SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q/A
AMENDMENT NO. 1
Filed pursuant to Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 33-24180
AMFAC HAWAII, LLC
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Hawaii 36-3109397
(State of organization) (IRS Employer Identification No.)
900 N. Michigan Ave., Chicago, IL 60611
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312-440-4800
The undersigned registrant hereby amends the following section of its
Report for the quarter ended March 31, 2002 on Form 10-Q as set forth in
the pages attached hereto:
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS - Pages 4 - 24
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMFAC HAWAII, L.L.C.
/s/ GAILEN J. HULL
------------------
By: Gailen J. Hull
Senior Vice President
Dated: May 31, 2002
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMFAC HAWAII, LLC
Consolidated Balance Sheets
March 31, 2002 and December 31, 2001
(Dollars in Thousands)
MARCH 31, DECEMBER 31,
2002 2001
(Unaudited) (Note 1)
------------- -----------
A S S E T S
- -----------
Current assets:
Cash and cash equivalents . . . . . $ 5,881 9,973
Receivables, net. . . . . . . . . . 1,330 2,028
Inventories . . . . . . . . . . . . 5,094 5,209
Prepaid expenses. . . . . . . . . . 377 103
Escrow deposits and restricted
funds . . . . . . . . . . . . . . 6,184 6,490
-------- --------
Total current assets. . . . . 18,866 23,803
-------- --------
Property, plant and equipment:
Land and land improvements. . . . . 102,851 103,590
Machinery and equipment . . . . . . 26,217 26,514
-------- --------
129,068 130,104
Less accumulated depreciation
and amortization. . . . . . . . . 28,411 28,323
-------- --------
100,657 101,781
-------- --------
Deferred expenses, net. . . . . . . . 4,334 4,493
Other assets. . . . . . . . . . . . . 25,494 23,912
-------- --------
$149,351 153,989
======== ========
4
AMFAC HAWAII, LLC
Consolidated Balance Sheets - Continued
MARCH 31, DECEMBER 31,
2002 2001
(Unaudited) (Note 1)
------------- -----------
L I A B I L I T I E S
- ---------------------
Current liabilities:
Accounts payable. . . . . . . . . . $ 2,163 1,989
Accrued expenses. . . . . . . . . . 10,608 9,207
Current portion of long-term
debt. . . . . . . . . . . . . . . 2,850 2,850
Amounts due to affiliates . . . . . 11,658 11,684
Amounts due to affiliates -
Senior Debt financing in default. 186,355 183,378
Certificate of Land Appreciation
Notes in default. . . . . . . . . 139,413 139,413
-------- --------
Total current liabilities . . 353,047 348,521
-------- --------
Amounts due to affiliates -
Senior Debt financing . . . . . . . 2,730 2,730
Accumulated postretirement
benefit obligation. . . . . . . . . 30,738 33,118
Other long-term liabilities . . . . . 8,453 9,071
Deferred income taxes . . . . . . . . 9,994 8,603
-------- --------
Total liabilities . . . . . . 404,962 402,043
-------- --------
Commitments and contingencies
(notes 2, 3, 4, 6, 7 and 8)
Investment in unconsolidated entity,
at equity . . . . . . . . . . . . . 11,258 11,168
M E M B E R ' S E Q U I T Y (D E F I C I T )
- ------------------------------------------------
Member's equity (deficit) . . . . . . (266,869) (259,222)
-------- --------
Total Member's equity
(deficit) . . . . . . . . . (266,869) (259,222)
-------- --------
$149,351 153,989
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
5
AMFAC HAWAII, LLC
Consolidated Statements of Operations
Three Months Ended March 31, 2002 and 2001
(Dollars in Thousands)
(Unaudited)
2002 2001
-------- --------
Revenue:
Agriculture . . . . . . . . . . . . . . . $ 664 2,565
Property. . . . . . . . . . . . . . . . . 860 19,322
Golf. . . . . . . . . . . . . . . . . . . -- 1,247
-------- --------
1,524 23,134
-------- --------
Cost of sales:
Agriculture . . . . . . . . . . . . . . . (734) 742
Property. . . . . . . . . . . . . . . . . 200 19,404
Golf. . . . . . . . . . . . . . . . . . . -- 778
-------- --------
(534) 20,924
Operating expenses:
Selling, general and administrative . . . 2,697 2,123
Depreciation and amortization . . . . . . 384 924
-------- --------
Total costs and expenses. . . . . . . . . . 2,547 23,971
Operating income (loss) . . . . . . . . . . (1,023) (837)
-------- --------
Non-operating income (expenses):
Amortization of deferred costs. . . . . . (167) (176)
Interest expense. . . . . . . . . . . . . (4,425) (6,719)
Restructuring costs . . . . . . . . . . . (616) --
Loss on investment in unconsolidated
subsidiary. . . . . . . . . . . . . . . (90) (83)
Interest income . . . . . . . . . . . . . 65 188
-------- --------
(5,233) (6,790)
-------- --------
Loss before taxes . . . . . . . . . . . (6,256) (7,627)
-------- --------
Income tax benefit (expense). . . . . . . (1,391) 2,928
-------- --------
Net income (loss) . . . . . . . . . . . $ (7,647) (4,699)
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
6
AMFAC HAWAII, LLC
