SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
Filed Pursuant to Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934
AMFAC/JMB HAWAII, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Commission File No. 33-24180 IRS Employer
Identification
No. 99-0217738
AMFAC/JMB FINANCE, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Commission File NO. 33-24180-01 IRS Employer Identification
No. 36-3611183
The undersigned registrant hereby amends the following
section of its Report for the quarter ended March 31, 1997 on
Form 10-Q as set forth in the pages attached thereto:
PART I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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.
AMFAC/JMB HAWAII, INC.
AMFAC/JMB FINANCE, INC.
BY: GARY SMITH
Vice President and
Principal Accounting Officer
Dated: August 27, 1997
ADDITIONAL REGISTRANTS (1)
Address, including,
zip code,
Exact name of State or other IRS and telephone number,
registrant as jurisdiction of Employer including area code of
specified in its incorporation or Identification registrant's principal
Charter organization Number executive offices
Amfac Agri- Hawaii 99-0176334 900 North Michigan Avenue
business, Inc. Chicago, Illinois 60611
312/440-4800
Amfac Property Hawaii 99-0150751 900 North Michigan Avenue
Development Corp. Chicago, Illinois 60611
312/440-4800
Amfac Property Hawaii 99-0202331 900 North Michigan Avenue
Investment Chicago, Illinois 60611
Corp. 312/440-4800
Amfac Sugar and Hawaii 99-0185633 900 North Michigan Avenue
Agribusiness, Chicago, Illinois 60611
Inc. 312/440-4800
Amfac Vacation Hawaii 94-3261831 900 North Michigan Avenue
Managers, Inc. Chicago, Illinois 60611
312/440-4800
Kaanapali Water Hawaii 99-0185634 900 North Michigan Avenue
Corporation Chicago, Illinois 60611
312/440-4800
Kekaha Sugar Hawaii 99-0044650 900 North Michigan Avenue
Company, Chicago, Illinois 60611
Limited 312/440-4800
H. Hackfeld Hawaii 99-0037425 900 North Michigan Avenue
& Co., Ltd. Chicago, Illinois 60611
312/440-4800
The Lihue Hawaii 99-0046535 900 North Michigan Avenue
Plantation Chicago, Illinois 60611
Company, 312/440-4800
Limited
Oahu Sugar Hawaii 99-0105277 900 North Michigan Avenue
Company, Chicago, Illinois 60611
Limited 312/440-4800
Pioneer Mill Hawaii 99-0105278 900 North Michigan Avenue
Company, Chicago, Illinois 60611
Limited 312/440-4800
Puna Sugar Hawaii 99-0051215 900 North Michigan Avenue
Company, Chicago, Illinois 60611
Limited 312/440-4800
Waiahole Hawaii 99-0144307 900 North Michigan Avenue
Irrigation Chicago, Illinois 60611
Company, 312/440-4800
Limited
Waikele Golf Hawaii 99-0304744 900 North Michigan Avenue
Club, Inc. Chicago, Illinois 60611
312/440-4800
1) The Additional Registrants listed are wholly-owned
subsidiaries of the registrant and are guarantors of the
registrant's Certificate of Land Appreciation Notes due
2008.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 22
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
AMFAC/JMB HAWAII, INC.
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996
(Dollars in Thousands)
(Unaudited)
A S S E T S
<CAPTION>
March 31, December 31,
1997 1996
-------------- -------------
<S> <C> <C>
A S S E T S
Current assets:
Cash and cash equivalents $7,908 8,736
Receivables-net 3,969 4,741
Inventories 63,690 56,808
Prepaid expenses 3,839 3,439
-------- --------
Total current assets 79,406 73,724
-------- --------
Investments 46,287 46,187
-------- --------
Property, plant and equipment:
Land and land improvements 286,549 289,294
Machinery and equipment 60,917 60,981
Construction in progress 1,481 1,365
-------- --------
348,947 351,640
Less accumulated depreciation
and amortization 35,371 33,856
-------- --------
313,576 317,784
-------- --------
Deferred expenses, net 12,772 12,975
Other assets 36,367 32,935
-------- --------
$ 488,408 483,605
========== ==========
L I A B I L I T I E S
Current liabilities:
Accounts payable $ 6,337 5,719
Accrued expenses 7,935 9,274
Current portion of
long-term debt 1,294 1,471
AMFAC/JMB HAWAII, INC.
Consolidated Balance Sheets - Continued
March 31, 1997 and December 31, 1996
(Dollars in Thousands)
(Unaudited)
March 31, December 31,
1997 1996
------------- -------------
Current portion of
deferred income taxes 7,953 5,422
Amounts due to affiliates 9,582 8,905
-------- --------
Total current liabilities 33,101 30,791
-------- --------
Amounts due to affiliates 113,762 103,579
Accumulated postretirement
benefit obligation 56,679 57,662
Long-term debt 105,770 100,606
Other long-term liabilities 34,820 35,501
Deferred income taxes 87,571 88,345
Certificate of Land
Appreciation Notes 220,692 220,692
-------- --------
Total liabilities 652,395 637,176
-------- --------
Commitments and contingencies
(notes 2, 3, 4, 6, 7 and 8)
S T O C K H O L D E R `S E Q U I T Y (D E F I C I T )
Common stock, no par value;
authorized, issued and
outstanding 1,000 shares 1 1
Additional paid-in capital 1,207 6,278
Retained earnings (deficit) (165,195) (159,850)
--------- ---------
Total stockholder's equity
(deficit) (163,987) (153,571)
--------- ---------
$ 488,408 483,605
============ ===========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
AMFAC/JMB HAWAII, INC.
Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996
(Dollars in Thousands)
(Unaudited)
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Revenue:
Agriculture $ 675 5,688
Property 8,808 9,368
------- -------
9,483 15,056
------- -------
Cost of sales:
Agriculture 769 4,113
Property 5,738 5,339
------- -------
6,507 9,452
Operating expenses:
Selling, general
and administrative 3,066 3,149
Depreciation and
amortization 1,515 1,596
------- -------
Total costs and expenses 11,088 14,197
Operating income(loss) (1,605) 859
------- -------
Non-operating income
(expenses):
Amortization of
deferred costs (419) (316)
Interest expense (6,676) (6,908)
Interest income 41 92
------- -------
(7,054) (7,132)
------- -------
Loss before taxes (8,659) (6,273)
------- -------
Income tax benefit (3,314) (2,333)
------- -------
Net loss $(5,345) (3,940)
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
AMFAC/JMB HAWAII, INC.
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996
(Dollars in Thousands)
(Unaudited)
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(5,345) (3,940)
Items not requiring (providing) cash:
Depreciation and amortization 1,515 1,596
Amortization of deferred costs 419 316
Equity in earnings of investments 10 23
Income tax benefit (3,314) (2,333)
Deferred interest 268 2,160
Changes in:
Receivables - net 772 2,760
Inventories (4,009) (6,407)
Prepaid expenses (400) 214
Accounts payable 618 (1,217)
Accrued expenses (1,339) (933)
Amounts due to affiliates 677 1,208
Other long-term liabilities (2,002) (1,009)
-------- --------
Net cash used in
operating activities (12,130) (7,562)
-------- --------
Cash flows from investing activities:
Property additions (116) (514)
Investments in joint ventures
and partnerships (110) (135)
Other assets (3,432) 99
Other long-term liabilities 6 (31)
-------- --------
AMFAC/JMB HAWAII, INC.
Consolidated Statement of Cash Flows - Continued
Three Months Ended March 31, 1997 and 1996
(Dollars in Thousands)
(Unaudited)
1997 1996
------- --------
Net cash used in investing activities (3,652) (581)
-------- --------
Cash flows from financing activities:
Deferred expenses (216) 8
Net borrowings (repayments) of
long-term debt 4,987 (486)
Amounts due to affiliates 10,183 7,437
--------- --------
Net cash provided by financing activities 14,954 6,959
--------- --------
Net decrease in cash and cash
equivalents (828) (1,184)
Cash and cash equivalents,
beginning of year 8,736 11,745
--------- --------
Cash and cash equivalents,
end of period $ 7,908 10,561
========= ========
Supplemental disclosure of cash flow
information:
Cash paid for interest
(net of amount capitalized) $ 6,543 5,250
========= ========
Schedule of non-cash investing and
financing activities:
Transfer of property actively held
for sale to real estate inventories
and accrued costs relating to real
estate sales $ 2,873 510
========= ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
AMFAC/JMB HAWAII, INC.
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
(Dollars in Thousands)
Readers of this quarterly report should refer to the Company's
audited financial statements for the fiscal year ended December
31, 1996, which are included in the Company's 1996 Annual Report,
as certain footnote disclosures which would substantially
duplicate those contained in such audited financial statements
have been omitted from this report.
(1) BASIS OF ACCOUNTING
On November 17, 1988, the stockholders of Amfac, Inc.
("Amfac") agreed to the merger ("Merger") of Amfac with an
affiliate of JMB Realty Corporation ("JMB"). The Merger was
consummated on November 18, 1988. Amfac/JMB Hawaii, Inc. (the
"Company") was wholly-owned by Amfac, a subsidiary of Northbrook
Corporation ("Northbrook"). In May 1995, Amfac was merged into
Northbrook, with Northbrook being the surviving corporation.
The Company has two primary business segments. The
agriculture segment ("Agriculture") is responsible for the
Company's activities related to the cultivation and processing of
sugar cane and other agricultural products. The real estate
segment ("Property") is responsible for development and sales
activities related to the Company's owned land, all of which is
in the State of Hawaii, and the management and operation of the
Company's golf course facilities.
