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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(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 MARCH 31, 1998
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 May 11, 1998
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Common Stock, without par value 20,005,674 shares
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CASTLE & COOKE, INC.
FORM 10-Q
FOR THE QUARTER ENDED
MARCH 31, 1998
TABLE OF CONTENTS
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1998
and December 31, 1997 ....................................... 3
Consolidated Statements of Operations -- Three months
ended March 31, 1998 and March 31, 1997 ..................... 4
Consolidated Statements of Cash Flows -- Three months
ended March 31, 1998 and March 31, 1997 ..................... 5
Notes to Consolidated Financial Statements .................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ......................... 12
SIGNATURES .............................................................. 13
2
CASTLE & COOKE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, December 31,
1998 1997
(Unaudited) (Audited)
------------- ------------
Cash and cash equivalents $ 3,568 $ 1,612
Receivables, net 32,088 30,530
Real estate developments 513,809 506,784
Property and equipment, net 464,753 460,919
Other assets 21,711 19,415
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Total assets $ 1,035,929 $ 1,019,260
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------------- ------------
Notes payable $ 187,969 $ 176,101
Note payable to Dole 10,000 10,000
Accounts payable 20,064 18,162
Accrued liabilities 28,436 28,263
Deferred income taxes 176,983 176,357
Deferred income and other liabilities 27,268 26,633
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Total liabilities 450,720 435,516
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Common shareholders' equity
Common stock 511,685 511,616
Retained earnings 73,524 72,128
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Total common shareholders' equity 585,209 583,744
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Total liabilities and shareholders' equity $ 1,035,929 $ 1,019,260
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------------- ------------
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)
Three Months Ended
March 31,
-------------------------
1998 1997
--------- ----------
REVENUES
Residential and other property sales $ 26,777 $ 26,927
Resort revenues 17,340 15,002
Commercial and other revenues 13,133 12,249
--------- ----------
Total revenues 57,250 54,178
COST OF OPERATIONS
Cost of residential and other property sales 24,603 24,161
Cost of resort operations 18,732 18,233
Cost of commercial and other operations 7,860 7,288
General and administrative expenses 3,194 3,636
--------- ----------
Total cost of operations 54,389 53,318
--------- ----------
Operating income 2,861 860
Interest and other income, net 110 371
Interest expense, net 888 375
--------- ----------
Income before income taxes 2,083 856
Income tax provision (687) (338)
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Net income 1,396 518
Preferred stock dividend and accretion - (1,050)
--------- ----------
Net income (loss) available to common shareholders $ 1,396 $ (532)
--------- ----------
Basic earnings (loss) per common share $ 0.07 $ (0.03)
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--------- ----------
Diluted earnings (loss) per common share $ 0.07 $ (0.03)
--------- ----------
--------- ----------
Average number of common shares outstanding 20,003 19,956
--------- ----------
--------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
4
CASTLE & COOKE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended
---------------------------
March 31, March 31,
1998 1997
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,396 $ 518
Adjustments to reconcile net income to cash flow
provided by operating activities:
Depreciation and amortization 4,627 4,351
Changes in operating assets and liabilities:
Increase in receivables, net (1,558) (899)
Increase in real estate developments (7,439) (2,465)
Decrease in income tax receivable - 7,065
Increase (decrease) in accounts payable 1,905 (230)
Increase (decrease) in accrued liabilities 170 (3,058)
Increase (decrease) in deferred income taxes 626 268
Net change in other assets and liabilities (1,444) (989)
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Net cash (used in) provided by operating activities (1,717) 4,561
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (8,264) (6,131)
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Net cash used in investing activities (8,264) (6,131)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase under revolving loan agreement 11,868 8,990
Proceeds from exercise of stock options 69 33
Preferred stock dividends paid - (875)
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Net cash provided by financing activities 11,937 8,148
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Net increase in cash and cash equivalents 1,956 6,578
Cash and cash equivalents at beginning of period 1,612 5,663
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Cash and cash equivalents at end of period $ 3,568 $ 12,241
--------- ----------
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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 three months ended March
31, 1998 and March 31, 1997, 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 consolidated financial
statements and the notes thereto for the year ended December 31, 1997,
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 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 three months ended March 31,
1998, are not necessarily indicative of the results to be expected for the
full year. In addition, the statements contained herein which are not
historical facts, are forward-looking statements based on economic forecasts,
strategic plans and other factors that, by their nature, involve risk and
uncertainties. Potential risks and uncertainties include, but are not
limited to, such things as product demand, the Company's lack of experience
in operating in markets outside of its current markets or in developing
products that are different from its current products, the effect of
geographic concentration of assets or markets, the impact of competitive
products and pricing, and governmental regulations and the need for
governmental approvals. Other factors that could cause actual future results
to differ materially from past results include the following: business
conditions and general economy; competitive factors; political decisions
affecting land use, capital resources, interest rates and other risks
inherent in the real estate business.
