ITEM 1. BUSINESS
GENERAL
Castle & Cooke, Inc. (the "Company" or "Castle") was incorporated in Hawaii on October 10, 1995, to be the successor to the real estate and resort business of Dole Food Company, Inc. ("Dole"). Effective December 28, 1995 (the "Distribution Date"), Dole transferred its real estate and resort businesses to Castle and distributed to Dole shareholders one share of Castle common stock for every three shares of Dole common stock. This transaction is referred to herein as the "Distribution". As used herein, the terms "Company" or "Castle" refer to the real estate and resort businesses of Dole when used with reference to time periods prior to the Distribution Date, and to Castle and its consolidated subsidiaries and controlled joint ventures when used with respect to time periods on or after the Distribution Date.
The Company is engaged in three principal businesses: residential real estate, resorts and commercial real estate. Castle conducts residential real estate development operations in Hawaii on the island of Oahu, and in Bakersfield, California; Sierra Vista, Arizona; Orlando, Florida and Copperopolis, California. Castle's resort operations are located in Hawaii on the island of Lana'i and include two luxury resort hotels, The Lodge at Koele and The Manele Bay Hotel, two golf courses, and luxury vacation home developments associated with the resort hotels. It develops commercial properties in Bakersfield and San Jose, California; Raleigh, North Carolina; Atlanta, Georgia; Phoenix and Sierra Vista, Arizona; Orlando, Florida and Oahu, Hawaii. Castle also owns and manages office buildings, shopping centers and other commercial properties in California, Hawaii, Arizona, North Carolina and Georgia. The Company occasionally divests itself of property which either does not meet its business needs or can be sold at an advantageous price due to market conditions.
The Company's residential real estate, resorts and commercial real estate businesses are described in more detail below. In 1999 and Castle's two preceding fiscal years, Castle had no foreign operations or export sales. For detailed financial information with respect to the Company's business and operations including amounts of revenue, operating profit or loss and identifiable assets attributable to each of the Company's industry segments and to domestic operations, see the Company's Consolidated Financial Statements and the related Notes to Consolidated Financial Statements in Part II herein.
Statements herein that are not historical facts are "forward-looking statements." Forward-looking statements are based largely 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, but are not limited to, such things as product demand, the Company's lack of experience in operating in markets outside of its current markets, the effect of economic conditions and geographic concentration, the impact of competitive products and pricing, 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. These and other factors can affect the Company's financial results and operations, and can cause them to differ from current expectations and plans.
RESIDENTIAL REAL ESTATE
Castle is one of the largest developers and builders of single-family and multi-family homes on the island of Oahu in the State of Hawaii, and one of the largest developers of residential real estate in Bakersfield, California and Sierra Vista, Arizona. It began development of a master planned community of single-family homes in Orlando, Florida in December 1997, which includes a golf course and clubhouse that opened in the third quarter of 1999. In Orlando, the Company is selling finished homesites to local and national builders. Additionally, Castle is developing a community of single-family and multi-family homes and homesites adjacent to a golf course owned by the Company called Saddle Creek in Copperopolis, California which is approximately 30 miles north of San Jose. Castle's residential real estate operations on Oahu include the development, construction and marketing of single-family and multi-family detached and attached homes within master-planned residential communities developed by Castle and on other parcels of land, which have been acquired and developed by Castle. In Bakersfield, which is located approximately 100 miles north of Los Angeles, Castle primarily subdivides and develops residential communities and sells finished homesites to national and local homebuilders. While Castle has focused on the sale of homesites to national and local homebuilders, it also engages in limited homebuilding on its properties in Bakersfield, including building single-family homes for the active adult market. In addition, Castle is developing and selling homesites in Sierra Vista, Arizona, which is located approximately 70 miles southwest of Tucson.
Castle owns large parcels of entitled and unentitled land intended for residential development in the Oahu and Sierra Vista markets. Castle's land in Orlando, Copperopolis and Bakersfield is entitled. "Entitled" land is land that has received all necessary land use and zoning approvals for development from the appropriate state, county and local
governments, except for any required plat maps, subdivision approvals, grading and building permits and other secondary approvals. "Unentitled" land is land that has not received all required approvals.
