<PAGE>
EXHIBIT 13
17
RESULTS OF OPERATIONS AND SELECTED FINANCIAL DATA (1)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential and other property sales $ 179,877 $ 165,635 $ 133,504 $ 201,520 $ 241,720
Resort revenues 76,598 72,452 56,304 52,529 46,106
Commercial and Other Operations 60,380 52,103 50,288 49,488 53,325
Gain on sale of income properties - - - 4,207 400
-----------------------------------------------------------------------------------------------------------------------------
Total revenues 316,855 290,190 240,096 307,744 341,551
-----------------------------------------------------------------------------------------------------------------------------
Cost of residential and other property sales 156,256 142,533 122,158 176,613 191,700
Cost of resort operations 84,482 81,969 71,601 70,458 72,857
Cost of commercial and other operations 39,967 33,566 29,264 32,277 36,013
General and administrative expenses 13,406 13,986 13,239 13,039 12,393
Write-down of certain properties - - - - 176,000
-----------------------------------------------------------------------------------------------------------------------------
Total costs of operations 294,111 272,054 236,262 292,387 488,963
-----------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 22,744 18,136 3,834 15,357 (147,412)
Net income (loss) 13,451 10,798 3,873 9,213 (85,800)
Net income (loss) available to common
shareholders $ 13,451 $ 10,798 $ (104) $ 5,013 $ (86,024)
Basic and diluted earnings (loss) per common
share (2) $ 0.79 $ 0.58 $ (0.01) $ 0.25 $ (4.31)
-----------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding (2) 17,048 18,494 19,975 19,955 19,952
-----------------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS
Real estate developments $ 499,013 $ 501,147 $ 514,794 $ 511,358 $ 571,828
Property and equipment, net 527,866 500,000 460,919 444,435 442,162
Total assets 1,088,791 1,054,105 1,019,260 1,019,822 1,071,733
Total debt 267,537 260,044 186,101 152,130 195,000
Preferred stock - - - 35,700 35,000
Total common shareholders' equity 550,700 536,786 583,744 583,307 578,172
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) CONSOLIDATED HISTORICAL FINANCIAL INFORMATION PRIOR TO DECEMBER 28, 1995
RELATES TO THE BUSINESS OF THE COMPANY AS IT WAS OPERATED BY DOLE. AT DECEMBER
28, 1995, DOLE TRANSFERRED ITS REAL ESTATE AND RESORTS BUSINESS TO THE COMPANY
AND DISTRIBUTED TO DOLE SHAREHOLDERS ONE SHARE OF THE COMPANY FOR EVERY THREE
SHARES OF DOLE COMMON STOCK ("DISTRIBUTION"). THE SELECTED CONSOLIDATED
HISTORICAL FINANCIAL DATA ARE DERIVED FROM THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE COMPANY. THE HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
PRIOR TO JANUARY 1, 1996 MAY NOT REFLECT THE RESULTS OF OPERATIONS OR FINANCIAL
POSITION THAT WOULD HAVE BEEN OBTAINED HAD THE COMPANY BEEN A SEPARATE, PUBLICLY
HELD COMPANY.
(2) PRIOR TO 1996, THE EARNINGS PER COMMON SHARE IS BASED ON AN ASSUMED
WEIGHTED AVERAGE OUTSTANDING NUMBER OF SHARES OF 19,951,578 WHICH WAS THE
NUMBER OF COMMON SHARES OUTSTANDING IMMEDIATELY AFTER THE DECEMBER 28, 1995
DISTRIBUTION DATE.
<PAGE>
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
POSITION
INTRODUCTION
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's consolidated
financial statements and related notes, included elsewhere in this report. The
Company was formed on October 10, 1995 to be the successor of the assets and
related liabilities of the real estate and resorts business of Dole Food
Company, Inc. and its subsidiaries ("Dole"). Historical results set forth in the
Company's consolidated financial statements should not be taken as indicative of
future operations.
OVERVIEW AND OUTLOOK
The Company's revenues are derived primarily from three sources: residential
development in California, Hawaii, Orlando, Florida and Sierra Vista, Arizona;
two luxury resort operations on the Island of Lana'i, Hawaii; and commercial
real estate activities, including office, industrial and retail operations, and
commercial land development in Hawaii and Bakersfield, California, office
rentals in North Carolina, Georgia, Arizona, Florida and golf courses in
California, Florida and Arizona. Historically, a significant portion of the
Company's earnings have been generated by the residential real estate operations
on Oahu, particularly from the Mililani Town master planned community. In recent
years, however, the Oahu residential earnings were not as significant to the
consolidated earnings. The Company expects this trend to continue in the near
future as commercial revenues grow and residential sales on the Mainland,
particularly in California, become a larger percentage of total company
revenues. This diversification will enable the Company to expand its holdings
and become less dependent on one economic region or area.
The resort operations on the Island of Lana'i were initiated with the
opening of The Lodge at Koele in April 1990, followed by the opening of The
Manele Bay Hotel in May 1991. The Lana'i resort operations have suffered
operating losses since the resorts opened. The Company's management is
decreasing operating losses of the resorts segment by attempting to increase
occupancy through focused advertising, strategic marketing alliances, and
reducing annual costs through the reduction of non-core operations and services.
In 1999, the resorts reported a loss before interest, taxes and depreciation of
$3.6 million. More importantly, the Company's ability to earn a return on its
investment in Lana'i primarily depends on the sale of luxury residential homes
and homesites at it's Manele Bay and Koele communities. The Company expects to
continue to fund any future operating and capital requirements of Lana'i out of
cash flow from the commercial and residential real estate businesses and
borrowings.
The Company continues to expand its commercial operations by developing
property in selected markets. Castle currently has over 3.8 million square feet
of rentable commercial space. The projects include over 1.6 million feet of
office space, over 1.2 million feet of retail space, over 500,000 feet of
commercial ground leases and over 250,000 feet of industrial space. Castle
expects to continue to grow the commercial portfolio, providing the Company with
more predictable earnings and cash flows, which will help to minimize the impact
of cycles in the residential housing industry.
Residential and commercial real estate businesses in general are cyclical.
The Company's operating results have historically varied significantly from
period to period as a result of, among other things, the timing of sales in
developed projects, the availability of units for sale in new projects and the
mix of homes and homesites developed with different locations, sizes and prices.
Also, the effects of the economy, and specifically interest rate adjustments,
have a significant effect on our residential home and homesite sales. In
addition, the timing of large commercial parcel sales can contribute to large
variances in revenues and earnings.
RESULTS OF OPERATIONS
1999 COMPARED WITH 1998
REVENUE
Consolidated revenues increased 9.2% to $317 million in 1999 from $290 million
in 1998. Excluding three land sales in 1998 and one in 1999, revenues increased
13% in 1999 to $314 million from $280 million in 1998. This increase is
primarily due to increased revenues from our residential sales on Oahu and the
Mainland and increased commercial revenues for our California, North Carolina
and Atlanta commercial income producing properties. The residential increase was
primarily driven by our Bakersfield, California and Mililani, Hawaii residential
developments. On the mainland, we increased our residential sales by 25% to
$58.7 million in 1999 from $47 million in 1998. The primary driver of the
increase for our mainland residential sales was The Greens at Seven Oaks in
Bakersfield. This senior community opened in late 1998 and represents the
Company's efforts to meet the growing senior market with attractive and well
priced single family homes. The Greens accounted for 57 unit sales with revenues
of over $10 million for 1999.
On Oahu, our Mililani development increased revenues by approximately 10%
to approximately $81.5 million in 1999 from $74 million in 1998. The primary
reasons for the increase were the average price of each home sold increased to
$286,000 per home in 1999 from $274,000 per home in 1998, and home deliveries
increased
<PAGE>
19
on Mililani over 6% from the prior year, with 278 deliveries in 1999 versus 262
in 1998.
For commercial revenues, there was an increase of 16% to $60.4 million in
1999 from $52.1 million in 1998. The increase is primarily due to increased
revenues from our mainland commercial income producing properties, specifically
our Keene's Pointe and Coyote Creek golf courses were opened in late 1999 and
our Riverwalk office building in Bakersfield was completed and opened in 1999.
Additionally, other income properties, specifically Ming Avenue, Premier II, and
The Marketplace, showed revenue growth of over 10% in 1999 versus 1998 due to
higher occupancy and increased rental rates.
Resort revenues increased 6% to $76.6 million in 1999 from $72.5 million in
1998. This increase was due to increased revenue related to the hotel operations
and increased resort residential sales. The hotel operations increased revenues
5% or $2.5 million to $52.6 million in 1999 from $50.1 million in 1998. The
primary driver of this increase was the Manele Bay Hotel's increase of $1.4
million over the prior year. This increase was attained primarily by increased
occupancy of 67.8% in 1999 from 66.6% in 1998.
