<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 10-Q
------------------------------
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
and Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 October 20, 1999
----- --------------------------------------
Common Stock, without par value 17,052,946 shares
================================================================================
<PAGE>
CASTLE & COOKE, INC.
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1999 and December 31, 1998...................................3
Consolidated Statements of Operations - Quarter and nine months ended September 30, 1999
and September 30, 1998..............................................................................4
Consolidated Statements of Cashflows - Nine months ended September 30, 1999
and September 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 6. Exhibits and Reports on Form 8-K...............................................................16
SIGNATURES ...............................................................................................17
</TABLE>
2
<PAGE>
CASTLE & COOKE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
Cash and cash equivalents $ 2,755 $ 4,764
Receivables, net 25,917 23,127
Real estate developments 509,345 501,147
Property and equipment, net 525,522 500,000
Other assets 30,172 25,067
----------- -----------
Total assets $ 1,093,711 $ 1,054,105
----------- -----------
----------- -----------
Notes payable $ 268,552 $ 250,044
Note payable to Dole 10,000 10,000
Accounts payable 18,884 20,239
Accrued liabilities 26,442 30,411
Deferred income taxes 178,123 174,450
Deferred income and other liabilities 43,575 32,175
----------- -----------
Total liabilities 545,576 517,319
----------- -----------
Common shareholders' equity
Common stock 512,646 512,182
Treasury stock, at cost (58,322) (58,322)
Retained earnings 93,811 82,926
----------- -----------
Total common shareholders' equity 548,135 536,786
----------- -----------
Total liabilities and shareholders' equity $ 1,093,711 $ 1,054,105
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE>
CASTLE & COOKE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Residential and other property sales $ 45,120 $ 52,121 $ 125,845 $113,652
Resort revenues 19,992 13,770 57,148 53,093
Commercial and other revenues 15,828 13,245 43,559 39,121
-------- -------- --------- --------
Total revenues 80,940 79,136 226,552 205,866
Cost of operations
Cost of residential and other property sales 39,044 42,343 107,784 97,469
Cost of resort operations 22,947 18,656 63,708 60,657
Cost of commercial and other operations 10,675 8,347 28,428 24,548
General and administrative expenses 3,492 3,278 10,265 10,084
-------- -------- --------- --------
Total cost of operations 76,158 72,624 210,185 192,758
-------- -------- --------- --------
Operating income 4,782 6,512 16,367 13,108
Interest and other income, net 3,982 1,540 6,467 2,665
Interest expense, net 2,841 2,053 7,279 3,827
-------- -------- --------- --------
Income before income taxes 5,923 5,999 15,555 11,946
Income tax provision (1,780) (1,980) (4,670) (3,942)
-------- -------- --------- --------
Net income $ 4,143 $ 4,019 $ 10,885 $ 8,004
-------- -------- --------- --------
-------- -------- --------- --------
Basic and diluted earnings per common share $ 0.24 $ 0.24 $ 0.64 $ 0.42
-------- -------- --------- --------
-------- -------- --------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
CASTLE & COOKE, INC.
CONSOLIDATED STATEMENTS OF CASHFLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,885 $ 8,004
Adjustments to reconcile net income to cash flow
provided by operating activities:
Depreciation 13,053 13,399
Equity earnings, net of dividends received (433) (1,156)
Other 70 40
Non-cash cost of residential and other property sales 105,315 100,266
Changes in operating assets and liabilities:
Increase in receivables, net (2,776) (3,696)
Additions to real estate developments (100,448) (106,635)
(Decrease) increase in accounts payable (1,355) 7,522
(Decrease) increase in accrued liabilities (1,523) 574
Increase in deferred income taxes 3,673 3,237
Net change in other assets and liabilities (3,186) 3,515
------------- -------------
Net cash provided by operating activities 23,275 25,070
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (41,982) (37,335)
------------- -------------
Net cash used in investing activities (41,982) (37,335)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase under revolving loan agreeements 17,000 72,000
Proceeds from issuance of debt 1,090 1,971
Reduction of debt (1,786) (21)
Purchase of stock -- (58,353)
Proceeds from exercise of stock options 394 376
------------- -------------
Net cash provided by financing activities 16,698 15,973
------------- -------------
Net (decrease) increase in cash and cash equivalents (2,009) 3,708
Cash and cash equivalents at beginning of period 4,764 1,612
------------- -------------
Cash and cash equivalents at end of period $ 2,755 $ 5,320
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
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,
1999 and September 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 nine months ended
September 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
17,051,763 and 17,007,279 during the third quarter of 1999 and 1998,
respectively. The weighted average number of non-employee director stock grants
outstanding was 7,286 and 7,058 during the third quarter of 1999 and 1998,
respectively. The computation of dilutive earnings per share includes the
assumed exercise of 47,675 and 96,366 options outstanding during the third
quarter of 1999 and 1998, respectively.
