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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 JUNE 30, 1999
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 July 31, 1999
----- -----------------------------------
Common Stock, without par value 17,049,746 shares
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CASTLE & COOKE, INC.
FORM 10-Q
FOR THE QUARTER ENDED
JUNE 30, 1999
TABLE OF CONTENTS
PAGE
NUMBER
-------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1999 and December 31, 1998.....................................3
Consolidated Statements of Operations - Quarter and six months ended June 30, 1999
and June 30, 1998................................................................................4
Consolidated Statements of Cash Flows - Six months ended June 30, 1999
and June 30, 1998................................................................................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 4. Submission of Matters to a Vote of Security Holders.........................................16
Item 6. Exhibits and Reports on Form 8-K............................................................16
SIGNATURES ............................................................................................17
2
CASTLE & COOKE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30, December 31,
1999 1998
(Unaudited) (Audited)
----------- ------------
Cash and cash equivalents $ 4,136 $ 4,764
Receivables, net 26,478 23,127
Real estate developments 517,086 501,147
Property and equipment, net 522,133 500,000
Other assets 25,614 25,067
----------- ------------
Total assets $ 1,095,447 $ 1,054,105
----------- ------------
----------- ------------
Notes payable $ 271,440 $ 250,044
Note payable to Dole 10,000 10,000
Accounts payable 25,669 20,239
Accrued liabilities 26,843 30,411
Deferred income taxes 174,014 174,450
Deferred income and other liabilities 43,529 32,175
----------- ------------
Total liabilities 551,495 517,319
----------- ------------
Common shareholders' equity
Common stock 512,606 512,182
Treasury stock, at cost (58,322) (58,322)
Retained earnings 89,668 82,926
----------- ------------
Total common shareholders' equity 543,952 536,786
----------- ------------
Total liabilities and shareholders' equity $ 1,095,447 $ 1,054,105
----------- ------------
----------- ------------
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 PER COMMON SHARE AMOUNTS)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
REVENUES
Residential and other property sales $ 49,923 $ 34,754 $ 80,725 $ 61,531
Resort revenues 17,335 21,983 37,156 39,323
Commercial and other revenues 14,667 12,743 27,731 25,876
-------- -------- -------- --------
Total revenues 81,925 69,480 145,612 126,730
COST OF OPERATIONS
Cost of residential and other property sales 41,825 30,523 68,740 55,126
Cost of resort operations 19,810 23,269 40,761 42,001
Cost of commercial and other operations 9,892 8,341 17,753 16,201
General and administrative expenses 3,549 3,612 6,773 6,806
-------- -------- -------- --------
Total cost of operations 75,076 65,745 134,027 120,134
-------- -------- -------- --------
Operating income 6,849 3,735 11,585 6,596
Interest and other income, net 1,139 1,014 2,485 1,124
Interest expense, net 2,343 886 4,438 1,774
-------- -------- -------- --------
Income before income taxes 5,645 3,863 9,632 5,946
Income tax provision (1,694) (1,275) (2,890) (1,962)
-------- -------- -------- --------
Net income $ 3,951 $ 2,588 $ 6,742 $ 3,984
-------- -------- -------- --------
-------- -------- -------- --------
Basic and diluted earnings per common share $ 0.23 $ 0.13 $ 0.40 $ 0.20
-------- -------- -------- --------
-------- -------- -------- --------
The accompanying notes are an integral part of these consolidated
financial statements.
