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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q
______________________________
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities and Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 1-14020
CASTLE & COOKE, INC
(Exact name of registrant as specified in its charter)
HAWAII 77-0412800
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10900 WILSHIRE BOULEVARD, 16TH FLOOR
LOS ANGELES, CA 90024
(Address of principal executive offices and zip code)
(310) 208-3636
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares Outstanding at November 11, 1996
----- ---------------------------------------
Common Stock, without par value 19,954,725 shares
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CASTLE & COOKE, INC.
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 1996
TABLE OF CONTENTS
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -- September 30, 1996 and December 31, 1995 . . . . 3
Consolidated Statements of Operations -- quarter and nine months ended
September 30, 1996 and September 30, 1995 . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows -- nine months ended
September 30, 1996 and September 30, 1995 . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2
CASTLE & COOKE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30, December 31,
1996 1995
(Unaudited) (Audited)
------------- ------------
Cash and cash equivalents $ 3,547 $ 4,781
Receivables, net 29,748 35,065
Real estate developments 524,700 571,828
Property, plant and equipment, net 437,799 442,162
Other assets 17,003 17,897
---------- ----------
Total assets $1,012,797 $1,071,733
---------- ----------
---------- ----------
Notes payable $ 143,136 $ 185,000
Note payable to Dole 10,000 10,000
Accounts payable 24,907 26,697
Accrued liabilities 35,325 39,917
Deferred income taxes 162,579 178,877
Deferred income and other liabilities 18,267 18,070
---------- ----------
Total liabilities 394,214 458,561
---------- ----------
Preferred stock 35,525 35,000
---------- ----------
Common shareholders' equity
Common stock 511,075 510,953
Retained earnings 71,983 67,219
---------- ----------
Total common shareholders' equity 583,058 578,172
---------- ----------
Total liabilities and shareholders' equity $1,012,797 $1,071,733
---------- ----------
---------- ----------
The accompanying notes are an integral part of
these consolidated balance sheets.
3
CASTLE & COOKE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS (LOSS) PER COMMON SHARE AMOUNTS)
Quarter Ended Nine Months Ended
------------------------- -------------------------
Predecessor Predecessor
(Dole) (Dole)
Sept 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
----------- ----------- ---------- ------------
REVENUES
Residential property sales $32,862 $ 48,192 $136,091 $168,545
Resort revenues 10,431 10,107 40,919 34,059
Commercial and other revenues 48,451 15,099 72,427 37,179
------- --------- -------- --------
Total revenues 91,744 73,398 249,437 239,783
COST OF OPERATIONS
Cost of residential property sales 29,581 39,161 118,502 139,137
Cost of resort operations 16,204 18,064 52,364 55,168
Cost of commercial and other operations 40,035 9,407 56,155 24,508
Write-down of certain properties to fair value - 176,000 - 176,000
General and administrative expenses 3,372 2,726 9,854 9,025
------- --------- -------- --------
Total cost of operations 89,192 245,358 236,875 403,838
------- --------- -------- --------
Operating income (loss) 2,552 (171,960) 12,562 (164,055)
Interest and other income, net 1,164 1,010 2,375 2,398
Interest expense, net 220 - 1,852 -
------- --------- -------- --------
Income (loss) before income taxes 3,496 (170,950) 13,085 (161,657)
Income tax provision (benefit) 1,380 (70,090) 5,168 (66,280)
------- --------- -------- --------
Net income (loss) 2,116 (100,860) 7,917 (95,377)
Preferred stock dividend and accretion (1,046) - (3,153) -
------- --------- -------- --------
Net income (loss) available to
common shareholders $ 1,070 $(100,860) $ 4,764 $(95,377)
------- --------- -------- --------
Earnings (loss) per common share $ 0.05 $ (5.06) $ 0.24 $ (4.78)
------- --------- -------- --------
------- --------- -------- --------
Average number of common shares outstanding
for 1996 and proforma for 1995 19,955 19,952 19,954 19,952
------- --------- -------- --------
------- --------- -------- --------
The accompanying notes are an integral part of
these consolidated financial statements.