The weighted average number of shares of common stock outstanding was
17,037,225 and 18,983,346 during the first nine months of 1999 and 1998,
respectively. The weighted average number of non-employee director stock grants
outstanding was 7,076 and 5,894 during the first nine months of 1999 and 1998,
respectively. The computation of dilutive earnings per share includes the
assumed exercise of 39,113 and 93,453 options outstanding during the first nine
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
<PAGE>
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 CASHFLOW INFORMATION
The Company made interest payments of approximately $14.8 million and $10.7
million during the first nine months of 1999 and 1998, respectively. Total
interest capitalized into real estate developments and property and equipment
under construction totaled approximately $7.9 million and $8.3 million during
the first nine months of 1999 and 1998, respectively.
During the first nine months of 1999, the Company made income tax payments
of approximately $5.8 million and received income tax refunds of approximately
$4.8 million. The Company made income tax payments of approximately $703,000
during the first nine months of 1998.
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
FASB subsequently issued SFAS No. 137, which deferred the effective date of SFAS
No. 133. The Company must implement SFAS No. 133 by the first quarter of 2001,
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):
<TABLE>
<CAPTION>
RESIDENTIAL COMMERCIAL
AND OTHER RESORT AND OTHER
PROPERTY SALES OPERATIONS OPERATIONS CORPORATE TOTAL
-------------- ---------- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1999
Total revenue $125,845 $ 57,148 $ 43,559 $ -- $ 226,552
Operating income $ 14,169 $ (8,128) $ 14,436 $ (4,110) $ 16,367
Interest and other income, net 873 9 5,511 74 6,467
Interest expense, net -- -- -- (7,279) (7,279)
-------- -------- -------- --------- ---------
Income before taxes $ 15,042 $ (8,119) $ 19,947 $(11,315) $ 15,555
-------- -------- -------- --------- ---------
-------- -------- -------- --------- ---------
NINE MONTHS ENDED SEPTEMBER 30, 1998
Total revenue $113,652 $ 53,093 $ 39,121 $ -- $ 205,866
Operating income $ 12,319 $ (8,890) $ 13,739 $ (4,060) $ 13,108
Interest and other income, net 753 13 1,822 77 2,665
Interest expense, net -- -- (3,827) (3,827)
-------- -------- -------- --------- ---------
Income before taxes $ 13,072 $ (8,877) $ 15,561 $ (7,810) $ 11,946
-------- -------- -------- --------- ---------
-------- -------- -------- --------- ---------
</TABLE>
7
<PAGE>
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:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Oahu, Hawaii $ 32,125 $ 30,801 $86,969 $76,032
Bakersfield, California 8,228 5,635 26,492 15,748
Copperopolis, California 494 -- 494 --
Sierra Vista, Arizona 1,332 2,039 4,368 4,717
Orlando, Florida 2,941 8,397 7,522 11,906
Westlake Village, California -- 5,249 -- 5,249
-------- -------- -------- --------
Total Residential and other property sales $ 45,120 $ 52,121 $125,845 $113,652
</TABLE>
Residential and other property sales decreased 13% to $45.1 million in the
third quarter of 1999 from $52.1 million in the third quarter of 1998. Excluding
two bulk land sales in the third quarter of 1998, residential and other property
sales increased 3% to $45.1 million in the third quarter of 1999 from $44.0
million in the third quarter of 1998. This increase is primarily due to
increased revenues on Oahu, Hawaii and in Bakersfield, California, partially
offset by decreased revenue in Orlando, Florida. The third quarter increase on
Oahu is primarily due to an increase of 12 home closings in 1999 as compared to
1998. In addition, the average price per unit sold on Oahu in the third quarter
of 1999 was $279,000 compared to $270,000 in the third quarter of 1998. The
third quarter increase in Bakersfield is primarily due to closings at the
Company's new adult active community known as The Greens at Seven Oaks. The
Company sold 15 homes in the new adult active community for a total of $2.7
million during the third quarter of 1999. Home closings commenced in this
community in the first quarter of 1999. The third quarter decrease in Orlando is
primarily due to the timing of lot closings to local homebuilders. 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.