Lana'i's luxury residential sales increased approximately 9% to $20.3
million in 1999 from $18.6 million in 1998. The primary drivers of this increase
were increased sales at the Terraces at Manele and the Villas at Koele. The
Terraces achieved approximately $15.5 million in sales of 11 units in 1999
compared to $9.5 million on 7 units in 1998. The Company sold 4 Villa units in
1999 for approximately $2.4 million, up from 1 unit for $830,000 in 1998. These
increases were offset slightly by decreases in sales for our Koele
single-family, Plantation homes and lot sales of $1.2 million, $1.3 million and
$1.7 million, respectively.
COST AND EXPENSES
Consolidated costs of operations increased 3% to $281 million in 1999 from $272
million in 1998. Excluding land sales, the cost of residential sales, as a
percentage of total residential property sales, decreased to 87% in 1999 from
89% in 1998. This decrease is primarily due to improved operating efficiencies
for our Oahu operations, specifically our Mililani product.
The cost of resort operations, excluding resort residential sales and
depreciation, improved as a percentage of resort revenues to 100% in 1999 from
106% in 1998. This improvement is primarily the result of improved revenues,
continued cost containment efforts and improved operating efficiencies in the
management of the hotels. The resort residential margins decreased to 19% in
1999 from 23% in 1998. The resort residential margin was 1.2 million in 1999 and
1.9 million in 1998. The decrease is primarily attributed to additional costs
involved in the construction of our Terrace units at Manele Bay and the sale of
a high-margin homesite at Manele in 1998.
The cost of commercial and other operations as a percentage of commercial
and other revenues increased to 66% in 1999 from 64% in 1998. This increase was
due to the opening of our Keene's Pointe golf course in 1999 which was a new
project with higher overhead costs and minimal revenues. Additionally, our
Coyote Creek golf course achieved a lower margin due to increased overhead and
related costs associated with building the new course and clubhouse, which were
both completed late in 1999.
Interest and other income increased approximately $3.4 million in 1999 to
$7.3 million from $3.9 million in 1998. The primary driver of this increase was
the sale of certain property rights on Oahu for approximately $2.9 million in
1999.
The Company's interest expense increased during 1999 primarily due to
increased debt levels. In July 1998, the Company increased its debt level by $58
million when it completed a "Dutch Auction" self-tender offer for over 3 million
shares of its common stock. The Company's borrowings and related interest
incurred are summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
------------------------------------------------------------
<S> <C> <C>
Total borrowings at year end $ 267,537 $ 260,044
------------------------------------------------------------
Total interest incurred $ 20,668 $ 16,877
Less: interest capitalized into
real estate developments and
property and equipment under
construction (9,868) (10,958)
------------------------------------------------------------
Interest expense, net of
capitalized interest $ 10,800 $ 5,919
------------------------------------------------------------
Amortization in cost of
residential and other
property sales of interest
previously capitalized $ 7,018 $ 5,287
------------------------------------------------------------
</TABLE>
NET INCOME AND EARNINGS PER SHARE
The Company's effective income tax rate decreased to 30% in 1999 from 33% in
1998, primarily due to the utilization of certain tax credits. The Company's
effective tax rate is expected to increase slightly in 2000.
Net income available to common shareholders was $13.5 million in 1999
compared to $10.8 million in 1998. The increase is due to improved revenues and
reduced operating costs as outlined above.
RESULTS OF OPERATIONS
1998 COMPARED WITH 1997
REVENUE
Consolidated revenues increased 21% to $290 million in 1998 from $240 million in
1997. Excluding three bulk land sales in the third and
<PAGE>
20
fourth quarters of 1998, residential property sales increased 17% to $156
million in 1998 from $134 million in 1997. This increase is primarily due to
homesite deliveries at the new Keene's Pointe development in Orlando, Florida,
which commenced deliveries in the second quarter of 1998 and increased sales
activity at the Seven Oaks development in Bakersfield, California. In 1998, the
Keene's Pointe development delivered 156 homesites with revenues of $17.9
million, or $115,000 per homesite. Revenues at the Seven Oaks development
increased $4.7 million in 1998 as compared to 1997 due to the sale of 219
homesites in 1998 compared to 141 homesites in 1997. Included in the 1998
residential and other property sales are the sale of three undeveloped land
holdings for a total of $9.8 million and earnings before taxes of $4.1 million.
The land was located in Westlake Village, California, Sierra Vista, Arizona and
Oahu, Hawaii.
Resort revenues increased 29% to $72 million in 1998 from $56 million in
1997. This increase is primarily due to increased resort residential sales.
Resort residential revenues were $19 million in 1998 compared to $5 million in
1997. The Company sold 11 residential units at its two luxury resort residential
developments for a total of $13.9 million in 1998, compared to 2 residential
units for a total of $3.4 million during 1997. Resort residential sales also
include the sale of 10 plantation homes for a total of $2.0 million in 1998
compared to 6 plantation homes for a total of $1.1 million during 1997. In
addition, the 1998 resort residential revenues include construction contract
revenues of $2.7 million relating to the construction of a senior housing
facility on Lana'i and improvements to the Lana'i airport. Both the senior
housing facility and Lana'i Airport are owned and operated by independent third
parties. Hotel occupancy rates were 66.7% in 1998 and 66.8% in 1997. The average
daily room rate was $286 in 1998 and $280 in 1997.
Commercial and other revenues increased 4% to $52 million in 1998 compared
to $50 million in 1997. The increase is primarily due to an increase of
approximately $3 million of commercial revenues on the mainland partially offset
by a decrease of approximately $1 million of commercial revenues on the island
of Oahu. The mainland revenue increase is primarily due to the addition of
office space as new buildings came on line. The Oahu commercial revenue decrease
is primarily due to the venture the Company entered into during 1998 with
Horizon/Glen Outlet Centers Limited Partnership ("Horizon"), called Castle &
Cooke Outlet Centers, LLC ("CCOC"). Prior to this venture, the Dole Cannery
Factory Outlet Center in Honolulu was leased to Horizon. Subsequent to the CCOC
venture with Horizon, the outlet center's lease was assumed by CCOC, which is
substantially owned by the Company.
COST AND EXPENSES
Consolidated costs of operations increased 15% to $272 million in 1998 from $236
million in 1997. Excluding the 1998 bulk land sales, the cost of residential
property sales as a percentage of residential property sales decreased to 89% in
1998 from 92% in 1997. This decrease is primarily due to the new Keene's Pointe
project and improved results at the Seven Oaks development.
Excluding resort residential sales and depreciation, the cost of resort
operations as a percentage of resort revenues improved to 106% in 1998 from 112%
in 1997. The improvement is primarily due to cost containment efforts and
improved efficiencies in managing the hotels. Resort depreciation was $8 million
in 1998 compared to $9 million in 1997. The resort residential margin was $1.9
million in 1998 compared to $244,000 in 1997. The increase is primarily due to
increased activity as explained above.
The cost of commercial and other operations as a percentage of commercial
and other revenues increased to 64% in 1998 from 58% in 1997. This increase is
primarily due to the CCOC venture with Horizon explained above. Prior to this
venture, the Dole Cannery Factory Outlet Center in Honolulu was leased to
Horizon and a significant portion of the operating expenses were paid by
Horizon. Subsequent to the CCOC venture with Horizon, all of this outlet
center's operating expenses are paid by CCOC, which is substantially owned by
the Company. Depreciation in the cost of commercial and other operations was
$8.1 million in 1998 compared to $7.2 million in 1997.
Interest and other income increased to $3.9 million in 1998 from $3.3
million in 1997. This increase is primarily due to CCOC's equity earnings of
$2.4 million in 1998, partially offset by a gain of $1.1 million in 1997 related
to the sale of an option on certain property on Oahu. In addition, interest from
notes receivable and other miscellaneous income decreased approximately $600,000
in 1998 as compared to 1997.
The Company's interest expense increased during 1998 as compared to 1997
primarily due to increased debt.
NET INCOME AND EARNINGS PER SHARE
The Company's effective income tax rate decreased to 33% in 1998 from 36% in
1997. The 33% effective rate is primarily due to low-income housing credits.
The preferred stock dividend and accretion in 1997 relates to the $35
million cumulative preferred stock issued in connection with the Company's
separation from Dole in December of 1995. The Company redeemed all of its
outstanding preferred stock in December of 1997.
Net income available to common shareholders was $10.8 million in 1998
compared to a net loss available to common shareholders of
<PAGE>
21
$104,000 in 1997. This increase is primarily due to better operating results
described above.
