<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 10-Q
------------------------------
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
and Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 April 30, 1999
----- -----------------------------------
Common Stock, without par value 17,041,884 shares
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<PAGE>
CASTLE & COOKE, INC.
FORM 10-Q
FOR THE QUARTER ENDED
MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1999 and
December 31, 1998............................................3
Consolidated Statements of Operations - Three months ended
March 31, 1999 and March 31, 1998............................4
Consolidated Statements of Cash Flows - Three months ended
March 31, 1999 and March 31, 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............................15
SIGNATURES................................................................15
</TABLE>
2
<PAGE>
CASTLE & COOKE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 2,297 $ 4,764
Receivables, net 26,462 23,127
Real estate developments 505,488 501,147
Property and equipment, net 507,113 500,000
Other assets 25,398 25,067
------------- -------------
Total assets $ 1,066,758 $ 1,054,105
============= =============
Notes payable $ 262,399 $ 250,044
Note payable to Dole 10,000 10,000
Accounts payable 20,420 20,239
Accrued liabilities 27,107 30,411
Deferred income taxes 174,460 174,450
Deferred income and other liabilities 32,738 32,175
------------- --------------
Total liabilities 527,124 517,319
------------- -------------
Common shareholders' equity
Common stock 512,239 512,182
Treasury stock, at cost (58,322) (58,322)
Retained earnings 85,717 82,926
------------- -------------
Total common shareholders' equity 539,634 536,786
------------- -------------
Total liabilities and shareholders' equity $ 1,066,758 $ 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>
Three Months Ended
March 31,
-------------------------
1999 1998
----------- ----------
<S> <C> <C>
REVENUES
Residential and other property sales $ 30,802 $ 26,777
Resort revenues 19,821 17,340
Commercial and other revenues 13,064 13,133
----------- ----------
Total revenues 63,687 57,250
COST OF OPERATIONS
Cost of residential and other property sales 26,915 24,603
Cost of resort operations 20,951 18,732
Cost of commercial and other operations 7,861 7,860
General and administrative expenses 3,224 3,194
----------- ----------
Total cost of operations 58,951 54,389
----------- ----------
Operating income 4,736 2,861
Interest and other income, net 1,346 110
Interest expense, net 2,095 888
----------- ----------
Income before income taxes 3,987 2,083
Income tax provision (1,196) (687)
----------- ----------
Net income $ 2,791 $ 1,396
=========== ==========
Basic and diluted earnings per common share $ 0.16 $ 0.07
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
CASTLE & COOKE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
March 31, March 31,
1999 1998
--------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,791 $ 1,396
Adjustments to reconcile net income to cash flow
provided by operating activities:
Depreciation 4,289 4,627
Equity earnings, net of dividends received 206 67
Non-cash cost of residential and other property sales 26,057 22,899
Changes in operating assets and liabilities:
Increase in receivables, net (3,321) (1,558)
Additions to real estate developments (30,382) (30,338)
Increase in accounts payable 181 1,905
(Decrease) increase in accrued liabilities (2,304) 170
Increase in deferred income taxes 10 626
Net change in other assets and liabilities 550 (1,511)
------------- -------------
Net cash used in operating activities (1,923) (1,717)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (12,956) (8,264)
------------- -------------
Net cash used in investing activities (12,956) (8,264)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase under revolving loan agreements 13,000 10,000
Proceeds from issuance of debt - 1,875
Reduction of debt (645) (7)
Proceeds from exercise of stock options 57 69
------------- -------------
Net cash provided by financing activities 12,412 11,937
------------- -------------
Net (decrease) increase in cash and cash equivalents (2,467) 1,956
Cash and cash equivalents at beginning of period 4,764 1,612
------------- -------------
Cash and cash equivalents at end of period $ 2,297 $ 3,568
============= =============
</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 ended March 31,
1999 and March 31, 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 quarter
ended March 31, 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 17,024,035 and 19,997,844 during the first quarter of 1999
and 1998, respectively. The weighted average number of non-employee director
stock grants outstanding was 7,058 and 4,954 during the first quarter of 1999
and 1998, respectively. The computation of dilutive earnings per share
includes the assumed exercise of 43,141 and 61,217 options outstanding during
the first quarter 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.
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.