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2002 and 2001
(Dollars in Thousands)
(Unaudited)
2002 2001
-------- --------
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . $ (7,647) (4,699)
Items not requiring (providing) cash:
Depreciation and amortization . . . . . 384 924
Amortization of deferred costs. . . . . 167 176
Amortization of unrecognized
actuarial gain (note 7) . . . . . . . (1,975) --
Loss on investment in unconsolidated
subsidiary. . . . . . . . . . . . . . 90 83
Income tax benefit. . . . . . . . . . . 1,391 (2,928)
Interest on advances from affiliates. . 2,977 5,036
Interest on Certificate of
Land Appreciation Notes . . . . . . . 1,394 --
Changes in:
Restricted cash . . . . . . . . . . . . . 306 434
Receivables - net . . . . . . . . . . . . 698 731
Inventories . . . . . . . . . . . . . . . 733 18,762
Prepaid expenses. . . . . . . . . . . . . (274) (1,139)
Accounts payable. . . . . . . . . . . . . 174 (1,435)
Accrued expenses. . . . . . . . . . . . . 7 (2,235)
Amounts due to affiliates . . . . . . . . (26) 288
Other long-term liabilities . . . . . . . (530) (1,957)
-------- --------
Net cash provided by (used in)
operating activities. . . . . . . (2,131) 12,041
-------- --------
Cash flows from investing activities:
Property additions. . . . . . . . . . . . -- (5)
Property sales, disposals and
retirements - net . . . . . . . . . . . 1 27
Other assets. . . . . . . . . . . . . . . (1,461) (450)
Other long-term liabilities . . . . . . . (493) (159)
-------- --------
Net cash provided by (used in)
investing activities. . . . . . . (1,953) (587)
-------- --------
Cash flows from financing activities:
Deferred expenses . . . . . . . . . . . . (8) (30)
Net (repayments) proceeds of
long-term debt. . . . . . . . . . . . . -- (248)
Net amounts due to affiliates . . . . . . -- (10,538)
-------- --------
Net cash provided by (used in)
financing activities. . . . . . . (8) (10,816)
-------- --------
Net increase (decrease) in
cash and cash equivalents . . . . (4,092) 638
Cash and cash equivalents,
beginning of year . . . . . . . . 9,973 9,660
-------- --------
Cash and cash equivalents,
end of period . . . . . . . . . . $ 5,881 10,298
======== ========
7
AMFAC HAWAII, LLC
Consolidated Statements of Cash Flows - Continued
2002 2001
-------- --------
Supplemental disclosure of cash flow
information:
Cash paid for interest (net of
amount capitalized) . . . . . . . . . . $ 54 3,915
======== ========
Schedule of non-cash investing and
financing activities:
Transfer of property actively held
for sale to real estate inventories . $ 618 1,482
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
8
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements
March 31, 2002 and 2001
(unaudited)
(Dollars in Thousands)
Readers of this quarterly report should refer to the Company's audited
financial statements for the fiscal year ended December 31, 2001, which are
included in the Company's 2001 Report on Form 10-K, as certain footnote
disclosures which would substantially duplicate those contained in such
audited financial statements have been omitted from this report.
All reference to "Notes" are to Notes to the Consolidated Financial
Statements contained in this report.
(1) 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 changed its name
from Amfac/JMB Hawaii, L.L.C. in March 2001. On February 27, 2002, AHI,
certain of the Additional Registrants and certain other subsidiaries and
affiliates (collectively, the "Debtors") of AHI filed voluntary petitions
under Chapter 11 of the United States Bankruptcy Code. These petitions
have been consolidated for joint administration as a single case (the
"Reorganization Case") in the U.S. Bankruptcy Court for the Northern
District of Illinois. The Debtors filed their petitions in order to enable
them to restructure their debt and convert substantial portions thereof to
equity in an attempt to successfully reorganize with a manageable balance
sheet. Except for current portion of long-term debt, accumulated post
retirement benefit obligation and income taxes, substantially all of the
Company's liabilities in the accompanying consolidated balance sheet at
March 31, 2002, are subject to compromise under the Plan of Reorganization
(the "Plan").
The primary business activities of the Company have been 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
5,100 acres of land primarily located on the island of Maui 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 leased
approximately 3,100 acres of land that was primarily used in conjunction
with its agricultural operations. Due to the shutdown of the Company's
remaining sugar plantations, the Company filed a motion in the
Reorganization Case to reject such lease, which was granted by the court
and an order entered on April 2, 2002. The Company's operations are
subject to significant government regulation.
