<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 10-Q
------------------------------
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 1-14020
CASTLE & COOKE, INC.
(Exact name of registrant as specified in its charter)
HAWAII 77-0412800
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10900 WILSHIRE BOULEVARD, 16TH FLOOR
LOS ANGELES, CA 90024
(Address of principal executive offices and zip code)
(310) 208-3636
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS SHARES OUTSTANDING AT JULY 31, 2000
----- -----------------------------------
Common Stock, without par value 17,059,833 shares
================================================================================
<PAGE>
CASTLE & COOKE, INC.
FORM 10-Q
FOR THE QUARTER ENDED
JUNE 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2000 and December 31, 1999.................................3
Consolidated Statements of Operations - Quarter and six months ended June 30, 2000
and June 30, 1999.............................................................................4
Consolidated Statements of Cash Flows - Six months ended June 30, 2000
and June 30, 1999.............................................................................5
Notes to Consolidated Financial Statements........................................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................................15
Item 5. Other Information................................................................................15
Item 6. Exhibits and Reports on Form 8-K.................................................................16
SIGNATURES.......................................................................................................17
</TABLE>
2
<PAGE>
CASTLE & COOKE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited) (Audited)
----------- ------------
<S> <C> <C>
Cash and cash equivalents $ 8,277 $ 2,667
Receivables, net 32,465 28,523
Real estate developments 507,765 499,013
Property and equipment, net 539,279 527,866
Other assets 33,855 30,722
----------- ------------
Total assets $ 1,121,641 $ 1,088,791
=========== ============
Notes payable $ 272,811 $ 257,537
Note payable to Dole 10,000 10,000
Accounts payable 25,845 20,268
Accrued liabilities 27,695 27,684
Deferred income taxes 178,918 179,411
Deferred income and other liabilities 47,196 43,191
----------- ------------
Total liabilities 562,465 538,091
----------- ------------
Common shareholders' equity
Common stock 512,754 512,645
Treasury stock, at cost (58,322) (58,322)
Retained earnings 104,744 96,377
----------- ------------
Total common shareholders' equity 559,176 550,700
----------- ------------
Total liabilities and shareholders' equity $ 1,121,641 $ 1,088,791
=========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
3
<PAGE>
CASTLE & COOKE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
------------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Residential and other property sales $ 40,605 $ 49,923 $ 78,039 $ 80,725
Resort revenues 21,818 17,335 46,802 37,156
Commercial and other revenues 16,973 14,667 33,234 27,731
--------- --------- --------- ---------
Total revenues 79,396 81,925 158,075 145,612
COST OF OPERATIONS
Cost of residential and other property sales 34,987 41,825 66,432 68,740
Cost of resort operations 22,787 19,810 45,306 40,761
Cost of commercial and other operations 11,413 9,892 21,983 17,753
General and administrative expenses 4,003 3,549 8,030 6,773
--------- --------- --------- ---------
Total cost of operations 73,190 75,076 141,751 134,027
Operating income 6,206 6,849 16,324 11,585
Interest and other income, net 1,237 1,139 2,846 2,485
Interest expense, net 3,333 2,343 6,490 4,438
--------- --------- --------- ---------
Income before income taxes 4,110 5,645 12,680 9,632
Income tax provision (1,398) (1,694) (4,312) (2,890)
--------- --------- --------- ---------
Net income $ 2,712 $ 3,951 $ 8,368 $ 6,742
========= ========= ========= =========
Basic and diluted earnings per common share $ 0.16 $ 0.23 $ 0.49 $ 0.40
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
4
<PAGE>
CASTLE & COOKE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,368 $ 6,742
Adjustments to reconcile net income to cash
flow provided by operating activities:
Depreciation 10,479 8,623
Equity earnings, net of dividends received (533) 14
Other -- 70
Non-cash cost of residential and other property sales 67,451 65,320
Changes in operating assets and liabilities:
Increase in receivables, net (3,929) (3,337)
Additions to real estate developments (76,357) (68,408)
Increase in accounts payable 5,577 5,430
Increase (decrease) in accrued liabilities 29 (1,669)
Decrease in deferred income taxes (493) (436)