6
<PAGE>
CASTLE & COOKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. SUPPLEMENTAL CASH FLOW INFORMATION
The Company made interest payments of approximately $4.8 million and
$2.5 million during the first quarter of 1999 and 1998, respectively. Total
interest capitalized into real estate developments and property and equipment
under construction totaled approximately $2.8 million and $2.7 million during
the first quarter of 1999 and 1998, respectively.
The Company made income tax payments of approximately $1.2 million and
$55,000 during the first quarter 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 results of operations.
NOTE 7. SUBSEQUENT EVENT
On April 27, 1999, the Company closed on its agreement to purchase a
golf course residential development located in Calaveras County in the Sierra
Foothills east of Stockton, California. The project consists of 890 acres and
the total purchase price will be approximately $6.2 million. In connection
with this purchase, the Company entered into a separate partnership agreement
with the seller of the development. This partnership, with the Company as the
general partner, owns and operates the existing Saddle Creek golf course.
NOTE 8. INDUSTRY SEGMENT INFORMATION
The Company's industry segment information is presented below (in
thousands):
<TABLE>
<CAPTION>
RESIDENTIAL
AND OTHER COMMERCIAL
PROPERTY RESORT AND OTHER
SALES OPERATIONS OPERATIONS CORPORATE TOTAL
------------ ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
QUARTER ENDED MARCH 31, 1999
Total revenue....................... $ 30,802 $ 19,821 $ 13,064 $ - $ 63,687
============ ============ ============= =========== ==========
Operating income.................... $ 2,689 $ (1,717) $ 4,987 $ (1,223) $ 4,736
Interest and other income........... 266 3 1,058 19 1,346
Interest expense.................... - - - (2,095) (2,095)
------------ ------------ ------------- ----------- ----------
Income before taxes................. $ 2,955 $ (1,714) $ 6,045 $ (3,299) $ 3,987
============ ============ ============= =========== ==========
QUARTER ENDED MARCH 31, 1998
Total revenue....................... $ 26,777 $ 17,340 $ 13,133 $ - $ 57,250
============ ============ ============= =========== ==========
Operating income ................... $ 1,023 $ (2,062) $ 5,042 $ (1,142) $ 2,861
Interest and other income........... 80 3 13 14 110
Interest expense.................... - - - (888) (888)
------------ ------------ ------------- ----------- ----------
Income before taxes................. $ 1,103 $ (2,059) $ 5,055 $ (2,016) $ 2,083
============ ============ ============= =========== ==========
</TABLE>
7
<PAGE>
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
First quarter consolidated revenues increased 11% to $63.7 million in
1999 from $57.3 million in 1998. Residential and other property sales for the
first quarter increased 15% to $30.8 million in 1999 from $26.8 million in
1998. This increase is primarily due to homesite deliveries at the new
Keene's Pointe development in Orlando, Florida, increased revenues on Oahu
and increased sales activity at the Sierra Vista, Arizona development. The
Keene's Pointe development, which commenced deliveries in the second quarter
of 1998, delivered 15 homesites in the first quarter of 1999 with revenues of
$1.7 million, or $113,000 per homesite. Oahu residential revenues increased
$1.5 million in the first quarter of 1999 compared to the first quarter of
1998 due to increased sales prices. The average price per unit sold in the
first quarter of 1999 was $281,000 compared to $255,000 in the first quarter
of 1998. This increase was primarily due to product mix. Revenues at the
Sierra Vista, Arizona development increased $586,000 in the first quarter of
1999 compared to the first quarter of 1998 primarily due to increased
homesite closings. First quarter homesite deliveries increased 90% to 38
homesites in 1999 from 20 homes in 1998.
Resort revenues for the first quarter of 1999 increased 14% to $19.8
million in 1999 from $17.3 million in 1998. This increase is primarily due to
increased resort residential sales. Resort residential sales were $3.9
million in 1999 compared to $1.4 million in 1998. The Company sold three
residential units at its two luxury resort residential developments for a
total of $3.8 million during the first quarter of 1999, compared to one
residential unit for a total of $750,000 during the first quarter of 1998.