The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
The Company's policy is to consider all amounts held with
original maturities of three months or less in U.S. Government
obligations, certificates of deposit and money market funds
(approximately $3,600 and $4,900 at March 31, 1997 and December
31, 1996, respectively) as cash equivalents, which approximates
market. These amounts include $1,255 and $1,552 at March 31,
1997 and December 31, 1996, respectively, which were restricted
primarily to fund debt service on long-term debt related to the
acquisition of power generation equipment (see note 4).
As part of the Company's agriculture operations, the Company
enters into commodities futures contracts and options in sugar as
deemed appropriate to reduce the risk of future price
fluctuations in sugar. These futures contracts and options are
accounted for as hedges and, accordingly, gains and losses are
deferred and recognized in cost of sales as part of the
production cost.
Investments in certain partnerships and joint ventures, if
any, over which the Company exercises significant influence are
accounted for by the equity method. Revenues include the
Company's equity in net income or loss from such investments. To
the extent the Company engages in such activities as a general
partner, the Company is contingently liable for the obligations
of its partnership and joint venture investments.
AMFAC/JMB HAWAII, INC.
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
Project costs associated with the acquisition, development
and construction of real estate projects are capitalized and
classified as construction in progress. Such capitalized costs
are not in excess of the project's estimated fair value, as
reviewed periodically or as considered necessary.
Land actively held for sale and any related development
costs transferred from construction in progress are reported as
inventories in the accompanying consolidated balance sheets and
are stated at the lower of cost or fair value less costs to sell.
For financial reporting purposes, the Company uses the
effective interest rate method and accrued interest on the
Certificate of Land Appreciation Notes due 2008 ("COLAS") at 4%
per annum, which is the "Mandatory Base Interest" (see note 3).
Interest is capitalized to qualifying assets (principally
real estate under development) during the period that such assets
are undergoing activities necessary to prepare them for their
intended use. Such capitalized interest is charged to cost of
sales as revenue from the real estate development is recognized.
Interest cots of $358 and $0 have been capitalized for the three
months ended March 31, 1997 and 1996, respectively.
Net interest received (paid) on contracts that qualify as
hedges is recognized over the life of the contract as an
adjustment to interest income (expense) of the hedged financial
instrument.
The Company and its subsidiaries report their taxes as part
of the consolidated tax return of the Company's parent,
Northbrook. The Company and its subsidiaries have entered into a
tax indemnification agreement with Northbrook that indemnifies
the Company and its subsidiaries for responsibility for all past,
present and future federal and state income tax liabilities
(other than income taxes which are directly attributable to
cancellation of indebtedness income caused by the repurchase or
redemption of securities as provided for in or contemplated by
the Repurchase Agreement).
Current and deferred taxes have been allocated to the
Company as if the Company were a separate taxpayer in accordance
with the provisions of SFAS No. 109-Accounting for Income Taxes.
However, to the extent the tax indemnification agreement does not
require the Company to actually pay income taxes, current taxes
payable or receivable have been reflected as deemed contributions
or distributions, respectively, to additional paid-in capital in
the accompanying consolidated financial statements.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
AMFAC/JMB HAWAII, INC.
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
(2) AMOUNTS DUE TO AFFILIATES - FINANCING
The approximately $15,097 of remaining acquisition-related
financing owed to affiliates had a maturity date of June 1, 1998
and bore interest at a rate per annum based upon the prime
interest rate (8.5% at March 31, 1997), plus 1%.
On June 1, 1995, the Company borrowed $52,000 from
Northbrook to redeem Class A COLAS pursuant to the Redemption
Offer (see note 3). The Company has also borrowed approximately
$18,746 and $9,814 during 1996 and 1995, respectively, to fund
COLA Mandatory Base Interest payments and other operational
needs. The loans from Northbrook were payable interest only,
matured on June 1, 1998 and carried an interest rate per annum
equal to the prime interest rate plus 2%.
In February 1997 the above noted affiliate loans, along with
certain other amounts due Northbrook, were converted into a new
ten-year note payable. The new note is payable interest only and
accrues interest at the prime rate plus 2%. The Company borrowed
an additional $7,714 during the three months ended March 31, 1997
to fund COLA Mandatory Base Interest payments and other
operational needs. The total amount due Northbrook as of March
31, 1997 was $113,762, which includes accrued interest of $1,289.
Pursuant to the Indenture relating to the COLAS, the amounts
borrowed from Northbrook are considered "Senior Indebtedness" to
the COLAS.
(3) CERTIFICATE OF LAND APPRECIATION NOTES
The COLAS are unsecured debt obligations of the Company.
Interest on the COLAS is payable semi-annually on February 28 and
August 31 of each year. The COLAS mature on December 31, 2008,
and bear interest after the Final Issuance Date (August 31, 1989)
at a rate of 10% per annum ("Base Interest") of the outstanding
principal balance of the COLAS on a cumulative, non-compounded
basis, of which 6% per annum is contingent ("Contingent Base
Interest") and payable only to the extent of Net Cash Flow (Net
Cash Flow for any period is generally an amount equal to 90% of
the Company's net cash revenues, proceeds and receipts after
payment of cash expenditures, including the Qualified Allowance
(as defined) other than federal and state income taxes and after
the establishment by the Company of reserves) or Maturity Market
Value (as defined below). The Company has not generated a
sufficient level of Net Cash Flow to pay Contingent Base Interest
on the COLAS from 1990 through the current date. Approximately
$89,855 of the $97,479 cumulative deficiency of Contingent Base
Interest related to the period from August 31, 1989 (Final
Issuance Date) through March 31, 1997 has not been accrued in the
accompanying consolidated financial statements as the Company
believes that it is not probable at this time that a sufficient
level of Net Cash Flow will be generated in the future or that
there will be sufficient Maturity Market Value (as defined below)
as of December 31, 2008 (the COLA maturity date) to pay such
unaccrued Contingent Base Interest. The following table is a
summary of Mandatory Base Interest and Contingent Base Interest
for the three months ended March 31, 1997 and the year ended
December 31, 1996::
1997 1996
----- ------
Mandatory Base Interest paid $4,414 8,828
Contingent Base Interest paid -- --
Cumulative deficiency of Contingent
Base Interest at end of period $97,479 94,169
Net Cash Flow was $0 for 1996 and is expected to be $0 for 1997.
AMFAC/JMB HAWAII, INC.
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
In each calendar year, principal reductions may be made from
remaining Net Cash Flow, if any, in excess of all current and
unpaid deferred Contingent Base Interest. The COLAS will bear
additional contingent interest in any year, after any principal
reduction, equal to 55% of remaining Net Cash Flow. Upon
maturity, holders of COLAS will be entitled to receive the
remaining outstanding principal balance of the COLAS plus unpaid
Mandatory Base Interest (4%) plus additional interest equal to
the unpaid Contingent Base Interest, to the extent of the
Maturity Market Value (Maturity Market Value generally means 90%
of the excess of the Fair Market Value (as defined) of the
Company's assets at maturity over its liabilities (including
Qualified Allowance, but only to the extent earned and payable
from Net Cash Flow generated through maturity) at maturity, which
liabilities have been incurred in connection with its
operations), plus 55% of the remaining Maturity Market Value.
On March 14, 1989, Amfac/JMB Finance ("Finance"), a wholly-
owned subsidiary of Northbrook, and the Company entered into an
agreement (the "Repurchase Agreement") concerning Finance's
obligations to repurchase, on June 1, 1995 and 1999, the COLAS
upon request of the holders thereof. The COLAS were issued in
two units consisting of one Class A and one Class B COLA. As
specified in the Repurchase Agreement, the repurchase of the
Class A COLAS may have been requested by the holders of such
COLAS on June 1, 1995 at a price equal to the original principal
amount of such COLAS ($.5) minus all payments of principal and
interest allocated to such COLAS. The cumulative interest paid
per Class A COLA through June 1, 1995 was $.135. The repurchase
of the Class B COLAS may be requested of Finance by the holders
of such COLAS on June 1, 1999 at a price equal to 125% of the
original principal amount of such COLAS ($.5) minus all payments
of principal and interest allocated to such COLAS. Through the
date of this report, the cumulative interest paid per Class A and
Class B COLA is approximately $.175 and $.175, respectively.
On March 14, 1989, Northbrook entered into a keep-well
agreement with Finance, whereby it agreed to contribute
sufficient capital or make loans to Finance to enable Finance to
meet its COLA repurchase obligations described above.
Notwithstanding Finance's repurchase obligations, the Company may
elect to redeem any COLAS requested to be repurchased at the
specified price.
On March 15, 1995, pursuant to the indenture that governs
the terms of the COLAS (the "Indenture"), the Company elected to
offer to redeem (the "Redemption Offer") all Class A COLAS from
the registered holders at the same price as would be required of
Finance under the Repurchase Agreement, thereby eliminating
Finance's obligation to satisfy the Class A COLA repurchase
options requested by such holders as of June 1, 1995. Pursuant
to the Redemption Offer, and in accordance with the terms of the
Indenture, the Company was therefore obligated to purchase any
and all Class A COLAS submitted pursuant to the Redemption Offer
at a price of $.365 per Class A COLA. In conjunction with the
Company's Redemption Offer, the Company made a tender offer (the
"Tender Offer") to purchase up to approximately $68,000 principal
value of the Class B COLAS at a price of $.220 per Class B COLA
from COLA holders electing to have their Class A COLAS
repurchased. Approximately 229,000 Class A COLAS were submitted
for repurchase pursuant to the Redemption Offer and
approximately 99,000 Class B COLAS were submitted for repurchase
pursuant to the Tender Offer, requiring an aggregate payment by
the Company of approximately $105,450 on June 1, 1995. The
Company used its available cash to purchase Class B COLAS
pursuant to the Tender Offer and borrowed $52,000 from Northbrook
to purchase Class A COLAS pursuant to the Redemption Offer. As
of March 31, 1997, the Company had approximately 156,000 Class A
COLAS and approximately 286,000 Class B COLAS outstanding, with a
principal balance of approximately $78,000 and $143,000,
respectively.