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") has been responsible for the Company's remaining
agricultural activities (the Company's remaining sugar plantations were
shut down at the end of 2000 and in September 2001 the Company announced a
winding down of its coffee operations). The real estate segment
("Property") has been 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") has been responsible for the management
9
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
and operation of the Company's golf course facilities. However, as
described below, a receiver was appointed on March 19, 2002, to manage the
two Royal Kaanapali Golf Courses on Maui. 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 that are material to its
business.
Due to the unpredictable nature of the timing and amount of land sales
and the seasonal nature of the agricultural operations, the Company has
experienced, and expects to continue to experience, significant variability
in quarterly revenues and costs of sales. The results of any interim
period are not necessarily indicative of the results that can be expected
for the entire year.
The consolidated financial statements include the accounts of AHI and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. The Company records
its minority investment in Amfac Property Investment Corp. ("APIC") on the
equity method of accounting. 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 a general partner, the Company is contingently liable
for the obligations of its partnership and joint venture investments.
The Company's policy is to consider all amounts held with original
maturities of three months or less in U.S. Government obligations,
certificates of deposit and money market funds (approximately $2,872 and
$8,483 at March 31, 2002 and December 31, 2001, respectively) as cash
equivalents that are reflected at cost, which approximates market. In
addition, escrow deposits and restricted funds ($6,184 and $6,490 at March
31, 2002 and December 31, 2001, respectively), represents cash which was
restricted primarily to fund, among other things, certain liabilities (note
6).
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
(principally real estate under development) 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. No interest costs
have been capitalized for the three months ended March 31, 2002 and 2001.
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.
Impairment losses are 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. Land held for sale of approximately $4,876 is
included in inventory in the accompanying consolidated balance sheets at
March 31, 2002 and December 31, 2001, and is carried at the lower of cost
or fair value less cost to sell.
10
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
During the third quarter of 2001, the Company reduced the carrying
value of three land parcels and recorded a $13,725 impairment loss to
reflect the estimated market value of those parcels. During the third
quarter of 2001, the Company recognized impairment losses of $4,384 on
property, plant and equipment, inventory and other assets formerly used in
its agriculture operation. Such losses have been reflected as reduction in
carrying value of assets in operations.
The Company's principal remaining land holdings are in the
Kaanapali/Honokowai area of Maui, referred to by the Company as its
"Kaanapali 2020" project. The Company's ability to generate revenue from
these land holdings in excess of its recorded investment is subject to
obtaining necessary development approvals and its ability to develop and
sell the land holdings in the normal course of business.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information (which assume
that the Company will continue as a going concern) and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31,
2002 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2002.
Certain amounts in the 2001 financial statements have been
reclassified to conform to the 2002 presentation.
(2) AMOUNTS DUE TO AFFILIATES - SENIOR DEBT FINANCING
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 3). Under the Indenture, the Company is entitled to borrow
certain amounts from third parties, including affiliates, 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.
FHT Corporation ("FHT"), an affiliate of Northbrook, is the holder of
a Senior Debt note with an outstanding balance of principal and interest of
approximately $100,345. This note is payable interest only until maturity,
has a maturity date of February 17, 2007 and accrues interest at the prime
rate (4.75% at March 31, 2002) plus 2%. The 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
11
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
for anticipated cash needs for the twelve months following the property
sales. As a result of such sales in 2001, prepayments aggregating $6,048
were made on such note in the third and fourth quarters of 2001. Due to
the filing of the Reorganization Case, FHT will have a claim against the
Debtors in an aggregate amount of approximately $99,756. It is not
expected that such claim will be paid in full.
Northbrook is the holder of a Senior Debt note with an outstanding
balance of principal and interest of approximately $27,773. This note is
payable interest only until maturity, has a maturity date of February 17,
2007 and accrues interest at the prime rate (4.75% at March 31, 2002) plus
2%. This note defers interest until December 31, 2006. Due to the filing
of the Reorganization Case, Northbrook will have a claim against the
Debtors in an aggregate amount of approximately $27,610. It is not
expected that such claim will be paid in full.
AF Investors is the holder of two Senior Debt notes from the Company,
each dated December 29, 2000, but given in replacement for previously
issued notes, one in the original principal amount of $21,318, and one
dated May 31, 1999 in the original principal amount of $26,375, each amount
borrowed in connection with the redemption by the Company of Class B COLAs
on June 1, 1999. Such Senior Debt notes were scheduled to mature on
December 31, 2008 and bore interest at a rate per annum of prime plus 1%.
Interest on such Senior Debt was deferred through December 31, 2001. The
replacement notes accrue interest at the prime rate (4.75% at March 31,
2002) plus 1%, but 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. As a result of the
property sales in 2001, prepayments aggregating $3,487 were made on the
notes in the third and fourth quarters of 2001. Under the terms of these
notes, 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. Due to the filing of the Reorganization Case, AF Investors will
have a claim against the Debtors in an aggregate amount of approximately
$57,224. It is not expected that such claim will be paid in full.
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 (4.75% at December 31, 2001) 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, provide that such notes are due
on demand. 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. During 2001, an
additional $217 was advanced by Northbrook.