4
CASTLE & COOKE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended
--------------------------------------
June 30, June 30,
1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,742 $ 3,984
Adjustments to reconcile net income to cash flow
provided by operating activities:
Depreciation 8,623 9,287
Equity earnings, net of dividends received 14 (624)
Other 70 40
Non-cash cost of residential and other property sales 65,320 59,356
Changes in operating assets and liabilities:
Increase in receivables, net (3,337) (149)
Additions to real estate developments (68,408) (64,733)
Increase in accounts payable 5,430 2,879
Decrease in accrued liabilities (1,669) (907)
(Decrease) increase in deferred income taxes (436) 1,254
Net change in other assets and liabilities 304 3,328
---------- ----------
Net cash provided by operating activities 12,653 13,715
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (32,827) (20,001)
---------- ----------
Net cash used in investing activities (32,827) (20,001)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase under revolving loan agreeements 20,000 5,000
Proceeds from issuance of debt - 1,971
Reduction of debt (808) (13)
Proceeds from exercise of stock options 354 342
---------- ----------
Net cash provided by financing activities 19,546 7,300
---------- ----------
Net (decrease) increase in cash and cash equivalents (628) 1,014
Cash and cash equivalents at beginning of period 4,764 1,612
---------- ----------
Cash and cash equivalents at end of period $ 4,136 $ 2,626
---------- ----------
---------- ----------
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 six months ended June 30, 1999
and June 30, 1998, 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, 1998, included in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission.
The Company's operating results are subject to significant variability as a
result of, among other things, the receipt of regulatory approvals, the 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 six months ended
June 30, 1999, are not necessarily indicative of the results to be expected for
the full year.
Certain reclassifications have been made to the 1998 consolidated financial
statements to conform to the 1999 presentation.
NOTE 2. EARNINGS PER COMMON SHARE
Basic earnings per share was computed by dividing net income 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
17,038,085 and 19,977,779 during the second quarter of 1999 and 1998,
respectively. The weighted average number of non-employee director stock grants
outstanding was 6,881 and 5,648 during the second quarter of 1999 and 1998,
respectively. The computation of dilutive earnings per share includes the
assumed exercise of 32,402 and 131,535 options outstanding during the second
quarter of 1999 and 1998, respectively.
The weighted average number of shares of common stock outstanding was
17,031,772 and 19,987,756 during the first six months of 1999 and 1998,
respectively. The weighted average number of non-employee director stock grants
outstanding was 6,969 and 5,303 during the first six months of 1999 and 1998,
respectively. The computation of dilutive earnings per share includes the
assumed exercise of 35,625 and 94,818 options outstanding during the first six
months of 1999 and 1998, respectively.
NOTE 3. 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.
6
CASTLE & COOKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. 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 5. SUPPLEMENTAL CASH FLOW INFORMATION
The Company made interest payments of approximately $9.5 million and
$6.7 million during the first six months of 1999 and 1998, respectively.
Total interest capitalized into real estate developments and property and
equipment under construction totaled approximately $5.6 million during each
of the first six months of 1999 and 1998.
The Company made income tax payments of approximately $3.3 million and
$703,000 during the first six months of 1999 and 1998, respectively.
NOTE 6. NEW ACCOUNTING PRONOUNCEMENT
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 Company's results of operations.
NOTE 7. INDUSTRY SEGMENT INFORMATION
The Company's industry segment information is presented below (in
thousands):
RESIDENTIAL
AND OTHER COMMERCIAL
PROPERTY RESORT AND OTHER
SALES OPERATIONS OPERATIONS CORPORATE TOTAL
------------ ------------ ------------- ----------- ----------
SIX MONTHS ENDED JUNE 30, 1999
Total revenue....................... $ 80,725 $ 37,156 $ 27,731 $ - $ 145,612
------------ ------------ ------------- ----------- ----------
------------ ------------ ------------- ----------- ----------
Operating income.................... $ 9,519 $ (4,684) $ 9,533 $ (2,783) $ 11,585
Interest and other income, net...... 519 7 1,914 45 2,485
Interest expense, net............... - - - (4,438) (4,438)
------------ ------------ ------------- ----------- ----------
Income before taxes................. $ 10,038 $ (4,677) $ 11,447 $ (7,176) $ 9,632
------------ ------------ ------------- ----------- ----------
------------ ------------ ------------- ----------- ----------