4
CASTLE & COOKE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Nine Months Ended
-------------------------------
Predecessor
(Dole)
September 30, September 30,
1996 1995
------------- -------------
Cash Flows from Operating Activities:
Net income (loss) $ 7,917 $ (95,377)
Adjustments to reconcile net income to cash flow
provided by (used in) operating activities:
Write-down of certain properties to fair value - 176,000
Gain on sale of property, plant, and equipment (4,193) -
Depreciation and amortization 12,908 19,156
Other 75 -
Changes in operating assets and liabilities:
Decrease in deferred income taxes (16,298) (66,438)
Decrease in receivables, net 5,317 1,217
Decrease (increase) in real estate developments 27,786 (21,248)
Decrease in accounts payable (1,790) (10,382)
Decrease in accrued liabilities (4,323) (2,116)
Net change in other assets and liabilities 1,007 (3,431)
-------- ---------
Net cash provided by (used in) operating activities 28,406 (2,619)
-------- ---------
Cash Flows from Investing Activities:
Proceeds from sale of property, plant, and equipment 36,231 -
Acquisition of property, plant and equipment (21,157) (10,031)
-------- ---------
Net cash provided by (used in) investing activities 15,074 (10,031)
-------- ---------
Cash Flows from Financing activities:
Net reductions under revolving loan agreement (41,864) -
Proceeds from exercise of stock options 47 -
Preferred stock dividends paid (2,897) -
Contribution from Dole, net - 14,373
-------- ---------
Net cash (used in) provided by financing activities (44,714) 14,373
-------- ---------
Net (Decrease) increase in cash and cash equivalents (1,234) 1,723
Cash and cash equivalents at beginning of period 4,781 1,404
-------- ---------
Cash and cash equivalents at end of period $ 3,547 $ 3,127
-------- ---------
-------- ---------
Supplemental cash flow data
- ---------------------------
Interest paid $ 9,172 $ -
Income taxes paid 21,466 -
The accompanying notes are an integral part of
these consolidated financial statements.
5
CASTLE & COOKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by
Castle & Cooke, Inc. ("the Company"), without audit, and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results of operations for the quarters and nine months
ended September 30, 1996 and September 30, 1995, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures in such financial statements are
adequate to make the information presented not misleading. The consolidated
financial statements should be read in conjunction with the Company's
financial statements and the notes thereto for the year ended December 31,
1995, included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
The Company was formed on October 10, 1995 to be the successor of the assets
and related liabilities of the real estate and resorts business of Dole Food
Company, Inc. and its subsidiaries ("Dole"). On December 28, 1995, Dole
completed the separation of its real estate and resorts business from its
food business through a pro rata distribution of the stock of the Company to
its shareholders.
The consolidated statements of operations and cash flows contained herein for
periods prior to December 28, 1995 are those of Dole and have been prepared
on the basis that the assets and liabilities of the real estate and resorts
business were transferred using historical carrying values as recorded by
Dole and present the Company's results of operations and cash flows as
derived from Dole's historical financial statements.
The Company's operating results are subject to significant variability as a
result of, among other things, the receipt of regulatory approvals, status of
development in particular projects and the timing of sales in developed
projects, income producing properties, and non-income producing properties.
The results of operations for the quarter ended September 30, 1996, are not
necessarily indicative of the results to be expected for the full year.
Operating results for 1995 have been restated to reflect results from January
1, 1995 to September 30, 1995. Results were previously reported for the
former parent's fiscal quarter ended October 7, 1995.
NOTE 2. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are contingently liable as joint indemnitors
to surety companies for subdivision, off-site improvement and construction
bonds issued on their behalf.
The Company is a defendant in several lawsuits arising in the normal course
of business. In the opinion of management, the final resolution of these
lawsuits will not have a material adverse effect on its financial position or
results of operations.
6
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REVENUES
Third quarter consolidated revenues increased from $73.4 million in 1995 to
$91.7 million in 1996, and consolidated revenues for the first nine months of
the year increased from $239.8 million in 1995 to $249.4 million in 1996.
Third quarter residential property sales decreased 32% from $48.2 million in
1995 to $32.9 million in 1996. Residential property sales for the first nine
months of the year decreased 19% from $153.5 million in 1995 to $124.9
million in 1996, excluding the sale of approximately 3,000 acres of
agricultural land in Bakersfield for $11.2 million in the second quarter of
1996 and the apartment complex sale in Bakersfield for $15.0 million in the
first quarter of 1995. The decreases in the residential property sales are
primarily due to a decrease in both deliveries and the average price per
home sold. Third quarter deliveries decreased from 162 homes in 1995 to 112
homes in 1996 and deliveries for the first nine months decreased from 510
homes in 1995 to 408 in 1996. The average price per home decreased in the
third quarter from $258,000 in 1995 to $246,000 in 1996, and the average
price per home decreased in the first nine months from $266,000 in 1995 to
$260,000 in 1996. The decrease in both deliveries and the average price per
home sold was primarily due to a soft residential market in Oahu. Resort
revenues for the first nine months increased 20% to $40.9 million in 1996
from $34.1 million in 1995. This increase was primarily due to improved
occupancy and room rates at the resorts and increased resort residential
revenues of $3.0 million. Third quarter commercial and other revenues
decreased 27% from $15.1 million in 1995 to $11.0 million in 1996, excluding
the sale of three Mississippi apartment complexes and the sale of a
commercial office building in Bakersfield which generated $37.5 million in
revenues. This decrease in revenues is primarily due to the sale of the
revenue producing properties mentioned above and an adjustment in the third
quarter of 1995 related to the normalization of rents for certain leases.
