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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 SEPTEMBER 30, 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 October 31, 1998
----- --------------------------------------
Common Stock, without par value 17,015,958 shares
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CASTLE & COOKE, INC.
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 1998
TABLE OF CONTENTS
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1998 and
December 31, 1997. . . . . . . . . . . . . . . . . . . . . . . . . . .3
Consolidated Statements of Operations - Quarter and nine months
ended September 30, 1998 and September 30, 1997. . . . . . . . . . . .4
Consolidated Statements of Cash Flows -- Nine months
ended September 30, 1998 and September 30, 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. . . . . . . . . . . . . . . 16
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2
CASTLE & COOKE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30, December 31,
1998 1997
(Unaudited) (Audited)
----------- -----------
Cash and cash equivalents $ 5,320 $ 1,612
Receivables, net 34,226 30,530
Real estate developments 509,330 506,784
Property and equipment, net 487,365 460,919
Other assets 24,505 19,415
----------- -----------
Total assets $ 1,060,746 $ 1,019,260
----------- -----------
----------- -----------
Notes payable $ 250,051 $ 176,101
Note payable to Dole 10,000 10,000
Accounts payable 25,684 18,162
Accrued liabilities 28,160 28,263
Deferred income taxes 179,594 176,357
Deferred income and other liabilities 33,446 26,633
----------- -----------
Total liabilities 526,935 435,516
----------- -----------
Common shareholders' equity
Common stock 512,032 511,616
Treasury stock, at cost (58,353) -
Retained earnings 80,132 72,128
----------- -----------
Total common shareholders' equity 533,811 583,744
----------- -----------
Total liabilities and shareholders' equity $ 1,060,746 $ 1,019,260
----------- -----------
----------- -----------
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
September 30, September 30,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Revenues
Residential and other property sales $ 52,121 $ 28,680 $ 113,652 $ 82,653
Resort revenues 13,770 13,027 53,093 43,311
Commercial and other revenues 13,245 12,754 39,121 37,732
--------- --------- --------- ---------
Total revenues 79,136 54,461 205,866 163,696
COST OF OPERATIONS
Cost of residential and other property sales 42,343 26,033 97,469 74,855
Cost of resort operations 18,656 18,284 60,657 54,445
Cost of commercial and other operations 8,347 6,959 24,548 21,635
General and administrative expenses 3,278 2,815 10,084 9,929
--------- --------- --------- ---------
Total cost of operations 72,624 54,091 192,758 160,864
--------- --------- --------- ---------
Operating income 6,512 370 13,108 2,832
Interest and other income, net 1,540 524 2,665 1,628
Interest expense, net 2,053 105 3,827 689
--------- --------- --------- ---------
Income before income taxes 5,999 789 11,946 3,771
Income tax provision (1,980) (313) (3,942) (1,491)
--------- --------- --------- ---------
Net income 4,019 476 8,004 2,280
Preferred stock dividend and accretion - (1,050) - (3,150)
--------- --------- --------- ---------
Net income (loss) available to common shareholders $ 4,019 $ (574) $ 8,004 $ (870)
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic and diluted earnings (loss) per common share $ 0.24 $ (0.03) $ 0.42 $ (0.04)
--------- --------- --------- ---------
--------- --------- --------- ---------
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
------------------------------
September 30, September 30,
1998 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,004 $ 2,280
Adjustments to reconcile net income to cash flow
provided by operating activities:
Depreciation 13,399 13,109
Equity (earnings) loss, net of dividends received (1,156) 99
Other 40 40
Changes in operating assets and liabilities:
Increase in receivables, net (3,696) (4,158)
Increase in real estate developments (6,369) (5,519)
Decrease in income tax receivable - 9,209
Increase in accounts payable 7,522 1,662
Increase (decrease) in accrued liabilities 574 (1,479)
Increase in deferred income taxes 3,237 4,530
Net change in other assets and liabilities 3,515 (2,116)
----------- -----------
Net cash provided by operating activities 25,070 17,657
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (37,335) (22,783)
----------- -----------
Net cash used in investing activities (37,335) (22,783)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase under revolving loan agreements 73,950 2,976
Purchase of stock (58,353) -
Proceeds from exercise of stock options 376 395
Preferred stock dividends paid - (2,625)
----------- -----------
Net cash provided by financing activities 15,973 746
----------- -----------
Net increase (decrease) in cash and cash equivalents 3,708 (4,380)
Cash and cash equivalents at beginning of period 1,612 5,663
----------- -----------
Cash and cash equivalents at end of period $ 5,320 $ 1,283