HAWAII
GENERAL
In Hawaii, Castle develops land and designs, builds and sells single-family and multi-family homes for "entry-level" and "move-up" buyers. Castle's Hawaii communities emphasize the development of planned neighborhoods with a range of lot and home sizes. Home designs within a particular product line are generally standardized and limited in number. This standardization helps permit on-site mass production and bulk purchasing of material and components by contractors and subcontractors engaged by Castle. Homes built by Castle in Hawaii are generally designed by consulting architects whose designs are geared to the local market. Designs are also constrained by zoning requirements, building codes, energy efficiency laws and local architectural guidelines, among other factors. Castle normally builds, decorates, furnishes and landscapes several model homes for each subdivision or project. Major changes in design from the model homes are not generally permitted, but homebuyers may select various optional amenities.
HAWAII'S "AFFORDABLE" HOUSING PROGRAM
In prior years, governmental agencies in Hawaii implemented various formal and informal policies at both the state and local levels in an effort to increase the supply of low-income and moderate-income housing. As a condition to classifying land for urban development, the Hawaii State Land Use Commission ("LUC") and the County Councils for each county in Hawaii imposed, most often at the time of entitlement proceedings before those bodies, requirements, on a project-by-project basis, for the provision by residential developers of "affordable" housing. Generally, the State of Hawaii had required developers of residential projects to offer for sale to eligible buyers a portion (50% to 60% prior to 1996) of the total number of units in the project at prices affordable to buyers with incomes between 80% and 140% of median local income as determined by the United States Department of Housing and Urban Development ("HUD"). Counties supported this policy and normally required that a portion of the "affordable" units (generally 10% to 30% of the total number of units) be affordable to families with incomes between 80% and 120% of the HUD median local income. To ensure that homes sold pursuant to "affordable" housing requirements remain "affordable" to other eligible buyers and to prevent speculation, state and local governments have sometimes imposed transfer restrictions on purchasers of "affordable" homes.
Prior to 1996, the LUC required that 50% of the homes sold in the Company's Mililani Mauka development be affordable to families with incomes between 80% and 140% of the HUD median local income. Within this 50% requirement, the City and County of Honolulu required that at least 10% of the homes be affordable to families with incomes not more than 80% of the HUD median local income. In 1996, the State of Hawaii, through the Governor's Office, initiated a change in its affordable housing policies by assigning the implementation and enforcement of such policies to the Counties. Based on this new policy, the Company sought and was granted an amendment to the affordable housing requirements that were imposed by the LUC on its Mililani Mauka Phase I and Phase II projects. The earlier LUC requirement that 30% of the homes be affordable to buyers earning between 80% and 120% of HUD median local income, and the requirement that 20% of the homes be affordable to buyers earning between 120% and 140% of the HUD median local income were replaced with a requirement that the Company satisfy the affordable housing requirements imposed by the City and County of Honolulu. Accordingly, for Mililani Mauka Phase I and Phase II-B, 10% of the units must be priced to be affordable to families with incomes of not more than 80% of the HUD median local income and 20% of the units must be priced to be affordable to families with incomes between 80% and 120% of HUD median local income. For Mililani Mauka Phase II-A, 10% of the units would be priced to be affordable to families with incomes of not more than 80% of the HUD median local income and 40% of the units would be priced to be affordable to families with incomes between 80% and 140% of HUD median local income.
The determination of whether a home is "affordable" is based on an assessment of whether a purchaser is able to satisfy certain specified mortgage criteria. For example, the 1999 HUD median local income for a family of four in the City and County of Honolulu (Oahu) was $60,400. Therefore, in an affordable project in Mililani Mauka, allocating one-third of monthly income for housing, and assuming a customer trust fund amount for insurance, real property tax and maintenance of $195 per month, a 10% down payment, a 30-year loan and an annual interest rate of 7.5%, a 2 bedroom home priced at approximately $186,000 would be "affordable" for a family earning 80% of HUD median local income and a home priced at approximately $351,000 would be "affordable" for a family earning 140% of HUD median local income.