COST AND EXPENSES
Third quarter consolidated cost of operations before the write-down of
certain properties to fair value increased from $69.4 million in 1995 to
$89.2 million in 1996, and consolidated cost of operations for the first nine
months increased from $227.8 million in 1995 to $236.9 million in 1996. The
cost of residential property sales as a percentage of residential property
sales increased from 81% in the third quarter of 1995 to 90% in 1996. The
cost of residential property sales as a percentage of residential property
sales increased from 81% in the first nine months of 1995 to 87% in 1996,
excluding the agricultural land sale in 1996 and the Bakersfield apartment
complex sale in 1995. The increases are primarily due to aggressive
marketing programs and sales incentives used in the Oahu operations which
have been necessary to stimulate activity in the soft market. The
agricultural land sale generated approximately $1.9 million in operating
income and the apartment complex was sold for a slight gain. Third quarter
cost of resort operations decreased from $18.1 million to $16.2 million in
1996 primarily due to a $1.9 million reduction in depreciation that resulted
from the $168 million writedown of certain long-lived resort assets recorded
at the end of the third quarter of 1995. Cost of resort operations for the
first nine months decreased from $55.2 million in 1995 to $52.4 million in
1996 primarily due to a $6.1 million reduction in depreciation partially
offset by increased costs related to increased resort residential sales
activity. For the first nine months of 1996, the resort residential sales
program reported $.5 million in operating income as compared to a ($.5)
million operating loss in 1995. Depreciation for resorts in the third quarter
and the first nine months of the year was $2.0 million and $6.3 million in
1996, respectively, and $3.9 million and $12.4 million in 1995, respectively.
In addition, a significant portion of the resort operation's costs are fixed
and, accordingly, do not increase proportionately as occupancy and resort
revenues increase.
7
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COST AND EXPENSES (CONTINUED)
Third quarter cost of commercial and other operations decreased from $9.4
million in 1995 to $6.7 million in 1996, excluding the sale of the
Mississippi apartment complexes and the sale of the commercial office
building in Bakersfield. The decrease in cost is primarily due to the
assumption of certain operating costs in 1996 at the Dole Center by a large
developer and operator of factory outlet centers who has a 50-year master
space lease, and to the sale of the income producing properties mentioned
above. The sale of the Mississippi apartment complexes and the Bakersfield
commercial office building generated approximately $4.2 million in operating
income during the third quarter of 1996.
During the third quarter of 1995, the Company reviewed certain of its real
estate and resort holdings to determine whether expected future cash flows
(undiscounted and without interest charges) from each property would result
in the recovery of the carrying amount of such property. The review focused
on the Lana'i resort properties due to certain adverse developments affecting
such properties that occurred subsequent to the Company's 1994 year end.
These developments included the slower than expected pace of home sales at
the Koele project during 1995, delays encountered in June of 1995 in
obtaining necessary permits for the Manele Bay project, and disappointing
occupancy results at the Manele Bay Hotel during the third quarter of 1995.
Under Statement of Financial Standards No. 67- "Accounting for Costs and
Initial Rental Operations of Real Estate Projects (SFAS 67)," the Lana'i
resort properties would have been written down by approximately $91 million
to their net realizable value as of September 30, 1995. However, in the
third quarter of 1995, Castle elected to adopt Statement of Financial
Accounting Standards No. 121- "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed of (SFAS 121)," which requires
impaired property to be written down to fair value. In accordance with SFAS
121, an impairment loss of $168 million (pre-tax) was recorded in the
accompanying statement of operations in the third quarter of 1995. The fair
value of the resort properties was based on a combination of discounted cash
flow projections and comparable independent sales for similar assets. In
addition, an impairment loss of $8 million (pre-tax) was recorded in the
third quarter of 1995 for certain other residential properties that were also
determined to be impaired.
Third quarter general and administrative costs increased from $2.7 million in
1995 to $3.4 million in 1996. For the first nine months general and
administrative costs increased from $9.0 million in 1995 to $9.9 million in
1996. The increase is primarily due to increased corporate expenses in 1996
which were previously absorbed by the Company's former parent in 1995 and to
additional corporate costs incurred as a separate, publicly held company in
1996, partially offset by decreased incentive compensation related to the
Oahu operations.
Total interest incurred in the third quarter and the first nine months of
1996 was $2.8 million and $9.5 million, respectively. Total interest
capitalized into real estate development in the third quarter and first nine
months of 1996 was $2.6 million and $7.7 million, respectively. The increase
in interest expense is due to the debt incurred in connection with the
Company's separation from its former parent in December of 1995.
8
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET INCOME AND EARNINGS PER SHARE
The dividend and accretion relates to the $35 million cumulative preferred
stock issued in connection with the Company's separation from its former
parent in December of 1995.