FINANCIAL CONDITION AND LIQUIDITY
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital to operate its resorts, purchase and develop land,
construct homes and homesites and to acquire, develop and operate commercial
property. Prior to the Company's separation from Dole in December of 1995, the
Company financed its operations, acquisitions and developments primarily from
capital contributions by Dole and, to a lesser extent, borrowings from a group
of banks. Since 1996, the Company has financed its operations through bank debt
and operating cash flow.
In November 1999, the Company closed a new $175 million unsecured revolving
credit facility (the "Credit Agreement") with a syndicate of banks. The Credit
Agreement matures in two years and provides borrowings based upon a percentage
of value of certain commercial properties and home building inventory (the
"Borrowing Base"). At December 31, 1999, the Borrowing Base allowed the Company
to borrow up to the full capacity of $175 million. The Credit Agreement bears
interest at a variable rate based on the London Interbank Offered Rate ("LIBOR")
or at an alternate rate based upon a designated bank's prime rate or the federal
funds rate. At December 31, 1999, total borrowings under the Credit Agreement
were $105 million with a year-end interest rate of 9.32%. The interest rate on
the Company's variable rate borrowings at December 31, 1999 was abnormally high
due to the concern related to the Y2K computer issues. At January 31, 2000, the
rates had stabilized and the interest rate on borrowings was 7.63%.
In November 1999, the Company also entered into a $98 million long-term
fixed-rate financing arrangement with an insurance company. The debt, which has
a fixed interest rate of 7.66% and a 27-year amortization, matures on December
1, 2009. This was the second such transaction entered into with an insurance
company. In December 1998, Castle & Cooke entered into a $50 million long-term
fixed-rate financing at an interest rate of 6.73% and a 30-year amortization.
This debt matures on December 30, 2008. In connection with the Credit Agreement
and other long-term financing arrangements, the Company is subject to comply
with certain financial and non-financial covenants. At December 31, 1999, the
Company was in compliance with such covenants.
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 7.54% at December 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 $379,000 of additional interest expense in 1999, compared to what
interest expense would have been had the debt remained at variable rates.
In Bakersfield, the Company periodically creates assessment districts with
the City of Bakersfield to issue bonds to finance infrastructure improvements.
The bonds are repaid by property owners over a 20-year period and have interest
rates averaging approximately 7%. As of December 31, 1999, the Company had $20
million in bond liability.
The cash flow from each of the Company's residential developments differs
substantially from their reported earnings, depending on the status of the
development cycle. The initial years of development require significant cash
outlays for, among other things, land acquisition costs, major roads,
interchanges, infrastructure, model homes, sales and administration facilities,
landscaping and certain utilities. Since these costs are capitalized, this can
result in income reported for financial statement purposes during those initial
years significantly exceeding cash flow. However, after the initial years of
development or expansion, when these expenditures are made, cash flow can
significantly exceed income reported for financial statement purposes, as cost
of operations includes charges for substantial amounts of previously expended
costs.
The Company expects 2000 residential development expenditures to be
approximately $107 million for Hawaii residential projects and $53 million for
mainland residential projects. Approximately $91 million of the Oahu residential
development expenditures relate to house construction and onsite improvements,
which will be driven by sales activity.
The Company expects 2000 capital expenditures for its commercial operations
to be approximately $26 million and $8 million for the mainland and Oahu
developments, respectively. Significant planned expenditures on the mainland
include the completion of the development of a 173,000 square foot office
complex in Raleigh, North Carolina ($3 million), completion of the new clubhouse
at our Saddle Creek golf course ($5 million), acquisition and retro-fitting of a
commercial property in Orlando, Florida ($7 million), completion of the Coyote
Creek golf course adjacent to the Company's recently completed course in San
Jose, California ($7 million), and tenant improvement costs at the existing
Marketplace in Bakersfield ($3 million). Significant expenditures on Oahu are
planned to include
<PAGE>
22
additional development and tenant improvement costs at the Dole Cannery ($5
million) and Town Center of Mililani ($2 million).
The Company expects the resort developmental and capital expenditures in
2000 to be approximately $14 million and $10 million, respectively. The
developmental expenditures primarily relate to the luxury residential
developments and will be driven by sales activity.
The Company believes that the funds available under its existing debt
agreements and cash generated from operations combined with selective sales of
commercial and other properties from time to time will be adequate for its
short-term and long-term cash needs. There can be no assurance, however, that
the amounts available from such sources will be sufficient. The Company may be
required to seek additional capital in the form of public equity or debt
offerings or from a variety of potential sources, including additional bank
financing or assessment district financing.
During 1999, cash provided by operations was $38 million, compared to $40
million in 1998. This decrease is primarily due to decreases in various accrued
expenses and an increase in interest on our Credit Agreement. These decreases
were offset by increased net income for 1999.
During 1998, cash provided by operations was $40 million, compared to $34
million in 1997. This increase is primarily due to a net decrease of $11.5
million in real estate development in 1998 compared to a net decrease of
$717,000 in 1997. In addition, the Company's net income tax payments during 1998
were $7 million compared to a net income tax refund of $10 million in 1997.
As noted above, the cash flow for each of the Company's residential
projects can differ substantially from reported earnings, depending on the
status of the development cycle. As of December 31, 1999, on Oahu the Company
had expended approximately 77% of the projected infrastructure costs at Mililani
Mauka while it had delivered only 59% (or 3,601) of the total planned homes, and
at the Company's Royal Kunia community, the Company had expended approximately
87% of the projected land and infrastructure costs while it had delivered only
46% (or 783) of the total planned homes. As of December 31, 1999, at the
Company's Seven Oaks master planned community in Bakersfield, the Company had
expended approximately 63% of the projected costs for infrastructure, golf
course and clubhouse and had delivered 35% (or 892) of the planned homes and
homesites.
Cash used in investing activities was approximately $49 million in 1999,
which was attributable to capital expenditures. Significant capital expenditures
in 1999 on the mainland included the partial construction of the Keene's Pointe
golf course and clubhouse ($5 million), partial construction of the Coyote Creek
golf course and clubhouse ($4 million), completion of the Riverwalk office
building ($2 million), construction improvements on the Ming Avenue office
building ($5 million), costs of the new office building in Raleigh, North
Carolina ($9 million) and costs related to the acquisition of land in Tempe,
Arizona ($4 million). Capital expenditures in 1999 on Oahu totaled approximately
$9 million and included additional development of the Dole Cannery, Town Center
of Mililani and the Mililani Tech park. Total 1999 capital expenditures on
Lana'i totaled approximately $4 million.
Cash used in investing activities was approximately $53 million in 1998,
which is attributable to capital expenditures. Significant capital expenditures
in 1998 on the mainland included the partial construction of the Keene's Pointe
golf course and clubhouse ($8 million), partial construction of the Coyote Creek
golf course and clubhouse ($13 million), construction of the Two Premier Plaza
office building ($3 million), construction of the Marketplace shopping center
third phase ($4 million), construction of the Riverwalk office building ($5
million), construction of a new office building adjacent to the Regents Center
($2 million), construction of a build-to-suit industrial facility in Bakersfield
($2 million), the acquisition of land and early planning costs for the
construction of the Falls of the Neuse office building ($4 million). Capital
expenditures in 1998 on Oahu totaled $3 million and included additional
development of the Dole Cannery and Town Center of Mililani. Total 1998 capital
expenditures on Lana'i totaled $4 million.
Cash provided by financing activities was $8 million in 1999. The Company's
net borrowings under its Credit Agreement used $93 million of cash. This
included the pay-off of the existing Revolver and proceeds from the new Credit
Agreement described above. This amount was offset by approximately $98 million
of cash from issuance of the long-term debt noted above.
Cash provided by financing activities in 1998 was $16 million. The
company's net borrowings under its revolving credit agreement and long term debt
were $74 million, which was partially offset by the stock repurchase of $58
million.
The Company currently carries insurance that protects it against a variety
of potential losses, including losses from building and construction-risks,
property damage and general liabilities. The Company's insurance is subject to
various coverage limits, exclusions and deductibles. The Company believes it has
a cost-effective level of insurance coverage that is adequate in light of the
risks associated with its various businesses.
YEAR 2000
The year 2000 ("Y2K") problem arose because many existing computer programs use
two digits instead of four to refer to the year. These old programs, in many
cases, were unable to properly interpret
<PAGE>
23
a year that begins with "20" (i.e., the year 2000), which could have caused
disruption of normal business activities.