12
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
Northbrook also holds a note in the original principal amount of
$9,600, dated September 30, 1998, originally made by Tobishima Pacific,
Inc.'s ("TPI") and subsequently purchased from TPI by an affiliate of
Northbrook. The note is secured by a mortgage on the Company's 50%
ownership interest in the 96-acre beach-front parcel (commonly referred to
as Kaanapali North Beach "the Property") and is "Senior Indebtedness" (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 was payable quarterly. The note was
subsequently 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. In October 2001,
Northbrook purchased the note from its affiliate for the then outstanding
balance of principal and accrued interest aggregating approximately $5,500
and also demanded a principal payment of $2,300 which was paid the Company
in October 2001. The note remains secured by AHI's 50% undivided interest
in the Property with such entire property also mortgaged as security for
the other Senior Debt.
The Company has provided 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.
The total amount due Northbrook and its subsidiaries for Senior Debt
financing as of March 31, 2002 was $189,085 which includes accrued and
deferred interest to affiliates on Senior Debt of approximately $49,057.
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 $46,077 of such deferred
interest relating to all Senior Debt existing prior to the modification of
Senior Debt in December 2000 would have become due and payable on December
31, 2001, but was deferred beyond such date by restatements of the notes in
December 2000 that amended the terms of the notes. Even though it was
hoped that the agreements by Northbrook and its affiliates to further defer
interest under the Senior Debt would assist the Company in the completion
of potential future development activities, it became apparent that
additional debt would be needed in order for the Company to have the
liquidity anticipated to be necessary to pursue its business plan. Thus,
the Debtors filed the Reorganization Case in February 2002. (See
discussion of Reorganization Case). As a consequence, all Senior Debt and
COLAs are now in default.
13
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
(3) 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.
The COLAs mature on December 31, 2008. Reference is made to the Company's
Annual Report on Form 10-K for discussion of the issuance and redemption
history of the COLAs. The COLAs are scheduled to 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
2001. Due to the filing of the Reorganization Case, the holders of COLAs
will have a claim against the Debtors aggregating approximately $142,200
including accrued and unpaid interest. It is not expected that such claim
will be paid in full and there is significant likelihood that no recovery
will be had on the COLAs unless a plan of reorganization is approved by the
Bankruptcy Court that provides for such a recovery. From and after the
filing of the Reorganization Case in February 2002, the Company does not
anticipate accruing any further interest on the COLAs. Approximately
$100,221 of cumulative deficiency of deferred Contingent Base Interest
related to the period from August 31, 1989 (Final Issuance Date) through
December 31, 2001 has not been accrued in the accompanying consolidated
financial statements as the Company believes that it is not probable at
this time that any Contingent Base Interest will ultimately be paid. The
following table is a summary of Mandatory Base Interest and Contingent Base
Interest for the three months ended March 31, 2002 and the year ended
December 31, 2001:
Three Months The Year
Ended Ended
March 31, December 31,
2002 2001
------------- ------------
Mandatory Base Interest paid. . . . . . $ -- 5,576
Contingent Base Interest due and paid . -- --
Cumulative deferred Contingent Base
Interest. . . . . . . . . . . . . . . $ -- 100,221
Net Cash Flow was $0 for 2001 and is expected to be $0 for 2002.
As of March 31, 2002, 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.
14
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
The Company 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. The
Company received a Notice of Default on June 1, 2001 from the Trustee
regarding the Company's non-delivery of the appraisals and Value
Maintenance Ratio. On October 18, 2001, the Trustee notified the Company
that it had failed to cure the Default described in the June 1, 2001 notice
and that an Event of Default exists. The notice acknowledged that the
Company intended to propose a restructuring of the COLAs subject to
resolution of defaults under the ERS loan. The Trustee indicated that it
expected to participate in the review and discussion of the terms of any
proposed restructuring and has been in contact with the Company regarding
due diligence relating to such review.
During the fourth quarter of 2001, the Trustee commenced its due
diligence review and entered into discussions with the Company and the
holders of the Senior Debt. In connection with such negotiations, the
Company agreed to pay the reasonable costs incurred by the Trustee
(primarily legal fees and the fees and expenses incurred by the Trustee's
financial advisor) for such review and negotiations. Such negotiations
resulted in agreement between the Company and the Trustee on a framework
for a plan of reorganization (the "Plan") and a commitment by the Trustee
to support confirmation of such Plan in the Reorganization Case. The Plan
and a supporting disclosure statement (the "Disclosure Statement") was
filed initially with the Bankruptcy Court on April 23, 2002, and they have
been amended and restated by a later filing on May 10, 2002. Such amended
and restated Plan and Disclosure Statement have been filed as exhibits to
this report and reference is made thereto for a description of the terms of
the Plan and significant considerations in connection therewith. A hearing
to consider whether the Disclosure Statement contains adequate information
has been scheduled for June 5, 2002. Following such hearing, the Plan must
be submitted to holders of unpaid claims including COLA holders for
approval in accordance with the Bankruptcy Code. Thereafter the Bankruptcy
Court will consider approval of the Plan. Therefore, there can be no
assurance that such Plan will ultimately be approved or the ultimate terms
thereof. Failure of any plan of reorganization to be approved by the
Bankruptcy Court and the requisite classes of creditors, such that a final
order implementing such plan is not entered, would likely result in the
attempt by the holders of the Senior Debt to foreclose on their security
and the liquidation of the Company.