----------- -----------
----------- -----------
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,
1998 and September 30, 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 of homes
and homesites in developed projects, income producing properties, and
non-income producing properties. The results of operations for the quarter
and nine months ended September 30, 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, governmental regulations and the
need for governmental approvals and the year 2000 problem. 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 and
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 (if applicable),
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 stock grants outstanding during the period. The
computation of diluted earnings per share further assumes the dilutive effect
of employee stock options. The weighted average number of shares of common
stock outstanding was 17,007,279 and 19,978,398 during the third quarter of
1998 and 1997, respectively. The weighted average number of non-employee
director stock grants outstanding was 7,058 and 4,954 during the third
quarter of 1998 and the third quarter of 1997, respectively. The weighted
average number of shares of common stock outstanding was 18,983,346 and
19,963,883 during the first nine months of 1998 and 1997, respectively. The
weighted average number of non-employee director stock grants outstanding was
5,894 and 3,469 during the first nine months of 1998 and 1997, respectively.
6
CASTLE & COOKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. EARNINGS PER COMMON SHARE (CONTINUED)
The computation of dilutive earnings per share includes the assumed
exercise of 96,366 options outstanding during the third quarter of 1998. The
computation of dilutive earnings per share during the third quarter of 1997 does
not include the assumed exercise of 87,654 options because their effect was
anti-dilutive. The computation of dilutive earnings per share during the first
nine months of 1998 includes the assumed exercise of 93,453 options outstanding.
The computation of dilutive earnings per share during the first nine months of
1997 does not include the assumed exercise of 57,054 options because their
effect was anti-dilutive.
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 $10.7 million and $8.7
million during the first nine months of 1998 and 1997, respectively. Total
interest capitalized into real estate developments and property and equipment
under construction totaled approximately $8.3 million and $8.0 million during
the first nine months of 1998 and 1997, respectively.
During the first nine months of 1998, the Company made income tax payments
of approximately $703,000. During the first nine months of 1997, the Company
made income tax payments of $73,000 and received income tax refunds of
approximately $12.3 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.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133- "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires an entity to recognize all derivatives in the
statement of financial position and measure those instruments at fair value.
The Company must implement SFAS No. 133 by the first quarter of 2000, and it is
not expected to have a significant adverse effect on the results of operations.
NOTE 6. STOCK REPURCHASE
In connection with its "Dutch Auction" self-tender offer, the Company
repurchased 3,015,764 shares of the Company's common stock at a price of $19.25
per share on July 6, 1998.
7
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Third quarter consolidated revenues increased 45% to $79.1 million in 1998
from $54.4 million in 1997. Excluding the bulk land sales in the third quarter
of 1998, residential and other property sales for the third quarter increased
53% to $44.0 million in 1998 from $28.7 million in 1997. This increase is
primarily due to homesite deliveries at the new Keene's Pointe development in
Orlando, Florida, which commenced deliveries in the second quarter of 1998. In
the third quarter of 1998, the Keene's Pointe development delivered 73 homesites
with revenues of $8.4 million, or $115,000 per homesite. The remaining revenue
increase during the third quarter of 1998 compared to the third quarter of 1997
is attributable to increased home sales on Oahu and increased homesite
deliveries at the Bakersfield developments. Third quarter Oahu home deliveries
increased 13% to 103 homes in 1998 from 91 homes in 1997. Third quarter mainland
homesite deliveries, including the Keene's Pointe deliveries noted above,
increased 122% to 222 homesites in 1998 from 100 homesites in 1997. The third
quarter average price per homesite increased 68% to $64,000 in 1998 from $38,000
in 1997, which was primarily due to the Keene's Pointe development. Included in
the 1998 third quarter residential and other property sales are the sale of two
undeveloped land holdings for a total of $8.1 million and earnings before taxes
of $3.2 million. The land was located in Westlake Village, California and Oahu,
Hawaii.