AMFAC/JMB HAWAII, INC.
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
As a result of the COLA repurchases in 1995, the Company
retired approximately $164,045 in face value of COLA debt and
recognized a financial statement gain in 1995 of approximately
$32,544 (net of income taxes of $20,807, the write-off of
deferred financing costs of $10,015, the write-off of accrued
Contingent Base Interest of $5,667 and expenses of $894). Such
gain was treated as cancellation of indebtedness income for tax
purposes and, accordingly, the income taxes related to the
Class A Redemption Offer (approximately $9,106) were not
indemnified by the tax agreement with Northbrook (see note 1).
The terms of the Indenture relating to the COLAS place
certain restrictions on the Company's declaration and payment of
dividends. Such restrictions generally relate to the source,
timing and amounts that may be declared and/or paid. The COLAS
also impose certain restrictions on, among other things, the
creation of additional indebtedness for certain purposes, the
Company's ability to consolidate or merge with or into other
entities, and the Company's transactions with affiliates.
(4) LONG-TERM DEBT
In June 1991, the Company obtained a five-year $66,000
nonrecourse loan from the Employees' Retirement System of the
State of Hawaii ("ERS"). The loan is secured by a first mortgage
on the Kaanapali Golf Courses, and is considered "Senior
Indebtedness" (as defined in the Indenture relating to the
COLAS). The loan bore interest at a rate per annum equal to the
greater of (i) the base interest rate announced by the Bank of
Hawaii on the first of July for each year or (ii) ten percent per
annum through June 30, 1993 and nine percent per annum
thereafter. The annual interest payments were in excess of the
cash flow generated by the Kaanapali Golf Courses.
In April 1996, the Company reached an agreement to amend the
loan with the ERS, extending the maturity date for five years.
In exchange for the loan extension, the ERS received the right to
participate in the "Net Disposition Proceeds" (as defined)
related to the sale or refinancing of the golf courses or at the
maturity of the loan. The ERS share of the Net Disposition
Proceeds increases from 30% through June 30, 1997, to 40% for the
period from July 1, 1997 to June 30, 1999 and to 50% thereafter.
The loan amendment effectively adjusted the interest rate as of
January 1, 1995 to 9.5% until June 30, 1996. After June 30,
1996, the loan bears interest at a rate per annum equal to 8.73%.
The loan amendment requires the Company to pay interest at the
rate of 7% for the period from January 1, 1995 to June 30, 1996,
7.5% from July 1, 1996 to June 30, 1997, 7.75% from July 1, 1997
to June 30, 1998 and 8.5% thereafter ("Minimum Interest").
Accrued Minimum Interest as of March 31, 1997 was $1,221. The
scheduled Minimum Interest payments are paid quarterly on the
principal balance of the $66,000 loan. The difference between
the accrued interest expense and the Minimum Interest payment
accrues interest and is payable on an annual basis from excess
cash flow, if any, generated from the Kaanapali Golf Courses.
The accrued interest payable from excess cash flow was $3,419 as
of March 31, 1997. Although the outstanding loan balance remains
nonrecourse, certain payments and obligations, such as the
Minimum Interest payments and the ERS's share of appreciation, if
any, are recourse to the Company. However, the Company's
obligations to make future Minimum Interest payments and to pay
the ERS a share of appreciation would be terminated if the
Company tendered an executed deed to the golf course property to
the ERS in accordance with the terms of the amendment.
AMFAC/JMB HAWAII, INC.
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
In January 1993, The Lihue Plantation Company, Limited
("Lihue") obtained a ten-year $13,250 loan used to fund the
acquisition of Lihue's power generation equipment. The $13,250
loan, constituting "Senior Indebtedness" under the COLAS'
Indenture, consists of two ten-year amortizing term loans of
$10,000 and $3,250, respectively, payable in forty consecutive
installments commencing July 1, 1993 in the principal amount of
$250 and $81, respectively (plus interest). The remaining
balance of the $3,250 loan was fully repaid in January 1997. The
$10,000 loan has an outstanding balance of $6,184 as of March 31,
1997 and bears interest at a rate equal to prime rate (8.5% at
March 31, 1997) plus three and one half percent. Lihue has
purchased an interest rate agreement which protects against
fluctuations in interest rates and effectively caps the prime
rate at eight percent for the first seven years of the loan
agreement. The loan is secured by the Lihue power generation
equipment, sugar inventories and receivables, certain other
assets and real property of the Company and has limited recourse
to the Company and certain other subsidiaries.
In October 1993, Waikele Golf Club, Inc. ("WGCI"), a wholly-
owned subsidiary of the Company that owns and operates the
Waikele Golf Course, obtained a five year $20,000 loan facility
from two lenders. The loan consisted of two $10,000 amortizing
loans. Each loan bore interest only for the first two years and
interest and principal payments based upon an assumed 20 year
amortization period for the remaining three years. The loans bore
interest at prime plus 1/2% and LIBOR (5.5% at March 31, 1997)
plus 3%, respectively. In February 1997, WGCI entered into an
amended and restated loan agreement with the Bank of Hawaii,
whereby the outstanding principal amount of the loan was
increased to $25,000, the maturity date was extended to February
2007, the interest rate was changed to LIBOR plus 2% until the
fifth anniversary and LIBOR plus 2.5% thereafter and principal is
to be repaid based on a 30-year amortization schedule. As of
March 31, 1997, the outstanding principal balance was $24,962,
with scheduled remaining annual principal maturities of $151 in
1997, $243 in 1998, $262 in 1999, $282 in 2000, $304 in 2001 and
$23,720 thereafter. The loan is secured by WGCI's assets (the
golf course and related improvements and equipment), is
guaranteed by the Company, and is considered "Senior
Indebtedness" (as defined in the Indenture relating to the
COLAS).
In December 1996, Amfac Property Development Corp., a wholly-
owned subsidiary of the Company, obtained a $10,000 loan facility
from a Hawaii bank. The loan is secured by a mortgage on property
under development at the mill-site of Oahu Sugar (the sugar
plantation was closed in 1995), and is considered "Senior
Indebtedness" (as defined in the Indenture relating to the
COLAS). The loan bears interest at the bank's base rate (8.5% at
March 31, 1997) plus .5% and matures on December 1, 1998.
AMFAC/JMB HAWAII, INC.
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
(5) SEGMENT INFORMATION
Agriculture and Property comprise separate industry segments
of the Company. "Operating Income-Other" consists primarily of
unallocated overhead expenses and "Total Assets-Other" consists
primarily of cash and deferred expenses. Total assets at the
balance sheet dates and capital expenditures, operating income
(loss) and depreciation and amortization during the three months
ended March 31, 1997 and 1996 are set forth below by each
industry segment:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ---------
<S> <C> <C>
Total Assets:
Agriculture $239,839 239,222
Property 230,724 225,372
Other 17,845 19,011
--------- ---------
$488,408 483,605
========= =========
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
----------- -----------
Capital Expenditures:
Agriculture $ 23 341
Property 93 173
--------- ---------
$ 116 514
========= =========
Operating income (loss):
Agriculture $(1,216) 395
Property 33 1,412
Other (422) (948)
--------- ---------
$(1,605) 859
========== =========
Depreciation and amortization:
Agriculture $ 971 1,029
Property 533 518
Other 11 49
--------- ---------
$1,515 1,596
========= =========
</TABLE>
AMFAC/JMB HAWAII, INC.
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
(6) TRANSACTIONS WITH AFFILIATES
The Company incurred interest expense of approximately
$2,024 for the three months ended March 31, 1996 and
approximately $2,469 for the three months ended March 31, 1997 in
connection with the acquisition and additional financing obtained
from an affiliate. Approximately $1,289 of such interest was
unpaid as of March 31, 1997.
With respect to any calendar year, JMB or its affiliates may
receive a Qualified Allowance in an amount equal to: (i)
approximately $6,200 during each of the calendar years 1989
through 1993, and (ii) thereafter, 1-1/2% per annum of the Fair
Market Value (as defined) of the gross assets of the Company and
its subsidiaries (other than cash and cash equivalents and
Excluded Assets (as defined)) for providing certain advisory
services for the Company. The aforementioned advisory services,
which are provided pursuant to a 30-year Services Agreement
entered into between the Company, certain of its subsidiaries and
JMB in November 1988, include making recommendations in the
following areas: (i) the construction and development of real
property; (ii) land use and zoning changes; (iii) the timing and
pricing of properties to be sold; (iv) the timing, type and
amount of financing to be incurred; (v) the agricultural
business; and, (vi) the uses (agricultural, residential,
recreational or commercial) for the land. However, the Qualified
Allowance shall be earned and paid for each year prior to
maturity of the COLAS only if the Company generates sufficient
Net Cash Flow to pay Base Interest to the holders of the COLAS
for such year of an amount equal to 8% of the average outstanding
principal balance of the COLAS for such year; any portion of the
Qualified Allowance not paid for any year shall cumulate without
interest and JMB or its affiliates shall be paid such amount with
respect to any succeeding year, after the payment of all
Contingent Base Interest for such year, to the extent of 100% of
remaining Net Cash Flow until an amount equal to 20% of the Base
Interest with respect to such year has been paid, and thereafter,
to the extent of the product of (a) remaining Net Cash Flow,
multiplied by (b) a fraction, the numerator of which is the
cumulative deficiency as of the end of such year in the Qualified
Allowance and the denominator of which is the sum of the
cumulative deficiencies as of the end of such year in the
Qualified Allowance and Base Interest. A Qualified Allowance for
1989 of approximately $6,200 was paid on February 28, 1990.