As a consequence of the filing of the Chapter 11 cases on February 27,
2002, the interest payment on the COLAs that was due on February 28, 2002
was not made. On March 11, 2002 the Trustee sent to the Company and COLA
holders a "Notice of Chapter 11 Filing, Non-Payment of Scheduled Interest
Payment, and Negotiation of Term Sheet with Respect to Treatment of
Noteholder and Other Claims." The notice stated, among other things, that
the Chapter 11 filing and the failure to pay interest on the scheduled debt
service date, constitute Events of Default under Section 7.01 of the
Indenture. Section 7.05 of the Indenture provides that the Noteholders
holding a majority in principal amount of outstanding Notes may direct the
Trustee as to the time, method, and place of conducting any proceeding for
any remedy available to the Trustee. The Noteholders' ability to direct
the Trustee is subject to Sections 7.06 and 8.02 of the Indenture, which
state that the Noteholders must provide the Trustee with reasonable
indemnity before the Trustee need follow the direction of the Noteholders.
The exercise of remedies by the Trustee is also subject to the automatic
stay imposed on all creditors under Section 362 of the United States
Bankruptcy Code.
15
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
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.
(4) LONG-TERM DEBT
In December 1996, Amfac Property Development Corp. ("APDC"), a wholly-
owned subsidiary of the Company, obtained a $10,000 loan facility from City
Bank. The loan which had been extended through December 1, 2000 with
certain modifications, is secured by a mortgage on certain 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). Such
extended loan bore interest at the bank's base rate plus 1.25%. 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 leaving a remaining outstanding principal balance of $2,850. On
December 1, 2001, APDC reached an agreement with the bank for an additional
extension until March 1, 2002. APDC is continuing talks with the bank for
a further extension and renegotiation of the loan. The extended loan bears
interest at the bank's base rate of 4.75% at March 31, 2002 plus 2%. APDC
does not 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 owned and operated the Waikele Golf Course,
refinanced the Waikele Golf Club in 1997 with a loan facility with the Bank
of Hawaii (as agent for itself and other lenders) in the original principal
amount of $25,000. This loan facility had a maturity date of February
2007, an interest rate of LIBOR plus 2% until the fifth anniversary and
LIBOR plus 2.25% thereafter, principal amortization based on a 30-year
amortization period, was secured by substantially all of the assets of
Waikele Golf Club, Inc., was guaranteed by AHI and was "Senior
Indebtedness" (as defined in the Indenture). At that level of
indebtedness, it was not anticipated that the cash flow of the golf course
could continue to service the debt. In an effort to renegotiate the loan,
the Company commenced discussions with the lender during the third quarter
of 2001. As a result of such negotiations, the lenders agreed to sell the
loan to the Company, at a substantial discount, for a purchase price of
$13,000 and released AHI from its guarantee obligation. The purchase price
approximated the fair market value of the golf course at the time. The
loan purchase agreement also gave the Company the option to simply pay off
the loan at the discounted amount. Though the Company had sufficient cash
to close the sale, it was necessary for it to recover such amount promptly
in order to replenish its cash balances to pay its other obligations and
pursue its business plan. Therefore, the Company entered into a sale
agreement with a newly formed subsidiary of Northbrook, whereby such
subsidiary agreed to purchase the golf course from the Company for $13,000.
Such transactions closed in December 2001, at which time the Company paid
off the Bank of Hawaii loan for $13,000 immediately prior to the purchase
of the property by such subsidiary. The outstanding balance on the Bank of
Hawaii loan on the closing date was approximately $23,800. This transaction
resulted in a loss of $15,137 to the Company for financial reporting
purposes, and a $10,653 extraordinary gain from extinguishment of debt was
also recognized.