Consolidated revenues for the first nine months of the year increased 26%
to $205.9 million in 1998 from $163.7 million in 1997. Excluding the bulk land
sales in the third quarter of 1998, residential and other property sales for the
first nine months of the year increased 28% to $105.5 million in 1998 from
$82.7 million in 1997. This increase is primarily due to homesite deliveries at
the new Keene's Pointe development in Orlando, Florida, which commenced
deliveries in the second quarter of 1998. During the first nine months of 1998,
the Keene's Pointe development delivered 119 homesites with revenues of $11.9
million, or $100,000 per homesite. The remaining revenue increase during the
first nine months of 1998 compared to the prior year is attributable to
increased home sales on Oahu and increased homesite deliveries at the
Bakersfield developments. Oahu home deliveries for the first nine months
increased 10% to 274 homes in 1998 from 250 homes in 1997. Mainland homesite
deliveries for the first nine months, including the Keene's Pointe deliveries
noted above, increased 31% to 649 homesites in 1998 from 496 homesites in 1997.
The average price per homesite for the first nine months of 1998 increased 64%
to $46,000 from $28,000 during the first nine months of 1997, which was
primarily due to the Keene's Pointe development.
Resort revenues for the first nine months increased 23% to $53.1 million in
1998 from $43.3 million in 1997. This increase is primarily due to increased
resort residential sales. Resort residential sales were $13.1 million in 1998
compared to $4.6 million in 1997. The Company sold eight residential units at
its two luxury resort residential developments for a total of $9.9 million
during the first nine months of 1998, compared to three residential units for a
total of $3.4 million during the first nine months of 1997. Resort residential
sales also include the sale of seven plantation homes for a total of $1.3
million during the first nine months of 1998 compared to six plantation homes
for a total of $1.2 million during the first nine months of 1997. In addition,
the 1998 resort residential revenues include construction contract revenues of
$1.9 million relating to the construction of a senior housing facility on Lanai,
which will be owned and operated by an independent third party.
8
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REVENUES (CONTINUED)
The following table sets forth combined operating statistics for the two hotels:
Quarter Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
Average daily room rate $ 267 $ 264 $ 283 $ 277
Occupancy rate 58% 65% 67% 67%
COST AND EXPENSES
Third quarter consolidated cost of operations increased to $72.6 million in
1998 from $54.1 million in 1997. Excluding the 1998 bulk land sales, the cost
of residential property sales as a percentage of residential property sales
decreased to 85% in the third quarter of 1998 from 91% in the third quarter of
1997. This decrease is primarily due to the new Keene's Pointe project in
Orlando project and improved results at the Seven Oaks development in
Bakersfield, California.
Excluding luxury resort residential sales and depreciation, the cost of
resort operations as a percentage of resort revenues increased to 125% during
the third quarter of 1998 from 123% during the third quarter of 1997. This
increase is primarily due to decreased resort revenues. 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. Resort depreciation was $1.8 million and $2.2 million during the
third quarter of 1998 and 1997, respectively.