Net change in other assets and liabilities 1,471 304
-------- --------
Net cash provided by operating activities 12,063 12,653
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (21,835) (32,827)
-------- --------
Net cash used in investing activities (21,835) (32,827)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase under revolving loan agreements 14,000 20,000
Proceeds from issuance of debt 2,800 --
Reduction of debt (1,526) (808)
Proceeds from exercise of stock options 108 354
-------- --------
Net cash provided by financing activities 15,382 19,546
-------- --------
Net increase (decrease) in cash and cash equivalents 5,610 (628)
Cash and cash equivalents at beginning of period 2,667 4,764
-------- --------
Cash and cash equivalents at end of period $ 8,277 $ 4,136
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
5
<PAGE>
CASTLE & COOKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by
Castle & Cooke, Inc. ("the Company"), without audit, and include all adjustments
which are, in the opinion of management, necessary for a fair presentation of
the results of operations for the quarters and six months ended June 30, 2000
and June 30, 1999, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures in such
financial statements are adequate to make the information presented not
misleading. The consolidated financial statements should be read in conjunction
with the Company's consolidated financial statements and the notes thereto for
the year ended December 31, 1999, included in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission.
The Company's operating results are subject to significant variability as a
result of, among other things, the receipt of regulatory approvals, the status
of development in particular projects and the timing of sales of homes and
homesites in developed projects, income producing properties, and non-income
producing properties. The results of operations for the six months ended June
30, 2000, are not necessarily indicative of the results to be expected for the
full year.
NOTE 2. EARNINGS PER COMMON SHARE
Basic earnings per share was computed by dividing net income by the sum of
(1) the weighted average number of shares of common stock outstanding during the
period and (2) the weighted average number of non-employee director stock grants
outstanding during the period. The computation of diluted earnings per share
further assumes the dilutive effect of employee stock options.
The weighted average number of shares of common stock outstanding was
17,058,605 and 17,038,085 during the second quarter of 2000 and 1999,
respectively. The weighted average number of non-employee director stock grants
outstanding was 7,286 and 6,881 during the second quarter of 2000 and 1999,
respectively. The computation of dilutive earnings per share includes the
assumed exercise of 213,955 and 32,402 options outstanding during the second
quarter of 2000 and 1999, respectively.
The weighted average number of shares of common stock outstanding was
17,055,775 and 17,031,772 during the first six months of 2000 and 1999,
respectively. The weighted average number of non-employee director stock grants
outstanding was 7,286 and 6,969 during the first six months of 2000 and 1999,
respectively. The computation of dilutive earnings per share includes the
assumed exercise of 98,409 and 35,625 options outstanding during the first six
months of 2000 and 1999, respectively.
NOTE 3. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are contingently liable as joint
indemnitors to surety companies for subdivision, off-site improvement and
construction bonds issued on their behalf.
6
<PAGE>
CASTLE & COOKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Following March 29, 2000, eight purported class action lawsuits were filed
against the Board of Directors of the Company alleging breach of fiduciary duty
and self-dealing by the Directors in connection with the proposal received by
the Company on March 29, 2000 from Flexi-Van Leasing, Inc. ("Flexi-Van") to
acquire the approximately 73% of the outstanding shares of the common stock of
the Company not owned by Flexi-Van or its affiliates for $17 per share, all
cash. The proposal was subsequently increased to $18.50 per share on May 22,
2000, after which time the terms of a merger agreement with the Company ("Merger
Agreement') were finalized and a formal tender offer was commenced on May 31,
2000 by Castle Acquisition Company, Inc., which is wholly-owned by Flexi-Van
Leasing, Inc. ("Tender Offer"). Flexi-Van Leasing, Inc. is wholly-owned by David
H. Murdock, the Chairman of the Board of Directors and Chief Executive Officer
of the Company.