The Company has addressed the Y2K problem with a company-wide program
involving upgrading of its systems at its corporate office and principal
locations. This program included the identification of affected software and
systems through an inventory and assessment, communications with the Company's
material suppliers and other third parties. The Company has not encountered any
significant Y2K problems that have had an adverse effect on our business.
The cumulative amount spent by the Company as of December 31, 1999 to
address the Y2K problem was approximately $721,000. Although the timing of some
of these expenditures may have been accelerated by the Y2K problem, in most
instances they involved expenditures that would have occurred in the normal
course of business.
BACKLOG
At December 31, 1999, the Company's residential operations had a backlog of new
orders of 48 homes and 615 homesites. The value of the homes and homesites
backlog at December 31, 1999 was $12.1 million and $31.1 million, respectively.
The Company anticipates delivering the majority of the homes during the balance
of 2000. Included in the homesite backlog at December 31, 1999, are homesites to
be sold to builders under option contracts, pursuant to which approximately 166
homesites with an aggregate sales price of approximately $9.7 million are
expected to close after December 31, 2000. It is currently the Company's
practice to include a home or homesites in backlog at the contract price upon
execution of a sales contract and receipt of money on deposit, and to remove it
from backlog upon closing of escrow. In the past, the Company has generally
allowed prospective home purchasers who are unable to obtain financing to cancel
their contracts and has refunded their deposits. During the past five years, the
Company experienced an average home contract cancellation rate of approximately
25%. Since primarily all homesite sales are to local homebuilders, the Company
has experienced insignificant cancellations after executing a homesite sales
contract. No assurance can be given that the Company will be able to enter into
or close pre-construction sales contracts for its homes or homesites in the
future. In addition, the backlog may vary substantially because the Company's
projects are long-term and are frequently at different development stages. At
December 31, 1999, the backlog of new orders on the Island of Lana'i included 4
luxury townhomes with a total value of $3.3 million.
INTEREST RATES AND CHANGING PRICES
The Company's business is significantly affected by general economic conditions
in Hawaii and California and, particularly, by fluctuations in interest rates.
Higher interest rates may decrease the potential market for new homes by making
it more difficult for homebuyers to qualify for mortgages or to obtain mortgages
at interest rates acceptable to them. In Hawaii, because pricing on "affordable"
homes is based primarily on mortgage payments, increasing mortgage interest
rates will lower the prices of "affordable" homes. Inflation also has a
detrimental effect on operating costs, but can lead to higher values for the
Company's existing landholdings.
<PAGE>
24
RISK FACTORS
The statements contained herein, which are not historical facts, are
forward-looking statements based on economic forecasts, strategic plans and
other factors, which, by their nature, involve risk and uncertainties. In
particular, among the factors that could cause actual results to differ
materially are the following: business conditions and general economy;
competitive factors; political decisions affecting land use permits, capital
resources, interest rates and other risks inherent in the real estate business.
<PAGE>
25
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998 1997
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Residential and other property sales $ 179,877 $ 165,635 $ 133,504
Resort revenues 76,598 72,452 56,304
Commercial and other revenues 60,380 52,103 50,288
------------------------------------------------------------------------------------------------------------------------------
Total revenues 316,855 290,190 240,096
------------------------------------------------------------------------------------------------------------------------------
COST OF OPERATIONS
Cost of residential property sales 156,256 142,533 122,158
Cost of resort operations 84,482 81,969 71,601
Cost of commercial and other operations 39,967 33,566 29,264
General and administrative expenses 13,406 13,986 13,239
------------------------------------------------------------------------------------------------------------------------------
Total costs of operations 294,111 272,054 236,262
------------------------------------------------------------------------------------------------------------------------------
Operating income 22,744 18,136 3,834
Interest and other income, net 7,271 3,899 3,349
Interest expense, net 10,800 5,919 1,103
------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 19,215 16,116 6,080
Income tax provision 5,764 5,318 2,207
------------------------------------------------------------------------------------------------------------------------------
Net income 13,451 10,798 3,873
Preferred stock dividend and accretion - - (3,977)
------------------------------------------------------------------------------------------------------------------------------
Net income (loss) available to common shareholders $ 13,451 $ 10,798 $ (104)
------------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings (loss) per common share $ 0.79 $ 0.58 $ (.01)
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED STATEMENTS OF OPERATIONS.
<PAGE>
26
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,667 $ 4,764
Receivables, net 28,523 23,127
Real estate developments 499,013 501,147
Property and equipment, net 527,866 500,000
Other assets 30,722 25,067
------------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,088,791 $ 1,054,105
------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 257,537 $ 250,044
Note payable to Dole 10,000 10,000
Accounts payable 20,268 20,239
Accrued liabilities 27,684 30,411
Deferred taxes 179,411 174,450
Deferred income and other liabilities 43,191 32,175
------------------------------------------------------------------------------------------------------------------------------
Total liabilities 538,091 517,319
------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Common shareholders' equity:
Common stock, no par value; 20,068,710 and 20,036,117
shares issued at December 31, 1999 and 1998, respectively 512,645 512,182
Common stock in treasury, at cost; 3,015,764 shares
at December 31, 1999 and 1998 (58,322) (58,322)
Retained earnings 96,377 82,926
------------------------------------------------------------------------------------------------------------------------------
Total common shareholders' equity 550,700 536,786
------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,088,791 $ 1,054,105
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
27
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TREASURY TOTAL COMMON
COMMON COMMON RETAINED TREASURY STOCK SHAREHOLDERS'
(IN THOUSANDS, EXCEPT SHARE DATA) SHARES STOCK EARNINGS SHARES AT COST EQUITY
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 19,954,725 $ 511,075 $ 72,232 - $ - $ 583,307
Net income - - 3,873 - - 3,873
Preferred stock dividend and accretion - - (3,977) - - (3,977)
Issuance of common stock under
incentive plans 41,563 541 - - - 541
-----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 19,996,288 511,616 72,128 - - 583,744
Net income - - 10,798 - - 10,798
Purchase of treasury stock - - - (3,015,764) (58,322) (58,322)
Issuance of common stock under
incentive plans 39,829 566 - - - 566
-----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 20,036,117 512,182 82,926 (3,015,764) (58,322) 536,786
Net income - - 13,451 - - 13,451
Issuance of common stock under
incentive plans 32,593 463 - - - 463
-----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 20,068,710 $ 512,645 $ 96,377 (3,015,764) $ (58,322) $ 550,700
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY.
<PAGE>
28
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 13,451 $ 10,798 $ 3,873
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization 18,244 17,542 17,594
Equity earnings, net of dividends received (675) (1,519) 195
Loss on disposal of property & equipment 608 - -
Other 30 40 287
Changes in operating assets and liabilities:
(Increase) decrease in receivables, net (5,396) (607) 870
Decrease in real estate developments, net 4,835 11,528 717
Decrease in income tax receivable - - 9,209
Increase in accounts payable 29 2,077 1,532
(Decrease) increase in accrued liabilities (2,727) 3,287 (852)
Increase (decrease) in income taxes 4,961 (1,907) 3,538
Net change in other assets and liabilities 5,127 (984) (2,695)
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 38,487 40,255 34,268
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (48,510) (53,250) (33,114)
------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (48,510) (53,250) (33,114)
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (reductions) borrowings under revolving loan agreement (93,000) 22,000 34,000
Proceeds from issuance of long-term debt 100,493 51,971 -
Reduction of debt - (28) (29)
Purchase of common stock - (58,322) -
Redemption of redeemable preferred stock - - (36,400)
Preferred stock dividends paid - - (3,277)
Proceeds from exercise of stock options 433 526 501
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 7,926 16,147 (5,205)
------------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (2,097) 3,152 (4,051)
Cash and cash equivalents at beginning of year 4,764 1,612 5,663
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 2,667 $ 4,764 $ 1,612
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
Castle & Cooke, Inc. (the "Company" or "Castle"), a Hawaii corporation, was
formed on October 10, 1995 to be the successor of the assets and related
liabilities of the real estate and resorts business of Dole Food Company, Inc.
and its subsidiaries ("Dole"). Dole transferred the assets and related
liabilities to Castle & Cooke, Inc. in December 1995. On December 28, 1995, Dole
distributed (the "Distribution") all the common shares of Castle to the
shareholders of Dole. The Dole shareholders received one share of common stock
in Castle for every three shares of Dole common stock. As consideration for the
transfer of Dole's real estate and resorts business to the Company, the Company
issued to Dole (i) all of the outstanding shares of Castle Common Stock, (ii) a
promissory note in the principal amount of $200 million, a promissory note in
the principal amount of $10 million, and (iii) 3,500 shares of redeemable
preferred stock of Castle with an aggregate liquidation value of $35 million.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all wholly owned subsidiaries and controlled joint ventures. All material
intercompany accounts and transactions have been eliminated. The Company's
investments in unconsolidated joint ventures in which it has less than a
controlling interest are accounted for under the equity method.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REAL ESTATE DEVELOPMENTS
Construction and development costs are comprised of direct and allocated costs,
including estimated future costs for warranties and amenities. Land acquisition,
land development and other common costs are allocated to individual units in a
real estate development based on specific identification, relative value or area
method. Interest and real estate taxes incurred during the development period
are capitalized.