Residential and other property sales increased 11% to $125.8 million during
the first nine months of 1999 from $113.7 million during the first nine months
of 1998. Excluding the two bulk land sales in the third quarter of 1998,
residential and other property sales increased 19% to $125.8 million during the
first nine months of 1999 from $105.5 in the third quarter of 1998. This
increase is primarily due to increased revenues on Oahu, Hawaii and in
Bakersfield, California, partially offset by decreased revenue in Orlando,
Florida. The revenue increase during the first nine 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 nine
months of 1999 was $291,000 compared to $266,000 in 1998. In addition, the
Company sold 298 homes on Oahu during the first nine months of 1999 compared to
274 homes in 1998. The revenue increase during the first nine 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 four home sales in the Seven Oaks development. The
Company sold 32 homes in the new adult active community for a total of $5.9
million during the first nine months of 1999. Lot sales at the Bakersfield
developments were $17.8 million during the first nine months of 1999 compared to
$11.2 million during 1998. The Company sold four homes in the Seven Oaks
development for $1.1 million during the first nine months of 1999 compared to
zero homes during the first nine months of 1998.
8
<PAGE>
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REVENUES (CONTINUED)
Resort revenues increased 45% to $20.0 million in the third quarter of 1999
from $13.8 million in the third quarter of 1998. This increase is primarily due
to increased resort residential sales. Resort residential sales were $7.8
million in the third quarter of 1999 compared to $2.8 million in the third
quarter of 1998. The Company sold a total of five residential units at its two
luxury resort residential developments for a total of $7.6 million during the
third quarter of 1999, compared to two residential units for a total of $2.1
million during the third quarter of 1998. Resort residential sales also include
the sale of one plantation home for a total of $121,000 during the third quarter
of 1999, compared to two plantation homes for a total of $275,000 during the
third quarter of 1998. In addition, the 1998 third quarter resort residential
revenues include construction contract revenues of $450,000 relating to the
construction of a senior housing facility on Lanai, which is owned and operated
by an independent third party.
Resort revenues increased 8% to $57.1 million during the first nine months
of 1999 from $53.1 million in 1998. This increase is primarily due to increased
resort residential sales. Resort residential sales were $15.7 million in the
first nine months of 1999 compared to $13.1 million in the first nine months of
1998. The Company sold a total of twelve residential units at its two luxury
resort residential developments for a total of $14.2 million during the first
nine months of 1999, compared to eight residential units and one single family
lot for a total of $9.9 million during the first nine months of 1998. Resort
residential sales also include the sale of four plantation homes for a total of
$545,000 during the first nine months of 1999, compared to seven plantation
homes for a total of $1.3 million during the first nine months of 1998. 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 is owned and operated by an independent third party.
The following table sets forth combined operating statistics for the two
resort hotels:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
--------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average daily room rate $272 $267 $289 $283
Occupancy rate 61% 58% 67% 67%
</TABLE>
Commercial and other revenues increased $2.6 million to $15.8 million
during the third quarter of 1999 compared to $13.2 million during the third
quarter of 1998. This increase is primarily due to the two new golf courses in
San Jose, California, and Orlando, Florida, opening for play in the third
quarter of 1999 and a new lease at the 10000 Ming office building in
Bakersfield, California, coming on line.
Commercial and other revenues increased $4.4 million to $43.6 million
during the first nine months of 1999 compared to $39.1 million during the first
nine months of 1998. This increase is primarily due to the two new golf courses
and the 10000 Ming office building mentioned above as well as new leases in
Atlanta, Georgia coming on line.
COST AND EXPENSES
The cost of residential and other property sales as a percentage of
residential property sales increased to 87% in the third quarter of 1999 from
81% in the third quarter of 1998. This increase is primarily due to the two land
sales in the third quarter of 1998, which had a combined operating margin of
40%.