SIX MONTHS ENDED JUNE 30, 1998
Total revenue....................... $ 61,531 $ 39,323 $ 25,876 $ - $ 126,730
------------ ------------ ------------- ----------- ----------
------------ ------------ ------------- ----------- ----------
Operating income ................... $ 3,718 $ (3,570) $ 9,138 $ (2,690) $ 6,596
Interest and other income, net...... 165 6 898 55 1,124
Interest expense, net............... - - - (1,774) (1,774)
------------ ------------ ------------- ----------- ----------
Income before taxes................. $ 3,883 $ (3,564) $ 10,036 $ (4,409) $ 5,946
------------ ------------ ------------- ----------- ----------
------------ ------------ ------------- ----------- ----------
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Below is a summary of residential and other property sales by location:
Quarter Ended Six Months Ended
-------------------- ----------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
Oahu, Hawaii $33,388 $25,226 $54,844 $45,231
Bakersfield, California 11,814 3,957 18,264 10,113
Sierra Vista, Arizona 1,835 2,062 3,036 2,677
Orlando, Florida 2,886 3,509 4,581 3,510
------- ------- ------- -------
Total Residential and other
property sales $49,923 $34,754 $80,725 $61,531
Residential and other property sales increased 44% to $49.9 million in
the second quarter of 1999 from $34.8 million in 1998. This increase is
primarily due to increased revenues on Oahu, Hawaii and in Bakersfield,
California. The second quarter increase on Oahu is primarily due to closings
of higher priced residential homes. The average price per unit sold on Oahu
in the second quarter of 1999 was $312,000 compared to $270,000 in the second
quarter of 1998. In addition, the Company sold 107 homes on Oahu during the
second quarter of 1999 compared to 93 homes during the second quarter of
1998. The second quarter increase in Bakersfield is primarily due to closings
at the Company's new adult active community known as The Greens at Seven
Oaks, increased lot sales and a land sale of an undeveloped parcel. The
Company sold 15 homes in the new adult active community for a total of $2.8
million during the second quarter of 1999. Home closings commenced in this
community in the first quarter of 1999. Lot sales at the Bakersfield
developments were $7.1 million during the second quarter of 1999 compared to
$3.2 million during the second quarter of 1998. The Company sold 175 lots in
Bakersfield during the second quarter of 1999 compared to 90 lots during the
second quarter of 1998. The undeveloped land sale in Bakersfield generated
revenues of $1.5 million.
Residential and other property sales increased 31% to $80.7 million
during the first six months of 1999 from $61.5 million in 1998. This increase
is primarily due to increased revenues on Oahu, Hawaii and in Bakersfield,
California. The revenue increase during the first six-months of 1999 on Oahu
as compared to the prior year is primarily due to closings of higher priced
residential homes. The average price per unit sold on Oahu during the first
six months of 1999 was $299,000 compared to $263,000 in 1998. In addition,
the Company sold 183 homes on Oahu during the first six months of 1999
compared to 171 homes in 1998. The revenue increase during the first six
months of 1999 in Bakersfield as compared to the prior year is primarily due
to closings at the Company's new adult active community known as The Greens
at Seven Oaks, increased lot sales and a land sale of an undeveloped parcel.
The Company sold 17 homes in the new adult active community for a total of
$3.2 million during the first six months of 1999. Lot sales at the
Bakersfield developments were $13.0 million during the first six months of
1999 compared to $9.1 million during 1998. The Company sold 321 lots
Bakersfield during the first six months of 1999 compared to 222 lots during
1998. The undeveloped land sale in Bakersfield generated revenues of $1.5
million.
8
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REVENUES (CONTINUED)
Resort revenues decreased 21% to $17.3 million during the second quarter
of 1999 from $22.0 million in the second quarter of 1998. This decrease is
primarily due to decreased resort residential sales. Resort residential sales
were $4.0 million in the second quarter of 1999 compared to $8.9 million in
the second quarter of 1998. The Company sold a total of four residential
units at its two luxury resort residential developments for a total of $3.5
million during the second quarter of 1999, compared to four residential units
and one single family lot for a total of $7.0 million during the second
quarter of 1998. Resort residential sales also include the sale of three
plantation homes for a total of $424,000 during the second quarter of 1999,
compared to four plantation homes for a total of $884,000 during the second
quarter of 1998. In addition, the 1998 second quarter resort residential
revenues include construction contract revenues of $951,000 relating to the
construction of a senior housing facility on Lanai, which is owned and
operated by an independent third party.