CARRYING VALUE OF REAL ESTATE ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS No. 121"), real estate assets are reviewed for possible
impairment whenever events or circumstances indicate the carrying amount of the
asset may not be recoverable. Events and circumstances such as a significant
decrease in market value, a significant adverse change in legal factors or
business climate, a significant change in intended use, an accumulation of costs
significantly in excess of the amount originally expected, or current period
losses combined with a history of losses or a forecast of continuing losses
would necessitate a review. If indications are that the carrying amount of an
asset may not be recoverable, SFAS No. 121 requires an estimate of the future
undiscounted cash flows expected to result from the use of the asset and its
eventual disposition. If these cash flows are less than the carrying amount of
the asset, an impairment loss must be recognized to write down the asset to an
amount a willing buyer would pay for such property in a current transaction,
that is, other than in a forced or liquidation sale.
REVENUE RECOGNITION
Revenue from the sale of land and residential units is generally recognized when
closings have occurred, required down payments are received and other criteria
for sale and profit recognition are satisfied in accordance with generally
accepted accounting principles governing profit recognition for real estate
transactions. In situations where the Company has continuing involvement with
the property sold, revenues are recognized by the percentage-of-completion
method as development and construction proceed, provided that cost and profit
can be reasonably estimated. The cost of residential property sales includes
selling and marketing expenses.
Rent revenue from commercial and retail properties is generally recognized
on the straight-line basis over the terms of leases. Revenue from the resort
hotels is generally recognized when due from the guests.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
estimated useful life as follows:
<TABLE>
<S> <C>
Land improvements, buildings and improvements 9-40 years
Equipment 3-5 years
</TABLE>
<PAGE>
30
The costs and accumulated depreciation of property retired or otherwise disposed
of in the normal course of business are removed from the accounts, and any gain
or loss is recognized in the year of the disposition. Property and equipment
includes, among other things, the resort hotels on Lana'i, commercial office
complexes, apartment buildings and other rental properties.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences of temporary
differences between financial statement carrying amounts and the tax bases of
assets and liabilities by applying enacted statutory tax rates to these
differences.
EARNINGS PER COMMON SHARE
The Company calculates basic and diluted earnings per share in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". Basic earnings per share was computed by dividing net income (loss),
after reduction for preferred stock dividends and accretion, if any, by the sum
of (1) the weighted average number of shares of common stock outstanding during
the year and (2) the weighted average number of non-employee director grants
outstanding during the year. The computation of diluted earnings per share
further assumes the dilutive effect of stock options. The weighted average
number of shares of common stock outstanding were 17,048,316, 18,494,378 and
19,971,381 for 1999, 1998 and 1997 respectively. The weighted average number of
non-employee director grants outstanding were 7,129, 6,188 and 3,841 for 1999,
1998 and 1997 respectively. 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 1999 and 1998 computation of dilutive earnings per share includes the
assumed exercise of 30,897 and 71,514 options outstanding, respectively. The
1997 computation of dilutive earnings per share does not include the assumed
exercise of 62,971 options outstanding because their effect was anti-dilutive.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and time deposits which have
original maturities of three months or less at the time of purchase.
FINANCIAL INSTRUMENTS
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. The counterparties to
these contractual arrangements are major financial institutions with which the
Company also has other financial relationships.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For short-term financial instruments, the historical carrying amount is a
reasonable estimate of fair value. For long-term financial instruments not
readily marketable (primarily receivables and notes payable), fair values were
estimated based upon discounted future cash flows at prevailing interest rates.
For interest rate swaps, the fair value of the interest rate swaps is the
settlement amount, based on estimates obtained from dealers. Based on these
estimates, if the Company was to terminate its swap agreements, it would receive
approximately $367,000 as of December 31, 1999 and would have to pay
approximately $2.9 million as of December 31, 1998, respectively.
It is estimated that the carrying value of the Company's other financial
instruments are not materially different from their recorded amounts as of
December 31, 1999 and December 31, 1998.
ENVIRONMENTAL COSTS
The Company incurs on-going environmental costs, including consulting fees for
environmental studies and investigations. Costs incurred in connection with
operating properties and properties previously sold are expensed. Expenditures
that relate to undeveloped land are capitalized as part of development costs.
Reserves for estimated costs are recorded when environmental remediation efforts
are probable and the costs can be reasonably estimated. In determining the
reserves, the Company uses the most current information available, including
similar past experiences, available technology, regulations in effect, the
timing of remediation and cost sharing arrangements, if any. The environmental
reserves are based on management's estimate of the most likely cost to be
incurred and are reviewed periodically and adjusted as additional or new
information becomes available. Environmental reserves and environmental
remediation costs charged to operations for 1999, 1998 and 1997 were not
significant.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement established accounting and
reporting standards for derivative instruments and hedging activities and
required that an entity recognize all derivatives in the statement of financial
position and measure those instruments at fair value. In 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133", which defers the
effective date of SFAS No. 133
<PAGE>
31
for one year. The Company must implement SFAS No. 133 by the first quarter of
2001 and has not yet made a final determination of its impact to the financial
statements.
In 1998, the Company adopted the provisions of SFAS No. 132, "Employers'
Disclosures About Pensions and Other Post-retirement Benefits". This statement
standardized the disclosure requirements for pensions and other post-retirement
benefits. The provisions of SFAS No. 132 are disclosure oriented and do not have
an impact on the Company's financial position or results of operations. The
prior disclosures for 1997 have been changed to conform to the new disclosure
requirements.
In 1998, the Company adopted the provisions of SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information". This statement
establishes standards for reporting and display of information about operating
segments. SFAS No. 131 required additional disclosures only, and there was no
effect on the financial condition or results of operations of the Company. The
prior disclosures for 1997 have been changed to conform to the new disclosure
requirements.
NOTE 3 - RECEIVABLES
The following is a summary of receivables:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
--------------------------------------- ---------- ---------
<S> <C> <C>
Notes receivable bearing interest
of 7% to 11%, secured by
real property and
improvements $ 10,898 $ 11,093
Escrow holdbacks 2,151 1,015
Due from Dole 496 1,731
Other receivables 17,259 10,535
Less allowance for doubtful accounts (2,281) (1,247)
--------------------------------------- ---------- ---------
$ 28,523 $ 23,127
--------------------------------------- ---------- ---------
</TABLE>
The weighted average interest rates of all notes receivable was approximately 8%
at December 31, 1999 and December 31, 1998.
NOTE 4 - REAL ESTATE DEVELOPMENTS
Real estate developments consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
------------------------------------ ----------- -----------
<S> <C> <C>
Finished inventory $ 118,882 $ 108,490
Development projects in progress 176,750 208,165
Unimproved lands held for future
development 203,381 184,492
------------------------------------ ----------- -----------
$ 499,013 $ 501,147
------------------------------------ ----------- -----------
</TABLE>
Real estate developments included $6.5 million and $11.9 million of homes
reserved by deposit or sales contract as of December 31, 1999 and December 31,
1998, respectively. Additionally, real estate developments included $9.7 million
and $13.6 million of homesites reserved by option contract as of December 31,
1999 and December 31, 1998, respectively. Development projects in progress
consist principally of land, land improvement costs and, if applicable,
construction costs for houses and condominiums, which are in various stages of
development but not ready for sale.
The Company constructed a country club and golf course in its Seven Oaks
master planned community in Bakersfield, California. These and other related
assets will be contributed by the Company to the Seven Oaks Country Club, a
nonprofit organization, in 2012. The Company has the right to sell memberships
in the club and is obligated to fund operating shortfalls until the club is
transferred. The operating cash shortfalls totaled approximately $515,000, $1.4
million and $1.8 million for 1999, 1998 and 1997, respectively, and these costs
were capitalized. The Company's net investment in these amenities included in
real estate developments was $26 million and $28 million at December 31, 1999
and December 31, 1998, respectively. Over the life of the project, the Company
expects to invest approximately $36 million, which includes an estimate of the
future funding requirements for the golf course and country club. Over the life
of the project, $16 million of this investment is expected to be recovered from
the sale of country club memberships. The balance of the costs of approximately
$20 million is being amortized through cost of residential property sales as
homesites and homes are sold. Management believes such costs will be recovered
through the sale of the residential homes and homesites surrounding the country
club.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
------------------------------------- ---------- -----------
<S> <C> <C>
Land and land improvements $282,621 $246,885
Buildings and improvements 307,085 283,441
Equipment 106,642 101,126
Construction in progress 21,116 42,341
------------------------------------- ---------- -----------
717,464 673,793
Accumulated depreciation (189,598) (173,793)
------------------------------------- ---------- -----------
$527,866 $500,000
------------------------------------- ---------- -----------
</TABLE>
<PAGE>
32
Depreciation and amortization expense totaled approximately $18 million for
1999, 1998 and 1997.