Five of the lawsuits were filed in the Superior Court of the State of
California for the County of Los Angeles and three of the lawsuits were filed in
the Circuit Court of the Second Circuit of the State of Hawaii. Each of the
lawsuits was filed by a shareholder of the Company, on behalf of all other
shareholders of the Company who were similarly situated, and sought to have the
class certified and the shareholder bringing the lawsuit named as representative
of the class. In addition, the lawsuits generally sought to enjoin the
transaction contemplated by the Tender Offer, rescission, if the transaction was
consummated, damages and attorneys' fees. In addition to naming the Directors as
defendants, seven of the lawsuits named the Company as a defendant and two named
Flexi-Van as a defendant.
Subject to final court approval, the lawsuits were settled and a settlement
("Settlement") was approved by the District Court for the State of Hawaii,
Second Circuit, on July 5, 2000. Pursuant to the Settlement, the offer price of
the Tender Offer was increased to $19.25 per share, and the cases would be
dismissed with prejudice. Separately, members of the class have been sent
notices dealing with the Settlement and their rights under it.
The Company is involved from time to time in various claims and legal
actions arising in the normal course of business. In the opinion of management,
the final resolution of these matters is not expected to have a material adverse
effect on the Company's financial position or results of operations.
NOTE 4. SUPPLEMENTAL CASH FLOW INFORMATION
The Company made interest payments of approximately $8.2 million and $9.5
million during the first six months of 2000 and 1999, respectively. Total
interest capitalized into real estate developments and property and equipment
under construction totaled approximately $4.0 million and $5.6 million during
the first six months of 2000 and 1999, respectively.
The Company made income tax payments of approximately $4.9 million and $3.3
million during the first six months of 2000 and 1999, respectively.
NOTE 5. SHAREHOLDER PROPOSAL
The Tender Offer by Castle Acquisition Company, Inc. for all of the
outstanding shares of common stock of the Company was commenced on May 31, 2000
at $18.50 per share in accordance with the Merger Agreement. In connection with
the settlement of the litigation relating to the Tender Offer, Castle
Acquisition Company, Inc. increased the offer price under the Tender Offer to
$19.25 per share. Pursuant
7
<PAGE>
CASTLE & COOKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. SHAREHOLDER PROPOSAL (CONTINUED)
to the Tender Offer, which expired on July 21, 2000, Castle Acquisition
Company, Inc. purchased 11,160,004 shares of the Company's common stock
(representing approximately 89% of the stock outstanding on that date (that
was not already owned by Castle Acquisition Company, Inc. and its
affiliates). Castle Acquisition Company, Inc. and its affiliates owned
15,661,314 shares of the Company's common stock (representing approximately
92% of the outstanding common stock of the Company) as of July 31, 2000.
Following the expiration of the Tender Offer and in accordance with the
Merger Agreement, the Board of Directors of the Company has called a special
meeting of the shareholders of the Company for September 6, 2000 at 10:30 a.m.
to be held at Suite 700, 1999 Avenue of the Stars, Los Angeles, California, for
the purpose of considering and voting upon a proposal to approve and adopt the
Merger Agreement providing for, among other things, the merger of Castle
Acquisition Company, Inc. with and into the Company and such other business as
may properly come before the meeting or any adjournment or postponement thereof.
A record date of July 31, 2000 has been fixed by the Board of Directors for the
determination of shareholders entitled to notice of and to vote at the meeting
and proxy materials for the meeting have been mailed to these shareholders.
The merger will constitute the second and final step of the acquisition of
the Company by Flexi-Van. Upon consummation of the merger, all shares of common
stock of the Company not already owned by Castle Acquisition Company, Inc. or
its affiliates or shareholders, if any, of the Company who are entitled to and
who properly exercise dissenters' rights will be converted into the right to
receive $19.25 per share in cash, without interest. Because the approval of a
majority of the outstanding shares is sufficient to approve and adopt the Merger
Agreement, Castle Acquisition Company, Inc. and its affiliates can cause the
merger to occur without the affirmative vote of any other holders of shares. All
shareholders of record of the Company on the July 31, 2000 record date have the
right to dissent and obtain payment for their shares by complying with the terms
of Section 415-80 and 415-81 of the Hawaii Business Corporation Act.