Certain reclassifications have been made to the 1997 consolidated
financial statements to conform to the 1998 presentation.
NOTE 2. EARNINGS PER COMMON SHARE
Basic earnings per share was computed by dividing net income (loss),
after reduction for preferred stock dividends and accretion, by the sum of
(1) the weighted average number of shares of common stock outstanding during
the period and (2) the weighted average number of non-employee director
grants outstanding during the period. The computation of diluted earnings
per share further assumes the dilutive effect of stock options. The weighted
average number of shares of common stock outstanding were 19,997,844 and
19,956,167 during the first quarter of 1998 and 1997, respectively. The
weighted average number of non-employee director grants outstanding was 4,954
and 2,281 for 1998 and 1997, respectively.
The computation of dilutive earnings per share during the first quarter
of 1998 includes the assumed exercise of 61,217 options outstanding. The
computation of dilutive earnings per share during the first quarter of 1997
does not include the assumed exercise of 66,661 options because their effect
was anti-dilutive.
6
CASTLE & COOKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. 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 involved from time to time in various claims and legal
actions arising in the normal course of business. In the opinion of
management, the final resolution of these matters is not expected to have a
material adverse effect on the Company's financial position or results of
operations.
NOTE 4. SUPPLEMENTAL CASH FLOW INFORMATION
The Company made interest payments of approximately $2.5 million and
$2.8 million in the first quarter of 1998 and 1997, respectively. Total
interest capitalized into real estate developments and fixed assets under
construction totaled approximately $2.7 million and $2.5 million in the first
quarter of 1998 and 1997, respectively.
In the first quarter of 1998, the Company made income tax payments of
approximately $55,000. In the first quarter of 1997, the Company made income
tax payments of $71,000 and received income tax refunds of approximately $7.1
million.
NOTE 5. NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 130-"Reporting Comprehensive
Income" (SFAS No. 130). This statement establishes standards for reporting
and display of comprehensive income and its components in a full set of
general purpose financial statements. The implementation of SFAS No. 130 did
not have an impact on the Company's results of operations or financial
position.
NOTE 6. SUBSEQUENT EVENTS
On April 1, 1998, the Company closed on its agreement to form a venture
with Horizon/Glen Outlet Centers Limited Partnership, the lessee of the Dole
Cannery Outlet Center in Honolulu, Hawaii. The Company owns a substantial
majority of the venture and controls its operations. Horizon contributed to
the venture its rights and obligations under the lease of the Dole cannery
outlet center in Honolulu, Hawaii. Horizon also contributed to the venture
substantially all of its economic interest in an outlet center in Lake
Elsinore, California, subject to existing mortgage financing, together with
certain vacant property adjacent to the outlet center. In exchange for its
contributions to the venture, Horizon was released from all continuing
obligations under the Dole Cannery lease, including any commitments with
respect to the operation of the Dole Cannery. The closing of this
transaction will not result in a gain or loss to the Company.
On May 11, 1998, the Company announced a "Dutch Auction" self-tender
offer for up to 3 million shares of the Company's common stock, representing
approximately 15% of its outstanding shares. The tender price range is from
not less than $17.75 to not more than $19.50 per share. The Company expects
to purchase the shares with cash on hand and borrowings under its revolving
credit facility. The Company expects to complete the tender offer in the
second quarter of 1998.
7
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
First quarter consolidated revenues increased 6% to $57.3 million in
1998 from $54.2 million in 1997. First quarter residential and other property
sales decreased to $26.8 million in 1998 from $26.9 million in 1997.
