187,000 rounds of golf were played
during 1999 and 1998.
Golf cost of sales were $8.9 million during 1999 as compared to $9.9
million during 1998. The decrease in cost of sales is primarily due to the
capitalization of certain leases. Golf operating expenses of $1.9 million
during 1999 and 1998, consisted primarily of depreciation expense.
The increase in the operating income of $4.0 million during 1999 as
compared to $2.7 million during 1998 was due primarily to the increase in
revenues and decrease in cost of sales (as discussed above).
PROPERTY SEGMENT:
The Company's Property segment is responsible for land planning and
development activities; obtaining land use, zoning and other governmental
approvals; and selling or financing developed and undeveloped land parcels.
2000 COMPARED TO 1999
Revenues increased to $37.9 million during 2000 from $22.2 million
during 1999 primarily due to an increase in revenues from land sales of
$31.9 million during 2000 compared to $14.9 million during 1999. Land
sales during 2000 included $19.5 million from the sale of Lot 1 at North
Beach Makai on Maui, $7.0 million from the sales of Parcel 16 and
Parcel 19/20 at Kaanapali Golf Estates, $3.9 million from the sale of 1,600
acres of agriculture zoned land on Maui and $1.5 million from various other
land sales. Land sales during 1999 are discussed below.
During 2000, property cost of sales were $33.2 million as compared to
$17.2 million during 1999. The $16.0 million increase was due primarily to
the increase in land sales discussed above.
Property operating expenses were $6.1 million and $5.8 million for
2000 and 1999, respectively, and consisted primarily of employment costs
and other general and administrative expenses.
The Company reduced its carrying value in certain land parcels,
primarily on the island of Kauai, by $15.9 million during 2000 compared to
a valuation reduction of $11.4 million during 1999 for parcels on Oahu,
Maui and Kauai. As a result, the Property operating loss increased to
$17.2 million during 2000 compared to $12.2 million in 1999.
1999 COMPARED TO 1998
Revenues decreased to $22.2 million during 1999 from $49.6 million
during 1998. Revenues included land sales during 1999 of approximately
$14.9 million from the sale of approximately 2,200 acres on Maui and Kauai.
Land sales during 1998 included approximately $16 million from the sale of
the 6,700 acre Kealia parcel on Kauai, $9.6 million from the sale of the
740 acre Olowalu parcel on Maui, $4.1 million of land sales related to
Kaanapali Golf Estates, $7.7 million from the sale of certain mill-site
property at the Company's former Oahu Sugar Plantation and $3.9 million
primarily from the sale of various other land parcels on Oahu, Kauai and
Hawaii.
During 1999, property cost of sales were $17.2 million as compared to
$57.7 million during 1998. The $40.5 million decrease in costs was due
primarily to a decrease in sales volume associated with land parcels sold
(as discussed above).
Appraisals were performed for substantially all of the assets of the
Company as of December 31, 1998 which reflected a decline in value for
certain properties. Certain of the assets appraised as of December 31,
1998 are properties that are either being actively marketed by the Company
or properties for which the Company intends to sell in the near future.
Four of the land parcels expected to be disposed of by the Company within
the next two years, having a cost basis of approximately $20.2 million,
were estimated by the Company to have a total fair market value (less costs
to sell) of approximately $13.2 million as of December 31, 1998.
Accordingly, the Company recorded a $7 million loss in the fourth quarter
of 1998 related to these properties. Additionally, the Company reduced its
carrying value of one of its land parcels in the fourth quarter of 1998 by
$9.8 million to properly reflect the estimated market value of this land
parcel.
INFLATION
Due to the lack of significant fluctuations in the level of inflation
in recent years, inflation generally has not had a material effect on real
estate development.
In the future, high rates of inflation may adversely affect real
estate development generally because of their impact on interest rates.
High interest rates not only increase the cost of borrowed funds to the
Company, but can also have a significant effect on the affordability of
permanent mortgage financing to prospective purchasers. However, high rates
of inflation may permit the Company to increase the prices that it charges
in connection with real property sales, subject to general economic
conditions affecting the real estate industry and local market factors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's future earnings, cash flows and fair values relevant to
financial instruments are dependent upon prevalent market rates. Market
risk is the risk of loss from adverse changes in market prices and interest
rates. The Company manages its market risk by matching projected cash
inflows from operating properties, financing activities, and investing
activities with projected cash outflows to fund debt payments, capital
expenditures and other cash requirements. The Company's primary risk
exposure is to interest rate risk. The Company does not enter into
financial instruments for trading purposes.
The Company's long-term debt arrangements are both fixed and variable
rate. Based upon the Company's indebtedness and interest rates at
December 31, 2000, a 1% increase in market rates would decrease future
earnings and cash flows by approximately $2.1 million. A 1% decrease in
market rates would increase future earnings and cash flows by approximately
$2.1 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMFAC HAWAII, LLC
INDEX
Report of Independent Auditors
Consolidated Balance Sheets, December 31, 2000 and 1999
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Member's Equity (Deficit) for
the years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
SCHEDULE
Valuation and Qualifying Accounts . . . . . . . . . II
Schedules not filed:
All schedules other than the one indicated in the index have been
omitted as the required information is inapplicable or the information is
presented in the financial statements or related notes.
REPORT OF INDEPENDENT AUDITORS
The Member
AMFAC HAWAII, LLC
(formerly Amfac/JMB Hawaii, L.L.C.)
We have audited the accompanying consolidated balance sheets of Amfac
Hawaii, LLC as of December 31, 2000 and 1999, and the related consolidated
statements of operations, member's equity (deficit), and cash flows for
each of the three years in the period ended December 31, 2000. Our audits
also included the financial statement schedule listed in the Index at Item
8. These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Amfac Hawaii, LLC at December 31, 2000 and 1999, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more fully
described in the accompanying consolidated financial statements, the
Company has incurred recurring operating losses and has member's deficit of
approximately $210 million at December 31, 2000. The Company continues to
face a severe liquidity shortage and is subject to contingent cash
expenditures, including environmental and other matters (see Note 10).
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these
matters, including the need to complete additional land or business sales,
are also described in Note 10. The consolidated financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
ERNST & YOUNG LLP
Honolulu, Hawaii
March 30, 2001.
AMFAC HAWAII, LLC
Consolidated Balance Sheets
December 31, 2000 and 1999
(Dollars in Thousands)
A s s e t s
-----------
2000 1999
-------- --------
Current assets:
Cash and cash equivalents. . . . . . . . . . . $ 9,660 9,977
Receivables - net. . . . . . . . . . . . . . . 2,648 2,905
Inventories. . . . . . . . . . . . . . . . . . 47,177 31,741
Prepaid expenses . . . . . . . . . . . . . . . 120 1,623
Escrow deposits and restricted funds . . . . . 8,784 954
-------- --------
Total current assets . . . . . . . . . . 68,389 47,200
-------- --------
Investments. . . . . . . . . . . . . . . . . . . -- 40
-------- --------
Property, plant and equipment:
Land and land improvements . . . . . . . . . . 153,650 253,352
Machinery and equipment. . . . . . . . . . . . 44,251 62,210
Construction in progress . . . . . . . . . . . 469 488
-------- --------
198,370 316,050
Less accumulated depreciation
and amortization . . . . . . . . . . . . . . 47,282 44,896
-------- --------
151,088 271,154
Deferred expenses. . . . . . . . . . . . . . . . 5,299 6,384
Other assets . . . . . . . . . . . . . . . . . . 27,511 34,916
-------- --------
$252,287 359,694
======== ========
L i a b i l i t i e s
---------------------
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . $ 5,823 6,955
Accrued expenses . . . . . . . . . . . . . . . 13,419 9,400
Current portion of long-term debt. . . . . . . 3,286 5,184
Current portion of deferred income taxes . . . 3,027 1,481
Debt in default. . . . . . . . . . . . . . . . -- 73,004
Amounts due to affiliates. . . . . . . . . . . 12,660 12,076
Amounts due to affiliates - Senior Debt
financing. . . . . . . . . . . . . . . . . . 187,095 832
-------- --------
Total current liabilities. . . . . . . . 225,310 108,932
-------- --------
Amounts due to affiliates - Senior Debt
financing. . . . . . . . . . . . . . . . . . . 5,460 172,133
Accumulated postretirement benefit obligation. . 41,433 47,775
Long-term debt . . . . . . . . . . . . . . . . . 23,735 27,557
Other long-term liabilities. . . . . . . . . . . 15,092 16,851
Deferred income taxes. . . . . . . . . . . . . . 4,174 52,550
Certificate of Land Appreciation Notes . . . . . 139,413 139,413
-------- --------
Total liabilities. . . . . . . . . . . . 454,617 565,211
-------- --------
Commitments and contingencies (notes 3, 4, 5, 6, 7, 8, 9, and 10)
Investment in unconsolidated entity,
at equity. . . . . . . . . . . . . . . . . . . 7,628 --
AMFAC HAWAII, LLC
Consolidated Balance Sheets - Continued
M e m b e r ' s E q u i t y ( D e f i c i t )
-------------------------------------------------
2000 1999
-------- --------
Member's equity (deficit). . . . . . . . . . . . (209,958) (205,517)
-------- --------
Total member's equity (deficit). . . . . (209,958) (205,517)
-------- --------
$252,287 359,694
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
AMFAC HAWAII, LLC
Consolidated Statements of Operations
Years ended December 31, 2000, 1999 and 1998
(Dollars in Thousands)
2000 1999 1998
-------- -------- --------
Revenues:
Agriculture. . . . . . . . . . . . $ 22,283 30,074 34,551
Property . . . . . . . . . . . . . 37,850 22,181 49,642
Golf . . . . . . . . . . . . . . . 14,990 14,832 14,485
-------- -------- --------
75,123 67,087 98,678
-------- -------- --------
Cost of sales:
Agriculture. . . . . . . . . . . . 41,207 37,885 33,534
Property . . . . . . . . . . . . . 33,209 17,221 57,657
Golf . . . . . . . . . . . . . . . 9,177 8,867 9,911
-------- -------- --------
83,593 63,973 101,102
Operating expenses:
Selling, general and
administrative . . . . . . . . . 8,470 7,951 9,994
Depreciation and amortization. . . 4,593 5,656 6,572
Reduction to carrying value of
long-lived assets. . . . . . . . 37,853 11,360 16,805
-------- -------- --------
Total costs and expenses . . 134,509 88,940 134,473
-------- -------- --------
Operating loss . . . . . . . (59,386) (21,853) (35,795)
-------- -------- --------
Non-operating income (expenses):
Amortization of deferred costs . . (1,120) (1,029) (1,238)
Interest income. . . . . . . . . . 85 785 976
Interest expense . . . . . . . . . (35,086) (29,089) (33,437)
-------- -------- --------
(36,121) (29,333) (33,699)
-------- -------- --------
Loss before taxes and
extraordinary item . . . . . . (95,507) (51,186) (69,494)
Income tax benefit . . . . . . . (43,708) (20,048) (27,759)
-------- -------- --------
Loss before extraordinary
item . . . . . . . . . . . (51,799) (31,138) (41,735)
Extraordinary gain from
extinguishment of debt
(less applicable income
taxes of $7,203) . . . . . . . -- 11,265 --
-------- -------- --------
Net loss . . . . . . . . . . $(51,799) (19,873) (41,735)
======== ======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
AMFAC HAWAII, LLC
Consolidated Statements of Member's Equity (Deficit)
Years ended December 31, 2000, 1999 and 1998
(Dollars in Thousands)
Total
Stock- Total
Retained holder's Member's
Common Paid-In Earnings Equity Equity
Stock Capital (Deficit) (Deficit) (Deficit)
------ ------- --------- --------- ---------
Balance,
December 31,
1997. . . . . . $ 1 14,384 (205,274) (190,889) --
Conversion to
limited
liability
Company . . . . (1) (14,384) 205,274 190,889 (190,889)
Net loss . . . . -- -- -- -- (41,735)
Capital distri-
bution - current
income taxes
(note 11) . . . -- -- -- -- (335)
Contribution of
certain senior
debt financing. -- -- -- -- 55,148
-------- -------- -------- -------- ---------
Balance,
December 31,
1998. . . . . . -- -- -- -- (177,811)
Net loss . . . . -- -- -- -- (19,873)
Capital distri-
bution - current
income taxes
(note 11) . . . -- -- -- -- (7,833)
-------- -------- -------- -------- ---------
Balance,
December 31,
1999. . . . . . -- -- -- -- (205,517)
Net loss . . . . -- -- -- -- (51,799)
Capital distri-
bution - current
income taxes
(note 11) . . . -- -- -- -- (11,754)
Contribution of
certain senior
debt financ-
ing (notes 4
and 9). . . . . -- -- -- -- 15,000
Contribution of
employee costs
(note 9). . . . -- -- -- -- 5,454
Spinoff of
subsidiary
(note 3). . . . -- -- -- -- 38,658
-------- -------- -------- -------- ---------
Balance,
December 31,
2000. . . . . . $ -- -- -- -- (209,958)
======== ======== ======== ======== =========
The accompanying notes are an integral part
of the consolidated financial statements.
AMFAC HAWAII, LLC
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
(Dollars in Thousands)
2000 1999 1998
-------- -------- --------
Cash flows from operating activities:
Net income (loss). . . . . . . . . $(51,799) (19,873) (41,735)
Items not requiring (providing) cash:
Depreciation and amortization. . 4,593 5,656 6,572
Amortization of deferred costs . 1,120 1,029 1,238
Equity in earnings of
investments. . . . . . . . . . 40 -- 81
Income tax benefit . . . . . . . (43,708) (12,845) (27,759)
Extraordinary gain from
extinguishment of debt . . . . -- (18,468) --
Reduction to carrying value of
long-lived assets . . . . . . . 37,853 11,360 16,805
Deferred interest. . . . . . . . 2,318 607 794
Interest on advances from
affiliates . . . . . . . . . . 19,937 14,115 15,355
Other long-term liabilities. . . -- -- (3,288)
Changes in:
Restricted cash. . . . . . . . . (7,830) 969 144
Decrease in cash related to
deconsolidated subsidiary. . . (155) -- --
Receivables - net. . . . . . . . 10 10,343 (6,505)
Inventories. . . . . . . . . . . 29,567 13,853 46,879
Prepaid expenses . . . . . . . . 134 425 600
Accounts payable . . . . . . . . (649) 182 484
Accrued expenses . . . . . . . . 4,494 2,727 (1,102)
Amounts due to affiliates. . . . 1,100 (2,243) 1,591
Other long-term liabilities. . . (6,554) (3,319) (3,386)
-------- -------- --------
Net cash provided by
(used in) operating
activities . . . . . . . . (9,529) 4,518 6,768
-------- -------- --------
Cash flows from investing activities:
Property additions . . . . . . . . (3,010) (3,054) (17,596)
Property sales, disposals and
retirements - net. . . . . . . . 1,061 12,671 514
Other assets . . . . . . . . . . . (2,588) 59 2,031
Other long-term liabilities. . . . (472) (1,670) (798)
-------- -------- --------
Net cash provided by
(used in) investing
activities . . . . . . . . (5,009) 8,006 (15,849)
-------- -------- --------
Cash flows from financing activities:
Payment to redeem and purchase
Certificate of Land
Appreciation Notes (COLAs) . . . . -- (40,274) --
Deferred expenses. . . . . . . . . . (42) (90) (43)
Current portion of long-term debt. . 22 (1,174) --
Net amounts due to affiliates. . . . 14,523 21,318 24,828
Net (repayments) proceeds of
long-term debt . . . . . . . . . . (282) (6,683) 1,851
Other costs related to extin-
guishment of debt. . . . . . . . . -- (247) --
-------- -------- --------
AMFAC HAWAII, LLC
Consolidated Statements of Cash Flows - Continued
2000 1999 1998
-------- -------- --------
Net cash provided by
(used in) financing
activities . . . . . . . . 14,221 (27,150) 26,636
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents . . . . . . (317) (14,626) 17,555
Cash and cash equivalents,
beginning of year. . . . . . . . 9,977 24,603 7,048
-------- -------- --------
Cash and cash equivalents,
end of year. . . . . . . . . . . $ 9,660 9,977 24,603
======== ======== ========
Supplemental disclosure of cash
flow information:
Cash paid for interest (net
of amount capitalized). . . . . . $ 12,553 14,974 17,436
======== ======== ========
Schedule of non-cash investing
and financing activities:
Transfer of property actively
held for sale to real estate
inventories and accrued costs
relating to real estate sales . $ 45,003 15,824 15,180
======== ======== ========
Activity due to spinoff of
subsidiary:
Reduction in current assets. . $ (728) -- --
Reduction in property,
plant & equipment. . . . . . (45,557) -- --
Reduction in current
liabilities. . . . . . . . . 1,952 -- --
Reduction in debt in default . 75,322 -- --
Reduction in deferred tax
liability. . . . . . . . . . 14,876 -- --
Reduction in other assets/
liabilities. . . . . . . . . 421 -- --
Establishment of investment
in unconsolidated entity,
at equity. . . . . . . . . . (7,628) -- --
-------- -------- --------
Net contribution to member's deficit $ 38,658 -- --
======== ======== ========
Contribution of Senior
Debt Financing . . . . . . . . . $ 15,000 -- --
======== ======== ========
Contribution of amounts due to
affiliates related to
employee costs . . . . . . . . . $ 5,454 -- --
======== ======== ========
AMFAC HAWAII, LLC
Consolidated Statements of Cash Flows - Continued
2000 1999 1998
-------- -------- --------
Disposition of debt:
Gain on extinguishment of debt . . $ -- 18,468 --
Face value of debt extinguished. . -- (81,279) --
Other costs related to
extinguishment of debt . . . . . -- 247 --
Issuance of Senior Debt to
affiliate. . . . . . . . . . . . -- 26,375 --
Write-off of Contingent Base
Interest . . . . . . . . . . . . -- (7,624) --
Write-off of deferred COLA
costs. . . . . . . . . . . . . . -- 3,539 --
-------- -------- --------
Cash paid to redeem
and purchase COLAs . . . . $ -- (40,274) --
======== ======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF ACCOUNTING
Amfac Hawaii, LLC ("AHI", and collectively with the Additional
Registrants, as their respective interests may appear, the "Company") is a
Hawaii limited liability company. AHI is wholly-owned by Northbrook
Corporation, a Delaware corporation ("Northbrook"). AHI filed in March
2001 to change its name from Amfac/JMB Hawaii, L.L.C. to Amfac Hawaii LLC
and expects the change to be finalized in the second quarter of 2001. The
primary business activities of the Company are land development and sales,
golf course management and agriculture. The Company owns, as of the date
of this report, approximately 24,000 acres of land primarily located on the
islands of Maui and Kauai in the State of Hawaii. Most of this land is
held by the Company's wholly-owned subsidiaries. In addition to its owned
lands, the Company leases approximately 4,000 acres of land that was
primarily used in conjunction with its agricultural operations. The
Company's operations are subject to significant government regulation.
AHI is the successor to Amfac/JMB Hawaii, Inc. ("A/J Hawaii"). On
March 3, 1998, A/J Hawaii was merged (the "Merger") with and into the
Company pursuant to an Agreement and Plan of Merger dated February 27, 1998
(the "Merger Agreement") by and between A/J Hawaii and the Company (which
was then named Amfac/JMB Mergerco, L.L.C.). The Merger was consummated to
change AHI's form of entity from a corporation to a limited liability
company. AHI was a nominally capitalized limited liability company which
was formed on December 24, 1997, solely for the purpose of effecting the
Merger. AHI succeeded to all the assets and liabilities of A/J Hawaii in
accordance with the Hawaii Business Corporation Act and the Hawaii Uniform
Limited Liability Company Act. In addition, AHI, A/J Hawaii, The First
National Bank of Chicago (the "Trustee") and various guarantors entered
into a Second Supplemental Indenture dated as of March 1, 1998, pursuant to
which AHI expressly assumed all obligations of A/J Hawaii under the
Indenture dated as of March 14, 1989, as amended (the "Indenture") by and
among A/J Hawaii, the Trustee and the guarantors named therein and the
holders of Certificates of Land Appreciation Notes due 2008 Class A (the
"Class A COLAs") and the Certificates of Land Appreciation Notes Class B
(the "Class B COLAs" and, collectively, with the Class A COLAs the
"COLAs"). The Merger did not require the consent of the holders of the
COLAs under the terms of the Indenture. AHI has succeeded to A/J Hawaii's
reporting obligations under the Securities Exchange Act of 1934, as
amended. Unless otherwise indicated, references to the Company prior to
March 3, 1998 shall mean A/J Hawaii and A/J Hawaii's subsidiaries.