16
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
(5) SEGMENT INFORMATION
Agriculture, Property and Golf comprise 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 assets at the balance sheet dates and
capital expenditures, operating income (loss) and depreciation and
amortization during the three months ended March 31, 2002 and 2001 are set
forth below by each industry segment:
March 31, December 31,
2002 2001
--------- ------------
Total Assets:
Agriculture . . . . . . . . . . . . . $ 64,869 64,760
Property. . . . . . . . . . . . . . . 69,084 67,410
Golf. . . . . . . . . . . . . . . . . -- --
Other . . . . . . . . . . . . . . . . 15,398 21,819
-------- --------
$149,351 153,989
======== ========
Three Months Ended
March 31,
------------------------
2002 2001
-------- --------
Capital Expenditures:
Agriculture . . . . . . . . . . . . . $ -- 5
Property. . . . . . . . . . . . . . . -- --
Golf. . . . . . . . . . . . . . . . . -- --
-------- --------
$ -- 5
======== ========
Operating income (loss):
Agriculture . . . . . . . . . . . . . $ 884 986
Property. . . . . . . . . . . . . . . (801) (1,348)
Golf. . . . . . . . . . . . . . . . . -- 93
Other . . . . . . . . . . . . . . . . (1,106) (568)
-------- --------
$ (1,023) (837)
======== ========
Depreciation and amortization:
Agriculture . . . . . . . . . . . . . $ 363 686
Property. . . . . . . . . . . . . . . 21 22
Golf. . . . . . . . . . . . . . . . . -- 216
Other . . . . . . . . . . . . . . . . -- --
-------- --------
$ 384 924
======== ========
The above information includes the results of operations of the two
Kaanapali Golf Courses for the three months ending March 31, 2001. Total
assets above do not reflect assets relating to the two courses as of
March 31, 2002 and December 31, 2001. The above information also includes
the results of operations of the Waikele Golf Club the three months ending
March 31, 2001; however, total assets above do not reflect assets relating
to the Waikele Golf Club as of March 31, 2002 and December 31, 2001.
17
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
(6) TRANSACTIONS WITH AFFILIATES
Due to the filing of the Reorganization Case, the Company does not
expect to pay the Qualified Allowance (as defined in the Indenture) that
could, under certain circumstances, become payable to JMB Realty
Corporation ("JMB"), an affiliate of the Company, under the Indenture.
Accordingly, the Company has not accrued any amount for its Qualified
Allowance in the accompanying consolidated financial statements. For 2001,
JMB has agreed that the Qualified Allowance shall in no event exceed
$5,000. As the Fair Market Value was not determined as of December 31,
2000, no Qualified Allowance was considered to result for 2001. However,
the Company continues to receive and pay for services from JMB under a
service agreement by which JMB provides certain advisory and administrative
services.
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 three
months ended March 31, 2002 and 2001 was approximately $461 and $264,
respectively, of which $228 was unpaid as of March 31, 2002. All amounts
described above, deferred or currently payable, do not bear interest and
are expected to be paid in future periods. In addition, as of March 31,
2002, 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 3). 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 March 31, 2002.
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 three months ended March 31, 2002 and 2001 was
approximately $32 and $118, respectively, and were generally paid by the
Company's third party insurance carriers out of premiums received from the
Company for such coverage.
Northbrook and its affiliates allocated certain charges for services
to the Company based upon the estimated level of services for the three
months ended March 31, 2002 and 2001 of approximately $5 and $39,
respectively, of which $327 (including charges from periods prior to
March 31, 2002) was unpaid as of March 31, 2002. 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.
18
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
Under a tax agreement with Northbrook, the Company and its
subsidiaries are responsible for paying their own income taxes on taxable
income generated in 2001 and thereafter. Northbrook has agreed to
contribute the replacement Senior Debt it holds, dated December 29, 2000,
with an outstanding balance of principal and interest of $27,773 on
December 31, 2006, if the new tax agreement remains in effect at that time.
However, due to the filing of the Chapter 11 cases, such note is in default
and Northbrook is entitled to make a claim thereon. The Senior Debt notes
held by Northbrook and its affiliates also require the Company and
subsidiaries to make prepayments 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. As a result of
property sales in 2001, prepayments aggregating $9,500 were made on the
Senior Debt in 2001. (See note 2 for a further description of the Senior
Debt.)
In connection with the restructuring of the Company's Senior Debt held
by Northbrook and its affiliates in December 2000, Northbrook agreed that
it would cause the Northbrook sponsored pension plan to provide early
retirement window benefits that reduced the Company's cash requirements
relative to the shutdown of the remaining sugar plantations on Kauai.
Approximately $5,545 of such benefits were paid by the pension plan in
2000, which were treated as a capital contribution to the Company by
Northbrook. An additional $4,200 of anticipated benefits were reflected as
a liability at December 31, 2000, to be reflected as additional capital
contributions when such benefits were paid by the plan. As of December 31,
2001, an additional $3,222 of such benefits had been paid and therefore
were added to capital during 2001. The remaining $978 is reflected as a
liability at March 31, 2002 in the accompanying financial statements. Such
restructuring also required the Company to reserve $8,000 as restricted
cash for the purpose, among other things, of meeting certain liabilities.
The balance of such restricted cash is $5,955 at March 31, 2002.
Reference is made to Note 2 - Amounts Due to Affiliates - Senior Debt
Financing.
(7) EMPLOYEE BENEFIT PLANS
The Company participates in retirement benefit plans sponsored and
maintained by Northbrook covering employees of Northbrook and certain of
its affiliates including substantially all of the Company's employees.
These plans provide benefits based primarily on length of service and
compensation levels.
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
19
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
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. Depending upon the outcome of the
Reorganization Case, the Company expects to continue funding its post-
retirement health care obligations through the end of 2004, and its post-
retirement life insurance benefits until the Company determines to
terminate such benefit program.