NOTE 6 - INVESTMENTS IN AFFILIATES:
Investments in which the Company owns greater than 20% but less than 50% are
accounted for using the equity method. Investments accounted for by the equity
method were $9.8 million and $9.2 million at December 31, 1999 and December 31,
1998 respectively. Dividends or cash distributions received from these
investments were $2.3 million, $1.1 million and $291,000 for 1999, 1998 and 1997
respectively. These entities are engaged in real estate developments. The
Company's share of earnings of these affiliates is included in income as earned.
Summarized financial information for these equity investees is shown below:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
-------------------------- ---------- ----------- ----------
<S> <C> <C> <C>
Revenues $ 11,592 $8,937 $2,494
Costs and other deductions 10,786 7,271 2,265
-------------------------- ---------- ----------- ----------
Net income $ 806 $ 1,666 $ 229
-------------------------- ---------- ----------- ----------
Total assets $ 80,475 $ 76,764 $ 29,757
-------------------------- ---------- ----------- ----------
Total liabilities $ 46,446 $ 45,763 $ 16,056
-------------------------- ---------- ----------- ----------
Net equity $ 34,029 $ 31,001 $ 13,701
-------------------------- ---------- ----------- ----------
</TABLE>
In 1998, the Company acquired an equity interest in a partnership, which owns
four separate commercial properties. Through this partnership, the Company has
the right to the earnings and respective cash flows from only one of the four
properties, the Lake Elsinore Outlet Center in California. The Company, however,
does not control the partnership or the operations of the Lake Elsinore Outlet
Center. As such, the investment in the partnership is recorded using the equity
method of accounting and only the Lake Elsinore Outlet Center is included with
the Company's investments summarized above.
NOTE 7 - NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
----------------------------------- ----------- ------------
<S> <C> <C>
Borrowings under revolving loan
agreements, with a year-end
interest rate of 9.3% and
7.5% in 1999 and 1998,
respectively $ 105,000 $ 198,000
Long-term loans 148,961 50,000
Other 3,576 2,044
----------------------------------- ----------- ------------
Total notes payable $ 257,537 $ 250,044
----------------------------------- ----------- ------------
</TABLE>
In November of 1999, the Company entered into a new credit agreement with a
syndicate of banks (the "Credit Agreement"). Pursuant to this Credit Agreement,
the banks agreed to provide a two-year, unsecured revolving line of credit of up
to $175 million, based on a percentage of the value of certain commercial
properties and homebuilding inventory. 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 federal funds
rate. The Credit Agreement contains customary covenants including, but not
limited to limitations on investments; sale of assets; limitation on other debt;
financial covenants relating to tangible net worth, leverage, interest coverage
and inventory levels. At December 31, 1999, the Company was in compliance with
these covenants, and the outstanding debt on the facility was $105 million.
In November of 1999, the Company completed a ten-year term loan with an
insurance company. The $98 million loan bears interest at 7.66% and amortizes
over a 27-year period. The loan is secured by six commercial properties, one
apartment complex and a long-term ground lease.
In December of 1998, the Company entered into a $50 million, ten-year term
loan with an insurance company. The loan bears interest of 6.73% and is
amortized over a 30-year period and is secured by two commercial properties.
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 average interest rate
of 7.54% at December 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 $379,000, $283,000 and $48,000 of additional interest
<PAGE>
33
expense in 1999, 1998, and 1997, respectively, compared to what interest expense
would have been had the debt remained at variable rates.
In December 1995, the Company issued a $10 million term note to Dole in
connection with the Distribution. The unsecured note bears interest at 7% and
matures on December 8, 2000.
The total interest paid, net of capitalized interest, was $9.9 million,
$4.9 million and $822,000 in 1999, 1998 and 1997, respectively.
The following is a summary of interest costs incurred:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C>
Capitalized in real estate
developments and
property and
equipment $ 9,868 $ 10,958 $ 10,735
Expensed 10,800 5,919 1,103
-------------------------------------------------------------
$ 20,668 $ 16,877 $ 11,838
-------------------------------------------------------------
Amortization in cost of
residential and
other property
sales of interest
previously
capitalized $ 7,018 $ 5,287 $ 4,210
-------------------------------------------------------------
</TABLE>
NOTE 8 - LEASES
The Company receives rental income from the leasing of retail, office and
industrial building space under operating leases. Future minimum rentals, under
non-cancelable operating leases over the next five years (excluding tenant
reimbursements of operating expenses) as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) COMBINED RETAIL
AND OFFICE
BUILDING SPACE
------------------------------------------------------------
<S> <C>
2000 $ 34,033
2001 31,692
2002 28,957
2003 24,821
2004 22,805
Thereafter 156,100
------------------------------------------------------------
Total $298,408
------------------------------------------------------------
</TABLE>
The leases also provide for additional rentals based on increases in operating
expenses. These increases are generally payable in equal installments throughout
the year, based on estimated increases, with any differences being adjusted in
the succeeding year.
NOTE 9 - INCOME TAXES
In connection with the Distribution, the assets were recorded by the Company at
a new tax basis equal to the aggregate fair market value of the stock and notes
issued to Dole and the liabilities that were assumed by the Company in
connection with the transaction. The difference in the new tax basis in
comparison to the historical book value of the real estate and resorts assets
recorded in the financial statements created a large deferred tax liability.
Dole has agreed to indemnify and hold the Company harmless for any federal,
state and local income taxes which may be imposed for all periods prior to the
Distribution that have not been paid or provided for in the Company's
consolidated balance sheet. The Company made income tax payments of
approximately $4.7 million, $7.1 million and $4.6 million in 1999, 1998 and 1997
respectively. In 1997, the Company received income tax refunds of approximately
$15.1 million.
The components of the income tax expense (benefit) were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
------------------------------------------------------------
<S> <C> <C> <C>
Current taxes:
Federal $ 4,900 $ 11,614 $ 4,629
State 233 1,713 602
------------------------------------------------------------
Total 5,133 13,327 5,231
------------------------------------------------------------
Deferred taxes:
Federal 602 (6,980) (2,676)
State 29 (1,029) (348)
------------------------------------------------------------
Total 631 (8,009) (3,024)
------------------------------------------------------------
Provision for income taxes $ 5,764 $ 5,318 $ 2,207
------------------------------------------------------------
</TABLE>
The Company's reported income tax expense varied from the expense calculated
using the U.S. federal statutory income tax rate for the following reasons:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
------------------------------------------------------------
<S> <C> <C> <C>
Expense computed at U.S.
federal statutory
income tax rate $ 6,725 $ 5,641 $ 2,128
</TABLE>
<PAGE>
34
<TABLE>
<S> <C> <C> <C>
State and local income tax,
net of federal income
tax benefit 259 670 244
Income tax credits (783) (1,019) (761)
Other (437) 26 596
------------------------------------------------------------
Reported income tax
expense $ 5,764 $ 5,318 $ 2,207
------------------------------------------------------------
</TABLE>
Deferred income taxes result from the temporary differences in the financial and
tax bases of assets and liabilities. The sources of deferred tax liabilities
(assets) and the tax effect of each are comprised of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
------------------------------------------------------------
<S> <C> <C>
Differences between book values
assigned in prior
acquisitions and tax values $ 160,399 $ 165,630
State taxes 265 147
Other, net 18,747 8,673
------------------------------------------------------------
$ 179,411 $ 174,450
------------------------------------------------------------
</TABLE>
Total deferred tax liabilities and deferred tax (assets) were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
------------------------------------------------------------
<S> <C> <C>
Total deferred tax liabilities $ 187,143 $ 180,412
Total deferred tax assets (7,732) (5,962)
------------------------------------------------------------
$ 179,411 $ 174,450
------------------------------------------------------------
</TABLE>
NOTE 10 - PENSION AND RETIREMENT PLANS
Certain full-time employees participate in qualified defined benefit pension
plans. Certain highly paid employees also receive a portion of their benefits
from a non-qualified defined benefit pension plan. Benefits under these plans
are generally based on each employee's eligible compensation and years of
service. The Company's funding policy is to fund the service costs of its plan,
preferably on a tax-deductible basis.