AHI will continue until at least December 31, 2027, unless earlier
dissolved. AHI's sole member (Northbrook) is not obligated for any debt,
obligation or liability of the Company. However, AHI and certain
additional subsidiaries are obligated to Northbrook and its affiliates for
the repayment of substantial loans and advances made to them.
The Company has three primary business segments. The agriculture
segment ("Agriculture") is responsible for the Company's activities related
to the cultivation and processing of sugar cane (the Company's remaining
sugar plantations were shut down at the end of 2000) and other agricultural
products. The real estate segment ("Property") is responsible for
development and sales activities related to the Company's owned land, all
of which is in the State of Hawaii. The golf segment ("Golf") is
responsible for the management and operation of the Company's golf course
facilities.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Effective December 28, 2000, a subsidiary of Northbrook made a capital
contribution in return for 83.33% of the shares of Amfac Property
Investment Corp. ("APIC"). Accordingly, the Company records its investment
in APIC on the equity method of accounting as of December 31, 2000. (See
note 3.)
STATEMENT OF CASH FLOWS
The Company's policy is to consider amounts held with original
maturities of three months or less in U.S. government obligations,
certificates of deposit and money market funds (approximately $8,550 and
$9,000 at December 31, 2000 and 1999, respectively) as cash equivalents
that are reflected at cost, which approximates market. In addition,
restricted cash represents cash ($8,784 and $954 at December 31, 2000 and
1999, respectively), which was restricted primarily to fund, among other
things, certain liabilities, and debt service on long-term debt (related to
the acquisition of power generation equipment).
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"),
"Disclosures about Fair Value of Financial Instruments", requires entities
to disclose the SFAS No. 107 value of certain on-and off-balance sheet
financial instruments for which it is practicable to estimate. Value is
defined in SFAS No. 107 as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. The Company believes the carrying amounts of
its financial instruments classified as current assets and liabilities
(except for Senior Debt) in its balance sheet approximate SFAS No. 107
value due to the relatively short maturity of these instruments. The
Company considers the disclosure of the SFAS 107 value of the loans secured
by the golf courses and the Senior Debt to be impracticable. SFAS No. 107
states that quoted market prices are the best evidence of the SFAS No. 107
value of financial instruments, even for instruments traded only in thin
markets. On March 15, 1999, pursuant to the indenture that governs the
terms of the COLAs (the "Indenture"), the Company elected to exercise its
right to redeem, and therefore was obligated to purchase, any and all
Class B COLAs submitted pursuant to the Class B COLA Redemption Offer at a
price of $.410 per Class B COLA (see note 5). The Class B COLA Redemption
Offer expired on June 1, 1999. Since such expiration, the secondary market
for COLAs has been extremely limited. Since June 1, 1999, a limited number
of COLA units have been sold in transactions arranged by brokers for
amounts ranging from approximately $.100 to $.350 per Class B COLA and from
approximately $.270 to $.505 per combined Class A and Class B COLA. Based
on the range of transactions since June 1, 1999 and the number of COLAs
outstanding (with a per unit carrying value of $1.0 and a total carrying
value of $139,413 at December 31, 2000 and 1999 in the accompanying
consolidated financial statements), the implied SFAS No. 107 value of the
COLAs would range from approximately $55,000 to $124,000. However, due to
restrictions on prepayment and redemption as specified in the COLA
Indenture, as well as the methodology used to determine such value, the
Company does not believe that it would be able to refinance or repurchase
all of its outstanding COLA units as of December 31, 2000 and 1999 at this
value. Reference is made to note 5 for results of the Class B COLA
Redemption.
INVENTORY CAPITALIZATION AND RECOGNITION OF REVENUE FROM THE SALE OF SUGAR
The Company capitalizes all of the expenditures incurred in bringing
crops to their existing condition and location. Such capitalized
expenditures included those costs related to the planting, cultivation and
growing of sugar cane formerly grown on the agricultural properties of the
Company and other agricultural crops. Inventory reflected in the
accompanying consolidated balance sheets at December 31, 2000 and 1999,
which includes $2,287 and $6,308, respectively, related to agricultural
operations, is not in excess of its estimated net realizable value.
Reductions in the estimated net realizable value of unsold sugar are
recognized when anticipated. In determining the net realizable value of
unsold sugar, the price the Company uses is based upon the domestic price
of sugar. The Company recognizes revenue and related cost of sales upon
delivery of its raw sugar to the California and Hawaii Sugar Company
("C&H").
The price of raw sugar that the Company receives is based upon the
price of domestic sugar (less delivery and administrative costs) as
currently controlled by U.S. Government price support legislation. On
April 4, 1996, President Clinton signed the Federal Agriculture Improvement
and Reform Act of 1996 ("the Act"). The Act, which expires in 2002, sets a
target price range for raw sugar. The target raw sugar price established by
the government, is supported primarily by the setting of quotas to restrict
the importation of raw sugar to the U.S.
As part of the Company's agriculture operations, the Company formerly
entered into commodities futures contracts and options in sugar as deemed
appropriate to reduce the risk of future price fluctuations in sugar.
During 2000, the Company closed all of its futures and options contracts.
INVESTMENTS
Investments in certain partnerships and joint ventures, if any, over
which the Company exercises significant influence are accounted for by the
equity method. To the extent the Company engages in such activities as
general partner, the Company is contingently liable for the obligations of
its partnership and joint venture investments.
LAND DEVELOPMENT
Project costs associated with the acquisition, development and
construction of real estate projects are capitalized and classified as
construction in progress. Such capitalized costs are not in excess of the
project's estimated fair value as reviewed periodically or as considered
necessary. In addition, interest is capitalized to qualifying assets during
the period that such assets are undergoing activities necessary to prepare
them for their intended use. Such capitalized interest is charged to cost
of sales as revenue from the real estate development is recognized.
Interest costs of approximately $273, $1,010 and $766 have been capitalized
for the years ended 2000, 1999 and 1998, respectively.
Land actively held for sale and any related development costs
transferred from construction in progress are reported as inventories in
the accompanying consolidated balance sheets and are stated at the lower of
cost or fair value less costs to sell.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standard Board issued
Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"),
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded
on long-lived assets used in operation when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be
disposed of. Land held for sale of approximately $44,772 and $25,022 is
included in inventory in the accompanying consolidated balance sheet at
December 31, 2000 and 1999 and is carried at the lower of cost or fair
value less cost to sell.
During the fourth quarter of 2000 and 1999, the Company reduced the
carrying value of certain land parcels which it expects to dispose of
within the next year and recorded a $15,853 and $11,360 loss, respectively,
to reflect the estimated market value of those parcels.
In accordance with the provisions of the Indenture (as described in
Note 5), appraisals were performed for certain assets of the Company as of
December 31, 1998, which reflected a decline in value for certain
properties. Certain of the assets appraised as of December 31, 1998 were
properties that were either being actively marketed by the Company or
properties which the Company intended to sell in the near future. Four of
the land parcels expected to be disposed of by the Company within the
following two years, having a cost basis of approximately $20,193, were
estimated by the Company to have a total fair market value (less costs to
sell) of approximately $13,188 as of December 31, 1998. Accordingly, the
Company recorded a $7,005 loss in the fourth quarter of 1998 related to
these properties. Additionally, the Company reduced its carrying value of
one of its land parcels in the fourth quarter of 1998 by $9,800 to properly
reflect the estimated market value of this land parcel.
EFFECTIVE INTEREST
For financial reporting purposes, the Company uses the effective
interest rate method and accrued interest on the COLAs at 4% per annum
("Mandatory Base Interest") for the years ended December 31, 2000, 1999 and
1998.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
based on the straight-line method over the estimated economic lives of
20-40 years for land improvements and 3-18 years for machinery and
equipment, or the lease term, whichever is less. Maintenance and repairs
are charged to operations as incurred. Renewals and significant betterments
and improvements are capitalized and depreciated over their estimated
useful lives.
In the third quarter 2000, the Company reduced its carrying value of
certain property, plant and equipment formerly used in its sugar operations
and recorded a $22,000 loss to reflect the estimated market value of such
assets.
DEFERRED EXPENSES
Deferred expenses consist primarily of financing costs related to the
COLAs. Such costs are being amortized over the term of the COLAs on a
straight-line basis.
RECOGNITION OF PROFIT FROM REAL PROPERTY SALES
For real property sales, profit is recognized in full when the
collectibility of the sales price is reasonably assured and the earnings
process is virtually complete. When the sale does not meet the requirements
for full profit recognition, a portion of the profit is deferred until such
requirements are met.
INCOME TAXES
The Company and its subsidiaries report their taxes as part of the
consolidated tax return of the Company's parent, Northbrook. Through
December 31, 2000, AHI and its subsidiaries were parties to a tax
indemnification agreement with Northbrook in which Northbrook indemnifies
AHI and its subsidiaries for responsibility for all past, present and
future federal and state income tax liabilities (other than income taxes
which are directly attributable to cancellation of indebtedness income
caused by the repurchase or redemption of securities as provided for in or
contemplated by the Repurchase Agreement). For taxable years commencing in
2001 and thereafter, AHI and Northbrook entered into a tax sharing
agreement in December 2000 effectively providing that AHI will be
responsible for its federal and state income tax liability on its separate
company taxable income.
Northbrook's tax returns have been examined by the Internal Revenue
Service (the "IRS") for the period 1992-1994, and deficiencies were
proposed by the IRS. Northbrook and the IRS have settled all open tax
issues related to the period 1992 through 1994, the result of which
requires no expenditures by the Company. The Company's income tax benefit
for the year ended December 31, 2000 includes the effects of such
settlement on its liability for deferred income taxes. Northbrook's tax
returns for the periods 1995-1997 are currently being examined. The
statutes of limitations with respect to Northbrook's tax returns for the
years 1995 through 1999 remain open. The Company is a subsidiary of
Northbrook and accordingly is subject to tax liability exposure due to the
several nature of the liability for the payment of taxes for entities
filing consolidated tax returns.
Current and deferred taxes have been allocated to the Company as if
the Company were a separate taxpayer in accordance with the provisions of
SFAS No. 109-Accounting for Income Taxes. However, to the extent the tax
indemnification agreement for the period through December 31, 2000 does not
require the Company to actually pay income taxes, current taxes payable or
receivable have been reflected as deemed contributions to additional
paid-in capital/member's equity (deficit) or distributions to retained
earnings (deficit)/member's equity (deficit) in the accompanying
consolidated financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
RECLASSIFICATIONS
Certain amounts in the December 31, 1998 and 1999 financial statements
have been reclassified to conform to the December 31, 2000 presentation.
Such reclassifications have not affected net loss or the deficiency in
member's deficit.
(2) ASSETS AND LIABILITIES INFORMATION
2000 1999
-------- --------
Receivables - net:
Trade accounts and notes
(net of allowance) . . . . . . . . . . . . $ 539 864
Sugar and molasses . . . . . . . . . . . . . 852 390
Other. . . . . . . . . . . . . . . . . . . . 1,257 1,651
-------- --------
$ 2,648 2,905
======== ========
2000 1999
-------- --------
Accrued expenses:
Payroll and benefits . . . . . . . . . . . . $ 5,052 1,162
Interest . . . . . . . . . . . . . . . . . . 2,060 1,905
Other. . . . . . . . . . . . . . . . . . . . 6,307 6,333
-------- --------
$ 13,419 9,400
======== ========
(3) INVESTMENTS
Effective December 28, 2000, AF Investors, LLC ("AF Investors"), a
subsidiary of Northbrook, made a capital contribution to APIC in return for
83.33% of the shares of APIC. Immediately prior to AF Investors' capital
contribution, APIC was a wholly-owned subsidiary of AHI. APIC owns and
operates the Royal Kaanapali Golf Courses. APIC's principal assets and
liabilities included the related Employees' Retirement System of the State
of Hawaii ("ERS") debt of approximately $75,000, a deferred tax liability
of approximately $15,000 and property, plant and equipment of approximately
$45,000. AHI's 16.67% investment in APIC is recorded on the equity method
of accounting as of December 31, 2000 and as a result, the assets and
liabilities of APIC are no longer included in the consolidated balance
sheet as of December 31, 2000. AHI's interest in APIC is reflected as of
December 31, 2000 as Investment in unconsolidated entity, at equity. The
net losses related to the golf course operations (including related
interest charges) of $2,332, $2,577 and $3,917 for the years ended
December 31, 2000, 1999 and 1998, respectively, are included in the net
loss in the consolidated statements of operations. In future periods, the
ownership interest in APIC's operations will be reflected on the equity
method of accounting. The Company recorded a non-cash contribution to
member's deficit of approximately $39,000 in 2000 to reflect the change in
accounting for the investment in APIC to the equity method.
APIC's principal liability, the ERS loan, is secured by the two
Kaanapali golf courses and is non-recourse as to principal payments. Due
to insufficient cash flow generated by the two Kaanapali golf courses and
because of disagreements with the lender over, among other things, lender's
failure to grant required easements, the Company did not pay the required
interest payments due in 2000 on the loan secured by these golf courses.
The lender issued a default notice. Pursuant to an agreement between the
lender and the Company, the Company paid approximately $3.8 million in
September 2000 to the lender for a portion of the past due interest amounts
and the lender had agreed to temporarily suspend its action to realize upon
its security until March 26, 2001. This date has not been extended.
Subsequent to September 2000 through the date of this report, additional
payments aggregating approximately $1.7 million have been made to the
lender. APIC is currently pursuing renegotiation of the loan. (See
note 6).
(4) AMOUNTS DUE AFFILIATES - SENIOR DEBT FINANCING
Amounts due to affiliates - Senior Debt financing consisted of the
following at December 31, 2000 and 1999:
2000 1999
------- -------
Prime plus 2% promissory note; payable to
Northbrook (as successor in interest
to Fred Harvey); payable quarterly on
the 15th day of February, May, August
and November; interest deferred until
December 31, 2006; outstanding principal
and interest balance due February 17,
2007 (see (a)) . . . . . . . . . . . . . . . . $ 25,016 --
2000 1999
------- -------
Prime plus 2% promissory note; payable to
Fred Harvey; payable quarterly on the 15th
day of February, May, August and November;
interest deferred until December 31, 2002
when one-third is due and payable with the
remaining deferred interest is payable 50%
on December 31, 2003 and 50% on December 31,
2004; outstanding principal and interest
balance due February 17, 2007 subject,
under certain conditions, to earlier payment
from proceeds of land sales (see (a)). . . . . 96,019 --
Prime plus 2% promissory note; payable to
Fred Harvey; payable quarterly on the 15th
day of February, May, August and November;
interest deferred until December 31, 2001;
outstanding principal and interest balance
due February 17, 2007 (replaced in
December 2000) (see (a)) . . . . . . . . . . . -- 121,775
Prime plus 1% promissory note; payable to
AF Investors; payable quarterly on the 15th
day of February, May, August and November;
interest deferred until December 31, 2003;
deferred interest payable 50% on
December 31, 2003 and 50% on December 31,
2004; outstanding principal and interest
balance due December 31, 2008 (as amended
December 29, 2000) subject, under certain
conditions, to earlier payment from proceeds
of land sales (see (b)). . . . . . . . . . . . 30,792 27,831
Prime plus 1% promissory note; payable to
AF Investors; payable quarterly on the 15th
day of February, May, August and November;
interest deferred until December 31, 2003;
deferred interest payable 50% on December 31,
2003 and 50% on December 31, 2004; outstand-
ing principal and interest balance due
December 31, 2008 (as amended December 29,
2000) subject, under certain conditions,
to earlier payment from proceeds of land
sales (see (b)). . . . . . . . . . . . . . . . 24,922 22,527
Prime plus 1% promissory note; payable to
Northbrook; payable quarterly on the last
day of February, May, August and November;
outstanding principal and interest balance
due February 28, 2001 subject, under
certain conditions, to earlier payment
from proceeds of land sales (as amended
December 29, 2000); paid down to a zero
balance in January 2001 (see (c)). . . . . . . 5,720 --
Prime plus 1% promissory note; payable to
Northbrook; payable quarterly on the last
day of February, May, August and November;
outstanding principal and interest balance
due on demand but not earlier than
February 28, 2001 subject, under certain
conditions, to earlier payment from
proceeds of land sales (as amended
December 29, 2000); paid down to a
zero balance in January 2001 (see (c)) . . . . 4,386 --
2000 1999
------- -------
8.5% promissory note: payable
to NB Holdings - VI, Inc; interest only
payable quarterly beginning March 31,
2001; payable on demand, but if no
demand previously given, then principal
payments of $2,730 due September 2002
and 2003 and any outstanding principal and
interest due September 2003 (as amended
December 29, 2000) (see (d)) . . . . . . . . . 5,700 --
Prime plus 3.5% promissory note; payable to
AF Investors; payable quarterly; outstanding
principal and interest balance due
October 2, 2000; paid in full in October
2000 (see (e)) . . . . . . . . . . . . . . . . -- 832
-------- --------
Total Senior Debt. . . . . . . . . . . . . . 192,555 172,965
Less current portion of Senior Debt. . . . . 187,095 832
-------- --------
Total long-term Senior Debt. . . . . . . . . $ 5,460 172,133
======== ========
AHI has issued certain Certificate of Land Appreciation Notes due 2008
Class A (the "Class A COLAs") and Certificate of Land Appreciation Notes
Class B (the "Class B COLAs", and, collectively with the Class A COLAs, the
"COLAs") pursuant to an Indenture dated March 14, 1989 (the "Indenture")
(see note 5). Under the Indenture, the Company is entitled to borrow
certain amounts from affiliates and third parties that qualify as "Senior
Indebtedness" under the Indenture and are senior in priority to the
repayment of the COLAs. Such "Senior Indebtedness" that is due and owing
to Northbrook and its affiliates from time to time is referred to in these
notes as the "Senior Debt". Commencing in August 1989 and from time to
time thereafter, Northbrook (or its predecessor in interest, Amfac, Inc.),
and certain of its affiliates, have made Senior Debt advances to the
Company.
(a) In February 1997, the then outstanding balance of the Senior
Debt, was consolidated under a single $104,759 ten year promissory note,
payable to Northbrook. In addition, in February 1997, the Company borrowed
additional amounts from Northbrook's affiliate Fred Harvey Transportation
Company ("Fred Harvey") under a $30,000 revolving credit note. In 1998,
the $104,759 note was replaced by two nine-year notes: (i) a $99,595 note,
and (ii) a $15,000 note (with an initial balance of $7,920). The $99,595
note was transferred by Northbrook to Fred Harvey in 1998, and later in
1998, Fred Harvey sold the $30,000 note to Northbrook. These notes were
payable interest only until maturity, had a maturity date of February 17,
2007 and accrued interest at the prime rate plus 2%.
As of December 31, 1998, AHI agreed to exercise its option to redeem
Class B COLAs that would be "put" to AMFAC/JMB Finance, Inc. ("AJF") for
repurchase in partial consideration for (a) the agreement by Fred Harvey to
defer until December 31, 2001 all interest accruing from January 1, 1998
through December 31, 2001 relating to the $99,595 note discussed above;
(b) the agreement of AF Investors, another affiliate of Northbrook, to
accept Senior Debt in lieu of cash for those COLAs it held that it intended
to put and to defer interest accruing on such Senior Debt and any other
Senior Debt it may thereafter hold relative to the put of the COLAs in the
same manner as the Fred Harvey Senior Debt (see below); and (c) Northbrook
agreeing to cause approximately $55,148 of the Senior Debt that it held to
be contributed to the capital of the Company (including the $15,000 note
and $30,000 note, identified above, together with accrued interest
thereon). In connection with the foregoing deferral of interest and
contribution of capital, the Company agreed to provide Northbrook and its
affiliates with security for the Senior Debt held by them. Such security
consists of mortgages on real property owned by the Company, pledges of
stock of AHI's direct and indirect subsidiaries, and security interests on
such other unencumbered assets of the Company and its subsidiaries as
Northbrook and its affiliates holding such Senior Debt may request. As of
the date of this report, Northbrook and its affiliates hold mortgages on
substantially all of the real property of the Company except for the
existing golf course properties. The deferral of interest, together with
this contribution to capital, were made as part of the Company's effort to
alleviate significant liquidity constraints and continue to meet the Value
Maintenance Ratio requirement under the Indenture.