Approximately $54,400 of Qualified Allowance related to the
period from January 1, 1991 through December 31, 1996 has not
been earned and paid, and is payable only from future Net Cash
Flow. Accordingly, because the Company does not believe it is
probable at this time that a sufficient level of Net Cash Flow
will be generated in the future to pay Qualified Allowance, the
Company has not accrued for any Qualified Allowance in the
accompanying consolidated financial statements. JMB has informed
the Company that no incremental costs or expenses have been
incurred relating to the provision of these advisory services.
The Company believes that using an incremental cost methodology
is reasonable. The following table is a summary of the Qualified
Allowance for the year ended December 31, 1996:
1996
------
Qualified Allowance calculated $9,240
Qualified Allowance paid --
Cumulative deficiency of Qualified
Allowance at end of year $60,632
The Qualified Allowance for 1997, which will not be calculated
until the year is completed, is not expected to be paid. Net Cash
Flow was $0 for 1996 and is expected to be $0 for 1997.
AMFAC/JMB HAWAII, INC.
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
After the maturity date of the COLAS, JMB will continue to
provide advisory services pursuant to the Services Agreement, the
Qualified Allowance for such years will continue to be 1-1/2% per
annum of the Fair Market Value of the gross assets of the Company
and its subsidiaries and the Qualified Allowance will continue to
be payable from the Company's Net Cash Flow. Upon the
termination of the Services Agreement, if there has not been
sufficient Net Cash Flow to pay the cumulative deficiency in the
Qualified Allowance, if any, such amount would not be due or
payable to JMB.
The Company, its subsidiaries, and their joint ventures
reimburse Northbrook, JMB and their affiliates for direct
expenses incurred on their behalf, including salaries and salary-
related expenses incurred in connection with the management of
the Company's or its subsidiaries' and the joint ventures'
operations. The total of such costs was approximately $163 for
the three months ended March 31, 1997 and approximately $154 for
the three months ended March 31, 1996; approximately $163 of such
costs were unpaid as of March 31, 1997. In addition, as of March
31, 1997, the other amounts due to affiliates includes $9,106 of
income tax payable related to the Class A COLA Redemption Offer
(see note 3). Also, the Company pays a non-accountable
reimbursement of approximately $30 per month to JMB or its
affiliates in respect of general overhead expense, all of which
was paid as of March 31, 1997.
JMB Insurance Agency, Inc. earns insurance brokerage
commissions in connection with providing the placement of
insurance coverage for certain of the properties and operations
of the Company. Such commissions are comparable to those
available to the Company in similar dealings with unaffiliated
third parties. The total of such commissions for the three
months ended March 31, 1996 was approximately $235 and
approximately $250 for the three months ended March 31, 1997, all
of which was paid as of March 31, 1997.
Northbrook and its affiliates allocate certain charges for
services to the Company based upon the estimated level of
services. Such charges totaled $254 and $240 for the three months
ended March 31, 1997 and March 31, 1996, respectively. The
affiliated charges for the first quarter of 1997 were offset by
$197 of charges for services provided by the Company for
Northbrook. As of March 31, 1997, on a net basis, the amount due
Northbrook totaled approximately $313 related to these services.
These services and costs are intended to reflect the Company's
separate costs of doing business and are principally related to
the inclusion of the Company's employees in the Northbrook
pension plan, payment of severance and termination benefits and
reimbursement for insurance claims paid on behalf of the Company.
All amounts described above, deferred or currently payable, do
not bear interest and are expected to be paid in future periods.
AMFAC/JMB HAWAII, INC.
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
(7) EMPLOYEE BENEFIT PLANS
The Company participates in benefit plans covering
substantially all of its employees, which provide benefits based
primarily on length of service and compensation levels. These
plans are administered by Northbrook in conjunction with other
plans providing benefits to employees of Northbrook and its
affiliates.
(8) COMMITMENTS AND CONTINGENCIES
The Company is involved in various matters of litigation and
other claims. Management, after consultation with legal counsel,
is of the opinion that the Company's liability (if any), when
ultimately determined, will not have a material adverse effect on
the Company's financial position.
The Company's Property segment had contractual commitments
(related to project costs) of approximately $1,527 as of March
31, 1997. Additional development expenditures are dependent upon
the Company's ability to obtain financing for such costs and on
the timing and extent of property development and sales.
As of March 31, 1997, certain portions of the Company's land
not currently under development or used in sugar operations are
mortgaged as security for approximately $1,300 of performance
bonds related to property development.
AMFAC/JMB HAWAII, INC.
Notes to Consolidated Financial Statements - Concluded
(Dollars in Thousands)
(9) INCOME TAXES
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's
deferred tax liabilities and assets
as of December 31, 1996 are as follows:
Deferred tax (assets):
Postretirement benefits $(22,488)
Interest accruals (2,975)
Other accruals (3,549)
---------
Total gross deferred tax assets (29,012)
---------
Deferred tax liabilities:
Accounts receivable, related to profit on sales of sugar 3,065
Inventories, principally due to sugar production
costs, capitalized costs, capitalized interest and
purchase accounting adjustments 258
Plant and equipment, principally due to depreciation
and purchase accounting adjustments 8,129
Land and land improvements, principally due
to purchase accounting adjustments 89,537
Deferred gains, due to installment sales for income
tax purposes 7,429
Investments in unconsolidated entities, principally
due to purchase accounting adjustments 14,361
--------
Total deferred tax liabilities 122,779
--------
Net deferred tax liability $93,767
=========
(10) ADJUSTMENTS
In the opinion of the Company, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair
presentation have been made to the accompanying figures as of
March 31, 1997 and for the three months ended March 31, 1997 and
1996.
<TABLE>
AMFAC/JMB FINANCE, INC.
Balance Sheets
March 31, 1997 and December 31, 1996
(Dollars in thousands, except per share information)
(Unaudited)
<CAPTION>
A s s e t s
March 31, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Cash $ 1 1
========== =========
L i a b i l i t y a n d S t o c k h o l d e r ` s E q u i t y
Repurchase obligation (note 2)
Common stock, $1 par value; authorized, issued
and outstanding - 1,000 shares $ 1 1
========== =========
<FN>
The accompanying notes are an integral part of these balance sheets.
</TABLE>
AMFAC/JMB FINANCE, INC.
Notes to the Balance Sheets
(Unaudited)
(Dollars in Thousands)
(1) ORGANIZATION AND ACCOUNTING POLICY
Amfac/JMB Finance, Inc. ("Finance") was incorporated
November 7, 1988 in the State of Illinois. Finance has had no
financial operations. All of the outstanding shares of
Finance are owned by Northbrook Corporation ("Northbrook").
(2) REPURCHASE OBLIGATIONS
On March 14, 1989, Finance and a subsidiary of Northbrook
(Amfac/JMB Hawaii, Inc.) entered into an agreement (the
"Repurchase Agreement") concerning Finance's obligation (on
June 1, 1995 and 1999) to repurchase, upon request of the
holders thereof, the Certificate of Land Appreciation Notes
due 2008 ("COLAS"), to be issued by Amfac/JMB Hawaii, Inc. in
conjunction with the acquisition of Amfac/JMB Hawaii, Inc.. A
total aggregate principal amount of $384,737 of COLAS were
issued during the offering, which terminated on August 31,
1989. The COLAS were issued in two units consisting of one
Class A and one Class B COLA. As specified in the Repurchase
Agreement, the repurchase of the Class A COLAS may have been
requested of Finance by the holders of such COLAS on June 1,
1995 at a price equal to the original principal amount of such
COLAS ($.500) minus all payments of principal and interest
allocated to such COLAS. The cumulative interest paid per
Class A COLA through June 1, 1995 was $.135. The repurchase
of the Class B COLAS may be requested of Finance by the
holders of such COLAS on June 1, 1999 at a price equal to 125%
of the original principal amount of such COLAS ($.500) minus
all payments of principal and interest allocated to such
COLAS. To date, the cumulative interest paid per Class A and
Class B COLA is approximately $.175 and $.175, respectively.
On March 14, 1989, Northbrook entered into a keep-well
agreement with Finance, whereby it agreed to contribute
sufficient capital to Finance to enable Finance to meet the
COLA repurchase obligations described above. Notwithstanding
Finance's repurchase obligations, Amfac/JMB Hawaii, Inc. may
elect to redeem any COLAS requested to be repurchased at the
specified purchase price in accordance with the terms in the
indenture that governs the terms of the COLAS (the
"Indenture").
On March 15, 1995, pursuant to the Indenture, Amfac/JMB
Hawaii, Inc. elected to exercise its right to redeem, and
therefore was obligated to repurchase, any and all Class A
COLAS submitted pursuant to the redemption offer at a price of
$.365 per Class A COLA.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
All references to "Notes" herein are to Notes to
Consolidated Financial Statements contained in this report.