Resort revenues decreased 6% to $37.2 million during the first six
months of 1999 from $39.3 million in 1998. This decrease is primarily due to
decreased resort residential sales. Resort residential sales were $7.9
million in the first six months of 1999 compared to $10.3 million in the
first six months of 1998. The Company sold a total of seven residential units
at its two luxury resort residential developments for a total of $7.3 million
during the first six months of 1999, compared to five residential units and
one single family lot for a total of $7.8 million during the first six months
of 1998. Resort residential sales also include the sale of three plantation
homes for a total of $424,000 during the first six months of 1999, compared
to five plantation homes for a total of $1.0 million during the first six
months of 1998. In addition, the 1998 resort residential revenues include
construction contract revenues of $1.5 million relating to the construction
of a senior housing facility on Lanai, which is owned and operated by an
independent third party.
The following table sets forth combined operating statistics for the two
resort hotels:
Quarter Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ------------ -----------
Average daily room rate $ 273 $ 269 $ 297 $ 290
Occupancy rate 67% 66% 70% 71%
Commercial and other revenues increased $1.9 million in the second
quarter of 1999 compared to the second quarter of 1998. This increase is
primarily due to new properties and leases in Hawaii, California and Georgia
coming on line.
COST AND EXPENSES
The cost of residential and other property sales as a percentage of
residential property sales decreased to 84% in the second quarter of 1999 from
88% in the second quarter of 1998. This decrease is primarily due to the
increase of average selling price on Oahu as noted in the revenue discussion
above.
The cost of residential and other property sales as a percentage of
residential property sales decreased to 85% in the first six months of 1999 from
90% in the first six months of 1998. This decrease is primarily due to the
increase of average selling price on Oahu as noted in the revenue discussion
above.
9
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COST AND EXPENSES (CONTINUED)
Excluding resort residential sales and depreciation, the cost of resort
operations as a percentage of resort revenues decreased to 105% during the
second quarter of 1999 from 109% during the second quarter of 1998. This
decrease is primarily due to decreased marketing costs and improved occupancy
and average daily rates during the second quarter of 1999 as compared to the
second quarter of 1998. Resort depreciation was $1.9 million and $2.3 million
during the second quarter of 1999 and 1998, respectively. The resort
residential developments earned $147,000 in the second quarter of 1999
compared to earnings of $2.2 million in the second quarter of 1998. The
decrease is due to decreased sales activity. Since a portion of residential
cost of sales are period expenses, the cost of resort residential sales as a
percentage of resort residential revenues will fluctuate based on the number
of units sold during the period.
Excluding resort residential sales and depreciation, the cost of resort
operations as a percentage of resort revenues was 100% during the first six
months of 1999 and 1998. Resort depreciation was $3.8 million and $4.5 million
during the first six months of 1999 and 1998, respectively. The resort
residential developments earned $138,000 in the first six months of 1999
compared to earnings of $1.8 million in the first six months of 1998. The
decrease is due to decreased sales activity. Since a portion of residential cost
of sales are period expenses, the cost of resort residential sales as a
percentage of resort residential revenues will fluctuate based on the number of
units sold during the period.
NET INCOME AND EARNINGS PER SHARE
The Company's interest expense increased during the second quarter and
during the six months ended June 30, 1999 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 Six Months Ended
June 30, June 30,
-------------------------- --------------------------
(in thousands) 1999 1998 1999 1998
----------- ----------- ----------- ----------
Total borrowings at month end $ 281,440 $ 193,059 $ 281,440 $ 193,059
Total interest incurred $ 5,108 $ 3,743 $ 9,991 $ 7,359
Less: interest capitalized into real estate developments
and property and equipment under construction (2,765) (2,857) (5,553) (5,585)
--------- --------- --------- ---------
Interest expense, net of capitalized interest 2,343 886 4,438 1,774
Amortization in cost of residential and other
property sales of interest previously capitalized $ 1,493 $ 1,110 $ 2,592 $ 2,030
Interest and other income increased to $2.5 million in the first six
months of 1999 from $1.1 million in the first six months of 1998. This
increase is primarily due to the venture the Company entered into during the
second quarter of 1998 with Horizon/Glen Outlet Centers Limited Partnership.