On December 29, 2000, the $99,595 note (which then had an outstanding
balance of principal and interest of $135,959) was split into two notes:
(i) a note with an outstanding balance of principal and interest as of such
date of $40,000 which was transferred to Northbrook and subsequently
Northbrook contributed $15,000 to AHI's capital leaving an outstanding
balance of principal and interest of $25,000, and (ii) a note with an
outstanding balance of principal and interest of $95,959 which remains
payable to Fred Harvey. These notes are payable interest only until
maturity, have a maturity date of February 17, 2007, accrue interest at the
prime rate (9.5% at December 31, 2000) plus 2%. The $25,000 note defers
interest until December 31, 2006. The $95,959 note defers interest until
December 31, 2002 at which time one-third of such deferred interest is due,
with the remainder of previously deferred interest payable one-half on
December 31, 2003, and one-half on December 31, 2004. Prepayment may be
required of net property sale proceeds remaining after providing reserves
for anticipated cash needs for the twelve months following the property
sales.
(b) In connection with the "put" discussed above, on May 25, 1999,
the Company borrowed approximately $21,318 from AF Investors, to redeem a
portion of the Class B COLAs pursuant to the Class B COLA Redemption Offer
(see Note 5). Additionally, as of May 31, 1999, AF Investors submitted
Class B COLAs pursuant to the Class B Redemption Offer and agreed to take
back senior debt in the amount of $26,375 from the Company in lieu of cash.
Pursuant to the terms of the Indenture, such amounts borrowed from AF
Investors constitute Senior Debt that matures on December 31, 2008 and
bears interest at a rate per annum of prime (9.50% at December 31, 2000)
plus 1%. Interest on such senior Debt was deferred through December 31,
2001, as discussed above. In December 2000, the Company and AF Investors
modified the note to, among other things, defer interest through
December 31, 2003, with one-half of such deferred interest payable on such
date and the remainder payable on December 31, 2004. Prepayment may be
required of net property sale proceeds remaining after providing reserves
for anticipated cash needs for the twelve months following the property
sales. Additional interest may be payable on such Senior Debt upon its
maturity based upon fair market value, if any, of the Company's equity at
that time.
(c) In 2000, the Company borrowed approximately $5,576 from
Northbrook for purposes of satisfying the Mandatory Base Interest payment
related to the COLAs due in 2000. During 2000, the Company borrowed an
additional $4,300 to fund certain capitalizable property development and
agriculture disbursements. Such Senior Debt was originally scheduled to
mature on December 31, 2000, but its maturity date was extended (in
September 2000) to not earlier than February 28, 2001. It bears interest
at a rate per annum equal to prime (9.50% at December 31, 2000) plus 1%, is
guaranteed by the Company and is also to be secured by assets of the
Company. The notes evidencing such borrowings were amended in certain
respects effective December 29, 2000 to, among other things, make them
demand notes. Prepayment may be required of net property sale proceeds
remaining after providing reserves for anticipated cash needs for the
twelve months following the property sales. Such notes were paid down to
zero by the Company in January 2001, but remain available to fund further
advances for such purposes at Northbrook's election.
(d) In September 1998, the Company purchased Tobishima Pacific,
Inc.'s ("TPI") 50% ownership interest in the 96-acre beachfront parcel
(commonly referred to as Kaanapali North Beach) for $12,000. The Company
paid $2,400 in cash and signed a note for $9,600. The note is secured by a
mortgage on the property and was in favor of TPI and is "Senior Indebted-
ness" (as defined in the Indenture). The note was payable in five annual
installments in the principal amount of $1,920 beginning in September 1999.
The note bore interest of 8.5% and is payable quarterly. In January 1999,
the Company paid TPI approximately $2,220 on its note to release Lot #1 for
the Kaanapali Ocean Resort and the new 10-acre public recreation area at
North Beach and an additional $1,920 in September 1999 as required under
the terms of the note. In October 2000, an affiliate of Northbrook
purchased the note for the outstanding principal and accrued interest
aggregating approximately $5,585. The Company was negotiating to
restructure the debt and the affiliate agreed to defer the amounts due
under the note until the restructuring was complete. On December 29, 2000,
the note was amended to require quarterly interest payments beginning
March 31, 2001 with principal payable on demand; provided, that if no
demand is previously made, the amendment contains two scheduled principal
payments of $2,730 each in September of 2002 and 2003.
(e) In October 1999, AF Investors paid approximately $808 to assume
the lender's position in the loan to The Lihue Plantation Company, Limited
("Lihue") which was originally used to fund the acquisition of Lihue's
power generation equipment. The loan had an outstanding balance of $808 on
the date of the loan transfer and bears interest at the rate equal to prime
plus three and one half percent. The loan was secured by the Lihue power
generation equipment, sugar inventories and receivables, certain other
assets and real property of the Company, had limited recourse to the
Company and was Senior Debt. This loan was satisfied in full in October
2000.
The total amount due Northbrook and its subsidiaries for Senior Debt
financing as of December 31, 2000 was $192,555 which includes accrued and
deferred interest to affiliates on Senior Debt of approximately $43,734.
Under the terms of the Indenture, the amounts borrowed from Northbrook or
its affiliates are "Senior Indebtedness" and are thus senior in priority to
the COLAs.
At current interest rates, approximately $64,918 of such deferred
interest relating to all Senior Debt existing prior to the modification
would have become due and payable on December 31, 2001 and is now deferred
beyond such date. Even though the agreements by Northbrook and its
affiliates to further defer interest under the Senior Debt may assist the
Company in the completion of potential future development activities, there
can be no assurance that the Company will either have unrestricted cash
available or have the ability to refinance such obligation at such times
amounts become payable under Senior Debt as restructured. Failure to meet
such obligation, if called, would cause all Senior Debt owing to
Northbrook, Fred Harvey, AF Investors or other Northbrook affiliates to be
immediately due and payable. A default on Senior Debt of such magnitude
would constitute an event of default under the Indenture.
The Company has received a notice from each of the holders of the
Senior Debt notifying the Company that all Senior Debt is currently in
default due to the existence of other defaults or circumstances that
constitute events of default under the Senior Debt, including, without
limitation (i) the failure of the Company to make quarterly interest
payments on the loan from the ERS related to their $66,000 loan secured by
the Royal Kaanapali Golf Courses; and (ii) the entry of, and failure of the
Company to satisfy or otherwise stay, the judgment rendered against the
Company in Oahu Sugar Company, Limited v. Walter Arakaki and Steve Swift
(see note 10). Such holders have notified the Company that they have
reserved all rights and are assessing their options respecting the Senior
Debt. Pursuant to the restructuring agreement entered into on December 29,
2000, between the Company and certain other parties including the holders
of the Senior Debt, such holders have agreed that they shall not exercise
any remedies respecting the defaults expressed in such notices unless and
until (a) the ERS obtains a judgment against, or attempts to exercise any
remedies against, or against the asset of the Company relative to the ERS
loan (and in the case of the legal proceedings against Walter Arakaki and
Steve Swift identified above, such remedies shall be exercised only to the
extent necessary for such holders to protect their superior rights under
the Senior Debt), or (b) any other creditor of the Company obtains a
judgment against, or attempt to exercise any remedies against the assets of
the Company. There can be no assurance that such holders will not
ultimately accelerate the Senior Debt and exercise their remedies against
the Company with respect thereto. An acceleration of the Senior Debt would
constitute an event of default under the Indenture.
(5) CERTIFICATE OF LAND APPRECIATION NOTES
The COLAs are unsecured debt obligations of the Company, and are
subordinated in priority to all "Senior Indebtedness" (as defined in the
Indenture) including, but not limited to, the Senior Debt. Interest on the
COLAs is payable semi-annually on February 28 and August 31 of each year.
As of December 31, 2000, the cumulative interest paid per Class A and
Class B COLA was approximately $.245 and $.245, respectively. The COLAs
mature on December 31, 2008, and bear interest after the Final Issuance
Date (August 31, 1989) at a rate of 10% per annum ("Base Interest") of the
outstanding principal balance of the COLAs on a cumulative, non-compounded
basis, of which 6% per annum is contingent ("Contingent Base Interest").
The Company has not generated a sufficient level of Net Cash Flow to incur
or pay Contingent Base Interest (interest in excess of 4%) on the COLAs
from 1990 through 2000. Contingent Base Interest through 2008 is due and
payable only to the extent of Net Cash Flow. Net Cash Flow for any period
is generally an amount equal to 90% of the Company's net cash revenues,
proceeds and receipts after payment of cash expenditures, excluding federal
and state income taxes and after the establishment by the Company of
reserves. At December 31, 2008, certain levels of Contingent Base Interest
may also be due and payable to the extent of Maturity Market Value.
Maturity Market Value generally means 90% of the excess of the Fair Market
Value of the Company's assets at maturity over its liabilities, including
Qualified Allowance (described below), but only to the extent earned and
payable from Net Cash Flow generated through maturity) at maturity.
Approximately $91,857 of cumulative deficiency of deferred Contingent Base
Interest related to the period from August 31, 1989 (Final Issuance Date)
through December 31, 2000 has not been accrued in the accompanying
consolidated financial statements as the Company believes that it is not
probable at this time that a sufficient level of Net Cash Flow will be
generated in the future or that there will be sufficient Maturity Market
Value as of December 31, 2008 (the COLA maturity date) to pay any such
unaccrued deferred Contingent Base Interest. The following table is a
summary of Mandatory Base Interest and deferred Contingent Base Interest
(i.e. not currently due and payable) for the years ended December 31, 2000,
1999 and 1998 (dollars are in millions):
2000 1999 1998
-------- ------- -------
Mandatory Base Interest paid . . . . . . . $ 5,576 7,202 8,828
Contingent Base Interest due and paid. . . $ -- -- --
Cumulative deferred Contingent Base
Interest . . . . . . . . . . . . . . . . $ 91,857 83,493 120,652
Net Cash Flow was $0 for 2000, 1999 and 1998.
Cumulative deferred Contingent Base Interest as discussed above is
calculated based upon the face amount of Class A and Class B COLAs
outstanding. The face amount of COLAs outstanding decreased to
approximately $139,413 at December 31, 1999 from approximately $220,692 at
December 31, 1998 resulting from the retirement of approximately $81,279
face of COLAs pursuant to the Class B COLA Redemption Offer discussed
below, and accordingly, the Cumulative deferred Contingent Base Interest
decreased from $120,652 at December 31, 1998 to $83,493 at December 31,
1999.
In each calendar year, principal reductions may be made from remaining
Net Cash Flow, if any, in excess of all current and unpaid deferred
Contingent Base Interest and will be made at the election of the Company
(subject to certain restrictions). The COLAs will bear additional
contingent interest in any year, after any principal reduction, equal to
55% of remaining Net Cash Flow. Upon maturity, holders of COLAs will be
entitled to receive the remaining outstanding principal balance of the
COLAs plus Unpaid Mandatory Base Interest plus additional interest equal to
certain levels of the unpaid Contingent Base Interest, to the extent of the
Maturity Market Value (Maturity Market Value generally means 90% of the
excess of the Fair Market Value (as defined in the Indenture) of the
Company's assets at maturity over its liabilities (including Qualified
Allowance, but only to the extent earned and payable from Net Cash Flow
generated through maturity) at maturity, which liabilities have been
incurred in connection with its operations), plus 55% of the remaining
Maturity Market Value. The Company does not anticipate that cash flow or
market value levels will result in any amounts accruing to the benefit of
the COLA holders, primarily as a result of the significant amount of Senior
Indebtedness.
Pursuant to the terms of the Indenture, the Company is required to
maintain a Value Maintenance Ratio (defined in the Indenture) of 1.05 to
1.00. Such ratio is equal to the relationship of the Company's Net Asset
Value to the sum of: (i) the outstanding principal amount of the COLAs,
(ii) any unpaid Base Interest that is required to be paid, and (iii) the
outstanding principal balance of any Indebtedness incurred to redeem COLAs
(the "COLA Obligation"). Net Asset Value represents the excess of the Fair
Market Value (as defined in the Indenture) of the gross assets of the
Company over the liabilities of the Company other than the COLA obligations
and certain other liabilities. The COLA Indenture requires the Company to
obtain independent appraisals of the fair market value of the gross assets
used to calculate the Value Maintenance Ratio as of December 31 in each
even-numbered calendar year.
The Company has decided to forego contracting for independent
appraisals to determine the appraised value of substantially all of its
assets as of December 31, 2000. Not obtaining appraisals, with the
resultant inability to provide an Officers' Certificate determining the
Value Maintenance Ratio, could become an event of default, as defined by
the Indenture, should the holders of a majority of COLA principal notify
the Trustee that such holders consider such non-compliance with the
Indenture to be an event of default or should the Trustee declare such an
event of default. Should an event of default result, and if left uncured
for a period of thirty days, the COLAs would become immediately due and
payable. Such event would likely cause many of the Company's other
obligations to go into default. Among other things, if the COLAs become
immediately due and payable, all Senior Debt of Northbrook and its
affiliates would become immediately due and payable.
On March 14, 1989, AJF, a wholly-owned subsidiary of Northbrook, and
AHI entered into an agreement (the "Repurchase Agreement") concerning AJF's
obligations to repurchase, on June 1, 1995 and 1999, the COLAs upon request
of the holders thereof. The COLAs were issued in two units consisting of
one Class A and one Class B COLA. As specified in the Repurchase Agreement,
the holders of Class A COLAs were entitled to request AJF to repurchase
their Class A COLAs on June 1, 1995 at a price equal to the original
principal amount of such COLAs ($.5) minus all payments of principal and
interest allocated to such COLAs. The cumulative interest paid per Class A
COLA through June 1, 1995 was $.135. Also pursuant to the Repurchase
Agreement, the holders of Class B COLAs were entitled to request AJF to
repurchase their Class B COLAs on June 1, 1999 at a price equal to 125% of
the original principal amount of such COLAs ($.5) minus all payments of
principal and interest allocated to such Class B COLAs.
On March 14, 1989, Northbrook entered into a Keep-Well Agreement with
AJF, whereby it agreed to contribute sufficient capital or make loans to
AJF to enable AJF to meet its COLA repurchase obligations described above.
As of December 31, 1998, pursuant to the Indenture, the Company elected to
exercise its right to redeem (the "Class B COLA Redemption Offer") all
Class B COLAs tendered by the registered holders pursuant to the Repurchase
Agreement, thereby eliminating AJF's Class B COLA repurchase obligations
with respect to such holders as of June 1, 1999. Pursuant to the Class B
Redemption Offer mailed on March 15, 1999 to COLA holders, and in
accordance with the terms of the Indenture, the Company was therefore
obligated to purchase any and all Class B COLAs submitted pursuant to the
Class B Redemption Offer at a price of $.410 per Class B COLA.
The Class B COLA Redemption Offer terminated on April 15, 1999 in
accordance with its terms and with the Indenture. Approximately 162,559
Class B COLAs were submitted for repurchase pursuant to the Class B COLA
Redemption Offer including approximately 98,229 Class B COLAs which were
submitted for repurchase by persons unaffiliated with the Company and
required an aggregate cash payment by the Company of approximately $40,274
on June 1, 1999. On June 1, 1999, the Company borrowed approximately
$21,318 from AF Investors to redeem a portion of the Class B COLAs pursuant
to the Class B COLA Redemption Offer. Under the terms of the Indenture,
such amount borrowed from AF Investors is Senior Indebtedness that matures
on December 31, 2008 and bears interest at a rate per annum of prime (9.5%
at December 31, 2000) plus 1% (see deferral of interest discussion in note
4(b)). Additional interest may be payable on such Senior Debt upon its
maturity based upon fair market value, if any, of the Company's equity at
that time. AF Investors, an affiliate of the Company, submitted
approximately 64,330 of its 89,325 Class B COLAs for repurchase pursuant to
the Class B Redemption Offer and AF Investors agreed to take back $26,375
of Senior Debt of the Company in lieu of cash. Such Senior Debt matures on
December 31, 2008 and bears interest at a rate per annum equal to the prime
rate (9.5% at December 31, 2000) plus 1% (see deferral of interest
discussion in note 4(b)). Additional interest may be payable on such
Senior Debt upon its maturity based upon the fair market value, if any, of
the Company's equity at that time. AF Investors' Class B COLAs were
contributed by Amfac Finance Limited Partnership ("Amfac Finance"), an
Illinois Limited partnership and an affiliate of the Company, to AF
Investors in December 1998.
As a result of the Class B COLA repurchases on June 1, 1999, the
Company retired approximately $81,279 face value of Class B COLA debt and
correspondingly recognized a financial statement gain of approximately
$14,630 of which $8,841 is attributable to the retirement of COLA debt held
by persons unaffiliated with the Company. Such financial statement gain
was reduced by applicable income taxes of approximately $7,203, the write-
off of an applicable portion of deferred financing costs and other expenses
of approximately $3,786 and increased by the reversal of the previously
accrued deferred contingent base interest of approximately $7,624 resulting
in a financial statement extraordinary gain of approximately $11,265. The
tax payable on the gain (approximately $2,009) related to the Class B COLAs
which were submitted for repurchase by persons unaffiliated with the
Company pursuant to the Class B COLA Redemption Offer is not indemnified
pursuant to the tax agreement in effect through December 31, 2000 with
Northbrook effective with respect to such year (see note 1).
On March 15, 1995, under the terms of the Indenture, the Company
elected to offer to redeem (the "Class A COLA Redemption Offer") all
Class A COLAs submitted by from the registered Class A COLA holders,
thereby eliminating AJF's obligation to satisfy the Class A COLA repurchase
options requested by such holders as of June 1, 1995. Pursuant to the Class
A COLA Redemption Offer, and in accordance with the terms of the Indenture,
the Company was therefore obligated to purchase any and all Class A COLAs
submitted pursuant to the Class A COLA Redemption Offer at a price of $.365
per Class A COLA. In conjunction with the Company's Class A COLA Redemption
Offer, the Company made a tender offer (the "Tender Offer") to purchase up
to approximately $68,000 principal value of the Class B COLAs at a price of
$.220 per Class B COLA from COLA holders electing to have their Class A
COLAs repurchased. Approximately 229,000 Class A COLAs were submitted for
repurchase pursuant to the Class A COLA Redemption Offer and approximately
99,000 Class B COLAs were submitted for repurchase pursuant to the Tender
Offer, requiring an aggregate payment by the Company of approximately
$105,450 on June 1, 1995. The Company used its available cash to purchase
Class B COLAs pursuant to the Tender Offer and borrowed $52,000 from
Northbrook to purchase Class A COLAs pursuant to the Redemption Offer. As
of December 31, 1999, the Company had approximately 155,271 Class A COLAs
and approximately 123,554 Class B COLAs outstanding, with a principal
balance of approximately $77,635 and $61,778, respectively.
As a result of the Class A COLA repurchases on June 1, 1995, the
Company retired approximately $164,045 in face value of COLA debt and
recognized a financial statement extraordinary gain of approximately
$32,544 (net of income taxes of $20,807, the write-off of deferred
financing costs of $10,015, the write-off of accrued Contingent Base
Interest of $5,667 and expenses of $894). Such gain was treated as
cancellation of indebtedness income for tax purposes and, accordingly, the
income taxes related to the Class A COLA Redemption Offer (approximately
$9,106) were not indemnified by the tax agreement effective through
December 31, 2000 with Northbrook (see note 1).
On January 30, 1998, Amfac Finance extended a Tender Offer to Purchase
(the "Class B Tender Offer") up to approximately $65,421 principal amount
of separately certificated Class B COLAs ("Separate Class B COLAs") for
cash at a unit price of $.375 to be paid by Amfac Finance on each Separate
Class B COLA on or about March 24, 1998. The maximum cash to be paid under
the Class B Tender Offer was approximately $49,066 (130,842 Separate
Class B COLAs at a unit price of $.375 for each separate Class B COLA).