LIQUIDITY AND CAPITAL RESOURCES
A significant portion of the Company's cash needs result
from the nature of the real estate development business, which
requires significant investment in preparing development
plans, seeking land urbanization and other governmental
approvals, and completing infrastructure improvements prior to
the realization of sales proceeds. The Company has funded its
cash requirements to date primarily through the use of short-
term bank borrowings, long-term financing secured by its golf
courses on Maui and Oahu and by a planned real estate project
on Oahu, borrowings from affiliates and revenues generated
from the development and sale of its properties and
investments. Funding of the Company's future cash
requirements is dependent upon obtaining appropriate financing
and revenues generated from the development and sale of its
properties.
In order to generate additional cash flows for the
Company, management has identified certain land parcels that
are not included in the Company's long-term development plans.
During the three months ended March 31, 1997, the Company
generated approximately $2.9 million from these non-strategic
land sales. During 1996, the Company generated approximately
$18.9 million in land sales, most of which related to non-
strategic parcels.
At March 31, 1997, the Company had cash and cash
equivalents of approximately $7.9 million.
The Company intends to use its cash reserves, sales
proceeds and financing or joint venture arrangements to meet
its short-term (next 12 months) and long-term (beyond the next
12 months) liquidity requirements, which include funding the
development costs remaining at Waikele and on West Maui, Oahu
and Kauai, agricultural deficits, payment of interest expense
and the repayment of principal on debt obligations, as
necessary. The Company's long-term remaining liquidity is
dependent upon its ability to obtain additional financing and
the consummation of certain property sales. There can be no
assurance that additional long-term financing can be obtained
or property sales consummated. The Company's land holdings on
Maui and Kauai are its primary sources of future land sale
revenues. However, due to current market conditions, the
difficulty in obtaining land use approvals and the high
development costs of required infrastructure, the planned
development of these land holdings and the ability to generate
cash flow from these land holdings are longer term in nature
than the time frame experienced at Waikele. Accordingly, if
no such financing can be obtained or additional property sales
consummated, the Company will defer (to the extent possible)
development costs and capital expenditures to meet liquidity
requirements. Additionally, the Company's plans for property
sales may also be adversely impacted by the inability of
potential buyers to obtain financing.
During the first three months of 1997, net cash used in
operating activities of $12.1 million and in investing
activities of $3.7 million was primarily provided by $10.2
million of long-term financing from the Company's parent and
$5.5 million of additional long-term financing related to the
refinancing of the WGCI loan (see Note 4).
During the first three months of 1997, net cash flow used
in operating activities was $12.1 million, as compared to net
cash used in operating activities of $7.6 million during the
first three months of 1996. The $4.5 million decrease in cash
flow related to operating activities was primarily due to: (i)
an increase in 1997 of the net loss (after adjusting for items
not requiring or providing cash) by $4.3 million and (ii)
changes in cash flow related to working capital components.
During the first three months of 1997, net cash flow used
in investing activities totaled $3.7 million, principally due
to the incurrence of other capitalizable costs related to
future land development. During the first three months of
1996, investing activities used net cash of $.6 million,
principally due to property additions.
During the first three months of 1997, net cash flow
provided by financing activities totaled $15.0 million, due
primarily to $10.2 million of long-term financing from the
Company's parent and $5.5 million of additional long-term
financing related to the refinancing of the WGCI loan (see
Note 4). During the first three months of 1996, net cash flow
provided by financing activities totaled $7.0 million, due
primarily to $7.4 million of long-term financing from the
Company's parent, partially offset by $.5 million of net
repayments of long-term debt.
On December 5, 1988, the Company commenced an offering to
the public of COLAS pursuant to a Registration Statement on
Form S-1 under the Securities Act of 1933. A total of 384,737
COLAS were issued prior to the termination of the offering on
August 31, 1989. The net proceeds received from the sale of
the COLAS totaled approximately $352 million (after deduction
of organization and offering expenses of approximately $33
million). Such net proceeds were used to repay a portion of
the acquisition-related financing, which was incurred to pay
certain costs associated with the Merger, including a portion
of the Merger consideration paid to shareholders of Amfac.
On March 14, 1989, Amfac/JMB Finance ("Finance"), a
wholly-owned subsidiary of Northbrook Corporation
("Northbrook"), and the Company entered into an agreement (the
"Repurchase Agreement") concerning Finance's obligations (on
June 1, 1995 and 1999) to repurchase the COLAS upon request of
the holders thereof. The COLAS were issued in two units
consisting of one Class A and one Class B COLA. As specified
in the Repurchase Agreement, the repurchase of the Class A
COLAS may have been requested by the holders of such COLAS on
June 1, 1995 at a price equal to the original principal amount
of such COLAS ($500) minus all payments of principal and
interest allocated to such COLAS. The cumulative interest paid
per Class A COLA through June 1, 1995 was $135. The
repurchase of the Class B COLAS may be requested of Finance by
the holders of such COLAS on June 1, 1999 at a price equal to
125% of the original principal amount of such COLAS ($500)
minus all payments of principal and interest allocated to such
COLAS. Through the date of this report, the cumulative
interest paid per Class A and Class B COLA is approximately
$175 and $175, respectively.
On March 14, 1989, Northbrook entered into a keep-well
agreement with Finance, whereby it agreed to contribute
sufficient capital or make loans to Finance to enable Finance
to meet its COLA repurchase obligations described above.
Notwithstanding Finance's repurchase obligations, the Company
may elect to redeem any COLAS requested to be repurchased at
the specified price.
On March 15, 1995, pursuant to the indenture that governs
the terms of the COLAS (the "Indenture"), the Company elected
to offer to redeem (the "Redemption Offer") all Class A COLAS
from its registered holders. Pursuant to the Redemption
Offer, and in accordance with the terms of the Indenture, the
Company was therefore obligated to purchase any and all Class
A COLAS submitted pursuant to the Redemption Offer at a price
of $365 per Class A COLA. In conjunction with the Company's
Redemption Offer, the Company made a tender offer (the "Tender
Offer") to purchase up to approximately $68 million principal
value of the Class B COLAS at a price of $220 per Class B COLA
from COLA holders electing to have their Class A COLAS
repurchased. Approximately 229,000 Class A COLAS were
submitted for repurchase pursuant to the Redemption Offer and
approximately 99,000 Class B to COLAS were submitted for repurchase
pursuant to the Tender Offer, requiring an aggregate payment
of the Company of approximately $105 million on June 1, 1995.
The Company used its available cash to purchase Class B
COLAS pursuant to the Tender Offer and borrowed $52 million
from Northbrook to purchase Class A COLAS pursuant to
the Redemption Offer. As of March 31, 1997, the Company
has approximately 156,000 Class A COLAS and approximately
286,000 Class B COLAS outstanding with a principal
balance of approximately $78 million and $143 million, respectively.
As a result of the COLA repurchases, the Company retired
approximately $164 million face value of debt and recognized a
financial statement gain in 1995 of approximately $32.5
million (net of income taxes of $20.8 million, the write-off
of deferred financing costs of $10.0 million, the write-off of
accrued contingent base interest of $5.7 million and expenses
of $.9 million). Such gain was treated as cancellation of
indebtedness income for tax purposes and, accordingly, the
income taxes related to the Class A Redemption Offer
(approximately $9.1 million) were not indemnified by the tax
agreement with Northbrook (see Note 1).
In addition to the $52 million borrowed from Northbrook
to redeem Class A COLAS pursuant to the Redemption Offer (see
Note 3), the Company has also borrowed approximately $18.7
million and $9.8 million during 1996 and 1995, respectively,
to fund COLA Base Interest payments and other operational
needs. These loans from Northbrook were payable interest
only, matured on June 1, 1998 and carried an interest rate per
annum equal to the prime interest rate plus two percent.
In February 1997 the above noted affiliate loans, along
with certain other amounts due Northbrook, were converted into
a new ten-year note payable. The new note is payable interest
only and accrues interest at the prime rate plus 2%. The
Company borrowed an additional $7.7 million during the three
months ended March 31, 1997 to fund COLA Base Interest
payments and other operational needs. The total amount due
Northbrook as of March 31, 1997 was $113.8 million, which
includes accrued interest of $1.3 million. Pursuant to the
Indenture relating to the COLAS, the amounts borrowed from
Northbrook are considered "Senior Indebtedness" to the COLAS.
Pursuant to the terms of the Indenture relating to the
COLAS, the Company is required to maintain a Value Maintenance
Ratio of 1.05 to 1.00. Such ratio is equal to the relationship
of the Company's Net Asset Value (defined as the excess of (i)
Fair Market Value of the gross assets of the Company over (ii)
the amount of the liabilities (excluding liabilities resulting
from generally accepted accounting principles enacted
subsequent to the date of the Indenture) of the Company other
than the outstanding principal balance of the COLAS, any
unpaid Mandatory and Contingent Base Interest, and certain
other liabilities, to the sum of (x) the outstanding principal
amount of the COLAS, plus (y) any unpaid Base Interest, plus
(z) the outstanding principal balance of any Indebtedness
incurred to redeem COLAS. The COLA Indenture requires the
Company to obtain independent appraisals of the fair market
value of the gross assets used to calculate the Value
Maintenance Ratio as of December 31 in each even-numbered
calendar year. Accordingly, the Company obtained independent
appraisals of substantially all of its gross real estate
assets as of December 31, 1996; the appraised values of such
assets were sufficient to meet the Value Maintenance Ratio. In
odd-numbered years (during which time appraisals are not
required), the Fair Market Value of the gross assets of the
Company used to compute the Value Maintenance Ratio is
determined by the Company's management. To the extent that
management believes that the aggregate Fair Market Value of
the Company's assets exceeds by more than 5% the Fair Market
Value of such assets included in the most recent appraisal,
the Company must obtain an updated appraisal supporting such
increase. It should be noted that the concept of Fair Market
Value is intended to represent the value that an independent
arm's-length purchaser, seeking to utilize such asset for its
highest and best use would pay, taking into consideration the
risks
and benefits associated with such use or development, current
restrictions on development (including zoning limitations,
permitted densities, environmental restrictions, restrictive
covenants, etc.) and the likelihood of changes to such
restrictions; provided, however, that with respect to any Fair
Market Value determination of all of the assets of the
Company, such assets shall not be valued as if sold in bulk to
a single purchaser. There can be no assurance that the
Company's properties can be ultimately sold at prices
equivalent to their appraised values.