The amount reflected as the decrease in the Maintenance of Effort
obligation 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. Though the contractual obligation to fund such benefits
for retirees of Puna Sugar Company, Limited has expired, the Company
currently expects to continue such benefits through 2004 to the extent
required to satisfy certain regulatory requirements.
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 March 31, 2002, which is included in the
financial statements as a liability, and the disproportionate relationship
between the unrecognized gain and accumulated postretirement benefit
obligation at March 31, 2002, 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.
(8) COMMITMENTS AND CONTINGENCIES
The Company continues to face a severe liquidity shortage that has
ultimately resulted in the filing of the Reorganization Case in February
2002. 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, a parcel in Hanamaulu, Kauai also in the first quarter of
2001, additional parcels in Hanamaulu, Kauai in the second quarter of 2001
and additional parcels in Hanamaulu and Lihue on Kauai in the third quarter
of 2001, which provided funds to the Company to help meet its short term
liquidity needs. Some of such funds were used to satisfy Senior Debt
prepayments as demanded by the holders of such Senior Debt. However, the
Company believes that, in the absence of additional land sales, additional
senior debt borrowings from Northbrook or its affiliates would have been
necessary to meet its current COLA related obligations and its short-term
and long-term liquidity needs. As Northbrook and such affiliates are
unwilling to provide additional liquidity to the Company in the absence of
20
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
an overall restructuring of substantially all of the Company's debt, the
AHI Debtors were forced to seek relief from the Bankruptcy Court in order
to reduce their debt to manageable levels and give themselves the
opportunity to pursue their land development and sales activities in a
manner intended to maximize the value of the Company's remaining land
assets.
On February 27, 2002, AHI and the other Debtors filed separate
petitions for voluntary relief under Chapter 11 of the U.S. Bankruptcy
Code. The other Debtors include FHT, which is a subsidiary of Northbrook
but not a subsidiary of AHI, and the following direct and indirect
subsidiaries of AHI (together with AHI, the "AHI Debtors"), some of which
are Registrants: Amfac Land Company, Limited, Pioneer Mill Company,
Limited, The Lihue Plantation Company, Limited, Kaanapali Estate Coffee,
Inc., KDCW, Inc., Amfac Holdings Corp., Kaanapali Development Corp. and
Waikele Golf Club, Inc. Other subsidiaries and affiliates of AHI,
including for example Oahu Sugar Company, Limited, APIC and APDC, did not
file separate voluntary petitions.
At the time of the filing of the Reorganization Case, AHI had a total
outstanding Senior Debt obligation (principal and accrued interest) to
Northbrook and its affiliates of approximately $188,017 and its outstanding
COLA obligation (principal and accrued interest) totaled approximately
$142,185. Under the Indenture, the Senior Debt held by Northbrook and its
affiliates is senior to the COLAs. Moreover, as described below, the
Senior Debt is supported by mortgages and other security interests on
substantially all of the Company's real property and certain other assets.
These obligations were guaranteed by all of the Company's significant
subsidiaries, including those that are not AHI Debtors in the
Reorganization Case.
The total debt burden evidenced by these obligations alone had proved
unmanageable and was draining the Company of cash needed to pursue its
business plan, including entitling the Company's approximately 4,000
remaining acres "Mauka" of the Kannapali Resort area. During 2002,
additional interest payments on the COLAs are due in the aggregate amount
of approximately $5,500. In addition, substantial amounts of deferred
interest payments under the Senior Debt were also coming due. Because it
was evident that the Debtors would not have the cash resources to satisfy
their respective obligations, let alone to pursue the Company's business
plan, the Reorganization Case was filed in order to give the Debtors the
opportunity to restructure their debt and equity and emerge as a
reorganized group of companies. Thus, as a consequence of the filing, the
interest payment on the COLAs that was due on February 28, 2002 was not
made.
The Debtors and the holders of Senior Debt engaged in extensive
negotiations with the Trustee during the months preceding the filing. Such
negotiations included the Trustee hiring legal counsel and a financial
advisor to perform due diligence concerning the Debtors' assets. Such
negotiations resulted in the agreement of the Trustee and the Debtors on
the framework for a plan. A copy of the notice that the Trustee sent to
21
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
all holders of COLAs that describe such negotiations was reported by the
Company on a Form 8-K on March 20, 2002. The Debtors have filed their
proposed Plan and supporting Disclosure Statement with the Bankruptcy Court
on April 23, 2002, and filed a restated Plan and Disclosure Statement on
May 10, 2002. Following approval of the Disclosure Statement, the holders
of COLAs (among other classes of interested parties) will have the
opportunity to vote on the Plan. The Plan and Disclosure Statement, as
amended, if and when approved by the Bankruptcy Court, will govern the
reorganization of the Debtors.