This venture provided the Company equity earnings of $1.7 million in the
first six months of 1999 compared to $786,000 during the first six months of
1998.
The Company's effective income tax rate decreased to 30% in 1999 from 33%
in 1998. The 30% effective tax rate in 1999 is primarily due to low-income
housing tax credits.
Second quarter net income increased to $4.0 million in 1999 from $2.6
million in the second quarter of 1998. Six month net income increased to $6.7
million in 1999 from $4.0 million during the first six months of 1998. These
increases are primarily due to better operating results described above.
10
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 1999
compared to 1998 were as follows:
Quarter Ended Six months Ended
June 30, June 30,
------------------------- ------------------------
1999 1998 1999 1998
--------- ----------- --------- -----------
Backlog-Homes
- -------------
Units
Backlog at beginning of the period 145 81 88 46
Add: New orders 130 113 267 226
Less: Deliveries (124) (97) (204) (175)
--------- ----------- --------- -----------
Backlog at end of the period 151 97 151 97
--------- ----------- --------- -----------
--------- ----------- --------- -----------
Dollars
Backlog at beginning of the period $ 39,966 $ 21,607 $ 25,143 $ 11,920
Add: New orders 36,282 31,429 73,231 61,006
Less: Deliveries (36,700) (25,561) (58,826) (45,451)
--------- ----------- --------- -----------
Backlog at end of the period $ 39,548 $ 27,475 $ 39,548 $ 27,475
--------- ----------- --------- -----------
--------- ----------- --------- -----------
Mainland Backlog-Homesites
- --------------------------
Units
Backlog at beginning of the period 718 761 594 405
Add: New orders 194 149 516 657
Less: Deliveries (265) (275) (463) (427)
--------- ----------- --------- -----------
Backlog at end of the period 647 635 647 635
--------- ----------- --------- -----------
--------- ----------- --------- -----------
Dollars
Backlog at beginning of the period $ 29,612 $ 32,942 $ 22,074 $ 19,964
Add: New orders 8,061 3,815 24,085 23,223
Less: Deliveries (10,597) (9,475) (19,083) (15,905)
--------- ----------- --------- -----------
Backlog at end of the period $ 27,076 $ 27,282 $ 27,076 $ 27,282
--------- ----------- --------- -----------
--------- ----------- --------- -----------
The homes backlog on the mainland increased 31 homes and $5.9 million.
This increase is primarily due to the introduction of The Greens at Seven
Oaks, an active adult community within the Seven Oaks development in
Bakersfield, California. The Company began taking reservations for this
development in the second half of 1998.
As of June 30, 1999, there are five sales contracts for townhomes at the
Manele Bay and Koele residential project on the island of Lanai, which have
an aggregate sales value of approximately $7.1 million. This resort
residential information is not included in the above table.
11
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
June 30, 1999, 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 June 30, 1999, total
borrowings under the Credit Agreement were $218,000 million and the weighted
average interest rate was 6.67%. On December 30, 1998, the Company entered into
a $50 million long-term fixed rate financing arrangement with an insurance
company. This debt, which has an interest rate of 6.73% and a 30-year
amortization rate, matures on December 30, 2008. At June 30, 1999, the Company
is in compliance with the various financial covenants of its loan agreements.
The Company's financial market risk exposures relate primarily to interest
rates. Therefore, the Company utilizes interest rate agreements to manage
interest rate exposures. The principal objective of such contracts is to
minimize the risks and/or costs associated with financial activities. The
Company does not utilize financial instruments for trading or other speculative
purposes. In October 1997, the Company entered into interest rate swaps on
issued variable-rate debt for notional amounts totaling $80 million. This
effectively converted variable-rate debt into fixed-rate debt, with an interest
rate of 7.4% at June 30, 1999. These agreements mature on October 1, 2002.
Notional amounts do not represent cash flow, and credit risk exposure is limited
to the net interest differentials. The swap rate difference resulted in
approximately $355,000 and $152,000 of additional interest expense in the first
six months of 1999 and 1998, respectively, compared to what interest expense
would have been had the debt remained at variable rates.