Notwithstanding the conditions and guidelines described above, in August, 1999, the City Council of the City and County of Honolulu, effected Ordinance No. 99-51 which amended affordable housing conditions contained in unilateral agreements. The Ordinance established that affordable housing units subject to the conditions may be sold to the general public free from any conditions relating to (i) buyer eligibility, including but not limited to household income limits; or (ii) restrictions on transfer of the units, including but not limited to first options by the City to purchase, or obligations to pay to the City a share of any appreciation in the value of the unit on resale. The amendment will be repealed two years after the date of its approval unless otherwise extended by City Council following a recommendation by the City administration.
Castle's revenues and operating income may fluctuate significantly depending upon the mix of "affordable" and market-priced homes sold during any given period. Therefore, Castle's historical revenues and operating income may not be indicative of future performance. In addition, because the formula for calculating the price of "affordable" homes takes into account mortgage interest payments, increases in mortgage interest rates may decrease the price of Castle's "affordable" homes, which could result in lower revenues and operating income.
DEVELOPMENTS
MILILANI TOWN, Castle's largest development, is an approximately 3,500-acre master-planned community located on the central plain of Oahu, approximately 18 miles northwest of downtown Honolulu. Mililani Town, which was founded 30 years ago, has a population of approximately 37,000 and offers a full range of residential, commercial, educational and recreational services. It is anticipated that Mililani Town will eventually house approximately 50,000 residents in approximately 16,000 single-family and multi-family units.
In Mililani Makai, the first section of the community to be developed, Castle sold approximately 9,300 units on approximately 2,300 acres of land. In Mililani Mauka, the section of Mililani Town currently undergoing development, Castle currently plans to develop approximately 6,100 units on approximately 1,200 acres. The necessary land use and zoning approvals for these units have been received, roadways are being built and utilities are being installed in each subdivision, and sales of approximately 3,606 (including 360 units built and sold by a third party) of the 6,100 units currently planned have closed through December 31, 1999. Castle's market-priced homes in the first phase of Mililani Mauka range in size from approximately 800 to 2,700 square feet of living area and in price from approximately $260,000 to over $470,000. Castle has designed Mililani Mauka to allow it to build to suit market conditions by developing moderately priced and higher-priced homes. Based upon 1999 HUD median local income, "affordable" homes in Mililani Mauka are currently priced from approximately $120,000 to $440,000.
ROYAL KUNIA is an approximately 270-acre master-planned community being built in central Oahu, approximately 19 miles west of downtown Honolulu. The undeveloped residential areas of Royal Kunia were purchased in August 1992 as entitled but unimproved land by a limited partnership, 50% of which is held by Company subsidiaries and in which a wholly-owned subsidiary of Castle is the sole general partner. The development, when completed in accordance with the master plan, will offer single-family and multi-family housing adjacent to commercial properties, parks and recreational facilities. The current master plan provides for 1,692 units at Royal Kunia, including 972 market-priced units and 720 "affordable" units. The price of the market-priced single-family homes (between approximately 800 and 2,000 square feet of living area) ranges from approximately $220,000 to $350,000. Based upon 1999 HUD median local income, "affordable" housing is currently priced from approximately $200,000 to $235,000. Sales of 783 units had closed through December 31, 1999. In the fourth quarter of 1998, Castle filed suit against the 50% limited partner seeking to recover the limited partner's share of certain expenditures made by the partnership. The lawsuit was settled and dismissed prior to trial in November 1999 on terms which the Company believes are beneficial.
LALEA AT HAWAII KAI is a low-rise condominium development that contains approximately 290 units in the community of Hawaii Kai in East Oahu. Located on approximately 22 acres of land, all units are market priced and range in price from approximately $220,000 to $320,000. Closings commenced in the third quarter of 1996, and 274 units had closed through December 31, 1999.