NOTE 6. INDUSTRY SEGMENT INFORMATION
The Company's industry segment information is presented below (in
thousands):
<TABLE>
<CAPTION>
RESIDENTIAL COMMERCIAL
AND OTHER RESORT AND OTHER
PROPERTY SALES OPERATIONS OPERATIONS CORPORATE TOTAL
-------------- ---------- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 2000
Total revenue $ 78,039 $ 46,802 $ 33,234 $ -- $ 158,075
========= ========= ========= ========= =========
Operating income $ 8,768 $ 397 $ 10,832 $ (3,673) $ 16,324
Interest and other income, net 982 490 1,332 42 2,846
Interest expense, net -- -- -- (6,490) (6,490)
--------- --------- --------- --------- ---------
Income before taxes $ 9,750 $ 887 $ 12,164 $ (10,121) $ 12,680
========= ========= ========= ========= =========
SIX MONTHS ENDED JUNE 30, 1999
Total revenue $ 80,725 $ 37,156 $ 27,731 $ -- $ 145,612
========= ========= ========= ========= =========
Operating income $ 9,519 $ (4,684) $ 9,533 $ (2,783) $ 11,585
Interest and other income, net 519 7 1,914 45 2,485
Interest expense, net -- -- -- (4,438) (4,438)
--------- --------- --------- --------- ---------
Income before taxes $ 10,038 $ (4,677) $ 11,447 $ (7,176) $ 9,632
========= ========= ========= ========= =========
</TABLE>
8
<PAGE>
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Below is a summary of residential and other property sales by location:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
----------------- ------------------
2000 1999 2000 1999
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Oahu, Hawaii $21,088 $33,388 $40,222 $54,844
Bakersfield, California 6,599 11,814 18,583 18,264
Copperopolis, California 2,338 -- 3,402 --
Sierra Vista, Arizona 4,274 1,835 5,910 3,036
Orlando, Florida 6,306 2,886 9,910 4,581
Other -- -- 12 --
-------- ------- -------- --------
Total Residential and other property sales $40,605 $49,923 $78,039 $80,725
======== ======= ======== ========
</TABLE>
Residential and other property sales decreased 19% to $40.6 million in the
second quarter of 2000 from $49.9 million in the second quarter of 1999. This
decrease is primarily due to decreased revenues on Oahu, Hawaii and Bakersfield,
California partially offset by increased revenues in Copperopolis, California
and Orlando, Florida. The second quarter decrease on Oahu is primarily due to a
decrease of 30 home closings in 2000 as compared to 1999. In addition, the
average price per unit sold on Oahu in the second quarter of 2000 was $273,000
compared to $312,000 in the second quarter of 1999. The second quarter decrease
in Bakersfield is primarily due to a decrease of 49 lot closings at Seven Oaks
in 2000 as to compared to 1999. The second quarter increase in Copperopolis is
primarily due to lot closings at the Company's new development known as Saddle
Creek. The Company sold 16 lots in this development for a total of $2.3 million
during the second quarter of 2000. Lot closings commenced in this community in
the third quarter of 1999. The second quarter increase in Orlando is primarily
due to an increase of 20 lot closings in 2000 as compared to 1999. In addition,
the average price per lot sold in Orlando in the second quarter of 2000 was
$140,000 compared to $115,000 in the second quarter of 1999.
Residential and other property sales decreased 3% to $78.0 million in the
first six months of 2000 from $80.7 million in 1999. This decrease is primarily
due to decreased revenues on Oahu, Hawaii partially offset by increased revenues
in Copperopolis, California and Orlando, Florida. The average price per unit
sold on Oahu during the first six months was $269,000 compared to $299,000 in
1999. In addition, the Company sold 149 homes on Oahu during the first six
months of 2000 compared to 183 homes in 1999. The increase in Copperopolis is
primarily due to lot closings at the Company's new development known as Saddle
Creek. The Company sold 25 lots in this development for a total of $3.4 million
during the first six months of 2000. Lot closings commenced in this community in
the third quarter of 1999. The increase in Orlando is primarily due to an
increase of 34 lot closings in the first six months of 2000 as compared to 1999.