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 currently intends to increase its current borrowing capacity
by approximately $25 million to meet its short-term and long-term cash needs.
To meet this increase, the Company is currently seeking an additional long
term fixed-rate term loan. There can be no assurance, however, that this or
other additional loans will be obtained, or that the increased borrowing
capacity, if obtained, will be sufficient. The Company may be required to
seek additional capital from the sale of assets or from other sources.
Residential development spending was $68.4 million in the first six
months of 1999. Spending during the first six months of 1999 at the Mililani,
Royal Kunia and Lalea residential developments on Oahu was approximately
$24.0 million, $5.0 million and $6.0 million, respectively. Spending during
the first six months of 1999 at the Bakersfield, California; Orlando,
Florida; and Sierra Vista, Arizona residential developments was approximately
$13.6 million, $4.2 million and $2.4 million, respectively. In addition, the
Company completed its acquisition of the Saddle Creek residential
development, which is located in the Sierra Nevada foothills east of
Stockton, California. Acquisition and developments costs for this project
totaled $3.8 million in the second quarter of 1999. In connection with the
Saddle Creek acquisition, the Company assumed approximately $5.8 million in
assessment district liabilities and a $2.2 million note payable maturing in
2002.
12
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 $1.9 million for the first
six months of 1999. Developmental expenditures on the island of Lanai totaled
$8.1 million during the first six months of 1999.
Capital expenditures at the commercial projects totaled $30.7 million
during the first six months of 1999. Commercial spending on the mainland
included $3.7 million for the construction of the Coyote Creek Golf Course
and clubhouse in San Jose, California; $2.0 million for construction of the
75,000 square foot One Riverwalk office building in Bakersfield, California;
$3.5 million for tenant improvements at the 214,000 square foot 10000 Ming
office building in Bakersfield, California; $4.1 million for the construction
of the 173,000 square foot Falls of the Neuse office building in Raleigh,
North Carolina; $3.3 million for a 15 acre commercial land purchase in Tempe,
Arizona; and $4.8 million for construction of the Keene's Pointe Golf Course
and clubhouse in Orlando, Florida. Commercial spending on the island of Oahu,
Hawaii included $6.4 million for additions to the Town Center of Mililani and
the Dole Cannery Square shopping and entertainment centers. At the Dole
Cannery Square a movie theater was completed and opened in the second quarter
of 1999 and a newly constructed Home Depot is expected to open in the fall of
1999. At the Town Center of Mililani a movie theater is currently under
construction, which is expected to be completed in the fourth quarter of 1999.
Cash flow used in investing activities increased $12.8 million during the
first six months of 1999 as compared to the corresponding period in 1998. The
increase is primarily due to increased construction activity on the commercial
developments.
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 Y2K
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 service
providers, financial institutions and other third parties to determine the
extent to which the Company is vulnerable to failure by its software and systems
or by third parties to be Y2K compliant, and the development and implementation
of a remediation and response plan, which includes contingency planning.
The Company has completed the inventory (identification of all potential
exposure items) and assessment (determining if the component is Y2K compliant)
phases for all information technology systems (such as business computing
systems and technical infrastructure), as well as non-information technology
systems (such as embedded technology).
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CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 (CONTINUED)
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 Y2K
compliant.
The Company is substantially complete determining if its material suppliers
and service providers, financial institutions and other third parties
("Providers") are Y2K compliant. Based on the information obtained from its
Providers, the Company expects that these Providers are or will be Y2K
compliant; however, the Company has no means of ensuring that the Providers will
be Y2K compliant. The failure or inability of Providers to be Y2K compliant
could have an adverse impact on the Company.
The Company is in the process of developing contingency plans for its
properties and operations that are intended to address the Y2K problem.
In addition to problems that may arise if Providers are not Y2K compliant,
systemic problems in the economy resulting from the Y2K problem, such as
disruptions in financial markets, communications, governmental agencies and
utilities, air travel and delivery services, transportation, power supply or
overall economic dislocation would affect the Company. The likelihood and
effects of such disruptions are not determinable at this time. 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 June 30, 1999 to address the Y2K
problem is approximately $426,000. 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 $800,000. 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.