In June 1991, the Company obtained a five-year $66
million loan from the Employees' Retirement System of the
State of Hawaii ("ERS"). The nonrecourse loan is secured by a
first mortgage on the Kaanapali Golf Courses, and is
considered "Senior Indebtedness" (as defined in the Indenture
relating to the COLAS). The loan bore interest at a rate per
annum equal to the greater of (i) the base interest rate
announced by the Bank of Hawaii on the first of July for each
year or (ii) ten percent per annum through June 30, 1993 and
nine percent per annum thereafter. The annual interest
payments were in excess of the cash flow generated by the
Kaanapali Golf Courses.
In April 1996, the Company reached an agreement to amend
the loan with the ERS, extending the maturity date for five
years. In exchange for the loan extension, the ERS received
the right to participate in the "Net Disposition Proceeds" (as
defined) related to the sale or the refinancing of the golf
courses or at the maturity of the loan. The ERS share of the
Net Disposition Proceeds increases from 30% through June 30,
1997, to 40% for the period from July 1, 1997 to June 30, 1999
and to 50% thereafter. The loan amendment effectively
adjusted the interest rate as of January 1, 1995 to 9.5% until
June 30, 1996. After June 30, 1996, the loan bears interest
at a rate per annum equal to 8.73%. The loan amendment
requires the Company to pay interest at the rate of 7% for the
period from January 1, 1995 to June 30, 1996, 7.5% from July
1, 1996 to June 30, 1997, 7.75% from July 1, 1997 to June 30,
1998 and 8.5% thereafter ("Minimum Interest"). Accrued Minimum
Interest as of March 31, 1997 was $1.2 million. The scheduled
Minimum Interest payments are paid quarterly on the principal
balance of the $66 million loan. The difference between the
accrued interest expense and the Minimum Interest payment
accrues interest and is payable on an annual basis from excess
cash flow, if any, generated from the Kaanapali Golf Courses.
The accrued interest payable from excess cash flow was
approximately $3.4 million as of March 31, 1997. Although the
outstanding loan balance remains nonrecourse, certain payments
and obligations such as the Minimum Interest payments and the
ERS's share of appreciation, if any, are recourse to the
Company. However, the Company's obligations to make future
Minimum Interest payments and to pay the ERS a share of
appreciation would be terminated if the Company tendered an
executed deed to the golf course property to the ERS in
accordance with the terms of the amendment.
In October 1993, Waikele Golf Club, Inc. ("WGCI"), a
wholly-owned subsidiary of the Company that owns and operates
the Waikele Golf Course, obtained a five year $20 million loan
facility from two lenders. The loan consisted of two $10
million amortizing loans. Each loan bore interest only for
the first two years with interest and principal payments based
upon a 20 year amortization period for the remaining three
years. The loans bore interest at prime (8.5% at March 31,
1997) plus 1/2% and LIBOR (5.5% at March 31, 1997) plus 3%,
respectively. In February 1997, WGCI entered into an amended
and restated loan agreement with the Bank of Hawaii, (they
bought out the other lender's interest), whereby the
outstanding principal amount of the loan was increased to $25
million, the maturity date was extended to February 2007, the
interest rate was changed to LIBOR plus 2% until the fifth
anniversary and LIBOR plus 2.5% thereafter and principal will
be repaid based on a 30-year amortization schedule. The loan
is secured by WGCI's assets (see Note 4), is guaranteed by the
Company and is considered "Senior Indebtedness" (as defined in
the COLA Indenture).
Pursuant to an agreement entered into with the City of
Honolulu in 1991 relating to the development of the Company's
Waikele project, if the Company sells the Waikele golf course,
depending on the price and certain other contingencies, a
payment of up to $15 million might be required to be made to
the City to be used to assist in the City's affordable housing
developments.
In December 1996, Amfac Property Development Corp., a
wholly-owned subsidiary of the Company, obtained a $10 million
loan facility from a Hawaii bank. The loan is secured by a
mortgage on property under development at the mill-site of
Oahu Sugar (the sugar plantation was closed in 1995), and is
considered "Senior Indebtedness" (as defined in the Indenture
relating to the COLAS). The loan bears interest at the bank's
base rate (8.5% at March 31, 1997) plus .5% and matures on
December 1, 1998.
The Company uses the effective interest method and
accrued interest on the COLAS at 4% per annum ("Mandatory Base
Interest") for the three months ended March 31, 1996 and 1997.
The Company has not generated a sufficient level of Net Cash
Flow to pay Base Interest on the COLAS (see Note 3) in excess
of 4% ("Contingent Base Interest") from 1990 through the
current date. Contingent Base Interest is payable only to the
extent of Net Cash Flow (Net Cash Flow for any period is
generally an amount equal to 90% of the Company's net cash
revenues, proceeds and receipts after payment of cash
expenditures, including the Qualified Allowance, other than
federal and state income taxes and after the establishment by
the Company of reserves) or Maturity Market Value (Maturity
Market Value generally means 90% of the excess of the Fair
Market Value (as defined below) of the Company's assets at
maturity over its liabilities (including Qualified Allowance,
but only to the extent earned and payable from Net Cash Flow
generated through maturity) at maturity, which liabilities
have been incurred in connection with its operations).
Approximately $89.9 million of the $97.5 million cumulative
deficiency of Contingent Base Interest related to the period
from August 31, 1989 (Final Issuance Date) through March 31,
1997 has not been accrued in the accompanying consolidated
financial statements as the Company believes that it is not
probable at this time that a sufficient level of Net Cash Flow
will be generated in the future or that there will be
sufficient Maturity Market Value as of December 31, 2008 (the
COLA maturity date) to pay any such unaccrued Contingent Base
Interest. The following table is a summary of Mandatory Base
Interest and Contingent Base Interest for the three months
ended March 31, 1997 and the year ended December 31, 1996
(dollars are in millions):
1997 1996
----- ------
Mandatory Base Interest paid $ 4.4 8.8
Contingent Base Interest paid -- --
Cumulative deficiency of Contingent
Base Interest at end of period $ 97.5 94.2
Net Cash Flow was $0 for 1996 and is expected to be $0 for
1997.
With respect to any calendar year, JMB or its affiliates
may receive a Qualified Allowance in an amount equal to: (i)
approximately $6.2 million during each of the calendar years
1989 through 1993, and (ii) thereafter, 1-1/2% per annum of
the Fair Market Value (Fair Market Value generally means the
value which an independent arm's-length purchaser, seeking to
utilize the asset for its highest and best use, would pay for
such asset taking into consideration the associated risks,
benefits, current restrictions and likelihood of changes to
such restriction; provided, however, that with respect to any
Fair Market Value determination of all of the Company's
assets, such assets shall not be valued as if sold in bulk to
a single purchaser) of the gross assets of the Company and its
subsidiaries, other than cash and cash equivalents and
Excluded Assets (Excluded Assets generally means assets
acquired by the Company without the expenditure of any amount
included in revenues or receipts for purposes of determining
Net Cash Flow or assets designated as Excluded Assets, as
restricted by the Indenture; the Company has not had any
Excluded Assets), for providing
certain advisory services for the Company. The aforementioned
advisory services, which are provided pursuant to a 30-year
Services Agreement entered into between the Company, certain
of its subsidiaries and JMB in November 1988, include making
recommendations in the following areas: (i) the construction
and development of real property; (ii) land use and zoning
changes; (iii) the timing and pricing of properties to be
sold; (iv) the timing, type and amount of financing to be
incurred; (v) the agricultural business; and, (vi) the uses
(agricultural, residential, recreational or commercial) for
the land. However, the Qualified Allowance shall be earned and
paid for each year prior to maturity of the COLAS only if the
Company generates sufficient Net Cash Flow to pay Base
Interest to the holders of the COLAS for such year of an
amount equal to 8% of the average outstanding principal
balance of the COLAS for such year; any portion of the
Qualified Allowance not paid for any year shall cumulate
without interest and JMB or its affiliates shall be paid such
amount with respect to any succeeding year, after the payment
of all Contingent Base Interest for such year, to the extent
of 100% of remaining Net Cash Flow until an amount equal to
20% of the Base Interest with respect to such year has been
paid, and thereafter, to the extent of the product of (a)
remaining Net Cash Flow, multiplied by (b) a fraction, the
numerator of which is the cumulative deficiency as of the end
of such year in the Qualified Allowance and the denominator of
which is the sum of the cumulative deficiencies as of the end
of such year in the Qualified Allowance and Base Interest. A
Qualified Allowance for 1989 of approximately $6.2 million was
paid on February 28, 1990. Approximately $54.4 million of
Qualified Allowance related to the period from January 1, 1991
through December 31, 1996 has not been earned and paid, and is
payable only from future Net Cash Flow. Accordingly, because
the Company does not believe it is probable at this time that
a sufficient level of Net Cash Flow will be generated in the
future to pay Qualified Allowance, the Company has not accrued
for any Qualified Allowance in the accompanying consolidated
financial statements. JMB has informed the Company that no
incremental costs or expenses have been incurred relating to
the provision of these advisory services. The Company
believes that using an incremental cost methodology is
reasonable. The following table is a summary of the Qualified
Allowance for the year ended December 31, 1996 (dollars are in
millions):
1996
----
Qualified Allowance calculated $ 9.2
Qualified Allowance paid --
Cumulative deficiency of Qualified
Allowance at end of year $ 60.6
The Qualified Allowance for 1997, which will not be calculated
until the year is completed, is not expected to be paid. Net
Cash Flow was $0 for 1996 and is expected to be $0 for 1997.