The third quarter cost of commercial and other operations as a percentage
of commercial and other revenues increased to 63% during the third quarter of
1998 from 55% during the third quarter of 1997. This increase is primarily due
to the venture the Company entered into during 1998 with Horizon/Glen Outlet
Centers Limited Partnership ("Horizon"), called Castle & Cooke Outlet Centers,
LLC ("CCOC"). Prior to this venture, the Dole Cannery Factory Outlet Center in
Honolulu was leased to Horizon and a significant portion of the operating
expenses were paid by Horizon. Subsequent to the CCOC venture with Horizon, all
of this outlet center's operating expenses are paid by CCOC, which is
substantially owned by the Company. Depreciation in the cost of commercial and
other operations was $2.0 million during the third quarter of 1998 compared to
$1.8 million during the third quarter of 1997. The increase is primarily due to
the Premier II office building, which was completed in late 1997.
Consolidated cost of operations for the first nine months increased to
$192.8 million in 1998 from $160.9 million in 1997. Excluding the bulk land
sales in 1998, the cost of residential and other property sales as a percentage
of residential and other property sales decreased to 88% during the first nine
months of 1998 from 91% in 1997. This improvement is primarily due to the new
Keene's Pointe project discussed above.
9
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COST AND EXPENSES (CONTINUED)
Excluding luxury resort residential sales and depreciation, the cost of
resort operations as a percentage of resort revenues decreased to 107% during
the first nine months of 1998 from 112% during the first nine months of 1997.
This improvement is primarily due to increased resort revenue. Since a
significant portion of the resort operations' costs are fixed costs, these costs
will not increase or decrease proportionately as resort revenues increase or
decrease. In addition, the Company continues to implement cost saving measures
relating to payroll and other significant resort operating costs. Resort
depreciation was $6.3 million and $7.0 million during the first nine months of
1998 and 1997, respectively. The cost of resort residential cost of sales as a
percentage of resort residential revenues increased to 89% during the first nine
months of 1998 from 87% during the first nine months of 1997. The cost of resort
residential sales for the two luxury projects was $7.0 million for the first
nine months of 1998 and $2.3 million for the first nine months of 1997. The
cost of resort residential sales for the Lanai plantation home project was
$977,000 for the first nine months of 1998 and $766,000 for the first nine
months of 1997. Also included in the resort residential cost of sale are
closing and selling costs of $1.7 million for the first nine months of 1998 and
$890,000 for the first nine months of 1997. Included in the 1998 resort
residential cost of sales is $1.9 million of construction costs relating to the
contract to build the senior housing complex on Lanai.
The cost of commercial and other operations as a percentage of commercial
and other revenues increased to 63% during the first nine months of 1998 from
57% during the first nine months of 1997. This increase is primarily due to the
Horizon venture, discussed above. Depreciation in the cost of commercial and
other operations was $6.2 million during the first nine months of 1998 compared
to $5.2 million during the first nine months of 1997. The increase is primarily
due to the Premier II office building, which was completed in late 1997.
Interest and other income increased to $1.5 million in the third quarter of
1998 from $524,000 in the third quarter of 1997. This increase is primarily due
to CCOC's equity earnings. One of CCOC's investments is in a limited
partnership that owns five factory outlet centers throughout the United States.
CCOC's allocated earnings from this investment is directly related to the
earnings of one of the centers, known as the Lake Elsinore Outlet Center.
Interest and other income increased to $2.7 million for the first nine months of
1998 from $1.6 million in 1997. The increase is primarily due to the CCOC
investment earnings discussed above, partially offset by a decrease in interest
and other income as compared to the prior year. The earnings recognized by CCOC
associated with the Lake Elsinore Outlet Center was $905,000 for the third
quarter of 1998 and $1.8 million for the nine months ended September 30, 1998.