Approximately 62,857 Separate Class B COLAs were submitted to Amfac Finance
for repurchase pursuant to the Tender Offer, requiring an aggregate payment
by Amfac Finance of approximately $23,571 on March 31, 1998. In addition,
on October 23, 1998, Amfac Finance extended a Tender Offer to purchase (the
"Class A/B Tender Offer") up to approximately $22,500 principal amount of
jointly certificated Class A and B COLAs (together "COLA Units") for cash
at a unit price of $.460 to be paid by Amfac Finance on each COLA Unit on
or about December 23, 1998. The maximum cash to be paid under the Tender
Offer was approximately $12,236 (26,600 COLA Units at a unit price of $.460
for each COLA Unit). Approximately 26,468 COLA Units were submitted to
Amfac Finance for repurchase pursuant to the Tender Offer requiring an
aggregate payment by Amfac Finance of approximately $12,178 on December 23,
1998. Neither the Class B nor the Class A/B Tender Offer reduced the
outstanding indebtedness of the Company. In December 1998, Amfac Finance
contributed its Class A and Class B COLAs to AF Investors. The COLAs still
held by AF Investors remain outstanding pursuant to the terms of the
Indenture. Except as provided in the last sentence of this paragraph, AF
Investors is entitled to the same rights and benefits of any other holder
of COLAs, including having the right to have AJF repurchase on June 1,
1999, the separate Class B COLAs that it owned. As discussed above, AF
Investors submitted approximately 64,330 of its 89,325 Class B COLAs for
repurchase pursuant to the Class B Redemption offer. AF Investors agreed
to take back Senior Debt of the Company for the portion of Class B COLAs so
put in lieu of cash. Because AF Investors is an affiliate of the Company,
AF Investors will not be able to participate in determining whether the
holders of the required principal amount of debt under the Indenture have
concurred in any direction, waiver or consent under the terms of the
Indenture.
As a result of the Class B and Class A/B Tender Offers, the Company
recognized approximately $7,857 and $14,295, respectively, of taxable gain
in accordance with income tax regulations for certain transactions with
affiliates. Such gain is treated as cancellation of indebtedness income
for income tax purposes only and, accordingly, the income taxes related to
the Class B Tender Offer (approximately $3,064) and Class A/B Tender Offer
(approximately $5,575) were, or will be, indemnified by Northbrook through
the tax agreement effective through December 31, 2000 between Northbrook
and the Company effective with respect to such year (See note 1).
The terms of the Indenture place certain restrictions on the Company's
declaration and payment of dividends. Such restrictions generally relate to
the source, timing and amounts which may be declared and/or paid. The COLAs
also impose certain restrictions on, among other things, the creation of
additional indebtedness for certain purposes, the Company's ability to
consolidate or merge with or into other entities, and the Company's
transactions with affiliates.
(6) LONG-TERM DEBT
In June 1991, APIC obtained a five-year $66,000 loan from ERS. The
nonrecourse loan is secured by a first mortgage on the Kaanapali Golf
Courses. The loan bore interest at a rate per annum equal to the greater
of (i) the base interest rate announced by the Bank of Hawaii on the first
of July for each year or (ii) ten percent per annum through September 30,
1993 and nine percent per annum thereafter.
In April 1996, the Company reached an agreement with the ERS to amend
the loan, extending the maturity date for five years. In exchange for the
loan extension, the ERS received the right to participate in the "Net
Disposition Proceeds" (as defined) related to the sale or the refinancing
of the golf courses or at the maturity of the loan. The ERS share of the
Net Disposition Proceeds increases from 30% through June 30, 1997, to 40%
for the period from July 1, 1997 to June 30, 1999 and to 50% thereafter.
The loan amendment effectively adjusted the interest rate as of January 1,
1995 to 9.5% until June 30, 1996. After June 30, 1996, the loan bears
interest at a rate per annum equal to 8.73%. The loan amendment requires
the Company to pay interest at the rate of 7% for the period from
January 1, 1995 to June 30, 1996, 7.5% from July 1, 1996 to June 30, 1997,
7.75% from July 1, 1997 to June 30, 1998 and 8.5% thereafter ("Minimum
Interest"). The Minimum Interest for the years ended December 31, 2000 and
1999 was $5,610 and $5,610, respectively. The accrued Minimum Interest was
$3,070 and $1,414 as of December 31, 2000 and 1999, respectively. The
scheduled minimum payments were scheduled to be paid quarterly on the
principal balance of the $66,000 loan. The difference between the accrued
interest expense and the Minimum Interest payment due accrues interest and
is payable on an annual basis from excess cash flow, if any, generated from
the Kaanapali Golf Courses.
The annual minimum interest payments have been in excess of the cash
flow generated by the Kaanapali Golf Courses. The total accrued interest
payable from excess cash flow was approximately $6,251 as of December 31,
2000. Although the outstanding principal balance remains nonrecourse,
certain payments and obligations, such as the Minimum Interest payments and
the ERS's share of appreciation, if any, are recourse to APIC, AHI and
Pioneer Mill. However, the obligation to make future Minimum Interest
payments and to pay the ERS a share of appreciation would be terminated if
an executed deed to the golf course property were tendered to the ERS in
accordance with the terms of the loan amendment. Due to insufficient cash
flow generated by the golf courses and intransigence by the ERS with
respect to its obligation related to certain easements needed by the
Company's development operations, the Company chose not to pay to the ERS
the quarterly Minimum Interest payments beginning January 1, 1999, through
October 29, 1999. As expected, the Company received a default notice from
the ERS. On October 29, 1999, after receipt of consent to certain
easements, the Company paid the ERS the minimum interest payments due
beginning with the January 1, 1999 through October 1, 1999 payments
aggregating approximately $5,743 (including other miscellaneous costs). For
the same reasons, the Company had not paid the ERS the Minimum Interest
payments due on January 1, April 1, July 1, and October 1, 2000. As
expected, the Company received a further default notice from the ERS which
notice included an acceleration of all amounts due under the loan and the
ERS filed to realize upon their security. Pursuant to an agreement between
the ERS and the Company, the Company paid approximately $3,800 in September
2000, to the ERS for a portion of the past due interest amounts and the ERS
has agreed to temporarily suspend its action to realize upon its security
until March 26, 2001. This date has not been extended. Subsequent to
September 2000 through the date of this report, additional payments
aggregating approximately $1,700 million have been made to the lender.
APIC is currently pursuing renegotiation of the loan terms as well as
attempting to obtain the other easements which the Company and APIC believe
the ERS is obligated to provide. There can be no assurance that such
negotiations will result in a definitive agreement to settle the disputes
between the APIC and the ERS concerning this loan. In December 2000, AF
Investors made a cash capital contribution to APIC (the owner of the golf
courses) in return for an 83.33% ownership interest. In the same
transaction Pioneer Mill contributed its land that is security for the ERS
to APIC in return for an approximately 8.33% interest therein.
Accordingly, the indebtedness due the ERS has been reflected in Investments
- - see Note 3.
In December 1996, Amfac Property Development Corp. ("APDC"), a wholly-
owned subsidiary of the Company, obtained a $10,000 loan facility from City
Bank. Prior to this time, APDC had obtained title to the mill site
property from Oahu Sugar in order to facilitate its development of a
subdivision. The loan is secured by a mortgage on property under
development at the Oahu Sugar mill-site (the sugar plantation was closed in
1995), and is "Senior Indebtedness" (as defined in the Indenture). The loan
bore interest at the bank's base rate plus .5% and originally was scheduled
to mature on December 1, 1998. In November 1998, APDC sold certain mill-
site property which served as collateral for the $10,000 City Bank loan for
an approximate sales price of $7,690 in cash plus 2% of the gross sales
price of subsequent parcel sales of all or any portion of the property by
the purchaser. The bank required $6,000 of the sales proceeds as a
principal reduction on the loan in order to release the collateral. APDC
received a one-year extension on the $4,000 remaining balance of the loan
which is secured by another parcel at the mill-site. The extended loan
bore interest at the bank's base rate plus 1.25% and was scheduled to
mature on December 1, 1999. APDC reached an agreement with the bank for an
additional one year extension on $3,000 of the $4,000 loan. APDC made a
$1,000 loan payment on December 2, 1999. The new extended loan bore
interest at the bank's base rate plus 1.25% and matured on December 1,
2000. In January 2001, APDC reached an agreement with the Bank for an
extension until December 1, 2001 with a principal payment of $150 upon
execution of the agreement. The newly extended loan bears interest at the
bank's base rate of 9.5% at December 31, 2000 plus 2%. Upon maturity of
the loan, it is not expected that APDC will have the funds necessary to pay
the remaining balance of the loan without sale of the remaining mill site
land. If such loan cannot be further extended, it would likely result in
APDC no longer having an ownership interest in the property.
In February 1997, Waikele Golf Club, Inc. ("WGCI"), a wholly-owned
subsidiary of the Company that owns and operates the Waikele Golf Course,
entered into a loan agreement with the Bank of Hawaii that refinanced an
earlier loan facility. The initial principal amount of the loan was
$25,000, with a maturity date of February 2007, an interest rate of LIBOR
(6.35% at December 31, 2000) plus 2% until the fifth anniversary and LIBOR
plus 2.25% thereafter and with principal to be repaid based on a 30-year
amortization schedule. The loan is secured by WGCI's assets (the golf
course and related improvements and equipment), is guaranteed by AHI, and
is "Senior Indebtedness" (as defined in the Indenture). As of December 31,
2000, the outstanding balance was $24,021, with scheduled annual principal
maturities of $286 in 2001 through 2006 and the balance of $22,305 in 2007.
(7) RENTAL ARRANGEMENTS
As Lessee
The Company rents, as lessee, various land, facilities and equipment
under operating leases. Most land leases provide for renewal options and
minimum rentals plus contingent payments based on revenues or profits.
Included in rent expense are minimum rentals and contingent payments for
operating leases in the following amounts:
2000 1999 1998
------- ------- -------
Minimum and fixed rents. . . . . . . . $ 1,723 1,779 2,236
Contingent payments. . . . . . . . . . 1,163 1,323 1,219
Property taxes, insurance
and other charges. . . . . . . . . . 1,182 1,061 857
------- ------ ------
$ 4,068 4,163 4,312
======= ====== ======
Future minimum lease payments under noncancelable operating leases
aggregate approximately $5,596 and are due as follows: 2001, $1,469; 2002,
$1,136; 2003, $923; 2004, $868; 2005, $600 and thereafter $600. There can
be no assurance that any of the Company's leases will be renewed.
(8) EMPLOYEE BENEFIT PLANS
The Company participates in benefit plans covering substantially all
its employees, which provide benefits based primarily on length of service
and compensation levels. These plans are administered by Northbrook in
conjunction with other plans providing benefits to employees of Northbrook
and its affiliates.
Northbrook's policy is to fund pension costs in accordance with the
minimum funding requirements under provisions of the Employee Retirement
Income Security Act ("ERISA"). Under ERISA guidelines, amounts funded may
be more or less than the pension expense recognized for financial reporting
purposes. One of the Company's defined benefit plans, the Retirement Plan
for the Employees of Amfac, Inc. (the "Plan"), terminated effective
December 31, 1994. The settlement of the plan occurred in May 1995. The
Company replaced this plan with the "Core Retirement Award Program", a
defined contribution plan that commenced on January 1, 1995. In the new
plan, an Eligible Employee (as defined) is credited with an annual
contribution equal to 3% of the employee's qualified compensation.
Charges for pension and Core Retirement Award costs allocated to the
Company aggregated approximately $402, $481 and $545 for the years ended
December 31, 2000, 1999 and 1998, respectively.
In addition to providing pension benefits, the Company currently
provides certain healthcare and life insurance benefits to eligible retired
employees of some of its businesses. Where such benefits are offered,
substantially all employees may become eligible for such benefits if they
reach a specified retirement age while employed by the Company and if they
meet a certain length of service criteria. The postretirement healthcare
plan is contributory and contains cost-sharing features such as deductibles
and copayments. However, these features, as they apply to bargaining unit
retirees, are subject to collective bargaining provisions of a labor
contract between the Company and the International Longshoremen's &
Warehousemen's Union. The postretirement life insurance plan is
non-contributory. The Company continues to fund benefit costs for both
plans on a pay-as-you-go basis.
For measuring the expected postretirement benefit obligation, an 11%
annual rate of increase in the per capita claims cost was assumed through
2002. This rate was assumed to decrease to 6% in 2003 and remain at that
level thereafter. The healthcare cost trend rate assumption has a
significant effect on the amount of the obligation and periodic cost
reported. An increase and (decrease) in the assumed healthcare trend rate
by 1% in 2000 would increase and (decrease) the medical plans' accumulated
postretirement benefit obligation as of December 31, 2000 by $328 and
($290), respectively, and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year then
ended by $93 and ($83), respectively.
Net periodic postretirement benefit cost (credit) for 2000, 1999 and
1998 includes the following components:
2000 1999 1998
Total Total Total
------- ------ ------
Service cost . . . . . . . . . . . . . $ 277 287 287
Interest cost. . . . . . . . . . . . . 1,698 1,744 1,817
Amortization of net (gain) loss. . . . (2,421) (2,707) (2,907)
Recognized curtailment (gain)
loss . . . . . . . . . . . . . . . . (3,965) (871) --
------- ------ ------
Net periodic postretirement
benefit cost (credit) . . . . . . . . $(4,411) (1,547) (803)
======= ====== ======
The following table sets forth the plans' change in benefit obligation
and benefit cost as of December 31, 2000 and 1999 as follows:
December 31, December 31,
2000 1999
------------ ------------
Benefit obligation at beginning of year. $ 23,728 24,366
Service cost . . . . . . . . . . . . . . 277 287
Interest cost. . . . . . . . . . . . . . 1,698 1,744
Actuarial gains. . . . . . . . . . . . . (616) 230
Employer contribution. . . . . . . . . . (2,187) (2,219)
Curtailment. . . . . . . . . . . . . . . (4,070) (906)
Maintenance of Effort obligation . . . . (6,081) --
Special termination benefit. . . . . . . 257 226
-------- --------
Benefit obligation at end of year. . . . 13,006 23,728
Unrecognized net actuarial gain. . . . . 28,427 24,047
-------- --------
Accumulated postretirement benefit cost. $ 41,433 47,775
======== ========
In 2000, principally due to shutdown of the Kauai sugar operations, a
decrease in the expected future benefit obligation resulted. The
curtailment resulted in a gain for financial reporting purposes which has
been included in the accompanying consolidated statement of operations.
The amount reflected as the decrease in the Maintenance of Effort
obligation for the year ended December 31, 2000 recognizes that the
requirement to maintain an average level of certain retiree health care
benefits expires in 2004. Such obligations are pursuant to collectively
bargained contractual obligations of Lihue Plantation Company, Limited,
Pioneer Mill Company, Limited and Oahu Sugar Company, Limited.
The Company currently amortizes unrecognized gains over the shorter of
ten years or the average life expectancy of the inactive participants since
almost all of the Plans' participants are inactive. The portion of the
unrecognized net actuarial gain represented by the decrease in the
Maintenance of Effort obligation is expected to be amortized over four
years, commencing in 2001. In addition, due to the significant total
amount of unrecognized gain at December 31, 2000, which is included in the
financial statements as a liability, and the disproportionate relationship
between the unrecognized gain and accumulated postretirement benefit
obligation at December 31, 2000, the Company may, in the future, change its
amortization policy to accelerate the recognition of the unrecognized gain.
In considering such change, the Company would need to determine whether
significant changes in the accumulated postretirement benefit obligation
and unrecognized gain may occur in the future as a result of changes in
actuarial assumptions, experience and other factors. Any future change to
accelerate the amortization of the unrecognized gain would have no effect
on the Company's cash flows, but could have a significant effect on its
statement of operations.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% as of December 31, 2000 and
1999.
(9) TRANSACTIONS WITH AFFILIATES
With respect to any calendar year, JMB Realty Corporation ("JMB"), an
affiliate of the Company, or its affiliates may receive a Qualified
Allowance in an amount equal to: (i) approximately $6,200 during each of
the calendar years 1989 through 1993; and (ii) thereafter, 1-1/2% per annum
of the Fair Market Value (as defined in the Indenture) of the gross assets
of the Company and its subsidiaries (other than cash and cash equivalents
and Excluded Assets (as defined in the Indenture)) for providing certain
advisory services for the Company. The aforementioned advisory services,
which are provided pursuant to a 30-year Services Agreement entered into
between the Company and JMB in November 1988, include making
recommendations in the following areas: (i) the construction and
development of real property; (ii) land use and zoning changes; (iii) the
timing and pricing of properties to be sold; (iv) the timing, type and
amount of financing to be incurred; (v) the agricultural business; and,
(vi) the uses (agricultural, residential, recreational or commercial) for
the land. For the years 1999, 2000 and 2001, JMB has agreed that the
amount of the Qualified Allowance to be calculated shall not exceed the
lesser of the amount described in the preceding sentence and $5,000. As
the Fair Market Value was not determined as of December 31, 2000, no
Qualified Allowance is considered to result for 2000 unless and until such
amount may be determined in the future. However, the Qualified Allowance
shall be earned and paid for any year prior to maturity of the COLAs only
if the Company generates sufficient Net Cash Flow to pay Base Interest for
such year in an amount equal to 8%. Any portion of the Qualified Allowance
not paid for any year shall cumulate without interest and JMB or its
affiliates shall be paid such deferred amount in succeeding years, only
after the payment of all Contingent Base Interest for such succeeding year
and then, only to the extent that Net Cash Flow exceeds levels specified in
the Indenture.
A Qualified Allowance for 1989 of approximately $6,200 was paid on
February 28, 1990. Approximately $79,102 of Qualified Allowance related to
the period from January 1, 1990 through December 31, 2000 has not been
earned and paid, and is payable only to the extent that future Net Cash
Flow is sufficient. Accordingly, because the Company does not believe it is
probable at this time that a sufficient level of Net Cash Flow will be
generated in the future to pay the Qualified Allowance, the Company has not
accrued for any Qualified Allowance payments in the accompanying
consolidated financial statements. JMB has informed the Company that no
incremental costs or expenses have been incurred relating to the provision
of these advisory services. The Company believes that using an incremental
cost methodology is reasonable. The following table is a summary of the
Qualified Allowance for the years ended December 31, 2000, 1999 and 1998
(dollars are in millions):
2000 1999 1998
------- ------ ------
Qualified Allowance calculated . . . . . . $ -- 5,000 9,776
Qualified Allowance paid . . . . . . . . . -- -- --
Cumulative deficiency of
Qualified Allowance at
end of year. . . . . . . . . . . . . . . $79,102 79,102 74,201
After the maturity date of the COLAs, JMB will continue to provide
advisory services pursuant to the Services Agreement, the Qualified
Allowance for such years will continue to be 1.5% per annum of the Fair
Market Value of the gross assets of the Company and its subsidiaries, and
the Qualified Allowance will continue to be payable from the Company's Net
Cash Flow. Upon the termination of the Services Agreement, if there has not
been sufficient Net Cash Flow to pay the cumulative deficiency in the
Qualified Allowance, if any, such amount would not be due or payable to
JMB.
The Company, its subsidiaries and their joint ventures reimburse
Northbrook, JMB and their affiliates for direct expenses incurred on their
behalf, including salaries and salary-related expenses incurred in
connection with the management of the Company's or its subsidiaries' and
the joint ventures' operations. The total of such costs for the years ended
2000, 1999 and 1998 was approximately $872, $804 and $669, respectively, of
which $883 was unpaid as of December 31, 2000. In addition, as of
December 31, 2000, the current portion of amounts due to affiliates
includes $9,106 and $2,009 of income tax payable related to the Class A
COLA Redemption Offer and Class B COLA Redemption Offer, respectively (see
Note 5). Also, the Company pays a non-accountable reimbursement of
approximately $30 per month to JMB or its affiliates in respect of general
overhead expense, all of which was paid as of December 31, 2000.
JMB Insurance Agency, Inc., an affiliate of JMB, earns insurance
brokerage commissions in connection with providing the placement of
insurance coverage for certain of the properties and operations of the
Company. Such commissions are comparable to those available to the Company
in similar dealings with unaffiliated third parties. The total of such
commissions for the years ended December 31, 2000, 1999 and 1998 was
approximately $434, $568 and $587, respectively, all of which was paid as
of December 31, 2000.