The Company's effective income tax rate decreased to 39.5% in 1996 from 41%
in 1995. This decrease is due to a lower effective tax rate subsequent to
the Company's separation from its former parent in December of 1995.
Excluding the write-down of certain properties to fair value in 1995, third
quarter net income available to common shareholders decreased from $2.9
million in 1995 to $1.1 million in 1996, and net income available to common
shareholders for the first nine months decreased from $8.5 million in 1995 to
$4.8 million in 1996. These decreases are primarily due to the lower
operating results described above.
BACKLOG
The Company's new orders and backlog for homes for 1996 compared to 1995 were
as follows:
Quarter Ended Nine Months Ended
------------------------- -------------------------
Predecessor Predecessor
(Dole) (Dole)
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
----------- ----------- ---------- ------------
Units
Backlog at beginning of the period 121 171 133 207
Add: new orders 139 351 423 663
Less: deliveries 112 162 408 510
-------- ------- -------- --------
Backlog at end of the period 148 360 148 360
-------- ------- -------- --------
-------- ------- -------- --------
Dollars
Backlog at beginning of the period $ 33,801 $53,193 $ 34,298 $ 61,203
Add: new orders 36,627 82,001 114,765 167,810
Less: deliveries 27,604 41,760 106,239 135,579
-------- ------- -------- --------
Backlog at end of the period $ 42,824 $93,434 $ 42,824 $ 93,434
-------- ------- -------- --------
-------- ------- -------- --------
The decrease in new orders and deliveries in 1996 is due to a soft
residential housing market in Oahu.
9
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital to operate its resorts, purchase and develop
land, construct homes and homesites and to acquire, develop and operate
commercial property.
In connection with the separation from its former parent company in December
of 1995, the Company entered into a Credit Agreement with a syndicate of
banks pursuant to which the banks agreed to provide the Company a three year
revolving Credit Facility of up to $240 million until March of 1997 at which
time the Credit Facility will be reduced to $140 million. In the second
quarter of 1996, the Company voluntarily reduced the available amount of the
revolving Credit Facility to $190 million in order to benefit from a lower
effective interest rate. Due to the sale of the Bakersfield commercial
office building in the third quarter of 1996, the available amount of the
revolving credit facility was further reduced to $186.2 million. The Credit
Facility bears interest at a variable rate based on the London Interbank
Offered Rate ("LIBOR") or at an alternative rate based upon a designated
Bank's prime rate or the federal funds rate. At September 30, 1996, total
borrowings under this facility were $143 million and the weighted average
interest rate was 7.3%.
As of September 30, 1996 the Company was not in compliance with a certain
covenant connected of it's Credit Facility. Subsequent to September
30, 1996, the Company obtained a waiver as of September 30, 1996 from the
required banks relating to this covenant.
During the nine months ended September 30, 1996, the Company generated $28.4
million in cash flow from operating activities, as compared to the
corresponding period in 1995 during which the Company used $2.6 million. The
increase is primarily due to the timing of development expenditures at the
Hawaii residential operations and resort operations, increased resort
revenues, and the sale of 3,000 acres of agricultural land in Bakersfield for
$11.2 million, partially offset by decreased residential revenues in Oahu and
the sale of the Bakersfield apartment complex in 1995. During the nine months
ended September 30, 1996, the company generated $15.1 million in cash from
investing activities, as compared to the corresponding period in 1995 during
which the company used $10.0 million. The increase was due to the net cash
proceeds of $36.2 million from the sale of the Mississippi apartment
complexes and the Bakersfield office building in the third quarter of 1996,
partially offset by increased capital spending of $11.2 million in 1996 as
compared to 1995. The increased spending was primarily due to capital
improvements at the Dole Center, The Market Place, and the construction of a
new clubhouse at the Pueblo del Sol Golf Course.
The Company believes that funds available under the revolving Credit Facility
and cash generated from operations combined with selective sales of
commercial and other properties from time to time will be adequate for its
short-term and long-term cash needs. There can be no assurance, however,
that the amounts available from such sources will be sufficient. The Company
may be required to seek additional capital in the form of public equity or
debt offerings or from a variety of potential sources, including additional
bank financing.
10
CASTLE & COOKE, INC.
PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No.
-------
27 Financial Data Schedule
(b) Reports on Form 8-K
THE REGISTRANT FILED NO REPORTS ON FORM 8-K DURING THE QUARTER
ENDED SEPTEMBER 30, 1996.
All other items required under Part II are omitted because they are not
applicable.
11
CASTLE & COOKE, INC.
SIGNATURES
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.
CASTLE & COOKE, INC.
Registrant
Date: November 11, 1996 BY EDWARD C. ROOHAN
-----------------------------
Edward C. Roohan
Vice President and
Chief Financial Officer
(Principal financial officer
and accounting officer)
12