Excluding other property sales in Bakersfield, first quarter home and
homesite revenues increased 6% to $26.5 million in 1998 compared to $25.0
million in 1997. This increase is primarily due to increased home deliveries
at the Oahu developments. First quarter home deliveries increased 7% to 78
homes in 1998 from 73 homes in 1997. The first quarter average price per
home decreased 2% to $255,000 in 1998 from $260,000 in 1997. First quarter
homesite deliveries decreased 27% to 152 in 1998 from 208 in 1997. The first
quarter average price per homesite increased 45% to $42,000 in 1998 from
$29,000 in 1997. The decrease in homesite deliveries and the increase in
average price per homesite are primarily due to timing of closings and
product mix, respectively. There were three other property sales in
Bakersfield during the first quarter of 1997 which generated $1.9 million in
revenue compared to one other property sale in the first quarter of 1998
which generated $320,000 in revenue. First quarter resort revenues increased
16% to $17.3 million in 1998 from $15.0 million in 1997. This increase was
primarily due to improved occupancy and room rates at the resorts. Resort
occupancy rates increased 9% to 76.1 % in 1998 from 69.6% in 1997. Average
daily rates increased 3% to $308 in 1998 from $299 in 1997. The improved
occupancy and room rates are primarily due to adverse weather conditions that
existed in the first quarter of 1997.
COST AND EXPENSES
First quarter consolidated cost of operations increased to $54.4 million
in 1998 from $53.3 million in 1997. The cost of residential property sales
as a percentage of residential property sales increased to 92% in 1998 from
90% in 1997. Excluding the cost of other property sales, home and homesite
cost as a percentage of revenues was 92% in the first quarter of 1998 and
1997. The cost of other property sales as a percentage of other property
sales was 71% in 1998 and 56% in 1997. Excluding luxury resort residential
sales and depreciation, the cost of resort operations as a percentage of
resort revenues improved to 92% in 1998 from 107% in 1997. This improvement
is primarily due to increased occupancy and average daily room rates. Since
a significant portion of the resort operations' costs are fixed costs, these
costs will not increase or decrease proportionately as occupancy and resort
revenues increase or decrease. The first quarter luxury resort residential
operating margin decreased to a loss of $410,000 in 1998 from income of
$64,000 in 1997. Resort depreciation was $2.3 million in 1998 and $2.3
million in 1997.
Total interest incurred in the first quarter of 1998 was $3.6 million of
which $2.7 million was capitalized into real estate developments and fixed
assets under construction. Total interest incurred in the first quarter of
1997 was $2.9 million of which $2.5 million was capitalized into real estate
developments and fixed assets under construction. Total borrowings were
$198.0 million at March 31, 1998 compared to $161.1 million at March 31,
1997. Amortization in cost of sales of previously capitalized interest
totaled approximately $1.1 million and $646,000 for the first quarters of
1998 and 1997, respectively.
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 Company's effective income tax rate decreased to 33% in the first
quarter of 1998 from 39.5% in the first quarter of 1997. The 33% effective
tax rate in the first quarter of 1998 is primarily due to low-income housing
credits.
The preferred stock dividend and accretion in the first quarter of 1997
relates to the $35 million cumulative preferred stock issued in connection
with the Company's separation from Dole in December of 1995. The Company
redeemed all of its outstanding preferred stock in December of 1997.
First quarter net income available to common shareholders was $1.4
million compared to first quarter net loss available to common shareholders
of $532,000 in 1997. This increase is primarily due to better operating
results described above.
BACKLOG
The Company's new orders and backlog for homes and homesites for 1998
compared to 1997 were as follows:
Three Months Ended
March 31,
-----------------------------
1998 1997
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BACKLOG- HOME
Units
Backlog at beginning of the period 46 55
Add: new orders 113 83
Less: deliveries (78) (73)
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Backlog at end of the period 81 65
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Dollars (in thousands)
Backlog at beginning of the period $ 11,920 $ 15,143
Add: new orders 29,577 22,544
Less: deliveries (19,890) (18,976)
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Backlog at end of the period $ 21,607 $ 18,711
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MAINLAND BACKLOG- HOMESITES
Units
Backlog at beginning of the period 405 232
Add: new orders 508 237
Less: deliveries (152) (208)
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Backlog at end of the period 761 261
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Dollars (in thousands)
Backlog at beginning of the period $ 19,964 $ 7,959
Add: new orders 19,408 6,426
Less: deliveries (6,430) (5,937)
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Backlog at end of the period $ 32,942 $ 8,448
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The increase in new homesite orders for the first three months of 1998 as
compared to 1997 is primarily due to the new Keene's Pointe development in
Orlando, Florida and increased activity at the Bakersfield developments.
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, to purchase and
develop land, to construct homes and homesites and to acquire, develop and
operate commercial property.