In addition, the average price per lot sold in Orlando in the first six months
of 2000 was $134,000 compared to $115,000 in the first six months of 1999.
9
<PAGE>
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS REVENUES (CONTINUED)
REVENUES (CONTINUED)
Resort revenues increased 26% to $21.8 million during the second quarter of
2000 from $17.3 million in the second quarter of 1999. This increase is
primarily due to increased resort residential sales. Resort residential sales
were $7.2 million in the second quarter of 2000 compared to $4.0 million in the
second quarter of 1999. The Company sold a total of five residential units and
two single family lots at its two luxury resort residential developments for a
total of $6.0 million during the second quarter of 2000, compared to four
residential units for a total of $3.5 million during the second quarter of 1999.
Resort residential sales also include the sale of two plantation homes for a
total of $244,000 during the second quarter of 2000, compared to three
plantation homes for a total of $424,000 during the second quarter of 1999.
Resort revenues increased 26% to $46.8 million during the first six months
of 2000 from $37.2 million in 1999. This increase is primarily due to increased
resort residential sales. Resort residential sales were $13.7 million in the
first six months of 2000 compared to $7.9 million in the first six months of
1999. The Company sold a total of eight residential units and three single
family lots at its two luxury resort residential developments for a total of
$11.8 million during the first six months of 2000, compared to seven residential
units for a total of $7.3 million during the first six months of 1999. Resort
residential sales also include the sale of six plantation homes and one
plantation lot for a total of $795,000 during the first six months of 2000,
compared to three plantation homes for a total of $424,000 during the first six
months of 1999.
The following table sets forth combined operating statistics for the two
resort hotels:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
------------------- ----------------------
2000 1999 2000 1999
------ ------- -------- --------
<S> <C> <C> <C> <C>
Average daily room rate $286 $273 $305 $297
Occupancy rate 69% 67% 76% 70%
</TABLE>
Commercial and other revenues increased $2.3 million in the second quarter
of 2000 compared to the second quarter of 1999. This increase is primarily due
to new properties and leases in Hawaii, California and Georgia coming on line.
COST AND EXPENSES
The cost of residential and other property sales as a percentage of
residential property sales increased to 86% in the second quarter of 2000 from
84% in the second quarter of 1999. This increase is primarily due to the
decrease of average selling price on Oahu as noted in the revenue discussion
above.
The cost of residential and other property sales as a percentage of
residential property sales was 85% in the first six months of 2000 and 1999.
10
<PAGE>
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COST AND EXPENSES (CONTINUED)
Excluding resort residential sales and depreciation, the cost of resort
operations as a percentage of resort revenues decreased to 100% during the
second quarter of 2000 from 105% during the second quarter of 1999. This
decrease is primarily due to decreased marketing costs and improved occupancy
and average daily rates during the second quarter of 2000 as compared to the
second quarter of 1999. Resort depreciation was $1.9 million during the second
quarter of 2000 and 1999. The resort residential developments earned $878,000 in
the second quarter of 2000 compared to earnings of $147,000 in the second
quarter of 1999. The increase is due to increased sales activity. Since a
portion of residential cost of sales are period expenses, the cost of resort
residential sales as a percentage of resort residential revenues will fluctuate
based on the number of units sold during the period.
Excluding resort residential sales and depreciation, the cost of resort
operations as a percentage of resort revenues decreased to 92% during the first
six months of 2000 from 100% during the first six months of 1999. This decrease
is primarily due to decreased marketing costs and improved occupancy and average
daily rates during the first six months of 2000 as compared to the first six
months of 1999. Resort depreciation was $3.8 million during the first six months
of 2000 and 1999. The resort residential developments earned $2.8 million in the
first six months of 2000 compared to earnings of $138,000 in the first six
months of 1999. The increase is due to increased sales activity. Since a portion
of residential cost of sales are period expenses, the cost of resort residential
sales as a percentage of resort residential revenues will fluctuate based on the
number of units sold during the period.