Northbrook and its affiliates allocated certain charges for services
to the Company based upon the estimated level of services for the years
ended December 31, 2000, 1999 and 1998 of approximately $615, $683 and
$923, respectively, of which $1,183 was unpaid as of December 31, 2000.
The affiliated charges for the years ended December 2000, 1999 and 1998
were offset by $39, $76 and $17, respectively, of charges for certain
expenditures paid by the Company for Northbrook. These services and costs
are intended to reflect the Company's separate costs of doing business and
are principally related to the inclusion of the Company's employees in the
Northbrook pension plan, payment of severance and termination benefits and
reimbursement for insurance claims paid on behalf of the Company. All
amounts described above, deferred or currently payable, do not bear
interest and are expected to be paid in future periods.
Reference is made to Note 4 - Amounts due Affiliates - Senior Debt
Financing. In connection with such affiliated loans, the Company incurred
interest expense of approximately $20,202, $14,114 and $15,355 for the
years ended December 31, 2000, 1999 and 1998, respectively.
As of December 31, 1998, the Company agreed to exercise its option to
redeem Class B COLAs that are "put" to AJF for repurchase (as described in
Note 5 above), in partial consideration for (a) Fred Harvey's and AF
Investors' agreement to defer until December 31, 2001 all interest accruing
from January 1, 1998 through December 31, 2001 and relating to the
approximately $99,595 of Senior Indebtedness of the Company then owing to
Fred Harvey and the approximately $47,693 of Senior Indebtedness of the
Company then owing to AF Investors (as described in Note 4 above); and (b)
Northbrook agreeing to cause approximately $55,148 of the Company's
indebtedness that was senior to the COLAs to be contributed to the capital
of the Company. The redemption was completed on June 1, 1999. In
connection with the foregoing deferral of interest and contribution of
capital, the Company agreed to allow the Senior Debt held by Northbrook and
its affiliates to be secured by substantially all of the assets of the
Company to the extent such security was requested by Northbrook and its
affiliates and was permitted under any other secured debt of the Company
held by third parties. In connection therewith, Northbrook and its
affiliates have obtained, or are in the process of obtaining mortgages or
other security interests in substantially all of the real and personal
property of the Company other than the golf course properties. As a result
of the contribution, in the Company's December 31, 1998 balance sheet, the
"Amounts due to affiliates - senior debt financing" were decreased, and the
Company's "Member's equity (deficit)" was increased, by approximately
$55,148. The deferral of interest, together with this contribution to
capital, were made as part of the Company's effort to alleviate significant
liquidity constraints and continue to meet the Value Maintenance Ratio
requirement under the Indenture.
Under a December 29, 2000, Restructuring Agreement, the Company and
certain of its subsidiaries agreed to terminate their prior tax agreement
so that the Company and its subsidiaries would be responsible for paying
their own income taxes on taxable income generated in 2001 and thereafter.
The Company and subsidiaries also agreed to make prepayments of certain
amounts on the Senior Debt notes of net property sale proceeds remaining
after providing reserves for anticipated cash needs for the 12 months
following the property sales. The Company and subsidiaries further agreed
to provide additional security for the Senior Debt. In exchange, the
Senior Debt holders agreed to release their liens on Company and subsidiary
properties to effectuate sales of properties, provided that there is no
default on the Senior Debt and provided that the sale realizes fair value.
The Senior Debt holders further agreed to modify for the Company's and the
subsidiaries' benefit the repayment provisions on some of the Senior Debt.
(See note 4 for a further description of the Senior Debt.) The Senior Debt
holders also agreed to contribute to the Company's capital Senior Debt in
the amount of $15,000 immediately and agreed to contribute an additional
$25,000 of Senior Debt on December 31, 2006, if the new tax agreement
remains in effect at that time. Finally, the Senior Debt holders agreed to
contribute certain other amounts to the Company to fund a significant
portion of the costs associated with the shutdown of the Lihue and Kekaha
sugar operations, as described below.
Pursuant to the terms of the Restructuring Agreement, Northbrook agreed
that it would cause the Northbrook sponsored pension plan to distribute
amounts to fund certain of the Company's costs related to employee
termination that resulted from the shutdown of the remaining sugar
plantations on Kauai. Approximately $5,454 of such costs were paid in 2000
and contributed to capital by Northbrook. An additional $4,200 of
anticipated costs has been reflected as a liability in the accompanying
December 31, 2000 financial statements and will be contributed to capital
when the amounts are paid. The Restructuring Agreement also required the
Company to put aside $8,000 as restricted cash for the purpose, among other
things, of meeting certain liabilities.
At current interest rates, approximately $65,000 of deferred interest
relating to all Senior Debt existing prior to the modification would have
become due and payable on December 31, 2001 and is now deferred beyond such
date. Even though the agreements by Northbrook and its affiliates to
further defer interest under the Senior Debt may assist the Company in the
completion of potential future development activities, there can be no
assurance that the Company will either have unrestricted cash available or
have the ability to refinance such obligation at such times amounts become
payable under Senior Debt as restructured. Failure to meet such
obligation, if called, would cause all Senior Debt owing to Northbrook,
Fred Harvey, AF Investors or other Northbrook affiliates to be immediately
due and payable. A default on Senior Debt of such magnitude would
constitute an event of default under the Indenture.
The total amount due Northbrook and its subsidiary for Senior Debt
financing as of December 31, 2000 was $192,555, which includes deferred
interest to affiliates on the senior debt of approximately $43,734. Under
the terms of the Indenture, the amounts borrowed from Northbrook and its
affiliates are "Senior Indebtedness" and are thus senior in priority to the
COLAs.
(10) COMMITMENTS AND CONTINGENCIES
The Company continues to face a severe liquidity shortage. The
Company sold a portion of its North Beach property on Maui in the fourth
quarter of 2000 and a parcel on Maui near Lahaina in the first quarter of
2001 and a parcel in Hanamaulu, Kauai also in the first quarter of 2001,
which provided funds to the Company to help meet its short term liquidity
needs. However, the Company believes that, in the absence of additional
land sales, additional senior debt borrowings from Northbrook or its
affiliates will be necessary to meet its COLA related obligations and its
short-term and long-term liquidity needs and to pay down certain short-term
senior indebtedness obtained from Northbrook and its affiliates during
2000.
During the third quarter, management announced the shutdown of its
remaining sugar plantations on Kauai. The decision was made as a result of
significant losses incurred during 2000, and the expectation that such
losses would continue for the foreseeable future. The losses resulted from
a significant drop in the domestic price of raw sugar and lower sugar
yields. The Company completed its final harvest of sugar cane in November
2000. As a consequence of the shutdown, the Company incurred significant
employee and other closing costs in 2000. The Company estimated the
pricing for the possible sale or lease of the field and equipment,
negotiated the majority of the employee termination costs and substantially
completed the negotiations with the local utility company (and expects no
significant future costs related to the power sale agreement).
The Company faces large contingent cash expenditures of (i) the cost
of the litigation and environmental matters described in Item 3. "Legal
Proceedings" and (ii) the cost of environmental clean up relating to the
land and mill sites associated with Oahu, Kekaha, Lihue and Pioneer Mill
plantations and buildings which could be significant but are presently not
determinable. It is difficult to predict the ultimate outcome of these
various contingencies, any of which could have a material adverse effect on
the financial condition of the Company.
As reflected in the Company's December 31, 2000, balance sheet,
approximately $187,095 of Senior Debt owed to affiliates of the Company is
categorized as a current liability. The classification as a current
liability results from defaults that occurred under such Senior Debt due to
actions taken by ERS to realize upon indebtedness owed to it by APIC, and
due to the adverse verdict in the Oahu Sugar V. Arakaki and Swift lawsuit
described under Item 3. "Legal Proceedings". Under the Restructuring
Agreement, effective as of December 29, 2000, among the Company, certain of
the Company's subsidiaries and certain holders of Senior Debt affiliated
with Northbrook, the parties have agreed that the defaults described above
shall continue but that the Senior Debt holders will not exercise their
remedies against the Company and its subsidiaries based upon those defaults
until either ERS obtains a judgment against or attempts to exercise
remedies against APIC or its assets or unless necessary to protect their
superior rights under the Senior Debt against the plaintiffs in the
Swift/Arakaki lawsuit. There can be no assurance that the Senior Debt
holders will not accelerate the Senior Debt, either because of actions by
ERS or the opponents in the Swift/Arakaki lawsuit or because of additional
defaults arising under the Senior Debt.
In the absence of additional land and business sales or financing from
third parties (which has generally not been obtainable), the Company
believes that additional Senior Debt borrowings from Northbrook or its
affiliates will be necessary to meet its short-term and long-term liquidity
needs. Northbrook and its affiliates have made such borrowings available to
the Company in the past (but are under no obligation to do so in the
future). However, there is no assurance that Northbrook or its affiliates
will have the financial capability or willingness to made such funds
available to the Company in the future. During the year ended December 31,
2000, the Company borrowed approximately $5,576 from Northbrook for the
Mandatory Base Interest payments related to the COLAs due in 2000. During
the year ended December 31, 2000, the Company borrowed an additional $4,300
from Northbrook to fund capitalizable property development and agriculture
disbursements. The borrowings were repaid with interest in January 2001.
To the extent that Northbrook or its affiliates made such borrowings
available to the Company during 2000, any such borrowings were required to
be (i) to be "Senior Indebtedness" (as defined in the Indenture), (ii) to
accrue interest at the rate of prime plus 1%, and (iii) to have principal
and interest fully repayable by February 28, 2001 (see note 4 for a
description of the amendments to such notes). Moreover, as a condition to
the additional Senior Debt loans made by Northbrook and its affiliates
commencing in 1999, the Company has agreed to make all of the remaining
unencumbered real and personal property assets of the Company security for
all of the Senior Debt held by Northbrook and its affiliates. All such
Senior Debt, which as of December 31, 2000 had an outstanding balance of
principal and accrued interest of approximately $192,555, is senior in
priority to the COLA's and is guaranteed by each of the Company (except
Waikele Golf Club, Inc. due to provisions of the third party debt).
APIC had not paid the ERS the minimum interest payments due on January
1, April 1, July 1 and October 1, 2000. The Company received a default
notice from the ERS which notice included an acceleration of all amounts
due under the loan and the ERS filed to realize upon their security
(Employees' Retirement System of the State of Hawaii v. Amfac/JMB Hawaii,
LLC, et. a., Civil No. 00-1-2597-08, First Circuit Court, State of Hawaii).
Pursuant to an agreement between the ERS and the Company, the Company paid
approximately $3,800 in September 2000, to the ERS for a portion of the
past due interest amounts and the ERS has agreed to temporarily suspend its
action to realize upon its security until March 26, 2001. This date has
not been extended. APIC is currently pursuing renegotiation of the loan
terms as well as attempting to obtain the other easements which the Company
and APIC believe the ERS is obligated to provide. There can be no
assurance that such negotiations will result in a definitive agreement to
settle the disputes with the ERS concerning this loan. See note 6.
On September 20, 1996, Oahu Sugar Company, Limited ("Oahu Sugar")
filed a lawsuit, Oahu Sugar v. Walter Arakaki and Steve Swift, Case No. 96-
3880-09, in the Circuit Court of the First Circuit, State of Hawaii. In
the lawsuit, Oahu Sugar alleged that it entered into an agreement to sell
to defendants certain sugar cane processing equipment at Oahu Sugar's sugar
cane mill in Waipahu. Oahu Sugar alleged that defendants failed to timely
dismantle and remove the equipment, as required by the agreement, and that
defendants were obligated to pay Oahu Sugar rent for the area occupied by
the equipment beyond the time provided for by the parties. Oahu Sugar
further alleged that it provided notice to defendants that Oahu Sugar was
entitled to treat the equipment as abandoned property and to sell the
equipment, because the equipment had not been removed from the property in
a timely fashion, as required by the parties' agreement. In its complaint,
Oahu Sugar sought, among other things, declaratory relief that it was
entitled to treat the equipment as abandoned, damages for breach of
contract, and rent under an unjust enrichment theory.
Defendants filed an answer, as amended, denying the substantive
allegations of Oahu Sugar's complaint and asserting various affirmative
defenses. In addition, the defendants filed a seven-count counterclaim
against Oahu Sugar. In the counterclaim, defendants alleged, among other
things, that Oahu Sugar failed to make the equipment available for removal
on a timely basis, and that Oahu Sugar otherwise improperly interfered with
defendants' plans for the removal and subsequent sale of the equipment. In
the counterclaim, defendants sought, among other things, general, special
and punitive damages, attorneys' fees, costs, and such other relief as the
Court may have deemed appropriate.
Oahu Sugar's declaratory relief claim was settled in advance of trial.
Oahu Sugar obtained dismissals and directed verdicts on six of defendants'
claims. The remaining portions of the complaint and counterclaim proceeded
to a jury trial and verdict. On December 2, 1999, the jury denied Oahu
Sugar relief on its remaining claims and awarded the defendants
approximately $2,600 in damages on their counterclaim. On March 2, 2000,
the trial court entered a judgment against Oahu Sugar for the $2,600 in
damages awarded by the jury. In addition, the trial court awarded
counterclaimants $751 in attorneys' fees, $28 in costs and $866 in
prejudgment interest. Oahu Sugar's post trial motions for judgment as a
matter of law and for a new trial were denied. Oahu Sugar filed a notice
of appeal. The defendants began efforts to collect the amounts awarded to
them. Defendants have garnishee summons to be issued to various affiliated
and unaffiliated entities. The defendants scheduled a debtor's examination
for August 23, 2000 which was not concluded. The Hawaii Supreme Court
scheduled the case for an appellate conference and mediation that was
unsuccessful. Then, on January 3, 2001, the Hawaii Supreme Court entered
an order dismissing the appeal. The Supreme Court held that it lacked
jurisdiction over the appeal because the judgment entered on March 2, 2000
was legally defective in that it did not identify the claim for which
judgment was entered or dismiss all of the other claims and counterclaims
of the parties. In light of the order of the Hawaii Supreme Court, the
parties filed legal briefs before the trial court to have that court
determine, among other things, whether a corrected judgment consistent with
the jury verdict may be entered as of March 2, 2000 or a new judgment order
is required. After hearing the arguments of the parties and on March 19,
2001, the trial court ruled that it will not enter a corrected judgment as
of March 2, 2000 and that a new judgment order will be required. Oahu
Sugar anticipates that the new judgment in proper form and consistent with
the December 2, 1999 verdict will be submitted to the trial court for entry
in the near future. After the entry of an appropriate judgment order, Oahu
Sugar intends to pursue its remedies, including an appeal. Oahu Sugar
continues to believe that it is entitled to affirmative relief on its
complaint and that it has meritorious defenses to the counterclaim that it
intends to pursue on appeal. The Company, however, can provide no
assurances that it will be successful in obtaining affirmative relief or
overturning the verdict against Oahu Sugar. This verdict, if upheld, could
have a material adverse effect on the Oahu Sugar's financial condition.
On or about December 15, 2000, Oahu Sugar and Amfac Property
Development Corp. ("APDC"), among others, were named in a lawsuit entitled
Walter Arakaki and Steve Swift v. Oahu Sugar Company, Limited et al., Civil
No. 00-1-3817-12, and filed in the Circuit Court of the First Circuit of
Hawaii. In the complaint, as amended, plaintiffs seek a declaration that
certain conveyances of real estate made by Oahu Sugar or APDC, since
December 1996, were allegedly fraudulent transfers made in violation of the
common law, the Hawaii fraudulent transfer act, and rights which they claim
arose in connection with the claims they filed in Oahu Sugar v. Walter
Arakaki and Steve Swift, Case No. 96-3880-09, discussed above. Plaintiffs
seek, among other things, injunctive and declaratory relief, compensatory
damages, punitive damages, orders of attachment against sales proceeds,
voidance of certain transfers, foreclosure and other remedies in connection
with various transfers of real estate made by Oahu Sugar to APDC, the Young
Men's Christian Association of Honolulu ("YMCA"), and the Filipino
Community Center, Inc. ("FCC"), among others, all over the years 1996-2000.
The YMCA and FCC have also been named defendants in this action and have
filed cross-claims for relief against Oahu Sugar and APDC for alleged
breach of warranty of title, indemnity and contribution in connection with
their respective transactions, and seeking, among other things, damages,
attorneys' fees, costs, and prejudgment interest. Oahu Sugar and APDC have
filed answers to the compliant, as amended, and the cross-claims. Oahu
Sugar and APDC believe they have meritorious defenses and intend to pursue
their defenses vigorously. However, there can be no assurances that this
case, when once adjudicated, will not have a material adverse effect on the
financial condition of Oahu Sugar or APDC.
On October 7, 1999, Oahu Sugar Company was named in a lawsuit
entitled, Akee, et al. v. Dow Chemical Company, et al., Civil No. 99-3757-
10, and filed in Hawaii State Court (Circuit Court of the First Circuit of
Hawaii). This multiple plaintiff toxic tort case named Oahu Sugar and a
number of additional defendants including several large chemical, petroleum
and agricultural companies. In March 2000, Oahu Sugar Company was
dismissed without prejudice.
On September 30, 1999, Oahu Sugar was one of several defendants named
in a lawsuit entitled, City and County of Honolulu v. Leppert, et al.
Civil No. CV 99 00670 ACK-FIY, and filed in the federal court, District of
Hawaii. In the complaint, as amended, plaintiff files this environmental
action in an attempt to assert several causes of action including actions
for (1) clean-up and other response costs under the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA"); (2)
owner/operator liability, contribution and indemnity under Hawaii statutory
law; (3) strict liability for ultrahazardous activity; and (4) negligence.
Plaintiff alleges that defendant Oahu Sugar previously operated a sugar
mill on property currently owned by plaintiff, and used pesticides,
herbicides, fumigants, petroleum products and by-products and other
hazardous chemicals which were allegedly released into the soil and/or
groundwater at the subject property. Plaintiff seeks recovery of response
costs it has incurred and to be incurred, a declaration of the rights and
liabilities for past and any future claims, damages for lost property
value, technical consulting and legal costs in investigating the property,
increased construction costs, and attorneys' fees and costs. Two of the
other defendants, Clinton Churchill and David Heenan, as trustees under the
will and estate of James Campbell ("Campbell Estate"), have filed a third
party complaint, as amended, seeking indemnity and contribution from Oahu
Sugar arising from, among other things, a lease between Oahu Sugar and
Campbell Estate concerning the land which is allegedly contaminated. The
Campbell Estate has also filed a third party compliant, as amended, against
Northbrook Corporation ("Northbrook") seeking a defense and indemnity.
Campbell Estate, Oahu Sugar, and Northbrook filed cross motions for summary
judgment on the third party complaints. On October 27, 2000, the court
ruled that Oahu Sugar, under its 1970 amendment of lease with Campbell
Estate, and Northbrook, under its guaranty of the lease, have an obligation
to defend and indemnify the Campbell Estate for any environmental liability
under specified federal and state environmental law, negligence and strict
liability for ultrahazardous activity, assessed against Campbell Estate as
owner of the subject property due to actions taken by Oahu Sugar on the
property from 1970 forward, only, and not for activities occurring before
1970. The court also ruled that Campbell Estate is entitled to recover its
attorneys' fees, costs, and expenses incurred in establishing its right to
indemnity. On November 6, 2000, Campbell Estate filed a motion for
reconsideration to have the trial court reconsider that portion of its
ruling that relieves Oahu Sugar and Northbrook of the obligation to
indemnify Campbell Estate for the failure to eliminate and cleanup the
alleged contamination to the extent that it occurred prior to 1970. On or
about December 15, 2000, the trial court denied the motion for
reconsideration and the Campbell Estate is seeking to appeal the trial
court's order. The plaintiff on one hand and the Campbell Estate and Oahu
Sugar on the other filed cross motions for partial summary judgment. The
arguments on these motions are scheduled for early April 2001. Trial of
this matter is currently scheduled for September 2001. Oahu Sugar intends
to defend itself vigorously.