10
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COST AND EXPENSES (CONTINUED)
The Company's interest expense increased during the third quarter and nine
months ended September 30, 1998 as compared to the prior year primarily due to
increased debt. The Company's borrowings and related interest incurred are
summarized as follows:
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(in thousands)
Total borrowings at month end $ 260,051 $ 186,101 $ 260,051 $ 186,101
Total interest incurred $ 4,742 $ 2,836 $ 12,101 $ 8,717
Less: interest capitalized into real estate developments
and property and equipment under construction (2,689) (2,731) (8,274) (8,028)
--------- --------- --------- ---------
Interest expense, net of capitalized interest 2,053 105 3,827 689
Amortization in cost of residential and other
property sales of interest previously capitalized $ 1,503 $ 921 $ 3,532 $ 2,180
NET INCOME AND EARNINGS PER SHARE
The Company's effective income tax rate decreased to 33% in 1998 from 39.5%
in 1997. The 33% effective tax rate in 1998 is primarily due to low-income
housing tax credits.
The preferred stock dividend and accretion in 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.
Third quarter net income available to common shareholders increased to $4.0
million in 1998 from a net loss of $574,000 in 1997. The net income available
to common shareholders for the first nine months of 1998 was $8.0 million
compared to net loss available to common shareholders of $870,000 for the first
nine months of 1997. This increase is primarily due to better operating results
described above.
11
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKLOG
The Company's new orders and backlog for homes and homesites for 1998
compared to 1997 were as follows:
Quarter Ended Nine months Ended
September 30, September 30,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
BACKLOG-HOMES
Units
Backlog at beginning of the period 97 82 46 55
Add: New orders 105 131 331 319
Less: Deliveries (110) (95) (285) (256)
--------- --------- --------- ---------
Backlog at end of the period 92 118 92 118
--------- --------- --------- ---------
--------- --------- --------- ---------
Dollars
Backlog at beginning of the period $ 27,475 $ 24,134 $ 11,920 $ 15,143
Add: New orders 26,967 31,644 87,973 82,086
Less: Deliveries (28,737) (24,496) (74,188) (65,947)
--------- --------- --------- ---------
Backlog at end of the period $ 25,705 $ 31,282 $ 25,705 $ 31,282
--------- --------- --------- ---------
--------- --------- --------- ---------
MAINLAND BACKLOG- HOMESITES
Units
Backlog at beginning of the period 635 199 405 232
Add: New orders 77 159 734 522
Less: Deliveries (222) (100) (649) (496)
--------- --------- --------- ---------
Backlog at end of the period 490 258 490 258
--------- --------- --------- ---------
--------- --------- --------- ---------
Dollars
Backlog at beginning of the period $ 27,282 $ 7,659 $ 19,964 $ 7,959
Add: New orders 7,771 3,695 30,994 13,284
Less: Deliveries (14,126) (3,810) (30,031) (13,699)
--------- --------- --------- ---------
Backlog at end of the period $ 20,927 $ 7,544 $ 20,927 $ 7,544
--------- --------- --------- ---------
--------- --------- --------- ---------
Home backlog decreased to $25.7 million at September 30, 1998 compared to
$31.3 million at September 30, 1997, primarily due to a backlog decrease at the
Oahu projects. The Company believes this decrease is due to the depressed
Hawaii economy. Primarily due to the Asian economic crisis and other factors,
the Company does not believe that the Hawaii economy will show significant
improvements in 1999 compared to 1998. The decrease in new home orders in the
third quarter of 1998 is primarily due to the timing of new product
introductions at the Oahu residential developments. Although new home orders
have increased for the first nine months of 1998 compared to the first nine
months of 1997, the Company does not anticipate that new orders will be
significantly higher for the full twelve months of 1998 when compared to 1997.
The increase in new homesite orders for the first nine months of 1998 as
compared to 1997 is primarily due to the new Keene's Pointe development in
Orlando, Florida (113 homesites ordered) where sales commenced in 1998 and
increased activity at the Bakersfield and Arizona developments. Included in
backlog at September 30, 1998, are homesites to be sold to builders under
option contracts, pursuant to which approximately 124 homesites with an
aggregate sales price of approximately $6.3 million are expected to close
after September 30, 1999.