9
<PAGE>
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 114% during the third
quarter of 1999 from 125% during the third quarter of 1998. 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. Resort
depreciation was $1.8 million during the third quarter of 1999 and 1998. The
resort residential developments reported earnings of $542,000 in the third
quarter of 1999 compared to a net loss of $326,000 in the third quarter of 1998.
The increase is due to increased 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 decreased to 104% during the first
nine months of 1999 from 107% during the first nine months of 1998. Resort
depreciation was $5.6 million and $6.3 million during the first nine months of
1999 and 1998, respectively. The resort residential developments reported
earnings of $680,000 in the first nine months of 1999 compared to earnings of
$1.5 million in the first nine months of 1998. The decrease is due to product
mix.
The cost of commercial and other operations as a percentage of commercial
and other revenues increased to 67% during the third quarter of 1999 from 63%
during the third quarter of 1998. This increase is primarily due to start up
costs associated with the two new golf courses in San Jose, California, and
Orlando, Florida.
The cost of commercial and other operations as a percentage of commercial
and other revenues increased to 65% during the first nine months of 1999 from
63% during the first nine months of 1998. This increase is primarily due to
start up costs associated with the two new golf courses in San Jose, California,
and Orlando, Florida.
NET INCOME AND EARNINGS PER SHARE
The Company's interest expense increased during the third quarter and
during the nine months ended September 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:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Total borrowings at month end $ 278,552 $ 260,051 $ 278,552 $ 260,051
Total interest incurred $ 5,169 $ 4,742 $ 15,160 $ 12,101
Less: interest capitalized into real estate developments
and property and equipment under construction (2,328) (2,689) (7,881) (8,274)
--------- --------- --------- ---------
Interest expense, net of capitalized interest $ 2,841 $ 2,053 $ 7,279 $ 3,827
--------- --------- --------- ---------
--------- --------- --------- ---------
Amortization in cost of residential and other
property sales of interest previously capitalized $ 948 $ 1,503 $ 3,760 $ 3,532
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
10
<PAGE>
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET INCOME AND EARNINGS PER SHARE (CONTINUED)
Interest and other income increased to $3.9 million in the third quarter of
1999 from $1.5 million in the third quarter of 1998. This increase is primarily
due to the sale of certain real property rights on the island of Oahu, Hawaii
for $2.9 million.
Interest and other income increased to $6.4 million in the first nine
months of 1999 from $2.7 million in the first nine months of 1998. This increase
is primarily due to the sale of certain real property rights on the island of
Oahu, Hawaii for $2.9 million and the venture the Company entered into during
the third quarter of 1998 with Horizon/Glen Outlet Centers Limited Partnership.
This venture provided the Company equity earnings of $2.4 million in the first
nine months of 1999 compared to $1.6 during the first nine 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.
Third quarter net income increased to $4.1 million in 1999 from $4.0
million in the third quarter of 1998. Nine-month net income increased to $10.9
million in 1999 from $8.0 million during the first nine months of 1998. These
increases are primarily due to the fluctuations noted above.
BACKLOG
The Company's new orders and backlog for homes and homesites for 1999
compared to 1998 were as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
BACKLOG HOMES
Units
Backlog at beginning of the period 151 97 88 46
Add: New Orders 104 105 371 331
Less: Deliveries (135) (110) (339) (285)
-------- -------- -------- --------
Backlog at end of the period 120 92 120 92
-------- -------- -------- --------
-------- -------- -------- --------
Dollars
Backlog at beginning of the period $ 39,548 $ 27,475 $ 25,143 $ 11,920
Add: New Orders 26,020 26,967 99,251 87,973
Less: Deliveries (35,712) (28,737) (94,538) (74,188)
-------- -------- -------- --------
Backlog at end of the period $ 29,856 $ 25,705 $ 29,856 $ 25,705
-------- -------- -------- --------
-------- -------- -------- --------
MAINLAND BACKLOG - HOMESITES
Units
Backlog at beginning of the period 647 635 594 405
Add: New Orders 145 77 661 734
Less: Deliveries (172) (222) (635) (649)
-------- -------- -------- --------
Backlog at end of the period 620 490 620 490
-------- -------- -------- --------
-------- -------- -------- --------
Dollars
Backlog at beginning of the period $ 27,076 $ 27,282 $ 22,074 $ 19,964
Add: New Orders 7,772 7,771 31,857 30,994
Less: Deliveries (8,400) (14,126) (27,483) (30,031)
-------- -------- -------- --------
Backlog at end of the period $ 26,448 $ 20,927 $ 26,448 $ 20,927
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
11
<PAGE>
CASTLE & COOKE, INC
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKLOG (CONTINUED)
The homes backlog on the mainland was 32 homes and $5.7 million as compared
to 11 homes and $1.8 million at September 30, 1998. These increases are
primarily due to the introduction of The Greens at Seven Oaks, an adult active
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 September 30, 1999, there are four sales contracts for townhomes
at the Manele Bay and the Koele residential project on the island of Lanai,
which have an aggregate sales value of approximately $3.7 million. This
resort residential information is not included in the above table.