The cost of commercial and other operations as a percentage of commercial
and other revenues was 67% in the second quarter of 2000 and 1999.
The cost of commercial and other operations as a percentage of commercial
and other revenues increased to 66% in the first six months of 2000 from 64% in
the first six months of 1999. This increase is primarily due to start up costs
associated with new golf courses in San Jose, California and Orlando, Florida.
The Company's interest expense increased during the second quarter and
during the six months ended June 30, 2000 as compared to the prior year
primarily due to increased debt. The Company's borrowings and related interest
incurred are summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Total borrowings at month end $ 282,811 $ 281,440 $ 282,811 $281,440
=========== =========== =========== ========
Total interest incurred $ 5,296 $ 5,108 $ 10,457 $ 9,991
Less: interest capitalized into real estate developments
and property and equipment under construction (1,963) (2,765) (3,967) (5,553)
----------- ----------- ----------- --------
Interest expense, net of capitalized interest $ 3,333 $ 2,343 $ 6,490 $ 4,438
=========== =========== =========== ========
Amortization in cost of residential and other
property sales of interest previously capitalized $ 763 $ 1,493 $ 1,552 $ 2,592
=========== =========== =========== ========
</TABLE>
11
<PAGE>
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NET INCOME AND EARNINGS PER SHARE
The Company's effective income tax rate increased to 34% in 2000 from
30% in 1999. The higher effective tax rate in 2000 reflects the absence of
tax credits utilized in 1999.
Second quarter net income decreased to $2.7 million in 2000 from $4.0
million in the second quarter of 1999. Six month net income increased to $8.4
million in 2000 from $6.7 million during the first six months of 1999. These
variances are primarily due to the fluctuations noted above.
BACKLOG
The Company's new orders and backlog for homes and homesites for 2000
compared to 1999 were as follows:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BACKLOG-HOMES
UNITS
Backlog at beginning of period 88 145 48 88
Add: New orders 159 130 291 267
Less: Deliveries (92) (124) (184) (204)
-------- -------- -------- --------
Backlog at end of period 155 151 155 151
======== ======== ======== ========
DOLLARS (000's)
Backlog at beginning of period $ 25,381 $ 39,966 $ 12,160 $ 25,143
Add: New orders 46,918 36,282 83,001 73,231
Less: Deliveries (23,767) (36,700) (46,629) (58,826)
-------- -------- -------- --------
Backlog at end of period $ 48,532 $ 39,548 $ 48,532 $ 39,548
======== ======== ======== ========
MAINLAND BACKLOG-HOMESITES
UNITS
Backlog at beginning of period 492 718 615 594
Add: New orders 223 194 338 516
Less: Deliveries (263) (265) (501) (463)
-------- -------- -------- --------
Backlog at end of period 452 647 452 647
======== ======== ======== ========
DOLLARS (000's)
Backlog at beginning of period $ 25,450 $ 29,612 $ 31,118 $ 22,074
Add: New orders 10,831 8,061 18,501 24,085
Less: Deliveries (14,609) (10,597) (27,947) (19,083)
-------- -------- -------- --------
Backlog at end of period $ 21,672 $ 27,076 $ 21,672 $ 27,076
======== ======== ======== ========
</TABLE>
As of June 30, 2000, there are 12 sales contracts for residential units and
single family lots at the Manele Bay and Koele residential projects on the
island of Lanai, which have an aggregate sales value of approximately $25.5
million. This resort residential information is not included in the above table.
12
<PAGE>
CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital to operate its resorts, to purchase and
develop land, to construct homes and homesites and to acquire, develop and
operate commercial property.
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"). 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
June 30, 2000, total borrowings under the Credit Agreement were $119 million
with a quarter-end interest rate of 7.91%.