12
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKLOG (CONTINUED)
As of September 30, 1998, there are five sales contracts for townhomes
under construction at the Manele Bay residential project on the island of
Lanai, which have an aggregate sales value of approximately $6.1 million
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
September 30, 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 September 30, 1998,
total borrowings under the Credit Agreement were $238 million and the weighted
average interest rate was 7.05%. On September 9, 1998, the Company entered into
a $20 million revolving credit agreement with a bank. This revolving credit
agreement, which is due on December 31, 1998 is expected to be repaid from the
proceeds of a $50 million term loan, which the Company is currently negotiating
with an insurance company and is expected to close before the end of 1998. At
September 30, 1998, total borrowings under this $20 million revolving credit
agreement were $10 million with an interest rate of 7.34%. The $50 million term
loan is expected to have an interest rate of 6.73%, a thirty year amortization
schedule with a ten year term. 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
September 30, 1998, the Company is in compliance with the various financial
covenants of its loan agreements.
In connection with its "Dutch Auction" self-tender offer, the Company
repurchased 3,015,764 shares of the Company's common stock at a price of $19.25
per share on July 6, 1998. The total repurchase price of approximately $58
million was funded primarily from borrowings under the Credit Agreement.
The Company believes that its existing financial resources, together with
the planned $50 million term loan discussed above are adequate to meet its
short-term and long-term cash needs. There can be no assurance, however, that
the existing capital together with such additional capital will be sufficient.
The Company may be required to seek additional capital from the sale of assets
or from a variety of other potential sources.
Residential development spending was $87.2 million in the first nine months
of 1998. Spending during the first nine months of 1998 at the Mililani, Royal
Kunia and Lalea residential developments on Oahu was approximately $30.9
million, $15.1 million and $7.5 million, respectively. Spending during the
first nine months of 1998 at the Bakersfield, California; Orlando, Florida; and
Sierra Vista, Arizona residential developments was approximately $14.3 million,
$14.0 million and $2.7 million, respectively.
13
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Total resort capital spending was approximately $3.6 million for the first
nine months of 1998. Developmental expenditures on the island of Lanai totaled
$12.7 million during the first nine months of 1998. Spending during the first
nine months of 1998 at the Manele and Koele luxury resort residential projects
was approximately $8.5 million and $327,000, respectively. Spending during the
first nine months of 1998 at the Lanai plantation homes was approximately $1.5
million. Construction costs for the senior housing center on Lanai was $2.1
million for the first nine months of 1998.
Capital expenditures at the commercial projects totaled $33.7 million
during the first nine months of 1998. Commercial spending included $3.1
million for the construction of the 129,000 square foot Two Premier Plaza
office building in Atlanta, Georgia; $2.2 million for construction of the
43,000 square foot Regents Center II office building in Tempe, Arizona; $3.1
million for the acquisition of land and the early planning for the
construction of the 173,000 square foot Falls of the Neuse office building in
Raleigh, North Carolina; $8.8 million for construction of the Coyote Creek
Golf Course and clubhouse in San Jose, California; and $4.4 million for
construction of the Keene's Pointe Golf Course and clubhouse in Orlando,
Florida. Commercial spending in Bakersfield, California, included $3.8
million for the final phase of the 300,000 square foot Marketplace shopping
center, $2.0 million for a 100,000 square foot industrial building and $2.4
million for a 75,000 square foot office building.
Cash flow from operating activities increased $7.4 million during the
first nine months of 1998 as compared to the corresponding period in 1997.
The increase is primarily due to improved operating results and the timing of
payables and tax refunds. The Company received a $9.2 million tax refund
during the first nine months of 1997. No tax refund was received in 1998.
However, the Company's increase in accounts payable provided an additional
$5.9 million in 1998 compared to the corresponding period in the prior year
to partially offset the 1997 tax refund. Cash flow used in investing
activities increased $14.6 million during the first nine 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 $15.2 million during the first
nine 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 $74.0 million partially offset by the $58.4 million cost of
repurchasing 3,015,764 shares of the Company's common stock.