Resort residential sales also include the sale of one plantation home for a
total of $120,000 during the first quarter of 1998. In addition, the 1998
resort residential revenues include construction contract revenues of
$504,000 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
March 31,
-----------------------
1999 1998
---------- ---------
<S> <C> <C>
Average daily room rate $ 318 $ 308
Occupancy rate 74% 76%
</TABLE>
Commercial and other revenues for the first quarter of 1999 and 1998
were $13.1 million. Commercial and other revenues on Oahu decreased $1.1
million in the first quarter of 1999 compared to the first quarter of 1998.
However, the Oahu decrease was offset by a $1.0 million increase in the
commercial and other operations on the mainland during the first quarter of
1999 compared to the first quarter of 1998. The Oahu decrease was 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, which commenced April 1, 1998,
the Dole Cannery Factory Outlet Center in Honolulu was leased to Horizon and,
accordingly, the Company recognized approximately $863,000 in revenue in
accordance with this lease.
The increase in mainland commercial revenues is primarily due to
increased occupancy at the Premier II office building in Atlanta, Georgia,
increased golf rounds at the Coyote Creek golf course in San Jose, California
and increased usage fees at the Kirby Canyon landfill in San Jose, California.
8
<PAGE>
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COST AND EXPENSES
First quarter consolidated cost of operations increased to $59.0 million
in 1999 from $54.4 million in 1998. The cost of residential and other
property sales as a percentage of residential property sales decreased to 87%
in the first quarter of 1999 from 92% in the first quarter of 1998. This
decrease is primarily due to the new Keene's Pointe project in Orlando,
Florida.
Excluding resort residential sales and depreciation, the cost of resort
operations as a percentage of resort revenues increased to 95% during the
first quarter of 1999 from 92% during the first quarter of 1998. This
increase is primarily due to decreased retail margins in the hotel gift
shops, higher electricity costs due to a rate increase, and increased workers
compensation insurance costs. Resort depreciation was $1.9 million and $2.2
million during the first quarter of 1999 and 1998, respectively. The resort
residential sales broke even in the first quarter of 1999 compared to a loss
of $410,000 in the first quarter of 1998. The improvement 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.
NET INCOME AND EARNINGS PER SHARE
The Company's interest expense increased during the first quarter ended
March 31, 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
March 31,
--------------------------
1999 1998
----------- ----------
<S> <C> <C>
(in thousands)
Total borrowings at quarter end $ 272,399 $ 197,969
=========== ==========
Total interest incurred $ 4,883 $ 3,565
Less: interest capitalized into real estate developments
and property and equipment under construction (2,788) (2,677)
----------- ----------
Interest expense, net of capitalized interest $ 2,095 $ 888
=========== ==========
Amortization in cost of residential and other
property sales of interest previously capitalized $ 1,099 $ 919
=========== ==========
</TABLE>
Interest and other income increased to $1.3 million in the first quarter of
1999 from $110,000 in the first quarter of 1998. This increase is primarily due
to CCOC's investment in a partnership which provided equity earnings of $1
million in the first quarter of 1999.
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.
First quarter net income increased to $2.8 million in 1999 from
$1.4 million in 1998. This increase is primarily due to better operating
results described above.
9
<PAGE>
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:
<TABLE>
<CAPTION>
Quarter Ended
March 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
BACKLOG-HOMES
Units
Backlog at beginning of the period 88 46
Add: New orders 137 113
Less: Deliveries (80) (78)
----------- -----------
Backlog at end of the period 145 81
=========== ===========
Dollars
Backlog at beginning of the period $ 25,143 $ 11,920
Add: New orders 36,949 29,577
Less: Deliveries (22,126) (19,890)
----------- -----------
Backlog at end of the period $ 39,966 $ 21,607
=========== ===========
MAINLAND BACKLOG-HOMESITES
Units
Backlog at beginning of the period 594 405
Add: New orders 322 508
Less: Deliveries (198) (152)
----------- -----------
Backlog at end of the period 718 761
=========== ===========
Dollars
Backlog at beginning of the period $ 22,074 $ 19,964
Add: New orders 16,024 19,408
Less: Deliveries (8,486) (6,430)
----------- -----------
Backlog at end of the period $ 29,612 $ 32,942
=========== ===========
</TABLE>
The Oahu homes backlog increased 31 units and $12.2 million. The Company
expects full year home deliveries to be slightly higher in 1999 than in 1998.