On September 30, 1999, Oahu Sugar was named in a related lawsuit
entitled, City and County of Honolulu v. Leppert, et al., Civil No. 99-
3678-09, and filed in Hawaii State Court, Circuit Court for the First
Circuit of Hawaii. Oahu Sugar has been served in this matter. This case is
the same case as the CERCLA action above, except that it asserts causes of
action under the Hawaii Environmental Response Law, the state law
equivalent of CERCLA. The alleged specific causes of action include actions
for (1) owner/operator liability, contribution and indemnity under Hawaii
Revised Statue Section 128D-18; (2) strict liability; (3) negligence, and,
(4) declaratory relief on state claims. On July 3, 2000, the Hawaii state
court issued a stay of this action, pending the outcome of the federal
litigation and subject to various other stated conditions. In any event,
Oahu Sugar intends to vigorously defend itself.
An insurance carrier for Oahu Sugar is partially funding the defense
of these environmental-related cases, subject to a reservation of rights.
Oahu Sugar can give no assurances as to the portion of defense costs and
indemnity costs, if any, that will ultimately be borne by the insurance
carrier.
These environmental-related lawsuits are in the beginning stages of
litigation. The Company believes that Oahu Sugar has meritorious defenses
to these lawsuits and Oahu Sugar will defend itself vigorously. However,
there can be no assurances that these cases (or any of them), when once
adjudicated, will not have a material adverse effect on the financial
condition of Oahu Sugar.
On May 10, 2000, Oahu Sugar was named in a civil action entitled,
Albert and Marciana Kalaikai v. Oahu Sugar, et. al., pending in the Circuit
Court of the First Circuit, State of Hawaii, Civil No. 00-1-1497-05. In
this case, plaintiffs seek damages for alleged asbestos related injuries
sustained, among other things, from exposure to asbestos-containing
products over the course of in excess of forty years and at numerous
locations including the Oahu Sugar mill site over the period of 1950-1960.
The case is in the beginning stages of litigation and Oahu Sugar intends to
defend itself vigorously.
Oahu Sugar is also a defendant in another alleged asbestos related
personal injury action entitled, Anthony Fiori and Stella Fiori v.
Raybestos-Manhattan, filed in the San Francisco County Superior Court, Case
No. 304868, filed on or about July 13, 1999. In the complaint, plaintiffs
seek $3,000 in economic and non-economic damages, as well as $1,000 in
punitive damages, for injuries alleged sustained.
An insurance carrier for Oahu Sugar has agreed to defend Oahu Sugar in
the Kalaikai and Fiori cases, subject to a reservation of rights. Oahu
Sugar can give no assurances as to the portion of the defense costs and
indemnity costs, if any, that will be ultimately borne by the insurance
carrier.
Oahu Sugar is substantially without assets to satisfy any judgments in
these actions. However, the liability, if any, of Oahu Sugar in these
matters should not extend to other subsidiaries.
On or about February 23, 2001 Kekaha Sugar Co., Ltd. received a letter
from the Hawaii Department of Health ("HDOH") assigning the Kekaha Sugar
Co., Ltd. site a high priority status based on HDOH's review of available
environmental data. In the letter, HDOH identified five major areas of
potential environmental concern including the former wood treatment plant,
the herbicide mixing plant, the seed dipping plant, the settling pond, and
the Kekaha Sugar Mill. While setting forth specific concerns, the HDOH
reserved the right to designate still further areas of potential concern
which might require further investigation and possible remediation. HDOH
further reserved the right to modify its prioritization of the site should
conditions warrant. The assignment of the high priority status will likely
result in a high degree of oversight by the HDOH as the issues raised are
studied and addressed. Kekaha Sugar Co., Ltd. will respond to the letter.
Kekaha Sugar Co., Ltd. is substantially without assets and further pursuit
of this matter by HDOH could have a materially adverse effect on the
financial condition of Kekaha Sugar Co., Ltd.
On or about February 23, 2001, Lihue Plantation Co., Ltd. received a
similar letter from the HDOH assigning the Lihue Plantation Co., Ltd. site
a high priority status based on HDOH's review of available environmental
data. In the letter, HDOH identified four major areas of potential
environmental concerning including the Lihue herbicide mixing plant, the
seed dipping plant, the settling pond and the Lihue Sugar Mill. While
setting forth specific concerns, the HDOH reserved the right to designate
still further areas of potential concern which might require further
investigation and possible remediation. HDOH further reserved the right to
modify its prioritization of the site should conditions warrant. As noted
above, the high priority assignment will likely result in a high degree of
oversight by the HDOH as the issues raised are studied and addressed.
APDC has submitted a proposal to HDOH to treat chlorinated solvents
which have been discovered in the groundwater at the former Oahu Sugar
Waipahu Sugar Mill site. The contamination does not appear in high
concentrations, but nevertheless will likely require some form of
remediation. APDC has recommended to HDOH a process of remediation that
will use hydrogen releasing compounds to consume and destroy the
contamination in the known areas of contamination. At this point, APDC is
unable to identify with certainty the treatment options that will be
approved by HDOH or the cost of same.
As a result of an administrative order issued it Oahu Sugar Company by
the Hawaii Department of Health, Order No. CH 98-0012, dated January 27,
1998, Oahu Sugar is currently engaged in environmental site assessment of
lands it leased from the U.S. Navy and located on the Waipio Peninsula.
Sampling is underway and the investigation is otherwise still in its
preliminary stages.
Other than as described above, the Company is not involved in any
material pending legal proceedings, other than ordinary routine litigation
incidental to its business. The Company and/or certain of its affiliates
have been named as defendants in several pending lawsuits. While it is
impossible to predict the outcome of such routine litigation that is now
pending (or threatened) and for which the potential liability is not
covered by insurance, the Company is of the opinion that the ultimate
liability from any of this litigation will not materially adversely affect
the Company's results of operations or its financial condition.
The Company is also involved in other various matters of ordinary
routine litigation and claims. Management, after consultation with legal
counsel, is of the opinion that the Company's liability (if any) for these
routine matters, when ultimately determined, will not have a material
adverse effect on the Company's financial position.
The Company's property segment had contractual commitments (related to
project costs) of approximately $1,330 as of December 31, 2000. Additional
development expenditures are dependent upon the ability to obtain financing
and the timing and extent of property development and sales.
As of December 31, 2000, certain portions of the Company's land not
currently under development are mortgaged as security for $1,976 of
performance bonds related to property development.
(11) INCOME TAXES
Total income tax expense (benefit) for the years ended December 31,
2000, 1999 and 1998 was allocated as follows:
2000 1999 1998
-------- -------- --------
Income (loss) before extra-
ordinary gain. . . . . . . . . . $(43,708) (20,048) (27,759)
Extraordinary gain . . . . . . . . -- 7,203 --
-------- -------- --------
$(43,708) (12,845) (27,759)
======== ======== ========
Income tax expense (benefit) for the years ended December 31, 2000,
1999 and 1998 consists of:
Current Deferred Total
-------- -------- --------
Year ended December 31, 2000:
U.S. federal . . . . . . . . . . . $ (9,946) (27,038) (36,984)
State. . . . . . . . . . . . . . . (1,808) (4,916) (6,724)
-------- -------- --------
$(11,754) (31,954) (43,708)
======== ======== ========
Year ended December 31, 1999:
U.S. federal . . . . . . . . . . . $ (6,167) (10,797) (16,964)
State. . . . . . . . . . . . . . . (1,121) (1,963) (3,084)
-------- -------- --------
$ (7,288) (12,760) (20,048)
======== ======== ========
Year ended December 31, 1998:
U.S. federal . . . . . . . . . . . $ (283) (23,205) (23,488)
State. . . . . . . . . . . . . . . (52) (4,219) (4,271)
-------- -------- --------
$ (335) (27,424) (27,759)
======== ======== ========
In 1999, income tax expense related to the Class B COLA redemption
approximated $7,203. Of this amount, approximately $2,009 was attributable
to current taxes related to the redeemed Class B COLA's from non-affiliated
COLA holders, and, accordingly, was not indemnified by Northbrook through
tax sharing agreement in effect through December 31, 2000 (see note 5).
Current income tax benefit attributable to the Class B COLA's, redeemed
from affiliated COLA holders, of approximately $545 was indemnified by
Northbrook and, accordingly, was included with the 1999 current tax benefit
of $7,833 attributable to loss before extraordinary gain to derive the 1999
capital contribution related to current income taxes.
Income tax benefit differs from the amounts computed by applying the
U.S. federal income tax rate of 35 percent to pretax loss as a result of
the following:
2000 1999 1998
-------- -------- --------
Computed "expected" tax benefit. . . $(33,428) (17,915) (24,324)
Increase (reduction) in income
taxes resulting from:
Pension and Core Retirement
Award expense . . . . . . . . . . 3,504 152 232
Reversal of income tax accruals . . (9,639) -- --
State income taxes, net of
federal income tax benefit. . . . (4,483) (2,056) (2,847)
Other, net . . . . . . . . . . . . . 680 (229) (582)
Charitable deduction of
appreciated property . . . . . . . (342) -- (238)
-------- -------- --------
Total . . . . . . . . . . . . . $(43,708) (20,048) (27,759)
======== ======== ========
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Prior to the APIC transaction (AF Investors' contribution in return for
83.33% of the shares of APIC) the net deferred tax liability included
approximately $15,000 of temporary differences related to APIC's assets and
liabilities. As a result of the APIC transaction such amount is no longer
included in the consolidated financial statements as a deferred tax
liability but reflected at 16.67% in AHI's Investment in unconsolidated
entity, at equity. Significant components of the Company's deferred tax
liabilities and assets as of December 31, 2000 and 1999 are as follows:
2000 1999
-------- --------
Deferred tax (assets):
Postretirement benefits . . . . . . . . . . . . $(16,159) (18,632)
Interest accruals . . . . . . . . . . . . . . . (128) (117)
Cancellation of Debt Income on
COLA tenders. . . . . . . . . . . . . . . . . (5,059) (5,306)
Other accruals. . . . . . . . . . . . . . . . . (4,326) (1,839)
Inventories, principally due to
sugar production costs, capitalized
costs, capitalized interest and
purchase accounting adjustments. . . . . . . (2,445) (2,698)
Plant and equipment, principally due to
valuation adjustments for financial
reporting purposes . . . . . . . . . . . . . . (2,837) --
Deferred gains for financial reporting
purposes . . . . . . . . . . . . . . . . . . . (2,105) --
Investments in unconsolidated entities,
principally due to purchase accounting
adjustments. . . . . . . . . . . . . . . . . . (68) (85)
-------- --------
Total deferred tax assets . . . . . . . . (33,127) (28,677)
-------- --------
2000 1999
-------- --------
Deferred tax liabilities:
Accounts receivable related to profit
on sales of sugar. . . . . . . . . . . . . . 2,455 2,249
Plant and equipment, principally due to
depreciation and purchase accounting
adjustments . . . . . . . . . . . . . . . . . -- 7,305
Land and land improvements, principally
due to purchase accounting adjustments. . . . 37,873 65,665
Deferred gains due to installment sales for
income tax purposes . . . . . . . . . . . . . -- 7,489
-------- --------
Total deferred tax liabilities. . . . . . . 40,328 82,708
-------- --------
Net deferred tax liability. . . . . . . . . $ 7,201 54,031
======== ========
The statutes of limitations with respect to Northbrook's tax returns
for the years 1995 through 1999 remain open. The Company is a subsidiary
of Northbrook and accordingly is subject to tax liability exposure due to
the severally liable nature of responsibility for the payment of taxes for
consolidated tax returns.
For taxable years commencing in 2001, the Company will be responsible
for paying their own income taxes on taxable income generated in 2001 and
thereafter.
(12) SEGMENT INFORMATION
Property, Agriculture and Golf comprise the separate industry segments
of the Company. Operating income (loss)-Other consists primarily of
unallocated overhead expenses and Total assets-Other consists primarily of
cash and deferred expenses.
Total revenues, operating income (loss), assets, capital expenditures,
and depreciation and amortization by industry segment for 2000, 1999 and
1998 are set forth below:
2000 1999 1998
-------- -------- --------
Revenues:
Property . . . . . . . . . . . . $ 37,850 22,181 49,642
Agriculture. . . . . . . . . . . 22,283 30,074 34,551
Golf . . . . . . . . . . . . . . 14,990 14,832 14,485
-------- -------- --------
$ 75,123 67,087 98,678
======== ======== ========
Operating income (loss):
Property:
Reduction to carrying value
of investments in real
estate . . . . . . . . . . . $(15,853) (11,360) (16,805)
Other. . . . . . . . . . . . . (1,435) (801) (15,305)
Agriculture:
Reduction in carrying value
of assets in sugar
operations . . . . . . . . . (22,000) -- --
Other. . . . . . . . . . . . . (22,425) (11,971) (4,049)
Golf . . . . . . . . . . . . . . 3,884 4,039 2,713
Other. . . . . . . . . . . . . . (1,557) (1,760) (2,349)
-------- -------- --------
$(59,386) (21,853) (35,795)
======== ======== ========
2000 1999 1998
-------- -------- --------
Total assets:
Property . . . . . . . . . . . . $102,408 96,937 121,957
Agriculture. . . . . . . . . . . 90,147 169,433 197,288
Golf . . . . . . . . . . . . . . 29,969 76,893 77,644
Other. . . . . . . . . . . . . . 29,763 16,431 34,191
-------- -------- --------
$252,287 359,694 431,080
======== ======== ========
Capital expenditures:
Property . . . . . . . . . . . . $ 108 1,374 13,612
Agriculture. . . . . . . . . . . 2,642 1,348 2,052
Golf . . . . . . . . . . . . . . 239 332 1,932
Other. . . . . . . . . . . . . . 21 -- --
-------- -------- --------
$ 3,010 3,054 17,596
======== ======== ========
Depreciation and amortization:
Property . . . . . . . . . . . . $ 339 614 822
Agriculture. . . . . . . . . . . 2,931 3,590 4,496
Golf . . . . . . . . . . . . . . 1,318 1,315 1,250
Other. . . . . . . . . . . . . . 5 137 4
-------- -------- --------
$ 4,593 5,656 6,572
======== ======== ========
The above information includes the results of operations of the two
Kaanapali Golf Courses for the three years ending December 31, 2000. Total
assets above do not reflect assets relating to the two courses as of
December 31, 2000 (see note 3).
(13) SUBSEQUENT EVENTS
See Notes 6 and 10 for additional subsequent events disclosure.
Effective February 23, 2001, Mr. Grottke resigned as President of
Amfac Hawaii LLC. The Company named Mr. Nickele as his replacement.
On February 28, 2001, an interest payment (representing Mandatory Base
Interest through February 28, 2001) of approximately $2,788 was paid to the
holders of COLAs.
(14) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2000
----------------------------------------------
At 3/31 At 6/30 At 9/30 At 12/31
---------- ---------- ---------- ----------
Total income . . . . . . . $ 16,034 11,099 17,187 30,888
========== ========== ========== ==========
Net earnings (loss). . . . $ (5,200) (7,492) (13,130) (25,977)
========== ========== ========== ==========
1999
----------------------------------------------
At 3/31 At 6/30 At 9/30 At 12/31
---------- ---------- ---------- ----------
Total income . . . . . . . $ 8,546 26,441 18,146 14,739
========== ========== ========== ==========
Net earnings before
extraordinary item . . . $ (4,125) (4,774) (6,691) (15,548)
Extraordinary item . . . . -- 11,243 28 (6)
---------- ---------- ---------- ----------
Net earnings (loss). . . . $ (4,125) 6,469 (6,663) (15,554)
========== ========== ========== ==========
Schedule II
AMFAC HAWAII, LLC
Valuation and Qualifying Accounts
Years ended December 31, 2000, 1999 and 1998
(Dollars in Thousands)
Additions Additions
Balance at Charges to Charges to Balance at
Beginning Cost and Other End
Description of Period Expenses Accounts Deductions of Period
- ----------- ---------- ---------- ---------- ---------- ----------
Year ended December 31, 2000:
- ----------------------------
Allowance for
doubtful
accounts:
Trade
accounts $ 552 182 -- 198 536
Claims and
other -- -- -- -- --
------ ----- ----- ----- -----
$ 552 182 -- 198 536
====== ===== ===== ===== =====
Year ended December 31, 1999:
- ----------------------------
Allowance for
doubtful
accounts:
Trade
accounts $ 595 1 -- 44 552
Claims and
other -- -- -- -- --
------ ----- ----- ----- -----
$ 595 1 -- 44 552
====== ===== ===== ===== =====
Year ended December 31, 1998:
- ----------------------------
Allowance for
doubtful
accounts:
Trade
accounts $ 625 76 -- 106 595
Claims and
other -- -- -- -- --
------ ----- ----- ----- -----
$ 625 76 -- 106 595
====== ===== ===== ===== =====
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with the accountants during
the fiscal years 2000 and 1999.
PART III
ITEM 10. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of December 31, 2000, the managers, executive officers and certain
other officers of the Company were as follows:
Position
Held with
Name the Company
---------- ------------
Judd D. Malkin Chairman
Neil G. Bluhm Vice Chairman
Gary Nickele Manager
Gary Grottke President and Manager
Peggy H. Sugimoto Senior Vice President and
Chief Financial Officer
Tamara G. Edwards Vice President and
Manager
Jeffrey G. Ashmore President of significant
subsidiaries
Certain of these officers are also officers and/or directors of JMB
and numerous affiliated companies of JMB (hereinafter collectively referred
to as "JMB affiliates") and many of such officers are also partners of
certain partnerships (herein collectively referred to as the "Associate
Partnerships") which are associate general partners (or general partners
thereof) in publicly offered real estate limited partnerships. The publicly
offered partnerships in which the Associate Partnerships are partners have
not engaged in the agriculture business and have primarily purchased, or
made mortgage loans securing, existing commercial, retail, office,
industrial and multi-family residential rental buildings. However, certain
partnerships sponsored by JMB and other affiliates of JMB are engaged in
development activities including planned communities, none of which are in
Hawaii.
There is no family relationship among any of the foregoing directors,
managers or officers.
The foregoing managers have been elected to serve one-year terms until
the next annual meeting to be held on the second Tuesday of August 2001 or
until a successor is elected and qualified.
There are no arrangements or understandings between or among any of
said managers or officers and any other person pursuant to which any
manager or officer was selected as such.
The business experience during the past five years of the managers and
such officers of the Company includes the following:
Judd D. Malkin (age 63) has been Chairman of the Company since 1988,
Mr. Malkin is also Chairman of the Board of JMB, an officer and/or director
of various JMB affiliates and an individual general partner of several
publicly offered real estate limited partnerships affiliated with JMB.
Mr. Malkin has been associated with JMB since October 1969. Mr. Malkin was
also Co-Chairman of the Board of Directors (from its inception in 1993
until November 2000) of Urban Shopping Centers, Inc., a real estate
investment trust in the business of owning, managing and developing
shopping centers. He is a Certified Public Accountant.
Neil G. Bluhm (age 63) has been Vice Chairman of the Company since
1994. Mr. Bluhm held various other officer positions with the Company from
1988 through 1993 and served as a Director from November 1989 to January
1994. Mr. Bluhm is also President and director of JMB, an officer and/or
director of various JMB affiliates and an individual general partner of
several publicly offered real estate limited partnerships affiliated with
JMB. Mr. Bluhm has been associated with JMB since August 1970. Mr. Bluhm
was a Co-Chairman of the Board of Directors of Urban Shopping Centers, Inc.
(from its inception in 1993 until December 2000) that is a real estate
investment trust in the business of owning, managing and developing
shopping centers. He is a member of the Bar of the State of Illinois and a
Certified Public Accountant.
Gary R. Grottke (age 45) has been President of the Company since April
1997 and has served as a Manager since August 1996. He was an officer of
JMB from May 1989 to December 1993. Prior to joining JMB in 1989, Mr.
Grottke was a Senior Manager at Peat, Marwick, Mitchell & Co. He holds a
Masters degree in Business Administration from the Krannert School of
Management at Purdue University and is a Certified Public Accountant.
Effective February 23, 2001, Mr. Grottke resigned as President of the
Company.
Gary Nickele (age 48) has been Manager of the Company since August,
2000. Mr. Nickele has been associated with JMB since February, 1984. He
holds a J.D. degree from the University of Michigan Law School and is a
member of the Bar of the State of Illinois.
Peggy H. Sugimoto (age 50) has been Senior Vice President and Chief
Financial Officer of the Company since 1994 and had been Manager from
August 1996 to February 1999. Ms. Sugimoto has been associated with the
Company since 1976. She is a Certified Public Accountant.