Year 2000
READINESS
The year 2000 ("Y2K") problem arose because many existing computer programs
use two digits instead of four to refer to the year. These programs may be
unable to properly interpret a year that begins with "20" (i.e., the year
2000), which could cause disruption of normal business activities. The Company
uses computer software and related technologies that will be affected by the
Year 2000 problem. The Company also relies upon a number of third parties in
conducting its business and could be adversely affected if these third parties
are not Y2K compliant.
The Company is addressing the Y2K problem with a company-wide program
involving its corporate office and principal locations. This program includes
the identification of affected software and systems through an inventory and
assessment, communications with the Company's material suppliers and other third
parties to determine the extent to which the Company is vulnerable to failure by
them to be Y2K compliant, and the development and implementation of a
remediation and response plan.
14
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company is currently in the inventory and assessment phase, creating
an inventory and assessing the Company's information technology systems (such
as business computing systems and technical infrastructure), as well as
non-information technology systems (such as embedded technology). This
inventory and assessment phase is estimated to be approximately 80% complete.
Subject to new information becoming available, the Company expects this to be
complete by the end of 1998.
In conjunction with the inventory and assessment, the Company is
developing and implementing a remediation and response plan intended to
remedy Y2K deficiencies and to address contingencies for unforeseen problems.
In most cases, the Company will replace older software with new, upgraded
software and systems that are Y2K compliant. The Company's major accounting
systems are either currently Y2K compliant or are expected to be Y2K
compliant by the end of the first quarter of 1999.
In addition to problems that may arise if material suppliers are not Y2K
compliant, systemic problems in the economy resulting from the Y2K problem, such
as problems with air traffic control, other transportation systems, power supply
or overall economic dislocation would affect the Company. In addition, the
Company's development and other activities could be halted or materially delayed
if its lenders are, as a result of the Y2K problem, unable to advance funds from
credit or similar facilities.
COSTS
The amount spent by the Company as of September 30, 1998 to address the Y2K
problem is approximately $110,000. Given the information available at this
time, the Company currently anticipates the total cost (including past
expenditures) to remediate the Y2K problem will not exceed $700,000. Although
the timing of some of these expenditures may be accelerated by the Y2K problem,
in most instances they will involve expenditures that would have occurred in the
normal course of business.
RISKS AND CONTINGENCY PLANS
The Company is currently uncertain as to what are the most reasonably
likely worst case Y2K scenarios for its operations. The Company will continue
to analyze this issue and to develop a contingency plan to respond to these
scenarios as more information becomes available.
Statements herein that are not historical facts are "forward-looking
statements." For example, the estimated costs of the Company's Y2K compliance
project and the dates on which the Company plans to complete its remediation and
other activities are based on management's best estimates, which were derived
from numerous assumptions about future events, including the availability of
remediation resources, the existence and adequacy of third party Y2K compliance
plans, the ability to identify and correct all relevant computer codes, and
other factors. There can be no guarantee that these estimates and plans will be
achieved and actual results could differ materially.
15
CASTLE & COOKE, INC.
PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
Exhibit
No.
-------
4.3 Revolving Credit Agreement dated as of September 9, 1998, among
Castle & Cooke, Inc., As Borrower, The Chase Manhattan Bank and
Other Parties which may become Parties Hereto, as Lenders, and
the Chase Manhattan Bank, as Administrative Agent.
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, 1998.
All other items required under Part II are omitted because they are not
applicable.
16
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 12, 1998 BY /s/ Edward C. Roohan
------------------------------------
Edward C. Roohan
Vice President and
Chief Financial Officer
(Principal financial officer)
Date: November 12, 1998 BY /s/ Scott J. Blechman
------------------------------------
Scott J. Blechman
Vice President and
Corporate Controller
(Principal accounting officer)
17