12
<PAGE>
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 September 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 September 30, 1999, total borrowings under the Credit
Agreement were $215 million and the weighted average interest rate was
6.8%. 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 September 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 September 30, 1999. These agreements mature on October 1, 2002.
Notional amounts do not represent cashflow, and credit risk exposure is limited
to the net interest differentials. The swap rate difference resulted in
approximately $475,000 and $200,000 of additional interest expense in the first
nine 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 $100.4 million in the first nine
months of 1999. Spending during the first nine months of 1999 at the Mililani,
Lalea and Royal Kunia residential developments on Oahu was approximately $34.1
million, $7.3 million and $10.3 million, respectively. Spending during the first
nine months of 1999 at the Bakersfield, California; Orlando, Florida; and Sierra
Vista, Arizona residential developments was approximately $18.7 million, $6.4
million and $3.8 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
development costs for this project totaled $5.7 million during the first nine
months 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, which matures in 2002.
13
<PAGE>
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 $2.8 million for the first
nine months of 1999. Developmental expenditures on the island of Lanai totaled
$12.0 million during the first nine months of 1999.
Capital expenditures at the commercial projects totaled $39.2 million
during the first nine months of 1999. Commercial spending on the mainland
included $4.1 million for the construction of the Coyote Creek Golf Course and
clubhouse in San Jose, California; $2.2 million for construction of the 75,000
square foot One Riverwalk office building in Bakersfield, California; $4.7
million for tenant improvements at the 214,000 square foot 10000 Ming office
building in Bakersfield, California; $7.3 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 $6.1 million for construction of the Keene's Pointe Golf Course and
clubhouse in Orlando, Florida. Commercial spending on the island of Oahu, Hawaii
included $6.7 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 third quarter of 1999 and a newly
constructed Home Depot opened in September 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.
Cashflow used in investing activities increased $4.6 million during the
first nine 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).
14
<PAGE>
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 developed and
implemented a remediation and response plan intended to remedy Y2K deficiencies
and to address contingencies for unforeseen problems. In most cases, the Company
replaced 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 in 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 most of 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.
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 September 30, 1999 to address the
Y2K problem is approximately $608,000. 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 $75,000. 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 can not be certain, but currently expects that the most
reasonably likely worst case Y2K scenarios for its operations could involve
disruptions to its resorts and commercial 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.
15
<PAGE>
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.
PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No.
-------
27 Financial Data Schedule
(b) Reports on Form 8-K
THE REGISTRANT FILED NO REPORTS ON FORM 8-K DURING THE QUARTER ENDED
SEPTEMBER 30, 1999.
All other items required under Part II are omitted because they are not
applicable.
16
<PAGE>
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 10, 1999 BY /s/ Edward C. Roohan
-----------------------------
Edward C. Roohan
Vice President, Treasurer and
Chief Financial Officer
(Principal financial and
accounting officer)
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,755
<SECURITIES> 0
<RECEIVABLES> 25,917
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 710,679
<DEPRECIATION> 185,157
<TOTAL-ASSETS> 1,093,711
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 512,646
<OTHER-SE> 35,489
<TOTAL-LIABILITY-AND-EQUITY> 1,093,711
<SALES> 226,552
<TOTAL-REVENUES> 226,552
<CGS> 199,920
<TOTAL-COSTS> 210,185
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,279
<INCOME-PRETAX> 15,555
<INCOME-TAX> 4,670
<INCOME-CONTINUING> 10,885
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,885
<EPS-BASIC> 0.64
<EPS-DILUTED> 0.64
</TABLE>