Tamara G. Edwards (age 46) has been Vice President of the Company
since August 1996 and has been Manager since February 1999. Ms. Edwards
has been President and Director of several of the subsidiaries since March
1997. Ms. Edwards served as Senior Counsel for the Company from 1995
through 1997. She is a member of the California and Florida Bar
Associations.
Jeffrey G. Ashmore (age 47) has been President of significant
subsidiaries of the Company since April, 2000. Mr. Ashmore was President
of American Machinery, a Hawaii based equipment dealership, from 1993 until
he joined the Company in 2000. He is a Certified Public Accountant.
ITEM 11. EXECUTIVE COMPENSATION
Certain of the officers and managers of the Company listed in item 10
above are officers and/or managers/directors of JMB or Northbrook and are
compensated by JMB, Northbrook, or an affiliate thereof (other than the
Company and its subsidiaries). The Company will reimburse Northbrook, JMB
and their affiliates for any expenses incurred while providing services to
the Company as described under the caption "Description of the COLAs -
Limitations on Mergers and Certain Other Transactions" at pages 42-43 of
the Prospectus, a copy of which is incorporated herein by reference. In
addition, JMB may earn an amount, the Qualified Allowance (as defined), as
described under the caption "Description of the COLAs - Certain
Definitions" at page 51 of the Prospectus, a copy of which is incorporated
herein by reference. See Item 13 below.
SUMMARY COMPENSATION TABLE
Annual Compensation (1)(3)(5)
-------------------------------------
Other
Annual
Compensa-
Principal Salary Bonus tion
Name (2) Position Year ($) (4) ($) ($)
- --------------- --------- ----- ------- ------ ---------
Gary Grottke President 2000 378,000 N/A N/A
and Manager 1999 325,000 N/A N/A
1998 400,000 N/A N/A
Peggy Sugimoto Senior Vice 2000 155,000 50,000 N/A
President 1999 145,000 45,000 N/A
1998 145,000 35,000 N/A
Tamara G. Edwards Vice President 2000 250,000 115,000 N/A
and Manager 1999 150,000 100,000 N/A
1998 135,000 50,000 N/A
Jeff Ashmore President of 2000 159,375 N/A N/A
(5) significant 1999 N/A N/A N/A
subsidiaries 1998 N/A N/A N/A
Scott Nunokawa President of a 2000 93,750 -- 112,500
(6) significant 1999 135,000 -- N/A
subsidiary 1998 26,481 -- N/A
- ----------
(1) The Company does not have a compensation committee. During
2000, 1999 and 1998, Mr. Malkin, Mr. Barber, and Mr. Grottke participated
in the deliberations concerning executive officer compensation.
(2) Includes CEO and 4 most highly compensated executives whose
salary and bonus exceed $100,000.
(3) Salary for Mr. Grottke represents the portion of his total
compensation allocated and charged to the Company by Northbrook.
(4) Compensation (including salary, bonus and severance) for
Chris J. Kanazawa, former Senior Vice President and Director for 1998 was
$199,134. Compensation (including salary, bonus and severance) for Teney
K. Takahashi, former Vice President for 1998 was $177,089.
(5) As Mr. Ashmore was hired by the Company during 2000, the salary
amount disclosed in 2000 in the above table is the amount earned for the
partial year of employment with the Company. Mr. Ashmore's annualized
salary in 2000 had he been employed by the Company for the entire year was
$225,000.
(6) As Mr. Nunokawa was hired by the Company during 1998 and
resigned in 2000, the salary amounts disclosed in 1998 and 2000 in the
above table are the amounts earned for the partial year of employment with
the Company. Mr. Nunokawa's annualized salary in 1998 and 2000 had he been
employed by the Company for the entire year was $135,000 and $150,000,
respectively.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding membership interests of Amfac Hawaii, LLC and
its wholly-owned subsidiaries are owned by Northbrook. Substantially all
of the shares of Northbrook are owned by Amfac Holdco L.L.C., a Delaware
limited liability company ("Holdco"), which was formed as a holding company
by the former Northbrook shareholders during 2000. Approximately 6.4% of
the membership interests of Holdco are owned by JMB and approximately 90.2%
are owned directly or indirectly by individuals who are shareholders or
employees of JMB or members of their families (or trusts for their
benefit). The remaining membership interests are owned by third parties
that are not related to JMB. Randi Malkin Steinberger, Stephen Malkin and
Barry Malkin, individually or through trusts which they control, each have
beneficial ownership of approximately 9.7% of the membership interest of
Holdco. Leslie Bluhm, Andrew Bluhm and Meredith Bluhm, individually or
through trusts which they control, each have beneficial ownership of
approximately 10.0% of the membership interests of Holdco. Kathleen
Schreiber, in her capacity as trustee of various trusts for the benefit of
members of her family, which trusts comprise the managing partners of a
partnership which owns membership interests in Holdco, has beneficial
ownership of approximately 6.1% of the membership interests in Holdco.
Stuart Nathan, Executive Vice President and a director and shareholder of
JMB, and his children, Scott Nathan and Robert Nathan, collectively have
beneficial ownership of approximately 5.1% of the membership interests in
Holdco; each of them, primarily by virtue of their status as general
partners of partnerships which own such shares would also be considered to
individually have beneficial ownership of substantially all of such shares.
The approximately 83% of APIC that is not owned by Amfac Hawaii LLC is
owned in substantially the same manner as Northbrook.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than as contained under Items 10 and 11 above, and this Item 13,
there were no other significant transactions or business relationships with
Northbrook, JMB, affiliates or their management.
The Company, its subsidiaries and the joint ventures in which the
Company or its subsidiaries are partners are permitted to engage in various
transactions involving Northbrook, JMB and their affiliates, as described
under the captions "Description of the COLAs - Limitation on Dividends,
Purchases of Capital Stock and Indebtedness" and "Limitations on Mergers
and Certain Other Transactions" and "Purchase or Joint Venture of
Properties by Affiliates; Development of Properties as Excluded Assets;
Residual Value of Company in Certain Projects" at pages 41-45, and "Risk
Factors - Conflicts of Interest" at page 19 of the Prospectus, a copy of
which descriptions are hereby incorporated herein by reference to
Exhibit 28.1 to the Company's Report on Form 10-K for December 31, 1988
(File No. 33-24180) dated March 21, 1989. The relationship of the Company
(and its managers and executive officers and certain other officers) to its
affiliates is set forth above in Item 10.
The approximately $15 million of remaining acquisition-related
financing owed to affiliates had a maturity date of June 1, 1998 and bore
interest at a rate per annum based upon the prime interest rate (8.5% at
December 31, 1999), plus one percent. In addition to the $52 million
borrowed from Northbrook in 1995 to redeem Class A COLAs pursuant to the
Redemption Offer (see Note 5), the Company had also borrowed approximately
$18.7 million and $9.8 million during 1996 and 1995, respectively, to fund
COLA Mandatory Base Interest payments, ERS interest payments and other
operational needs. These loans from Northbrook were payable interest only,
were to mature on June 1, 1998 and carried an interest rate per annum equal
to the prime interest rate plus two percent. Pursuant to the Indenture
relating to the COLAs, the amounts borrowed from Northbrook are "Senior
Indebtedness" to the COLAs.
In February 1997, the then outstanding balance of the Senior Debt, was
consolidated under a single $104.8 million ten year promissory note,
payable to Northbrook. In addition, in February 1997, the Company borrowed
additional amounts from Northbrook's affiliate Fred Harvey Transportation
Company ("Fred Harvey") under a $30 million revolving credit note. In
1998, the $104.8 million note was replaced by two nine-year notes: (i) a
$99.6 million note, and (ii) a $15 million note (with an initial balance of
$7.9 million). The $99.6 million note was transferred by Northbrook to
Fred Harvey in 1998, and later in 1998, Fred Harvey sold the $30 million
note to Northbrook. These notes were payable interest only until maturity,
had a maturity date of February 17, 2007 and accrued interest at the prime
rate plus 2%.
As of December 31, 1998, the Company agreed to exercise its option to
redeem the Class B COLAs that were "put" to a wholly-owned subsidiary of
Northbrook for repurchase in partial consideration for (a) the agreements
by the Company's affiliates, Fred Harvey Transportation Company ("Fred
Harvey") and AF Investors, to defer until December 31, 2001 all interest
accruing from January 1, 1998 through December 31, 2001 and relating to the
approximately $99.6 million of Senior Indebtedness of the Company then
owing to Fred Harvey and the approximately $47.7 million of Senior
Indebtedness of the Company then owing to AF Investors (see below); and (b)
Northbrook agreeing to cause approximately $55.1 million of the Company's
indebtedness that was senior to the COLAs to be contributed to the capital
of the Company. The redemption was completed on June 1, 1999. In
connection with the foregoing deferral of interest and contribution of
capital, the Company agreed to allow the Senior Debt held by Northbrook and
its affiliates to be secured by substantially all assets of the Company to
the extent such security was requested by Northbrook and its affiliates and
was permitted under any other secured debt of the Company held by third
parties. In connection therewith, Northbrook and its affiliates have
obtained, or are in the process of obtaining mortgages or other security
interests in substantially all of the real and personal property of the
Registrants other than the golf course properties. As a result of the
contribution, in the Company's December 31, 1998 balance sheet, the
"Amounts due to affiliates - senior debt financing" were decreased, and the
Company's "Member's equity (deficit)" was increased, by approximately $55.1
million. The deferral of interest, together with this contribution to
capital, were made as part of the Company's effort to alleviate significant
liquidity constraints and continue to meet the Value Maintenance Ratio
requirement under the Indenture. As discussed above, effective December
29, 2000, the Company entered into a restructuring agreement with the
certain other parties, including the holders of the Senior Debt by which
Northbrook made additional capital contributions to the Company to total
approximately $25 million (including $10 million related to employee
termination costs) and agreed to contribute an additional portion of the
Senior Debt to the Company, with a balance of principal and interest of $25
million as of such date, on December 31, 2006, so long as the new tax
agreement entered into under the Restructuring Agreement is still in force.
On June 1, 1999, the Company borrowed approximately $21.3 million from
AF Investors, LLC ("AF Investors"), an affiliate of the Company, to redeem
a portion of the Class B COLAs pursuant to the Class B COLA Redemption
Offer (see Note 5). Pursuant to the terms of the Indenture, such amount
borrowed from AF Investors is Senior Indebtedness that matures on
December 31, 2008 and bears interest at a rate per annum of prime (9.50% at
December 31, 2000) plus 1% (note deferral of interest discussions in
Note 4). Additional interest may be payable on such Senior Indebtedness
upon its maturity based upon fair market value, if any, of the Company's
equity at that time. Additionally, AF Investors submitted Class B COLAs
pursuant to the Class B Redemption Offer and agreed to take back senior
debt in the amount of $26.4 million from the Company in lieu of cash. Such
Senior Indebtedness matures on December 31, 2008 and bears interest at a
rate per annum equal to prime plus 1% (note deferral of interest discussion
in Note 4). Additional interest may be payable on such senior debt upon
its maturity based upon its fair market value, if any, of the Company's
equity at that time.
In September 1998, the Company purchased Tobishima Pacific, Inc.'s
("TPI") 50% ownership interest in the 96-acre beachfront parcel (commonly
referred to as Kaanapali North Beach) for $12.0 million. The Company paid
$2.4 million in cash and signed a note for $9.6 million. The note is
secured by a mortgage on the property and was in favor of TPI and is
"Senior Indebtedness" (as defined in the Indenture). The note was payable
in five annual installments in the principal amount of $1.9 million
beginning in September 1999. The note bore interest of 8.5% and is payable
quarterly. In January 1999, the Company paid TPI approximately $2.2
million on its note to release Lot #1 for the Kaanapali Ocean Resort and
the new 10-acre public recreation area at North Beach and an additional
$1.9 million in September 1999 as required under the terms of the note. In
October 2000, an affiliate of Northbrook purchased the note for the
outstanding principal and accrued interest aggregating approximately $5.6
million. The Company was negotiating to restructure the debt and the
affiliate agreed to defer the amounts due under the note until the
restructuring was complete. On December 29, 2000, the note was amended to
require quarterly interest payments beginning March 31, 2001 and two
scheduled principal payments of $2.7 each in September of 2002 and 2003
(see Note 4 for further description of such amendment).
In October of 1999, AF Investors paid approximately $.8 million to
assume the lender's position in the loan to the Lihue Plantation Company,
Limited ("Lihue") which was originally used to fund the acquisition of the
Lihue's power generation equipment (see Note 4). The loan had an
outstanding balance of $.8 million on the date of the loan transfer and
bore interest at the rate equal to prime rate plus three and one half
percent. The loan was secured by the Lihue power generation equipment,
sugar inventories and receivables, certain other assets and real property
of the Company, had limited recourse to the Company and certain other
subsidiaries and was "Senior Indebtedness" as defined in the Indenture
relating to the COLAs. The loan was satisfied in full in October 2000.
The total amount due Northbrook and its subsidiaries for Senior Debt
financing as of December 31, 2000 and $193 million, which includes deferred
interest to affiliates on senior debt of approximately $43.7 million (all
of which has been deferred, as described in Note 4). Under the terms of
the Indenture, the amounts borrowed from Northbrook or its affiliates are
"Senior Indebtedness" to the COLAs.
The Company incurred interest expense of approximately $20.2 million,
$14.1 million and $15.4 million for the years ended 2000, 1999 and 1998,
respectively, in connection with the acquisition and additional Senior Debt
financing obtained from affiliates.
With respect to any calendar year, JMB or its affiliates may receive a
Qualified Allowance in an amount equal to 1-1/2% per annum of the Fair
Market Value (as defined) of the gross assets of the Company and its
subsidiaries (other than cash and cash equivalents and Excluded Assets (as
defined)) for providing certain advisory services for the Company. The
aforementioned advisory services, which are provided pursuant to a 30-year
Services Agreement entered into between the Company and JMB in November
1988, include making recommendations in the following areas: (i) the
construction and development of real property; (ii) land use and zoning
changes; (iii) the timing and pricing of properties to be sold; (iv) the
timing, type and amount of financing to be incurred; (v) the agricultural
business; and, (vi) the uses (agricultural, residential, recreational or
commercial) for the land. For the years 1999, 2000 and 2001, JMB has
agreed that the amount of the Qualified Allowance to be calculated shall
not exceed the lesser of the amount described in the preceding sentence and
$5 million. As the Fair Market Value was not determined as of December 31,
2000, no Qualified Allowance is considered to result for 2000 unless and
until such amount may be determined in the future. However, the Qualified
Allowance shall be earned and paid for each year prior to maturity of the
COLAs only if the Company generates sufficient Net Cash Flow to pay Base
Interest to the holders of the COLAs for such year of an amount equal to
8%. Any portion of the Qualified Allowance not paid for any year shall
cumulate without interest and JMB or its affiliates shall be paid such
amount with respect to any succeeding year, after the payment of all
Contingent Base Interest for such year, to the extent of 100% of remaining
Net Cash Flow until an amount equal to 20% of the Base Interest with
respect to such year has been paid, and thereafter, to the extent of the
product of (a) remaining Net Cash Flow, multiplied by (b) a fraction, the
numerator of which is the cumulative deficiency as of the end of such year
in the Qualified Allowance and the denominator of which is the sum of the
cumulative deficiencies as of the end of such year in the Qualified
Allowance and Base Interest. A Qualified Allowance for 1989 of
approximately $6.2 million was paid on February 28, 1990. Approximately
$79.1 million of Qualified Allowance related to the period from January 1,
1990 through December 31, 2000 has not been earned and paid and is payable
only from future Net Cash Flow. Accordingly, because the Company does not
believe it is probable at this time that a sufficient level of Net Cash
Flow will be generated in the future to pay Qualified Allowance, the
Company has not accrued for any Qualified Allowance in the accompanying
consolidated financial statements. JMB has informed the Company that no
incremental costs or expenses have been incurred relating to the provision
of these advisory services. The Company believes that using an incremental
cost methodology is reasonable. The following table is a summary of the
Qualified Allowance for the years ended December 31, 2000, 1999 and 1998
(dollars are in millions):
2000 1999 1998
-------- -------- --------
Qualified Allowance calculated . . . . $ -- 5.0 9.8
Qualified Allowance paid . . . . . . . -- -- --
Cumulative deficiency of Qualified
Allowance at end of year . . . . . . $ 79.1 79.1 74.1
Net Cash Flow was $0 for 2000, 1999 and 1998.
After the maturity date of the COLAs, JMB will continue to provide
advisory services pursuant to the Services Agreement, the Qualified
Allowance for such years will continue to be 1-1/2% per annum of the Fair
Market Value of the gross assets of the Company and its subsidiaries and
the Qualified Allowance will continue to be payable from the Company's Net
Cash Flow. Upon the termination of the Services Agreement, if there has not
been sufficient Net Cash Flow to pay the cumulative deficiency in the
Qualified Allowance, if any, such amount would not be due or payable to
JMB.
The Company, its subsidiaries and their joint ventures, reimburse
Northbrook, JMB and their affiliates for direct expenses incurred on their
behalf, including salaries and salary related expenses incurred in
connection with the management of the Company's or its subsidiaries and the
joint ventures' operations. The total of such costs through December 31,
2000, 1999 and 1998 was $.9 million, $.8 million and $.7 million,
respectively, of which $.9 million was unpaid as of December 31, 2000. In
addition, as of December 31, 2000, the current portion of amounts due
affiliates includes approximately $9.1 million and $2.0 million of income
tax payable related to the Class A Redemption Offer and Class B COLA
Redemption Offer, respectively. Also, the Company pays a non-accountable
reimbursement of approximately $.03 million per month to JMB or its
affiliates in respect of general overhead expense, all of which was paid as
of December 31, 2000.
JMB Insurance Agency, Inc. an affiliate of JMB, earns insurance
brokerage commissions in connection with providing the placement of
insurance coverage for certain of the properties and operations of the
Company. Such commissions are comparable to those available to the Company
in similar dealings with unaffiliated third parties. The total of such
commissions for the years ended December 31, 2000, 1999 and 1998 was
approximately $.4 million, $.6 million and $.6 million, all of which was
paid as of December 31, 2000.
Northbrook and its affiliates allocated certain charges for services
to the Company based upon the estimated level of services for the years
ended December 31, 2000, 1999 and 1998 of approximately $.6 million, $.7
million and $.9 million, respectively, of which $1.2 million was unpaid as
of December 31, 2000. The affiliated charges for the years ended
December 31, 2000, 1999 and 1998 were offset by $.04 million, $.08 million
and $.02 million, respectively, of certain charges for certain expenditures
paid by the Company for Northbrook. These services and costs are intended
to reflect the Company's separate costs of doing business and are
principally related to the inclusion of the Company's employees in the
Northbrook pension plan, payment of severance and termination benefits and
reimbursement for insurance claims paid on behalf of the Company. All
amounts described above, deferred or currently payable, do not bear
interest and are expected to be paid in future periods.
On January 30, 1998, Amfac Finance Limited Partnership ("Amfac
Finance"), an Illinois limited partnership and an affiliate of the Company
extended a tender offer to purchase (the "Class B Tender Offer") up to
$65.4 million principal amount of separately Certificated Class B COLAs
("Separate Class B COLAs") for cash at a unit price of $375 to be paid by
Amfac Finance on each Separate Class B COLA on or about March 24, 1998.
The maximum cash to be paid under the Class B Tender Offer was $49.0
million (130,842 Separate Class B COLAs at a unit price of $375 each).
Approximately 62,857 Separate Class B COLAs were submitted to Amfac Finance
for repurchase pursuant to the Class B Tender Offer requiring an aggregate
payment by Amfac Finance of approximately $23.6 million on March 31, 1998.