The home backlog on the mainland increased 33 homes and $6.2 million. This
increase is 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. The Company believes that the decrease in new homesite
orders during the first quarter of 1999 compared to the prior year and the
related decrease in backlog at March 31, 1999 compared to March 31, 1998 is
primarily due to the timing of new orders.
As of March 31, 1999, there are seven 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 $8.6 million.
10
<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 March 31, 1999, the Borrowing Base allows the Company
to borrow up to $246 million. The Credit Agreement bears interest at a
variable rate based on the London Interbank Offered Rate ("LIBOR") or at an
alternative rate based upon a designated bank's prime rate or the federal
funds rate. At March 31, 1999, total borrowings under the Credit Agreement
were $211 million and the weighted average interest rate was 6.6%. 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 March 31, 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 March 31, 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 $166,000 and $39,000 of additional
interest expense in the first quarter 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 believes that it will need to increase its current
borrowing capacity by approximately $25 million to meet its short-term and
long-term cash needs. To meet this need, the Company is currently seeking
additional fixed-rate term loans. There can be no assurance, however, that
these additional loans will be obtained, or that the increased borrowing
capacity 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 $30.4 million in the first quarter
of 1999. Spending during the first quarter of 1999 at the Mililani, Royal
Kunia and Lalea residential developments on Oahu was approximately $11.7
million, $1.6 million and $2.4 million, respectively. Spending during the
first quarter of 1999 at the Bakersfield, California; Orlando, Florida; and
Sierra Vista, Arizona residential developments was approximately $6.5
million, $2.1 million and $1.2 million, respectively.
11
<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 $900,000 for the first
quarter of 1999. Developmental expenditures on the island of Lanai totaled
$3.8 million during the first quarter of 1999. Spending during the first
quarter 1999 at the Manele and Koele luxury resort residential projects was
approximately $3 million and $258,000, respectively. Spending during the
first quarter of 1999 at the Lanai plantation homes was approximately
$388,000.
Capital expenditures at the commercial projects totaled $12.1 million
during the first quarter of 1999. Commercial spending included $2.3 million
for the construction of the Coyote Creek Golf Course and clubhouse in San
Jose, California; $1.5 million for construction of the 75,000 square foot One
Riverwalk office building in Bakersfield, California; $1.7 million for the
construction of the 173,000 square foot Falls of the Neuse office building in
Raleigh, North Carolina; and $2.4 million for construction of the Keene's
Pointe Golf Course and clubhouse in Orlando, Florida. Commercial spending on
the island of Oahu, Hawaii included $2.1 million for additions to the Town
Center of Mililani and the Dole Cannery Square shopping and entertainment
centers. Movie theatres are being constructed at each location.
Cash flow used in investing activities increased $4.7 million during the
first quarter 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 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 service providers, financial institutions 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.
The Company has completed the inventory (identification of all potential
exposure items) phase and is substantially complete with the assessment
(determine if the component is Y2K compliant) phase for all information
technology systems (such as business computing systems and technical
infrastructure), as well as non-information technology systems (such as
embedded technology).
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.
12
<PAGE>
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 (CONTINUED)
The Company is attempting to determine if its material suppliers and
service providers, financial institutions and other third parties
("Providers") are Y2K compliant. This is an ongoing process and the Company
has received information from many Providers that they are or expect to 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 March 31, 1999 to address the Y2K
problem is approximately $360,000. 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 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 will continue
to analyze this issue and to develop a contingency plan to respond to these
scenarios, as more information becomes available.
13
<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.
14
<PAGE>
CASTLE & COOKE, INC.
PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No.
-------
27 Financial Data Schedule
(b) Reports on Form 8-K
THE REGISTRANT FILED NO REPORTS ON FORM 8-K DURING THE
QUARTER ENDED MARCH 31, 1999.
All other items required under Part II are omitted because they are not
applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASTLE & COOKE, INC.
Registrant
Date: May 12, 1999 BY /s/ Edward C. Roohan
------------------------------------
Edward C. Roohan
Vice President and
Chief Financial Officer
(Principal financial officer)
Date: May 12, 1999 BY /s/ Scott J. Blechman
--------------------------------------
Scott J. Blechman
Vice President and
Corporate Controller
(Principal accounting officer)
15
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