Effective January 1, 1993, post retirement medical and life insurance
benefits were eliminated; however, certain full time employees who met minimum
age and service requirements continue to be eligible for the post-retirement
medical and life insurance benefits. The Company pays the full cost of
participants' life insurance coverage and makes contributions based on years of
service to the cost of participants' medical insurance coverage, subject to a
maximum annual contribution.
The status of the Company's pension and other benefit plans are summarized as
follows:
<PAGE>
35
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
(IN THOUSANDS) 1999 1998 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefits obligation:
Benefit obligation at beginning of year $ 22,573 $ 20,037 $ 2,807 $ 2,580
Service cost 842 716 7 8
Interest cost 1,559 1,457 183 187
Actuarial loss (gain) (481) 1,767 (184) 224
Benefits paid (1,404) (1,404) (195) (192)
----------------------------------------------------------------------------------------------------------------------------
Benefits obligation at end of year $ 23,089 $ 22,573 $ 2,618 $ 2,807
----------------------------------------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year $ 20,054 $ 18,068 $ - $ -
Actual return on plan assets 1,489 2,946 - -
Employer contributions 484 445 - -
Benefits paid (1,404) (1,404) - -
----------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at year end $ 20,623 $ 20,055 $ - $ -
----------------------------------------------------------------------------------------------------------------------------
Funded status $ 2,466 $ 2,519 $ 2,618 $ 2,807
Unrecognized net actuarial gain 359 129 196 11
Unrecognized prior service cost (55) (67) - -
----------------------------------------------------------------------------------------------------------------------------
Net amount recognized $ 2,770 $ 2,581 $ 2,814 $ 2,818
----------------------------------------------------------------------------------------------------------------------------
Weighted average assumptions at year end:
Discount rate 6.75% 6.75% 6.75% 6.75%
Expected return on plan assets 9.0% 9.0% 9.0% 9.0%
Rate of compensation increase 4.0% 4.0%
</TABLE>
For measurement purposes, an annual rate of increase in the per capita cost of
covered health care benefits of 8% was assumed for 2000. The rate was assumed to
decrease gradually to 5% for 2006 and remain at that level thereafter. The net
periodic benefit costs include the following components:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
(IN THOUSANDS) 1999 1998 1997 1999 1998 1997
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 842 $ 716 $ 681 $ 7 $ 8 $ 12
Interest cost 1,559 1,457 1,330 183 187 185
Expected return on plan assets (1,758) (1,481) (2,059) - - -
Other, net 30 (5) 658 - - (5)
----------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 673 $ 687 $ 610 $ 190 $ 195 $ 197
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
36
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one percent increase or decrease in these
assumed health care cost trend rates would result in an increase of $254,000 or
a reduction of $221,000, respectively, in the post-retirement benefit obligation
as of December 31, 1999. A one percent increase or decrease in these assumed
health care cost trend rates would result in an increase of $19,100 or a
reduction of $17,000, respectively, in the total of the service and interest
cost components.
Retirement benefits are provided to most salaried and hourly non-bargaining
Company employees under a 401(k) savings plan. The terms of this plan provide
for the Company to partially match tax deferred employee contributions.
Substantially all full-time salaried and hourly employees meeting age and length
of service requirements are eligible to participate in the plan. Total Company
contributions to these plans for 1999, 1998 and 1997 were $587,000, $555,000 and
$468,000 respectively.
The Company also participates in multi-employer pension plans provided
under certain of its collective bargaining agreements which also provide for
pension benefits. Total contributions to these plans were $12,000, $131,000 and
$232,000 for 1999, 1998 and 1997 respectively.
Information from the plans' administrators is not available to permit the
Company to determine its share of unfunded vested benefits, if any. The Company
has no intention of withdrawing from any of these plans, nor is there any
intention to terminate such plans.
NOTE 11 - COMMON SHAREHOLDERS' EQUITY
Authorized capital of Castle consists of 50,000,000 shares of no par value
common stock, 1,000,000 shares of no par value Preference Stock, and 1,000,000
shares of no par value Preferential Stock.
NOTE 12 - STOCK OPTIONS AND AWARDS
The Castle & Cooke, Inc. 1995 Stock Option and Award Plan ("1995 Plan") provides
for the granting of incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock awards, performance share awards and stock
bonuses to officers. In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123- "Accounting for Stock-Based Compensation" ("SFAS No. 123").
This statement defines, among other things, a fair value based method of
accounting for options under an employee stock option plan. However, it also
allows an entity to continue to account for such items using APB Opinion No. 25-
"Accounting for Stock Issued to Employees," under which no compensation expense
is recognized. The Company elected this option, which alternatively requires pro
forma disclosure of net income and earnings per share as if compensation expense
had been recognized.
The pro forma results determined in accordance with SFAS No. 123 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) available to
common shareholders:
As reported $ 13,451 $ 10,798 $ (104)
Pro forma $ 12,486 $ 10,024 $ (547)
-------------------------------------------------------------------
Basic earnings (loss) per share:
As reported $ 0.79 $ 0.58 $ (0.01)
Pro forma $ 0.73 $ 0.54 $ (0.03)
-------------------------------------------------------------------
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes Option Pricing Model. The assumptions used for the risk free
interest rate were 5.1%, 5.6% and 6.4% for 1999, 1998 and 1997 respectively. The
assumptions used for the dividend yield and expected life were zero percent and
seven years, respectively, for all years. The assumption used for expected
volatility rate was 27.6%, 32.3% and 28.2% for 1999, 1998 and 1997 respectively.
Because SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The 1995 Plan is intended to provide an incentive to officers and key
employees to remain with the Company. Stock options may be exercised for up to
ten years from the date of grant, as determined by the Corporate Compensation
and Benefits Committee of the Board of Directors which administers the plan. The
committee has the authority to determine the officers and key employees to whom
awards will be made and other terms and conditions of the awards. In 1995, the
Company reserved 1,000,000 common shares for the 1995 Plan, which was reduced to
988,202 in 1996. In 1999, the plan was further amended to increase shares
available for grant by an additional 1,000,000 common shares.
Stock options under Dole's 1982 and 1991 Stock Option and Award Plan, which
were not exercised prior to December 28, 1995, were adjusted in connection with
the separation of the real estate and resorts business from the food business.
Option holders who become employees of Castle after the Distribution received
options to purchase shares of Castle Common Stock shares in lieu of their Dole
options. The number of shares subject to, and the exercise price of, each option
were adjusted and as a result, options to purchase
<PAGE>
37
approximately 287,465 shares of common stock of the Company at exercise prices
ranging from $10.49 to $16.79 per share were issued upon conversion of
preexisting Dole options. At December 31, 1999, a total of 1,131,563 common
shares are available for future grants.
Change in stock options are as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------------------------------------------------------------
<S> <C> <C>
Outstanding, December 31, 1996 385,743 $ 13.25
Granted 149,800 16.38
Exercised (41,563) 12.12
Canceled (9,966) 14.10
------------------------------------------------------------
Outstanding, December 31, 1997 484,014 $ 14.30
Granted 218,400 15.11
Exercised (39,829) 13.21
Canceled (29,198) 15.00
------------------------------------------------------------
Outstanding, December 31, 1998 633,387 $ 14.61
Granted 274,900 16.72
Exercised (30,829) 12.77
Canceled (136,187) 15.35
------------------------------------------------------------
Outstanding, December 31, 1999 741,271 $ 15.18
------------------------------------------------------------
Exercisable, December 31, 1999 365,018 $ 14.11
------------------------------------------------------------
</TABLE>
The options outstanding as of December 31, 1999 have exercise prices between
$11.50 and $16.81 and a weighted average remaining term of 7 years. The options
exercisable as of December 31, 1999 have exercise prices between $11.50 and
$16.69 and a weighted average remaining term of 5.5 years.
The Castle & Cooke, Inc. Deferred Stock Compensation Plan for Non-Employee
Directors (the "Plan") provides for $10,000 in eligible Directors' annual
compensation to be deferred and paid in shares of common stock, in lieu of cash.
The Plan is intended to attract, motivate and retain experienced directors of
the Company. Each director is entitled to receive a distribution of a number of
shares of stock equal to the number of shares in his or her account upon his or
her termination from service on the Board. The Company has reserved 50,000
common shares for the Plan. In 1997, 2,673 shares were granted and $40,000 was
recognized as compensation expense. In 1998, 2,104 shares were granted and
$40,000 was recognized as compensation expense. In 1999, 1,993 shares were
granted and $30,000 was recognized as compensation expense. As of December 31,
1999, a total of 9,051 shares under the Plan had been granted and are
exercisable and 40,949 shares remain for future grants.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company is constructing commercial buildings and golf courses in various
locations on the mainland. As of December 31, 1999 the estimated cost of future
construction under contracts totaled approximately $19 million.