In addition, on October 23, 1998, Amfac Finance extended a Tender Offer to
Purchase (the "Class A/B Tender Offer") up to approximately $22.5 million
principal amount of Jointly Certificated Class A and B COLAs (together
"COLA Units") for cash at a unit price of $460 to be paid by Amfac Finance
on each COLA Unit on or about December 23, 1998. The maximum cash to be
paid under the Tender Offer was approximately $12.2 million (26,600 COLA
Units at a unit price of $460 for each COLA Unit). Approximately 26,473
COLA Units were submitted to Amfac Finance for repurchase pursuant to the
Tender Offer requiring an aggregate payment by Amfac Finance of
approximately $12.2 million on December 23, 1998. Neither the Class B nor
the Class A/B Tender Offer reduced the outstanding indebtedness of the
Company. In December 1998, Amfac Finance contributed its COLA Units to AF
Investors. The COLA Units still held by AF Investors remain outstanding
pursuant to the terms of the Indenture. Except as provided in the last
sentence of this paragraph, AF Investors is entitled to the same rights and
benefits of any other holder of COLA Units, including having the right to
have AJF repurchase on June 1, 1999, the separate Class B COLAs that it
owned. AF Investors submitted approximately 64,330 of its 89,325 Class B
COLAs for repurchase pursuant to the Class B Redemption offer. AF
Investors agreed to take back Senior Debt of the Company for the portion of
Class B COLAs so put in lieu of cash. Because AF Investors is an affiliate
of the Company, AF Investors will not be able to participate in determining
whether the holders of the required principal amount of debt under the
Indenture have concurred in any direction, waiver or consent under the
terms of the Indenture.
As a result of the Class B and Class A/B Tender Offers, the Company
recognized approximately $7.9 million and $14.3 million, respectively, of
taxable gain in accordance with income tax regulations for certain
transactions with affiliates. Such gain is treated as cancellation of
indebtedness income for income tax purposes only and, accordingly, the
income taxes related to the Class B Tender Offer (approximately $3.1
million) and Class A/B Tender Offer (approximately $5.6 million) were, or
will be, indemnified by Northbrook through the tax agreement between
Northbrook and the Company (See Note 1 to Notes to the Consolidated
Financial Statements).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
See Index to Financial Statements and Supplementary Data
filed with this report.
(2) Exhibits
See Index to Exhibits, which is incorporated herein by
reference.
(b) Reports on Form 8-K: The following reports on Form 8-K were
filed during the last quarter of the period covered by this report
None.
(c) Exhibits:
The Exhibits required by Item 601 of Regulation S-K are
listed in the Index to Exhibits, which is incorporated herein
by reference.
All other schedules have been omitted since the required information
is presented in the financial statements and the related notes or is not
applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMFAC HAWAII, LLC
By: Gailen J. Hull
Senior Vice President
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Gary Nickele
President and Manager
Date: March 30, 2001
By: Peggy Sugimoto
Senior Vice President,
Chief Financial Officer
Date: March 30, 2001
By: Gailen J. Hull
Senior Vice President and
Principal Accounting Officer
Date: March 30, 2001
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMFAC LAND COMPANY, LTD.
By: Gailen J. Hull
Vice President
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Tamara G. Edwards
President and Director
Date: March 30, 2001
By: Peggy Sugimoto
Vice President
Date: March 30, 2001
By: Gailen J. Hull
Vice President,
Principal Accounting Officer
and Director
Date: March 30, 2001
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMFAC PROPERTY DEVELOPMENT CORP.
By: Gailen J. Hull
Vice President
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Tamara G. Edwards
President and Director
Date: March 30, 2001
By: Peggy Sugimoto
Senior Vice President - Finance
Date: March 30, 2001
By: Gailen J. Hull
Vice President,
Principal Accounting Officer
and Director
Date: March 30, 2001
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMFAC PROPERTY INVESTMENT CORP.
By: Gailen J. Hull
Vice President
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Tamara G. Edwards
President and Director
Date: March 30, 2001
By: Peggy Sugimoto
Senior Vice President - Finance
Date: March 30, 2001
By: Gailen J. Hull
Vice President,
Principal Accounting Officer
and Director
Date: March 30, 2001
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
H. HACKFELD & CO., LTD.
By: Gailen J. Hull
Vice President
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Jeffrey G. Ashmore
President
Date: March 30, 2001
By: Tamara G. Edwards
Vice President and Director
Date: March 30, 2001
By: Peggy Sugimoto
Vice President
Date: March 30, 2001
By: Gailen J. Hull
Vice President,
Principal Accounting Officer
and Director
Date: March 30, 2001
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
KAANAPALI ESTATE COFFEE, INC.
By: Gailen J. Hull
Vice President
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Gary Nickele
President and Director,
Date: March 30, 2001
By: Peggy Sugimoto
Vice President
Date: March 30, 2001
By: Gailen J. Hull
Vice President,
Principal Accounting Officer
and Director
Date: March 30, 2001
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
KEKAHA SUGAR COMPANY, LIMITED
By: Gailen J. Hull
Vice President
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Gary Nickele
Vice President and Director
Date: March 30, 2001
By: Peggy Sugimoto
Vice President
Date: March 30, 2001
By: Gailen J. Hull
Vice President,
Principal Accounting Officer
and Director
Date: March 30, 2001
By: Jeffrey G. Ashmore
President
Date: March 30, 2001
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE LIHUE PLANTATION COMPANY, LIMITED
By: Gailen J. Hull
Vice President
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Gary Nickele
Vice President and Director
Date: March 30, 2001
By: Peggy Sugimoto
Vice President
Date: March 30, 2001
By: Gailen J. Hull
Vice President,
Principal Accounting Officer
and Director
Date: March 30, 2001
By: Jeffrey G. Ashmore
President
Date: March 30, 2001
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
OAHU SUGAR COMPANY, LIMITED
By: Gailen J. Hull
Vice President
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Gary Nickele
President and Director,
Date: March 30, 2001
By: Tamara G. Edwards
Vice President and Director
Date: March 30, 2001
By: Peggy Sugimoto
Vice President
Date: March 30, 2001
By: Gailen J. Hull
Vice President,
Principal Accounting Officer
and Director
Date: March 30, 2001
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PIONEER MILL COMPANY, LIMITED
By: Gailen J. Hull
Vice President
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Gary Nickele
Vice President and Director
Date: March 30, 2001
By: Peggy Sugimoto
Vice President
Date: March 30, 2001
By: Gailen J. Hull
Vice President,
Principal Accounting Officer
and Director
Date: March 30, 2001
By: Jeffrey G. Ashmore
President
Date: March 30, 2001
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PUNA SUGAR COMPANY, LIMITED
By: Gailen J. Hull
Vice President
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Gary Nickele
President and Director
Date: March 30, 2001
By: Tamara G. Edwards
Vice President and Director
Date: March 30, 2001
By: Peggy Sugimoto
Vice President
Date: March 30, 2001
By: Gailen J. Hull
Vice President,
Principal Accounting Officer
and Director
Date: March 30, 2001
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WAIAHOLE IRRIGATION COMPANY, LIMITED
By: Gailen J. Hull
Vice President
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Paul C. Nielsen
President
Date: March 30, 2001
By: Peggy Sugimoto
Senior Vice President
and Director
Date: March 30, 2001
By: Gailen J. Hull
Vice President,
Principal Accounting Officer
and Director
Date: March 30, 2001
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WAIKELE GOLF CLUB, INC.
By: Gailen J. Hull
Vice President
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Tamara G. Edwards
President
Date: March 30, 2001
By: Peggy Sugimoto
Senior Vice President - Finance
and Director
Date: March 30, 2001
By: Gailen J. Hull
Vice President,
Principal Accounting Officer
and Director
Date: March 30, 2001
EXHIBIT INDEX
Exhibit No. Exhibit
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2.1 Agreement and Plan of Merger by and between Amfac/JMB
Hawaii, Inc. and Amfac/JMB Hawaii, L.L.C. dated as of February 27, 1998.
(7)
3.1 Articles of Incorporation of Amfac Property Development
Corp.
3.2 Amended and Restated By-Laws of Amfac Property
Developments Corp. (1)
3.3 Articles of Incorporation of Amfac Property Investment
Corp. (1)
3.4 Amended and Restated By-Laws of Amfac Property
Investment Corp. (1)
3.5 Articles of Incorporation of Amfac Land Company, Limited
(1)
3.6 Amended and Restated By-Laws of Kaanapali Estate Coffee,
Inc. (1)
3.7 Articles of Incorporation of Amfac Agribusiness, Inc.
(1)
3.8 Amended and Restated By-Laws of Kekaha Sugar Company,
Limited. (1)
3.9 Articles of Association of Kekaha Sugar Company,
Limited. (1)
3.10 Amended and Restated By-Laws of The Lihue Plantation
Company, Limited. (1)
3.11 Articles of Association of The Lihue Plantation Company,
Limited (1)
3.12 Amended and Restated By-Laws of Oahu Sugar Company,
Limited. (1)
3.13 Articles of Association of Oahu Sugar Company,
Limited. (1)
3.14 Amended and Restated By-Laws of Pioneer Mill Company,
Limited. (1)
3.15 Articles of Association of Pioneer Mill Company,
Limited. (1)
3.16 Amended and Restated By-Laws of Puna Sugar Company,
Limited. (1)
3.17 Articles of Association of Puna Sugar Company,
Limited. (1)
3.18 Amended and Restated By-Laws of H. Hackfeld & Co., Ltd.
3.19 Articles of Association of H. Hackfeld & Co., Ltd. (1)
3.20 Amended and Restated By-Laws of Waiahole Irrigation
Company, Limited.
3.21 Articles of Incorporation of Waiahole Irrigation
Company, Limited. (1)
Exhibit No. Exhibit
- ----------- -------
4.1 Indenture, including the form of COLAs, among Amfac/JMB
Hawaii, Inc., its subsidiaries as Guarantors and Continental Bank National
Association, as Trustee (dated as of March 14, 1989). (2)
4.2 Amendment dated as of January 17, 1990 to the Indenture
relating to the COLAs. (2)
4.3 The five year $66,000,000 loan with the Employees'
Retirement System of the State of Hawaii to Amfac/JMB Hawaii, Inc. as of
June 25, 1991. (3)
4.4 Amendment to the $66,000,000 loan with the Employees'
Retirement System of the State of Hawaii to Amfac/JMB Hawaii, Inc. as of
April 18, 1996. (4)
4.5 $10,000,000 loan agreement between Amfac Property
Development Corp. and City Bank at December 18, 1996. (5)
4.6 Amended and Restated $25,000,000 loan agreement between
Waikele Golf Club, Inc. Bank of Hawaii dated February 4, 1997. (6)
4.7 Second Supplement to the Indenture dated as of March 1,
1998. (7)
4.8 Third Supplement to the Indenture dated as of
October 16, 2000 is filed herewith.
4.9 Promissory Note A, in replacement of Note #1, in the
amount of $28,370,074.56 between Amfac Hawaii LLC and Fred Harvey
Transportation Company dated December 29, 2000 is filed herewith.
4.10 Promissory Note B, in replacement of Note #1, in the
amount of $68,059,328.34 between Amfac Hawaii LLC and Fred Harvey
Transportation Company dated December 29, 2000 is filed herewith.
4.11 Amended and Restated Promissory Note in the amount of
$26,375,300 between Amfac Hawaii LLC and AF Investors LLC dated December
29, 2000 is filed herewith.
4.12 Amended and Restated Promissory Note in the amount of
$21,318,000 between Amfac Hawaii LLC and AF Investors LLC dated December
29, 2000 is filed herewith.
4.13 Amended and Restated Promissory Note in the amount of
$10,000,000 between Amfac Hawaii LLC and Northbrook Corporation dated
December 29, 2000 is filed herewith.
4.14 Amended and Restated Promissory Note between The Lihue
Plantation Company, Limited and Northbrook Corporation dated December 29,
2000 is filed herewith.
4.15 Amended and Restated Promissory Note between The Lihue
Plantation Company, Limited and Northbrook Corporation dated December 29,
2000 is filed herewith.
4.16 Assignment of Loan Documents between Tobishima Pacific,
Inc. and 900 Investment Management, L.P. dated September 29, 2000 is filed
herewith.
Exhibit No. Exhibit
- ----------- -------
4.17 Assignment of Loan Documents between 900 Investment
Management L.P. and NB Realty Holdings-VI, Inc. dated September 29, 2000 is
filed herewith.
4.18 Note Modification Agreement between Amfac Property
Investment Corp. and NB Realty Holdings-VI, Inc. dated October 2, 2000 is
filed herewith.
4.19 Second Note Modification agreement between Amfac Hawaii
and NB Holdings-VI, Inc. dated December 31, 2000 is filed herewith.
10.1 General Lease S-4222, dated January 1, 1969, by and
between the State of Hawaii and Kekaha Sugar Company, Limited. (1)
10.2 Grove Farm Haiku Lease, dated January 25, 1974 by and
between Grove Farm Company, Incorporated and The Lihue Plantation Company,
Limited. (1)
10.3 General Lease S-4412, dated October 31, 1974, by and
between the State of Hawaii and the Lihue Plantation Company, Limited. (1)
10.4 General Lease S-4576, dated March 15, 1978, by and
between the State of Hawaii and The Lihue Plantation Company, Limited. (1)
10.5 General Lease S-3821, dated July 8, 1964, by and between
the State of Hawaii and East Kauai Water Company, Ltd. (1)
10.6 Amended and Restated Power Purchase Agreement, dated as
of June 15, 1992, by and between The Lihue Plantation Company, Limited and
Citizens Utilities Company. (1)
10.7 U.S. Navy Waipio Peninsula Agricultural Lease, dated
May 26, 1964, between The United States of America (as represented by the
U.S. Navy) and Oahu Sugar Company, Ltd. (1)
10.8 Amendment to the Robinson Estate Hoaeae Lease, dated
May 15, 1967, by and between various Robinsons, heirs of Robinsons,
Trustees and Executors, etc. and Oahu Sugar Company, Limited amending and
restating the previous lease. (1)
10.9 Amendment to the Campbell Estate Lease, dated April 16,
1970, between Trustees under the Will and of the Estate of James Campbell,
Deceased, and Oahu Sugar Company, Limited amending and restating the
previous lease. (1)
10.10 Bishop Estate Lease No. 24,878, dated June 17, 1977, by
and between the Trustees of the Estate of Bernice Pauahi Bishop and Pioneer
Mill Company, Limited. (1)
10.11 General Lease S-4229, dated February 25, 1969, by and
between the State of Hawaii, by its Board of Land and Natural Resources and
Pioneer Mill Company, Limited. (1)
Exhibit No. Exhibit
- ----------- -------
10.12 Honokohau Water License, dated December 22, 1980,
between Maui Pineapple Company Ltd. and Pioneer Mill Company, Limited. (1)
10.13 Water Licensing Agreement, dated September 22, 1980, by
and between Maui Land & Pineapple Company, Inc. and Amfac, Inc. (1)
10.14 Amfac Hawaii Tax Agreement, dated November 21, 1988
between Amfac/JMB Hawaii, Inc., and Amfac Property Development Corp.; Amfac
Property Investment Corp.; Amfac Sugar and Agribusiness, Inc.; Kaanapali
Water Corporation; Amfac Agribusiness, Inc.; Kekaha Sugar Company, Limited;
The Lihue Plantation Company, Limited; Oahu Sugar Company, Limited; Pioneer
Mill Company, Limited; Puna Sugar Company, Limited; H. Hackfeld & Co.,
Ltd.; and Waiahole Irrigation Company, Limited. (2) Amfac-Amfac Hawaii Tax
Agreement, dated February 21, 1989 between Amfac, Inc. and Amfac/JMB
Hawaii, Inc. (2) Services Agreement, dated November 18, 1988, between
Amfac/JMB Hawaii, Inc., and Amfac Property Development Corp.; Amfac
Property Investment Corp.; Amfac Sugar and Agribusiness, Inc.; Kaanapali
Water Corporation; Amfac Agribusiness, Inc.; Kekaha Sugar Company, Limited;
The Lihue Plantation Company, Limited; Oahu Sugar Company, Limited; Pioneer
Mill Company, Limited; Puna Sugar Company, Limited; H. Hackfeld & Co.,
Ltd.; and Waiahole Irrigation Company, Limited and JMB Realty Corporation.
(2)
10.15 Amfac-Amfac Hawaii Tax Agreement, dated February 21,
1989 between Amfac, Inc. and Amfac/JMB Hawaii, Inc. (2)
10.16 Agreement Concerning Amfac - Amfac Hawaii Tax Agreement
by and among Amfac Hawaii LLC and Northbrook Corporation dated November 30,
2000 is filed herewith.
10.17 Tax Agreement by and among Northbrook Corporation and
Amfac Hawaii LLC dated December 29, 2000 is filed here with.
10.18 Contribution Agreement by and among Amfac Property
Investment Corp., Pioneer Mill Company, Limited, Northbrook Corporation, AF
Investors, LLC and Fred Harvey Transportation Company dated November 27,
2000 is filed herewith.
10.19 Restructuring Agreement by and among Amfac Hawaii LLC,
and subsidiaries, Amfac Property Investment Corp., Northbrook Corporation,
AF Investors, LLC, Fred Harvey Transportation Company, Amfac Finance
Limited Partnership and NV Realty Holdings-VI, Inc. dated December 29, 2000
is filed herewith.
10.20 Services Agreement, dated November 18, 1988, between
Amfac/JMB Hawaii, Inc., and Amfac Property Development Corp.; Amfac
Property Investment Corp.; Amfac Sugar and Agribusiness, Inc.; Kaanapali
Water Corporation; Amfac Agribusiness, Inc.; Kekaha Sugar Company, Limited;
The Lihue Plantation Company, Limited; Oahu Sugar Company, Limited; Pioneer
Mill Company, Limited; Puna Sugar Company, Limited; H. Hackfeld & Co.,
Ltd.; and Waiahole Irrigation Company, Limited and JMB Realty Corporation.
(2)
Exhibit No. Exhibit
- ----------- -------
10.21. Assignment and assumption agreement dated September 30,
1998, executed by TPI and APIC. (8)
10.22. Assignment and Contribution Agreement effective
December 31, 1998 between Northbrook Corporation and Amfac/JMB Hawaii,
L.L.C. (9)
10.23. Note Modification Agreement dated December 31, 1998
between Amfac/JMB Hawaii, L.L.C. and Fred Harvey Transportation Company.
(9)
19.0 $35,700,000 agreement for sale of C&H and certain other
C&H assets, to A&B Hawaii, Inc. in June 1993. (7) Subsidiaries of Amfac/JMB
Hawaii, Inc. (1) A copy of pages 19, 41-45 and 51 of the Prospectus of the
Company dated December 5, 1988 (relating to SEC Registration Statement on
Form S-1 (as amended) File No. 33-24180) and hereby incorporated by
reference. (2) Pursuant to Item 6.01 (b)(4) of Regulation SK, the
registrant hereby undertakes to provide the Commission upon its request a
copy of any agreement with respect to long-term indebtedness of the
registrant and its consolidated subsidiaries that does not exceed 10
percent of the total assets of the registrant and its subsidiaries on a
consolidated basis.
(1) Previously filed as exhibits to the Company's Registration
Statement of Form S-1 (as amended) under the Securities Act of 1933 (File
No. 33-24180) and hereby incorporated by reference.
(2) Previously filed as exhibits to the Company's Form 10-K report
under the Securities Act of 1934 (File No. 33-24180) filed on March 27,
1989 and hereby incorporated by reference.
(3) Previously filed as exhibits to the Company's Form 10-Q report
under the Securities Act of 1934 (File No. 33-24180) filed on August 13,
1991 and hereby incorporated by reference.
(4) Previously filed as an exhibit to the Company's Form 10-Q
report under the Securities Act of 1934 (File No. 33-24180) filed May 13,
1996 and hereby incorporated by reference.
(5) Previously filed as exhibit to the Company's Form 10-K report
under the Securities Act of 1934 (File No. 33-24180) filed March 21, 1997
and hereby incorporated by reference.
(6) Previously filed as exhibit to the Company's Form 10-Q report
under the Securities Act of 1934 (File No. 33-24180) filed May 15, 1996 and
hereby incorporated by reference.
(7) Previously filed as exhibit to the Company's Form 8-K report
under the Securities Act of 1934 (File No. 33-24180) filed March 3, 1998
and hereby incorporated by reference.
(8) Previously filed as exhibit to the Company's Form 10-Q report
under the Securities Act of 1934 (File No. 33-24180) filed November 12,
1998 and hereby incorporated by reference.
(9) Previously filed as exhibit to the Company's Form 10-K report
under the Securities Act of 1934 (File No. 33-24180) filed March 8, 1999
and hereby incorporated by reference.
No annual report or proxy material for 2000 was sent to the COLA
holders of the Company. An annual report will be sent to the COLA holders
subsequent to this filing.