The estimated costs of the Company's Y2K compliance project and the dates
on which the Company plans to complete its remediation, contingency plans 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.
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 is analyzing
this issue and developing contingency plans to respond to these scenarios, as
more information becomes available. The Company expects these contingency plans
to be completed during the fourth quarter of 1999.
14
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Statements herein that are not historical facts are "forward-looking
statements." These would include, without limitation, statements about
anticipated results, resources, capital needs, revenues, economic conditions,
transactions, project commencements or completions, and Y2K readiness and
effects. Such statements are based on the Company's current expectations and
are subject to a number of risks and uncertainties that could cause actual
results to differ materially from results that may be expressed or implied by
such statements. These risks and uncertainties include, among other things,
product demand, the Company's lack of experience in markets outside of its
current markets, the effects of economic conditions and geographic
concentration, the impact of competitive products and pricing, the availability
of capital, the cost of materials and labor, governmental regulations and the
need for governmental approvals, interest rates and other risks inherent in the
real estate business, and the effects of the Y2K computer problems.
15
CASTLE & COOKE, INC.
PART II.
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Castle & Cooke, Inc. held its Annual Meeting of Stockholders
(the "Meeting") on May 12, 1999, at which the Company's
stockholders voted: (1) to elect the nominated slate of eight
directors, each to serve until the next meeting and until his or
her successor has been duly elected and qualified: Patrick J.
Birmingham, Edward M. Carson, Lodwrick M. Cook, Edward J. Hogan,
Wallace S. Miyahira, David H. Murdock, Lynne Scott Safrit, and
Dell Trailor; (2) to approve the Company's Amended and Restated
1995 Stock Option and Award Plan, which includes an increase in
the number of shares available under the Plan by 1,000,000
shares and certain other amendments to the Plan, and (3) to
approve Arthur Andersen LLP as the Company's independent public
accountants and auditors for the 1999 fiscal year.
Holders of record of the Company's common stock as of March 10,
1999 were entitled to vote at the meeting. On March 10, 1999,
there were 17,025,020 shares of common stock outstanding and
entitled to vote and 14,884,835 were represented at the Meeting.
Each of the directors received at least 90.0% of the shares cast
in favor of his or her election. The shares cast for each
director are as follows: Patrick J. Birmingham; 13,612,167 for
and 1,272,668 withheld; Edward M. Carson: 13,420,106 for and
1,464,729 withheld; Lodwrick M. Cook: 13,420,246 for and
1,464,589 withheld; Edward J. Hogan: 13,346,195 for and
1,538,640 withheld; Wallace S. Miyahira: 13,612,330 for and
1,272,505 withheld; David H. Murdock: 13,609,051 for and
1,275,784 withheld; Lynne Scott Safrit: 13,613,070 for and
1,271,765 withheld; Dell Trailor: 13,420,586 for and 1,464,249
withheld. Dell Trailor passed away on May 4, 1999. With respect
to approving the Company's Amended and Restated 1995 Stock
Option and Award Plan, the shares cast were 10,640,548 shares
for, 1,714,018 shares against, 181,204 shares abstained, and
2,3498,065 were broker non-votes. With respect to the approval
of Arthur Andersen LLP, the shares cast were 14,847,756 shares
for, 22,420 shares against, and 14,659 shares in abstention.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No.
-------
10.8 Consulting Agreement between the Company and Wallace S. Miyahira.
27 Financial Data Schedule
(b) Reports on Form 8-K
THE REGISTRANT FILED NO REPORTS ON FORM 8-K DURING THE QUARTER
ENDED JUNE 30, 1999.
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: August 11, 1999 BY /s/ Edward C. Roohan
------------------------------------
Edward C. Roohan
Vice President, Treasurer and
Chief Financial Officer
(Principal financial officer)
Date: August 11, 1999 BY /s/ Scott J. Blechman
--------------------------------------
Scott J. Blechman
Vice President and
Corporate Controller
(Principal accounting officer)
17