The Company and its subsidiaries are contingently liable as joint
in-demnitors to surety companies for subdivision, off-site improvement and
construction bonds issued on their behalf. Outstanding bond commitments
approximated $229 million and $188 million at December 31, 1999 and 1998,
respectively.
The Company is a defendant in several lawsuits arising in the normal course
of business. In the opinion of management, the final resolution of these
lawsuits will not have a material adverse effect on its financial position or
results of operations.
NOTE 14 - RELATED-PARTY TRANSACTIONS
Related party transactions were substantially the same as those that could have
been obtained from unaffiliated third parties. In connection with the
Distribution in December 1995, the Company and Dole entered into various
agreements to define ongoing relationships including an Allocation Agreement, an
Aircraft Co-ownership Agreement and certain other operating agreements which
govern future relationships.
The Company received a general excise tax refund of $777,000 from the State
of Hawaii in 1997. Pursuant to the Allocation Agreement, the refund was paid to
Dole in the first quarter of 1998. The Company leased Dole office space in
Bakersfield, California and Honolulu, Hawaii and farm land on Oahu and in 1999,
1998 and 1997 recorded rental income of approximately $492,000, $621,000 and
$739,000 respectively, for such leases. In 1999, 1998 and 1997, the Company
purchased $230,000, $229,000 and $260,000 respectively, of products from Dole
for its retail store and hotels in Hawaii.
In connection with the Distribution and as partial consideration for Dole's
real estate and resort business, the Company issued a promissory note to Dole in
the principal amount of $10 million (the "Term Note"). The Term Note is
unsecured, payable in December 2000, and bears interest at the rate of 7% per
annum, payable quarterly. Interest incurred on the Term Note was $700,000 in
1999, 1998 and 1997.
In connection with the Distribution, the Company received a fifty percent
undivided interest in a corporate aircraft that was owned by Dole. Dole retained
the other fifty percent undivided interest in the aircraft. Under the Aircraft
Co-ownership Agreement, the Company and Dole agreed that each party would be
responsible for the direct
<PAGE>
38
costs associated with its use of the aircraft, and that all indirect costs would
be equally shared. Pursuant to the Aircraft Co-ownership Agreement, the
Company's proportionate share of the operating costs for the aircraft was
$687,000, $641,000 and $561,000 during 1999, 1998 and 1997 respectively.
The Company had a net receivable from Dole of approximately $83,000 and
$1.7 million at December 31, 1999 and December 31, 1998, respectively.
NOTE 15 - INDUSTRY SEGMENT INFORMATION
In the fourth quarter of 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 131- "Disclosures About Segments of an
Enterprise and Related Information". The Company conducts its operations through
three industry segments: Residential and other property sales, Resorts, and
Commercial and other operations. Each segment is managed as a separate business
unit because each segment is responsible for executing a unique business
strategy. The residential and other property sales segment primarily develops
and sells homes and finished homesites. This segment also includes the sales of
undeveloped landholdings. The Resorts segment includes the operation of the
Island of Lana'i which includes two luxury hotels, hotel amenities including two
championship golf courses, the development and sale of residential homes and
homesites, other construction activity, property management and other support
operations. The Commercial and other operations segment includes the development
and management of office, retail, golf course, industrial and other income
producing properties. All of the Company's operations are in the United States.
Industry segment information is presented below:
<PAGE>
39
<TABLE>
<CAPTION>
RESIDENTIAL
AND OTHER COMMERCIAL
PROPERTY RESORT AND OTHER
(in thousands) SALES OPERATIONS OPERATIONS CORPORATE TOTAL
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Total revenues $ 179,877 $ 76,598 $ 60,331 $ 49 $ 316,855
Operating income 24,147 (10,149) 14,126 (5,380) 22,744
Interest and other income, net 1,767 347 2,933 2,224 7,271
Interest expense, net (283) - (4,244) (6,273) (10,800)
-----------------------------------------------------------------------------------------------------------------------------
Income before taxes $ 25,631 $ (9,802) $ 12,815 $ (9,429) $ 19,215
-----------------------------------------------------------------------------------------------------------------------------
Property and equipment additions $ 435 $ 3,842 $ 44,229 $ 10 $ 48,516
-----------------------------------------------------------------------------------------------------------------------------
Depreciation & Amortization $ 3,408 $ 7,414 $ 6,825 $ 597 $ 18,244
-----------------------------------------------------------------------------------------------------------------------------
Total Assets $ 544,100 $ 180,893 $ 360,404 $ 3,394 $ 1,088,791
-----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
Total revenues $ 165,635 $ 72,452 $ 52,103 $ - $ 290,190
Operating income 17,256 (11,308) 17,568 (5,380) 18,136
Interest and other income, net 1,079 61 2,648 111 3,899
Interest expense, net - - - (5,919) (5,919)
-----------------------------------------------------------------------------------------------------------------------------
Income before taxes $ 18,335 $ (11,247) $ 20,216 $ (11,188) $ 16,116
-----------------------------------------------------------------------------------------------------------------------------
Property and equipment additions $ 230 $ 4,316 $ 48,699 $ 5 $ 53,250
-----------------------------------------------------------------------------------------------------------------------------
Depreciation & Amortization $ 556 $ 8,167 $ 8,202 $ 617 $ 17,542
-----------------------------------------------------------------------------------------------------------------------------
Total Assets $ 393,804 $ 240,517 $ 414,478 $ 5,306 $ 1,054,105
-----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
Total revenues $ 133,504 $ 56,304 $ 50,288 $ - $ 240,096
Operating income 5,781 (17,362) 20,031 (4,616) 3,834
Interest and other income, net 1,598 278 1,324 149 3,349
Interest expense, net - - - (1,103) (1,103)
-----------------------------------------------------------------------------------------------------------------------------
Income before taxes $ 7,379 $ (17,084) $ 21,355 $ (5,570) $ 6,080
-----------------------------------------------------------------------------------------------------------------------------
Property and equipment additions $ 68 $ 3,707 $ 29,325 $ 14 $ 33,114
-----------------------------------------------------------------------------------------------------------------------------
Depreciation & Amortization $ 654 $ 9,171 $ 7,157 $ 612 $ 17,594
-----------------------------------------------------------------------------------------------------------------------------
Total Assets $ 399,172 $ 240,907 $ 373,857 $ 5,324 $ 1,019,260
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
40
NOTE 16 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents summarized quarterly results:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT SHARE DATA) QUARTER QUARTER QUARTER QUARTER YEAR
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Revenues $ 63,687 $ 81,925 $ 80,940 $ 90,303 $ 316,855
Operating income 4,736 6,849 4,782 6,377 22,744
Net income available to common shareholders 2,791 3,951 4,143 2,566 13,451
----------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per common share $ 0.16 $ 0.23 $ 0.24 $ 0.16 $ 0.79
----------------------------------------------------------------------------------------------------------------------------
1998
Revenues $ 57,250 $ 69,480 $ 79,136 $ 84,324 $ 290,190
Operating income 2,861 3,735 6,512 5,028 18,136
Net income available to common shareholders 1,396 2,588 4,019 2,795 10,798
----------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per common share $ 0.07 $ 0.13 $ 0.24 $ 0.16 $ 0.58
----------------------------------------------------------------------------------------------------------------------------
1997
Revenues $ 54,178 $ 55,057 $ 54,461 $ 76,400 $ 240,096
Operating income 860 1,602 370 1,002 3,834
Net income available to common shareholders (532) 236 (574) 766 (104)
----------------------------------------------------------------------------------------------------------------------------
Basic and diluted (loss) earnings per common share $ (0.03) $ 0.01 $ (0.03) $ 0.04 $ (0.01)
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
CASTLE & COOKE, INC.:
We have audited the accompanying consolidated balance sheets of Castle & Cooke,
Inc. (a Hawaii corporation) and subsidiaries as of December 31, 1999 and
December 31, 1998 and the related consolidated statements of operations,
shareholders' equity and cash flows for the years ended December 31, 1999,
December 31, 1998 and December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Castle & Cooke, Inc. and
subsidiaries as of December 31, 1999 and December 31, 1998 and the results of
their operations and their cash flows for the years ended December 31, 1999,
December 31, 1998 and December 31, 1997 in conformity with accounting principles
generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
-----------------------------------
ARTHUR ANDERSEN LLP
Los Angeles, California
February 3, 2000