On May 16, 1997, the Company's existing credit agreement with a syndicate
of banks was amended and restated (the "Credit Agreement"). Pursuant to this
Credit Agreement, the banks agreed to provide a three-year revolving credit
facility of up to $250 million, based upon a percentage of value of certain
commercial properties and home building inventory (the "Borrowing Base"). At
March 31, 1998, the Borrowing Base allows the Company to borrow up to $250
million. The Credit Agreement 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 March 31, 1998,
total borrowings under the Credit Agreement were $186 million and the weighted
average interest rate was 7.0%. Effective October 1, 1997, the Company
entered into two five year interest rate contracts to hedge against rising
interest rates. These contracts effectively convert $80 million of the Company's
variable rate debt to fixed rated debt at an average rate of 7.4%, as
adjusted based on the Company's total debt outstanding. Market risk exposure
is limited to the net interest differential between the variable rate debt under
the credit facility and the fixed rate debt, which is reflected in interest
incurred. At March 31, 1998, the Company is in compliance with the various
financial covenants of the Credit Agreement.
The Company believes that funds available under the Credit Agreement 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.
Residential development spending was $23.6 million in the first three
months of 1998. Spending during the first three months of 1998 at the
Mililani, Royal Kunia and Lalea residential developments on Oahu was
approximately $8.2 million, $1.8 million and $1.3 million, respectively.
Spending during the first three months of 1998 at the Bakersfield, California;
Sierra Vista, Arizona; and Orlando, Florida residential developments was
approximately $5.1 million, $894,000 and $5.9 million, respectively. The
Company expects to begin selling homesites in the new Orlando development in
the summer of 1998.
Total resort development and capital spending was approximately $5.0
million during the first three months of 1998. Spending at the Manele and
Koele luxury home developments during the first three months of 1998 was
approximately $2.8 million and $120,000, respectively.
Capital expenditures at the commercial projects totaled $7.1 million
during the first three months of 1998 and primarily related to the
construction of the 129,000 square foot Two Premier Plaza in Atlanta, Georgia
($1.8 million), the 43,000 square foot Regents Center II in Tempe, Arizona
($1.6 million), the Coyote Creek Golf Course in San Jose, California ($2.4),
the Keene's Pointe golf course in Orlando, Florida ($614,000) and the
Marketplace shopping center in Bakersfield, California ($478,000). During
the remainder of 1998, the Company expects to spend approximately $715,000 on
construction of Two Premier Plaza. Leases have been executed for 76% of the
Two Premier building and letters of intent have been signed for an additional
6%. Construction on phase III of the Marketplace (86,000 square feet) is
expected to occur during 1998 and 1999 at a cost of $6.0 million. The Company
expects to spend approximately $1.5 million during the remainder of 1998 on
the completion of Regents II, a 41,000 square foot commercial office building
adjacent to the Company's Regents Center in Tempe, Arizona. This building is
fully leased to a single tenant. Construction costs in 1998, relating to the
Coyote Creek Golf Course and Keene's Pointe golf course are expected to be
$8.4 million and $9.6 million, respectively, during the remainder of 1998.
10
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Cash flow from operating activities decreased $6.3 million during the
first three months of 1998 as compared to the corresponding period in 1997.
The decrease is primarily due to an income tax refund of $7.1 million in the
first quarter of 1997 and a net increase of $7.4 million in real estate
developments in the first quarter of 1998 partially offset by changes in the
accounts payable and decrease in accrued liabilities balances. The net
increase in real estate developments is primarily due to construction
activity at the new Keene's Pointe development. The changes in the accounts
payable and accrued liability balances are due to timing. Cash flow used in
investing activities increased $2.1 million during the first three months of
1998 as compared to the corresponding period in 1997. The increase is
primarily due to increased construction activity on the commercial
developments. Cash flow provided by financing activities increased $3.8
million during the first three months in 1998 as compared to the
corresponding period in 1997. The change is primarily due to net borrowings
under the Credit Agreement (or its predecessor) of $11.9 million during the
first three months of 1998 compared to net borrowings of $9.0 million in
1997.
11
CASTLE & COOKE, INC.
PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No.
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27 Financial Data Schedule
(b) Reports on Form 8-K
THE REGISTRANT FILED NO REPORTS ON FORM 8-K DURING THE QUARTER
ENDED MARCH 31, 1998.
All other items required under Part II are omitted because they are not
applicable.
12
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: May 14, 1998 BY /s/ EDWARD C. ROOHAN
---------------------------------
Edward C. Roohan
Vice President and
Chief Financial Officer
(Principal financial officer)
Date: May 14, 1998 BY /s/ SCOTT J. BLECHMAN
---------------------------------
Scott J. Blechman
Vice President and
Corporate Controller
(Principal accounting officer)
13