In the meantime, the filing of the Reorganization Case has stayed all
pending litigation against the Debtors. Though the Bankruptcy Court has
entered certain orders at the request of the Debtors that will permit them
to pay certain "pre-petition" amounts and otherwise operate at their
discretion in the ordinary course of business, the Debtors intend to
carefully review all of their options in that regard. The Debtors continue
to operate their business after the filings in the ordinary course, subject
to the jurisdiction of the Bankruptcy Court and the requirements of the
Bankruptcy Court and the rules thereunder.
In the third quarter of 2000, 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, together with labor costs that were significantly in excess of
those borne by other non-Hawaiian sugar producers supplying the domestic
market. 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 and 2001. The Company sold
certain of its field and mill equipment associated with the closed
facilities during 2001 and the first quarter of 2002, but due to the age
and condition of the equipment, the forced nature of the sale and
significant transaction costs, the Company did not obtain significant net
proceeds from such sales.
In the third quarter of 2001, management announced its intention to
discontinue coffee farming activities based upon the Company's prior
financial losses (which were expected to continue for the foreseeable
future), high production costs and current economic uncertainties including
record-low commodity coffee prices. Such events have entailed employee and
closing costs similar to, though not as substantial as, those connected
with the shutdown of the Company's sugar operations.
The Company faces large contingent cash expenditures of (i) the cost
of the litigation and environmental matters described below 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. However, some of such matters have
been stayed by the filing of the Reorganization and others are likely to be
reduced in the event that the Plan is approved by the Bankruptcy Court.
22
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
As a consequence of the shutdown of the Company's sugar operations on
Kauai, Gay & Robinson, Inc. ("G&R") is the sole remaining sugar grower on
the island. In April 2001, the Company entered into a series of Agreements
with G&R, and Hawaii Sugar and Transportation Cooperative ("HSTC"), of
which G&R is a member, whereby (1) G&R would sell and deliver bagasse (a
sugar byproduct) to the Company (as available) for the Company to burn to
generate electric power at the Lihue Plantation power plant, as required by
the Company's power purchase agreement with Kauai Electric (the "PPA"), (2)
the Company would store the raw sugar and molasses produced by G&R and sold
to HSTC in the Company's storage facility in Lihue, subject to a contract
with HSTC and a guaranty of such contract and indemnification by G&R, and
(3) the Company would grant G&R an option to purchase the storage facility
at fair market value, so long as the option was exercised before July 31,
2001. G&R provided the Company with notice that it intended to exercise
the option, which triggered an arbitration process that resulted in a sale
price for the facility of $2,300. The sale of the storage facility closed
in October 2001. As a result of the sale, a $2,300 payment was made by
AHI, during October 2001, on the note payable to Northbrook and secured by
AHI's interest in the North Beach property (see note 2).
As reflected in the Company's March 31, 2002, balance sheet,
approximately $186,355 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 the Company
and APIC, and due to the adverse verdict in the Oahu Sugar V. Arakaki and
Swift lawsuit described under Part II. "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 had agreed that the
defaults described above would continue but that the Senior Debt holders
would not exercise their remedies against the Company and its subsidiaries
based upon those defaults until either ERS obtains a judgment, or attempts
to exercise certain remedies, against the Company, or unless necessary to
protect the holders' superior rights under the Senior Debt against the
plaintiffs in the Swift/Arakaki lawsuit. It is anticipated that the claims
of the holders of the Senior Debt will be resolved in the Reorganization
Case as to the Debtors. As to entities that are not Debtors but that are
liable on the Senior Debt, there can be no assurance that the Senior Debt
holders will not pursue their remedies under 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 2000, the Company borrowed approximately $5,576 from Northbrook for
purposes of satisfying the Mandatory Base Interest payments related to the
COLAs due in 2000. During 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
(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 2 for a
description of the amendments to such notes). Moreover, as a condition to
23
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
the additional Senior Debt loans made by Northbrook and its affiliates
commencing in 1999, the Company 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 March 31, 2002 had an outstanding balance of
principal and accrued interest of approximately $189,085 is senior in
priority to the COLA's and is guaranteed by each of AHI and its
subsidiaries (except Waikele Golf Club, Inc. due to provisions of the third
party debt owed by that Company prior to its sale of the Waikele Golf Club
in December 2001).
The Company's Property segment had contractual commitments (related to
project costs) of approximately $3,550 as of March 31, 2002. Additional
development expenditures are dependent upon the Company's ability to obtain
financing for such costs and on the timing and extent of property
development and sales.
As of March 31, 2002, certain portions of the Company's land not
currently under development are mortgaged as security for approximately
$618 of performance bonds related to property development.
(9) INCOME TAXES
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.
The amount of temporary differences related to APIC's assets and
liabilities, is reflected in the consolidated financial statements as a
deferred tax liability at 16.67% in the Company's Investment in
unconsolidated entity, at equity.
The statutes of limitations with respect to Northbrook's tax returns
for the years 1998 through 2001 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 and will generally be protected for years
through 2000 by Northbrook respecting the tax liabilities for such years
generated by Northbrook and its consolidated affiliates rather than the
Company.
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.
24