NA PU'U NANI AT WAIKOLOA is a proposed residential development on the island of Hawaii which forms a part of Waikoloa Village. Na Pu'u Nani is held by a joint venture in which a wholly-owned subsidiary of Castle is the managing general partner and holds a 30% interest. The joint venture acquired the property in 1990. In September 1993, the joint venture filed suit against the party from whom the property was purchased. The parties settled this litigation in January 1996, prior to trial, under terms that the Company believes will be beneficial upon development of the project. The property remains undeveloped and this project is currently inactive, pending improved market conditions.
SALES AND MARKETING
In Hawaii, Castle promotes its residential developments through general public awareness of Castle using public relations activities and advertising in the local media. Castle employs in-house commissioned sales personnel and generally maintains on-site sales offices for each subdivision or project. Castle also retains outside brokers, sales and marketing firms and consultants in the marketing of its homes. Castle sells its homes in its Royal Kunia development on Oahu through an affiliate of its limited partner in the project. Sales contracts are usually subject to certain contingencies such as the buyer's ability to qualify for financing. Castle has from time to time utilized various sales incentives in marketing its homes and has facilitated the financing process by providing closing credits and by purchasing commitments from local financial institutions to provide fixed-rate mortgage loans to eligible buyers. Homebuyers must comply with the credit criteria required by these institutions.
ORDER INVENTORY AND BACKLOG
Castle's inventory of completed homes on Oahu varies according to the stage of development of each of Castle's communities. It is currently Castle's practice to include a home in backlog at the contract price upon execution of a sales contract and receipt of money on deposit (usually $1,000 to $5,000), and to remove it from backlog upon transfer of title. Backlog may vary substantially over time because Castle's communities are long-term projects that are frequently at different stages of development. In the past, the Company has generally allowed prospective purchasers who are unable to obtain financing to cancel their contracts and has refunded their deposit. During the past five years, the Company experienced an average contract cancellation rate of approximately 25%.
The following table sets forth the dollar amount of backlog orders for Castle's residential projects on Oahu in Hawaii as of December 31, 1999 and as of December 31, 1998.
THE HAWAII ECONOMY AND HOUSING MARKET
The Hawaii economy, which has been in decline for several years, did show signs of improvement during 1999. The Hawaii economy is strongly influenced by tourism. Tourism (as measured by total visitor count) peaked in 1990 at approximately 7 million, and declined to approximately 6.1 million in 1993. It experienced some recovery until late 1996, when it began to decline again. In 1997, total visitor count to Hawaii experienced a modest 0.7% increase over 1996. In 1998, the Asian financial crisis began to be felt and tourism and total visitor count decreased by approximately 1.9% when compared to 1997. In 1999, the State saw a modest increase in visitor count of 1.6%, as compared with 1998. Hawaii experienced a loss of non-agricultural wage and salary jobs in 1999, and Hawaii's 1999 average monthly unemployment rate of 5.6% exceeded the national average of 4.2%. The Asian financial crisis may continue to have an adverse effect on the Hawaii economy, including tourism, and may prolong Hawaii's recession. No assurance can be given that Hawaii will experience economic growth in the future. A continuing economic downturn would have a material adverse effect on Castle's financial condition and results of operations. The Hawaii economy is also subject to risks associated with its weather. Heavy rainfall, hurricanes and other natural disasters could impact the local economy and Castle's operations.
The median resale price of a single-family home on Oahu decreased by approximately 8% in 1997, decreased by approximately 3% in 1998 and increased by approximately 2% in 1999. The number of re-sales of single-family homes on Oahu during 1997, as compared to 1996, increased by approximately 16%; during 1998, as compared to 1997, the number of such re-sales increased by approximately 23%; during 1999, as compared to 1998, the number of such re-sales increased by approximately 14%.