After the maturity date of the COLAS, JMB will continue
to provide advisory services pursuant to the Services
Agreement, the Qualified Allowance for such years will
continue to be 1-1/2% per annum of the Fair Market Value of
the gross assets of the Company and its subsidiaries and the
Qualified Allowance will continue to be payable from the
Company's Net Cash Flow. Upon the termination of the Services
Agreement, if there has not been sufficient Net Cash Flow to
pay the cumulative deficiency in the Qualified Allowance, if
any, such amount would not be due or payable to JMB.
Upon maturity, holders of COLAS will be entitled to
receive the remaining outstanding principal balance of the
COLAS plus unpaid Mandatory Base Interest plus additional
interest equal to the unpaid Contingent Base Interest, to the
extent of the Maturity Market Value, plus 55% of the remaining
Maturity Market Value.
The Company continues to implement certain cost savings
measures and to defer development project costs and capital
expenditures for longer-term projects. The Company's Property
segment is anticipated to expend an additional approximately
$14.2 million in project costs during the remainder of 1997.
As of March 31, 1997, contractual commitments related to
project costs totaled approximately $1.5 million.
The price of raw sugar that the Company receives is based
upon the price of domestic sugar (less delivery and
administrative costs) as currently controlled by U.S.
Government price supports legislation. On April 4, 1996,
President Clinton signed the Federal Agriculture Improvement
and Reform Act of 1996 ("the Act"). The Act, which expires in
2002, keeps the loan rate at 18 cents per pound. The "loan
rate" refers to the minimum sugar price established by the
government, which is supported primarily by the setting of
import quotas. In addition, if prices fall below such
minimum, the sugar grower is able to receive a 18-cent-per-
pound loan, using their crop as collateral, and either repay
the loan (with interest) or forfeit the sugar. However, the
Act includes certain other adjustments to the sugar program
including making crop loans recourse to the producer and
repealing marketing allotments which may over time depress the
domestic price of raw sugar. There can be no assurance that,
in the future, the government price support will not be
reduced or eliminated entirely. Such a reduction or an
elimination of price supports could have a material adverse
affect on the Company's agriculture operations, and possibly
could cause the Company to evaluate the cessation of its
remaining sugar cane operations.
The sugar industry in Hawaii has experienced significant
difficulties during the past several years. Growers in Hawaii
have struggled with the high costs of production, which have
led to the closure of several plantations, including the
Company's sugar operations on Oahu in 1995. The Company has
tried to address these challenges through a number of
different measures, including a restructuring in 1995, whereby
its two Kauai plantations were consolidated and all of its
sugar operations (including the Maui plantation) were changed
to a seasonal mode.
While the above-noted changes have helped to reduce
expenses, the Company must continue to explore alternatives to
further address the high costs of sugar production. One such
alternative relates to the three-year labor contract the
Company has with its sugar plantation employees, which expires
in February 1998. Within the contract is a provision that
allows the Company and the union to renegotiate wages in 1997.
In light of the difficulties the Company has had in trying to
improve the operating results of its sugar business,
management has been meeting with union representatives to
discuss appropriate wage levels. After discussions and
negotiations with the union, it was agreed that wages would
remain at the current levels until the end of the contract.
This agreement is subject to ratification by the union
membership. The Company and the union have tentatively agreed
to return to the bargaining table during the summer of 1997 to
negotiate the terms for a new contract which will begin in
1998. Although the Company is hopeful that it will reach
agreement on contract modifications that would help improve
the viability of its sugar plantations, there can be no
assurance that sufficient changes will be agreed upon.
In early March 1997, the Company announced a
restructuring that has resulted in the creation of six
separate operating entities in the following businesses:
Sugar, Golf, Coffee, Water, Land Management and Real Estate
Development. Each separate company or division will be
responsible for its own operations. The Company believes it
will operate more effectively as several smaller
entrepreneurial-minded entities, rather than as one large,
diverse conglomerate. Approximately four percent of the
Company's total employees were released as part of the
restructuring, which is expected to result in annual payroll
savings of approximately $1.1 million. The Company incurred
termination costs of approximately $.6 million related to the
restructuring during the first quarter of 1997.
RESULTS OF OPERATIONS
GENERAL:
The Company and its subsidiaries report their taxes as a
part of the consolidated tax return of the Company's parent,
Northbrook. The Company and its subsidiaries entered into a
tax indemnification agreement with Northbrook, which
indemnifies the Company and its subsidiaries for
responsibility for all past, present and future federal and
state income tax liabilities (other than income taxes which
are directly attributable to cancellation of indebtedness
income caused by the repurchase or redemption of securities as
provided for in or contemplated by the Repurchase Agreement).
Current and deferred taxes have been allocated to the
Company as if the Company were a separate taxpayer in
accordance with the provisions of SFAS No. 109 - Accounting
for Income Taxes. However, to the extent the tax
indemnification agreement does not require the Company to
actually pay income taxes, current taxes payable or receivable
(excluding income taxes which are directly attributable to
cancellation of indebtedness income caused by the repurchase
or redemption of securities as provided for in or contemplated
by the Repurchase Agreement) have been reflected as deemed
contributions and distributions, respectively, to additional
paid-in capital in the accompanying consolidated financial
statements.
Accrued expenses decreased as of March 31, 1997 as
compared to December 31, 1996, primarily due to an
approximately $2.2 million decrease in the accrual of COLA
interest based on the timing of such payments.
Long-term debt increased as of March 31, 1997 as compared
to December 31, 1996, due primarily to approximately $5.5
million of proceeds received related to the refinancing of the
WGCI loan (see Note 4).
The current portion of amounts due to affiliates
increased as of March 31, 1997 as compared to December 31,
1996 due primarily to approximately $.4 million of pension
costs and salary-related costs incurred on behalf of the
Company.
The long-term portion of amounts due to affiliates
increased as of March 31, 1997 as compared to December 31,
1996, due primarily to approximately $10.2 million of
financing provided by affiliates to fund interest payments and
other operational needs (see Note 2).
AGRICULTURE:
The Company's Agriculture segment is responsible for
activities related to the cultivation, processing and sale of
sugar cane and other agricultural products. Agriculture's
revenues are primarily derived from the Company's sale of its
raw sugar.
Inventories increased as of March 31, 1997 as compared to
December 31, 1996 due to the capitalization of approximately
$6.6 million of planting and other costs and the timing of
harvesting of sugar cane.
Agricultural revenues and cost of sales decreased and the
operating income decreased for the three months ended March
31, 1997 as compared to the three months ended March 31, 1996
due to the timing of sugar production and related sales. For
the three months ended March 31, 1997, the Company did not
harvest or sell any of its sugar cane, which compares to the
approximately 12,400 tons sold and 1,600 acres harvested for
the three months ended March 31, 1996. The average price of
sugar sold for the three months ended March 31, 1996 was
approximately $385 per ton.
The Company's sugar plantation subsidiaries sell their
raw sugar production to the Hawaiian Sugar and Transportation
Company ("HSTC"), which is an agricultural cooperative owned
by the major Hawaii producers of raw sugar (including the
Company), under a marketing agreement. HSTC sells the raw
sugar production to the California and Hawaii Sugar Company
("C&H") pursuant to a long-term supply contract. The terms of
the supply contract do not require a specified level of
production by the Hawaii producers; however, HSTC is obligated
to sell and C&H is obligated to purchase any raw sugar
produced. HSTC returns to its raw sugar suppliers proceeds
based upon the domestic sugar price less delivery and
administrative charges. The Company recognizes revenues and
related cost of sales upon delivery of its raw sugar to C&H.
Reference is made to the "Liquidity and Capital
Resources" section of "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a
discussion of potential uncertainties regarding the price of
raw sugar and the continuation of the Company's sugar cane
operations.
As part of the Company's agriculture operations, the
Company enters into commodities futures contracts and options
in sugar as deemed appropriate to reduce the risk of future
price fluctuations in sugar. These futures contracts and
options are accounted for as hedges and, accordingly, gains
and losses are deferred and recognized in cost of sales as
part of the production cost.
PROPERTY:
The Company's Property segment is responsible for the
following: land planning and development activities;
obtaining land use, zoning and other governmental approvals;
selling or financing developed and undeveloped land parcels;
and the management and operation of the Company's golf course
facilities.
For the three months ended March 31, 1997 and 1996, the
Company generated approximately $2.9 million and $3.1 million
of land sales, respectively. For the three months ended March
31, 1997, non-strategic land parcels on Kauai accounted for
the approximately $2.9 million in land sales. For the three
months ended March 31, 1996, the Company sold 10 homesites at
the Kaanapali Golf Estates for $2.4 million, which includes
eight homesites for approximately $1.4 million to a developer
who plans to construct and sell houses on the lots. Non-
strategic land parcels on Kauai and Hawaii accounted for the
balance of approximately $.4 million of land sales during the
first three months of 1996.