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, the Company 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 June 30, 2000, 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 7.44% at June 30, 2000. These agreements mature on October
1, 2002. Notional amounts do not represent cashflow, and credit risk exposure
is limited to the net interest differentials. The swap rate difference
resulted in a reduction of approximately $85,539 in interest expense in the
first six months of 2000, compared to what interest expense would have been
had the debt remained at variable rates.
Residential development spending was $76.4 million in the first six months
of 2000. Spending during the first six months of 2000 at the Mililani, Lalea and
Royal Kunia residential developments on Oahu was approximately $31.8 million,
$0.5 million and $12.2 million, respectively. Spending during the first six
months of 2000 at the Bakersfield, California; Orlando, Florida; and Sierra
Vista, Arizona residential developments was approximately $11.9 million, $1.6
million and $3.6 million, respectively. In addition, in 1999, the Company
completed its acquisition of the Saddle Creek residential development, which is
located in Copperopolis, California. Development costs for this project totaled
$5.6 million during the first six months of 2000. In connection with the Saddle
Creek acquisition, the Company assumed approximately $5.8 million in assessment
district liabilities and a $2.2 million note payable, which matures in 2002.
Total resort capital spending was approximately $2.8 million for the first
six months of 2000. Developmental expenditures on the island of Lanai totaled
$7.6 million during the first six months of 2000.
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CASTLE & COOKE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Capital expenditures at the commercial projects totaled $18.8 million
during the first six months of 2000. Commercial spending included $1.9 million
for the construction of the 173,000 square foot Falls of the Neuse office
building in Raleigh, North Carolina and $6.1 million related to the
telecommunication building being built in Orlando. Commercial spending on the
island of Oahu, Hawaii included $4.5 million for additions to the Town Center of
Mililani and the Dole Cannery Square shopping and entertainment centers. At the
Dole Cannery Square, a movie theater was completed and opened in the third
quarter of 1999, and a newly constructed Home Depot opened in September 1999. At
the Town Center of Mililani, a movie theater was completed and opened in the
fourth quarter of 1999.
FORWARD-LOOKING STATEMENTS
Statements herein that are not historical facts are "forward-looking
statements." These would include, without limitation, statements about
anticipated results, resources, capital needs, revenues, economic conditions,
transactions, project commencements or completions, and effects. Such statements
are based on the Company's current expectations and are subject to a number of
risks and uncertainties that could cause actual results to differ materially
from results that may be expressed or implied by such statements. These risks
and uncertainties include, among other things, product demand, the Company's
lack of experience in markets outside of its current markets, the effects of
economic conditions and geographic concentration, the impact of competitive
products and pricing, the availability of capital, the cost of materials and
labor, governmental regulations and the need for governmental approvals,
interest rates and other risks inherent in the real estate business.
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CASTLE & COOKE, INC.
PART II.
OTHER INFORMATION
ITEM I. LEGAL PROCEEDINGS
Following March 29, 2000, eight purported class action lawsuits were filed
against the Board of Directors of the Company alleging breach of fiduciary duty
and self-dealing by the Directors in connection with the proposal received by
the Company on March 29, 2000 from Flexi-Van Leasing, Inc. ("Flexi-Van") to
acquire the approximately 73% of the outstanding shares of the common stock of
the Company not owned by Flexi-Van or its affiliates for $17 per share, all
cash. The proposal was subsequently increased to $18.50 per share on May 22,
2000, after which time the terms of a merger agreement with the Company ("Merger
Agreement") were finalized and a formal tender offer was commenced on May 31,
2000 by Castle Acquisition Company, Inc., which is wholly-owned by Flexi-Van
Leasing, Inc. ("Tender Offer"). Flexi-Van Leasing, Inc. is wholly-owned by David
H. Murdock, the Chairman of the Board of Directors and Chief Executive Officer
of the Company.
Five of the lawsuits were filed in the Superior Court of the State of
California for the County of Los Angeles and three of the lawsuits were filed in
the Circuit Court of the Second Circuit of the State of Hawaii. Each of the
lawsuits was filed by a shareholder of the Company, on behalf of all other
shareholders of the Company who were similarly situated, and sought to have the
class certified and the shareholder bringing the lawsuit named as representative
of the class. In addition, the lawsuits generally sought to enjoin the
transaction contemplated by the Tender Offer, rescission, if the transaction was
consummated, damages and attorneys' fees. In addition to naming the Directors as
defendants, seven of the lawsuits named the Company as a defendant and two named
Flexi-Van as a defendant.