MAINLAND COMMUNITIES
GENERAL
Castle's U.S. Mainland communities are located in California, Arizona and Florida. Castle's active residential developments in California are in Bakersfield, the county seat of Kern County, located in the southern part of California's central (San Joaquin) valley and in Calaveras County, located in the "Gold Country" of northern California. Castle's Bakersfield developments are located in the southwest part of the city in the vicinity of the California State University at Bakersfield. In Bakersfield, Castle primarily subdivides and develops its landholdings into developable parcels and planned residential communities designed to meet demand for housing in each market segment. This includes homesites for single family homes in price ranges from entry level to luxury homes, including pre-designed as well as custom plans. Castle also engages in homebuilding in its Bakersfield developments. Castle's development in Calaveras County was purchased in April 1999, and includes 866 acres of residential lands including an 18 hole golf course. Castle primarily subdivides and develops its land holdings into developable parcels, and sells finished homesites to homebuilders as well as build on some parcels for sale to homebuyers.
Castle's active development in Arizona is in the town of Sierra Vista, where it subdivides and develops its land holdings into developable parcels and homesites to provide housing primarily for the military-based population and retirement market.
In Florida, the Company, through a partnership with a third party, is developing a residential community with a golf course and clubhouse and selling finished homesites to homebuilders.
DEVELOPMENTS
SEVEN OAKS is a master-planned community on approximately 1,700 acres and is the premier residential development in Bakersfield. Seven Oaks surrounds the Seven Oaks Country Club and Golf Course, which was developed by Castle and eventually will be contributed to a nonprofit mutual benefit corporation. Castle has the exclusive right to sell memberships in the Seven Oaks Country Club and is obligated to fund the net operating losses and receives the excess cash flow of the country club through a transfer date which can be, at Castle's election, no earlier than the time at which the Club has a specified number of active golf memberships and no later than a specified date. In 1998, Castle decided to add nine additional golf holes to the golf course, which resulted in an extension of the transfer date to no later than October 31, 2007. As of December 31, 1999, 319 such memberships had been sold. In January 1999, an additional 5 year extension to October 31, 2012, was approved by the membership of Seven Oaks Country Club. Development of the community is being completed in phases, based on market demand. Castle has developed neighborhoods offering homesites for "move-up" to luxury homes in eight price ranges. Homesite prices in Seven Oaks range from approximately $26,000 to $300,000. During 1999, 209 homesites and 64 homes were sold. Approximately 1,757 homesites remain to be developed on approximately 1079 acres. Castle also engages in homebuilding in this community, mainly single-family homes for the active adult market.
SILVER CREEK is a master-planned community encompassing approximately 600 acres in Bakersfield. Castle offers homesites at three price levels. Castle's homesites are currently priced between approximately $16,000 and $22,000. Approximately 260 homesites remain to be developed on approximately 128 acres.
BRIMHALL, a residential community in Bakersfield comprised of approximately 1,232 acres, is planned to attract entry-level and move-up homebuyers. The prices of single-family homesites in the current phases in Brimhall range from approximately $19,000 to $80,000. Approximately 295 homesites remain to be developed on approximately 167 acres. In addition, approximately 236 acres are currently being planned in the Brimhall community for an additional approximately 569 homesites.
Other Bakersfield residential projects include MISSION OAKS, CAMPUS PARK, and RENFRO single-family developments (comprising approximately 797 single-family lots in total), and the MING & GOSFORD multi-family development.
SIERRA VISTA is near Sierra Vista, Arizona, in Cochise County in the southeast portion of Arizona about 70 miles from Tucson. Sierra Vista contains single-family homesites developed by Castle for sale to builders and individuals. The homesites in Sierra Vista are currently priced from approximately $14,000 to $65,000. Approximately 1003 homesites remain to be developed on the approximately 1007 entitled acres. The Company also owns approximately 2680 unentitled acres at Sierra Vista. WINTERHAVEN, a gated active adult community begun in 1997, is
located adjacent to the Pueblo del Sol Country Club. Homesite prices currently range from approximately $18,000 to $65,000 with 953 lots remaining as of December 31, 1999. Other Sierra Vista communities of Castle include one acre homesites in Mountain Shadows, Mountain Ridge with 7,500 square foot homesites, and Chaparral Village with 4,500 square foot homesites. In total, 50 homesites remained in these villages as of December 31, 1999. During 1999, a Recreational Vehicle Park was constructed on approximately 25 acres of Castle property in Sierra Vista. This park includes a total of 135 overnight RV rental spaces and approximately 124 lots for park models.