Land and land improvements decreased as of March 31, 1997
compared to December 31, 1996 due primarily to land sales
having a cost basis of $3.0 million.
Other assets increased as of March 31, 1997 as compared
to December 31, 1996 primarily due to a long-term receivable
of $2.2 million arising from a land sale during the first
quarter of 1997 and deferred costs of $1.6 million related to
preliminary planning costs associated with potential future
development projects.
Although property sales decreased, cost of sales
increased for the three months ended March 31, 1997 as
compared to the three months ended March 31, 1996 primarily
due to lower margins realized on property sold during the
first quarter of 1997.
MAUI ACTIVITY
The planned development of the Company's land on Maui is
expected to be longer term in nature than the time frame
experienced with Waikele. As Maui is less populated than Oahu
and more dependent on the resort/tourism industry, much of the
Company's land is intended for resort and resort-related uses.
Due to overall economic conditions and trends in tourism,
recent demand for these land uses has been relatively weak.
The Company's currently available homesite inventory on Maui,
which is targeted to the second home buyer, has experienced
slower sales activity to date than originally expected. The
Company's competitors on Maui have also experienced slow sales
activity in the second home market. The Company is continuing
to evaluate its planned products and the timing of development
of its land holdings in light of the current weak market
demand and the capital resources needed for future
development.
The Company is marketing Kaanapali Golf Estates, a
residential community that is part of South Beach Mauka
adjacent to the Kaanapali Beach Resort in West Maui. The
Company currently has six homesites on the market, which are
priced from approximately $.4 million to $1 million. In
addition, the Company is in the process of obtaining final
subdivision approval for a 32 lot subdivision of parcel "17B"
at Kaanapali Golf Estates. Fourteen of these lots were
marketed earlier during the first quarter of 1997 and
reservations have been taken for all 14 lots. Closing of the
sale of these lots is pending final subdivision, which is
expected in the second or third quarter of 1997. The prices
for the lots are expected to be $.15 million each.
In 1995, the Company subdivided an ocean front parcel in
Kaanapali into six single family homesites of approximately
one acre each. Sales of two of the lots in the project closed
in December 1995, generating total sales proceeds of
approximately $4.1 million. The Company has entered into a
sales agreement for the four remaining lots. This sale, which
is scheduled to close June 1997, is for $5.2 million.
In 1986, the Company entered into a joint venture
agreement with Tobishima Pacific Inc. ("Tobishima"), a wholly-
owned subsidiary of a Japanese company, the purpose of which
is to plan, manage and develop approximately 96 acres of
beachfront property at Kaanapali (known as "North Beach").
The joint venture (in which the Company has a 50% interest)
has State land use and County zoning approvals for the
subdivision and development of the infrastructure improvements
necessary to accommodate up to 3,200 hotel and/or condominium
units on this site. This North Beach property constitutes
nearly all of the remaining developable beachfront acreage at
Kaanapali. In October 1992, the Company completed
construction of a 3-acre park on the North Beach site, which
is part of the master plan for this property and was a
requirement imposed by the County in obtaining certain
permits. The development of North Beach continues to be tied
to the completion of the Lahaina bypass highway or other
traffic mitigation measures satisfactory to the Maui County
Planning Commission.
The Company is seeking final approvals to develop a time-
share resort on 14 acres of the North Beach property (the
"Site"). A land option/purchase agreement was entered into
with Tobishima in October 1996. This agreement gives the
Company an option to purchase Tobishima's 50% interest in the
Site for $7 million. The Company does not expect to consummate
the purchase until all discretionary land use permits are
received for development of the time-share resort. In
accordance with the land option/purchase agreement, the
Company has made a nonrefundable deposit of $.1 million (which
may be applied to the purchase price) to keep the option
available through September 30, 1997. Additional
nonrefundable deposits may be made to extend the option
through August 31, 2000. On March 12, 1997, the Company filed
an application for a special management area use permit with
the County of Maui ("SMA Permit") for the time-share resort.
Although there is no assurance that the SMA permit will be
received (and that if such permit is received, that its terms
will be acceptable to the Company), management is optimistic
that the Company will receive the necessary approvals to
proceed with the project.
The Company believes that the potential for a successful
time-share development at North Beach will be greatly enhanced
by the involvement of a company with past experience in time-
share development, and in the marketing and sale of time-share
intervals (one week ownership rights). In February 1997, the
Company formed a limited partnership with an affiliate of an
experienced time-share development and management company.
Known as Kaanapali Ownership Resorts L.P., the new limited
partnership is owned 85% by affiliates of the Company and 15%
by Kaanapali Partners Limited Partnership, an affiliate of the
owners of the Ridge Tahoe in Nevada. After receipt of the SMA
permit, the partnership will need to arrange project financing
for the development of the resort. In addition, the land
option/purchase agreement includes short-term seller
financing, which the partnership may decide to utilize.
In February 1996, the Maui County Council adopted a
Community Plan ordinance for West Maui that does not include
any amendments to the current Community Plan designation of
the Company's North Beach property (thus rejecting the CAC
recommendations that two-third's of North Beach be downzoned
to "Park"). The ordinance was signed by the Mayor of the
County of Maui and became effective on February 27, 1996.
Further, the Department of the Army has determined that
there are two wetlands sites on the North Beach property,
totaling approximately 21,800 square feet. The Company has
retained experts to evaluate these sites and to insure
compliance with all laws. While there can be no assurances as
to the ultimate determinations with respect to the wetlands
issue, the Company does not anticipate that these sites will
materially adversely affect the development plans for North
Beach.
In March 1991, the Company received final land use
approval from the State for development of approximately 240
residential lots on approximately 125 acres of land known as
"South Beach Mauka", located adjacent to the existing
Kaanapali Beach Resort. In connection with this land use
approval, the Company has agreed to the State policy of
providing additional housing on Maui in the affordable price
range, and to participating in the funding of the design and
construction of the planned bypass highway extending from
Lahaina to Kaanapali. The Company has entered into a
development agreement with the State Department of
Transportation covering the Company's participation in the
design and construction of the bypass highway development. It
is anticipated that, upon the receipt of government approvals,
the Company will expend up to $3.5 million (in the aggregate),
of which $2.4 million has been spent as of March 31, 1997,
toward the design of the bypass highway and/or the widening of
the existing highway.
In connection with the development of North Beach Mauka
and adjacent parcels, the Company has committed $6.7 million
for the construction of the bypass highway, subject to certain
conditions. The development and construction of the bypass
highway is expected to be a long-term project that will not be
completed until the year 2004 or later.
During 1993, the Company obtained final land use approval
from the State, and certification through the State's Housing
Finance Development Corporation ("HFDC"), for the development
of a project on approximately 300 acres of Company land known
as "Puukolii Village", which is also located near Kaanapali
Beach Resort. In connection with this land use approval, the
Company has committed to providing additional housing on Maui
in the affordable price range. The final land use approval and
the HFDC development agreement contain certain conditions
which must be satisfied in order for the Company to develop
Puukolii Village, including adding the access road which will
benefit uses for adjacent Company lands in future periods.
Moreover, development of certain portions of Puukolii Village
cannot commence until after completion of the state-planned
Lahaina bypass highway (mentioned above). The proposed
development of Puukolii Village is anticipated to satisfy the
Company's affordable housing requirements in connection with
the South Beach Mauka land use approval and other development
in the surrounding area. The Company commenced construction of
infrastructure of Puukolii Village in the last quarter of
1996, beginning with the access road.
OAHU ACTIVITY
The Company is currently developing the approximately 60
acres of fee simple land it owns at the mill-site of Oahu
Sugar Company (which was shut down in 1995). The Company has
received zoning for a light industrial subdivision on an
approximately 37-acre portion of the property, which excludes
property containing the sugar mill and adjacent buildings. In
connection with the development of this property, the Company
has received state land use urbanization for the entire 60-
acre site. Marketing of parcels within the light industrial
subdivision is slated for mid-to-late 1997 after subdivision
is complete. In addition, the Company has begun the process of
seeking the necessary government approvals for the
redevelopment for the remainder of the mill-site parcels,
including planned commercial, public and quasi-public uses.
KAUAI ACTIVITY
In June 1994, the Company submitted a Land Use Boundary
Amendment Petition with the State of Hawaii Land Use
Commission ("LUC") and a General Plan Amendment Application
with the County of Kauai for the urbanization of approximately
552 acres of land on Kauai currently in sugar cane
cultivation. The proposed project is planned to be a mixed
use master planned community which will include a variety of
both affordable and market rate residential units, commercial
and industrial projects and a number of community and public
based facilities. The filing of these land use applications
is the first step required in converting agriculture zoned
land into urban zoned land. There are a number of additional
reports, studies, applications and permits that will be
required before final land use approvals are obtained. In May
1995, the County of Kauai approved the Company's General Plan
Amendment Application, subject to a number of conditions. In
December 1995, the LUC granted the Company the land use
amendments sought by the Company subject to a number of
conditions. In May 1996, the Kauai County approved the
Company's application to rezone the project. Before
construction can commence, the Company must satisfy several
conditions imposed during the approval process and obtain
additional administrative development permits for requirements
such as grading and subdivision. The permitting process in
Hawaii has historically been a very difficult and arduous
process and there is no guarantee that all permits will be
obtained. Once construction commences, subject to market
conditions, the project is expected to span over 20 years.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENT INCLUDED IN SUCH REPORT
</LEGEND>
<CIK> 0000839437
<NAME> AMFAC/JMB HAWAII, INC.
<S> <C>
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