Subject to final court approval, the lawsuits were settled and a settlement
("Settlement") was approved by the District Court for the State of Hawaii,
Second Circuit, on July 5, 2000. Pursuant to the Settlement, the offer price of
the Tender Offer was increased to $19.25 per share, and the cases would be
dismissed with prejudice. Separately, members of the class have been sent
notices dealing with the Settlement and their rights under it.
In the opinion of management, after consultation with outside counsel, the
pending lawsuits are not expected to have a material adverse effect on the
Company's financial position or results of operations.
ITEM 5. OTHER INFORMATION
TENDER OFFER AND MERGER
The Tender Offer by Castle Acquisition Company, Inc. for all of the
outstanding shares of common stock of the Company was commenced on May 31,
2000 at $18.50 per share in accordance with the Merger Agreement. In
connection with the settlement of the litigation relating to the Tender
Offer, Castle Acquisition Company, Inc. increased the offer price under the
Tender Offer to $19.25 per share. Pursuant to the Tender Offer, which expired
on July 21, 2000, Castle Acquisition Company, Inc. purchased 11,160,004
shares of the Company's common stock (representing approximately 89% of the
stock outstanding on that date that was not already owned by Castle
Acquisition Company, Inc. and its affiliates). Castle Acquisition Company,
Inc. and its affiliates owned 15,661,314 shares of the Company's common stock
(representing approximately 92% of the outstanding common stock of the
Company) as of July 31, 2000.
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CASTLE & COOKE, INC.
PART II.
OTHER INFORMATION
ITEM 5. OTHER INFORMATION (CONTINUED)
Following the expiration of the Tender Offer and in accordance with the
Merger Agreement, the Board of Directors of the Company has called a special
meeting of the shareholders of the Company for September 6, 2000 at 10:30
a.m. to be held at Suite 700, 1999 Avenue of the Stars, Los Angeles,
California, for the purpose of considering and voting upon a proposal to
approve and adopt the Merger Agreement providing for, among other things, the
merger of Castle Acquisition Company, Inc. with and into the Company and such
other business as may properly come before the meeting or any adjournment or
postponement thereof. A record date of July 31, 2000 has been fixed by the
Board of Directors for the determination of shareholders entitled to notice
of and to vote at the meeting and proxy materials for the meeting have been
mailed to these shareholders.
The merger will constitute the second and final step of the acquisition of
the Company by Flexi-Van. Upon consummation of the merger, all shares of common
stock of the Company not already owned by Castle Acquisition Company, Inc. or
its affiliates or shareholders, if any, of the Company who are entitled to and
who properly exercise dissenters' rights will be converted into the right to
receive $19.25 per share in cash, without interest. Because the approval of a
majority of the outstanding shares is sufficient to approve and adopt the Merger
Agreement, Castle Acquisition Company, Inc. and its affiliates can cause the
merger to occur without the affirmative vote of any other holders of shares. All
shareholders of record of the Company on the July 31, 2000 record date have the
right to dissent and obtain payment for their shares by complying with the terms
of Section 415-80 and 415-81 of the Hawaii Business Corporation Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No.
-------
<S> <C>
10.1 Castle & Cooke, Inc. Deferred Compensation Plan
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the quarter ended June
30, 2000. All other items required under Part II are omitted because they are
not applicable.
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CASTLE & COOKE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASTLE & COOKE, INC.
Registrant
Date: August 14, 2000 BY /s/ EDWARD C. ROOHAN
-------------------------------------
Edward C. Roohan
Vice President and
Chief Financial Officer
(Principal financial officer)
Date: August 14, 2000 BY /s/ JOHN R. PETRI
-------------------------------------
John R. Petri
Corporate Controller
(Principal accounting officer)
17