KEENE'S POINTE in Orlando consists of approximately 946 acres and 1,050 homesites, including the approximately 240 acre Jack Nicklaus designed signature golf course that opened in 1999. Keene's Pointe is being developed by a partnership ("Keene's Pointe Partnership") formed by Castle and Golden Bear International, Inc. ("GBI"), a company wholly-owned by professional golfer, Jack Nicklaus. Castle is the managing general partner and GBI is the limited partner. The venture was restructured in 1998 to eliminate GBI's obligation to provide the partnership with a right of first refusal on opportunities for new projects, and to eliminate the Company's funding obligation for new projects. In 1996, the Keene's Pointe Partnership entered into the contract to acquire property for its Keene's Pointe community. The property, under this contract, comprises approximately 866 developable acres in the town of Windermere adjacent to the Disney Preserve, and can be purchased on a parcel by parcel basis over a 10-year period. The first purchase under this contract was in December 1997, and consisted of approximately 240 acres for the 18-hole golf course and clubhouse and an additional 206 acres for approximately 361 lots. Two additional purchases under the 1996 contract occurred in 1998 consisting of a total of approximately 100 acres proposed for approximately 181 lots. An additional 80 acres, located adjacent to the Keene's Pointe project, and proposed to be developed as an additional 145 lots, were purchased by the partnership in January 1998 under a different purchase agreement. Purchase of the property and development of Keene's Pointe is planned to occur in phases, based on market demand. Castle develops and sells homesites for "semi-custom" to luxury homes to homebuilders at Keene's Pointe. Homesites are currently priced between approximately $50,000 and $550,000. Approximately 765 homesites remain to be developed on approximately 603 acres.
SADDLE CREEK in Copperopolis, California was purchased in April 1999 and consists of approximately 866 acres, including an 18-hole Morrish & Associates designed golf course that opened in 1996. Castle develops and sells homesites and homes for lodge bungalows to luxury homes. Homesites are currently priced from $50,000 to $250,000. Six homesites have been developed of approximately 1,075 homesites and homes that are proposed to be developed on approximately 692 acres. As of December 31, 1999, approximately 1,069 homesites and homes remain to be developed. The Saddle Creek Golf Club is owned by a partnership (Saddle Creek Golf Limited Partnership) formed by Castle and Cloudburst Golf Partners, L.P. Castle is the general partner and is responsible to construct and contribute an approximately 12,000 square foot clubhouse. Cloudburst is the limited partner.
SALES AND MARKETING
In California, Arizona and Florida, Castle markets its developments through a combination of local newspapers, magazines, radio and outdoor advertising, promotional literature, and sales meetings conducted for both individual homebuyers and residential brokers and builders. Castle also maintains sales centers in Bakersfield, Saddle Creek, Sierra Vista and Keene's Pointe to display available homesites to prospective builders and individual buyers. In California, Florida and Arizona, Castle occasionally uses outside brokers in marketing its properties. Castle sells its finished homesites in California, Arizona and Florida to homebuilders. Castle also sells options in Bakersfield, Sierra Vista and at Keene's Pointe to homebuilders to acquire a number of available homesites, and it has been Castle's experience that nearly all of the options granted pursuant to the agreements have been exercised in full. These options typically require a non-refundable deposit of 10% of the aggregate purchase price of the homesites. Contracts for homesites sold by Castle provide for Castle's approval of home design and construction and the lots are subject to architectural control covenants.
From time to time, Castle provides financing to buyers of its California and Arizona homesites by taking promissory notes instead of cash for a portion of the sales price of the properties it sells. Down payments on these transactions have averaged between 20% to 25%.
ORDER INVENTORY AND BACKLOG
Castle's inventory of developed homesites in California, Arizona and Florida varies according to the stage of development at each of the communities. It is currently the policy of Castle to limit its inventory of completed but unsold homesites in Bakersfield and Sierra Vista to approximately one year (or less) of anticipated demand. It has been Castle's experience that nearly all of the options granted to homebuilders have been exercised in full.
The following table sets forth the dollar amount of backlog orders for Castle's homesite development in California, Arizona and Florida as of December 31, 1999 and as of December 31, 1998.
Castle's inventory of completed homes in Bakersfield varies according to the stage of development of the community. It is currently Castle's practice to include a home in backlog at the contract price upon execution of a sales contract and receipt of money on deposit (usually $1,000 to $5,000), and to remove it from backlog upon transfer of title. Backlog may vary substantially over time because Castle's communities are long-term projects that are frequently at different stages of development. In the past, the Company has generally allowed prospective home purchasers who are unable to obtain financing to cancel their contracts and has refunded their deposit.
The following table sets forth the dollar amount of backlog orders for Castle's homes in Bakersfield as of December 31, 1999 and as of December 31, 1998.
THE BAKERSFIELD ECONOMY AND HOUSING MARKET
A majority of Castle's residential developments on the mainland are located in Bakersfield, the county seat of Kern County. Kern County's population was approximately 640,000 persons, comprising approximately 211,770 households in 1999. Bakersfield is one of the most affordable cities in California (based on a November, 1996 survey by the National Association of Homebuilders). The population of metropolitan Bakersfield increased from approximately 329,000 in 1990 to approximately 390,000 in 1999, an average annual growth rate of 2.1% versus 1.5% for California as a whole. The median resale price of a single-family home in Bakersfield is expected to increase by approximately 8.3% in 1999.
Kern County is the leading oil-producing county in the lower 48 states and the fourth leading agricultural county (based on crop value) in the United States. The Bakersfield economy is sensitive to economic, political and weather conditions affecting oil and agriculture. The climate and geology of California present certain risks for natural disasters and other sudden events. The Bakersfield area, like much of California, is at risk for seismic activity. Storms, floods, drought, earthquakes and crop freezes may have a material adverse effect on the local economy and on the properties or operations of Castle.
THE ORLANDO, COPPEROPOLIS AND SIERRA VISTA ECONOMIES AND HOUSING MARKET
The Keene's Pointe project is located in Orange County, Florida, in the town of Windermere adjacent to the Disney Preserve. In 1999 the median price of a single-family home in Orlando was approximately $99,500, the city's job growth rate was approximately 2.1% and its unemployment rate was approximately 4.1%. Keene's Pointe is located approximately 30 miles from Orlando. Metropolitan Orlando added 17,800 jobs in 1999 and is one of the fastest growing regions in the nation. Tourism is Florida's largest industry, and the Orlando area includes such major theme parks as Disney World, Universal Studios and Sea World.
Saddle Creek, located in Copperopolis, California, is located east of the San Francisco Bay Area, and draws from the Alameda, Calaveras, Contra Costa, San Joaquin, San Mateo, Santa Clara, and Stanislaus counties. This market has a population of approximately 5.8 million people and is the target market for buyers of Castle's vacation homes and homesites at Saddle Creek. The median price of a single-family home was approximately $255,000, with unemployment at approximately 4.9%.
Sierra Vista, Arizona has a population of approximately 40,500, and Cochise County, Arizona has a population of approximately 125,800. For Sierra Vista, the 1999 median price of a single-family home was approximately $96,500, the city experienced a negative job growth rate of approximately (.3%) and its unemployment rate was approximately 4.2%.
DEVELOPMENT OF MASTER-PLANNED COMMUNITIES
Master-planned communities are long-term projects requiring substantial investments of time and capital resources. In Castle's experience, master-planned communities have generally required approximately eight to ten years from initial planning and entitlement proceedings to the closing of the first sale of a completed home on the island of Oahu and up to three years from initial planning and entitlement proceedings to the closing of the first sale of a finished homesite or a completed home on the mainland.
Castle prepares the plans for each master-planned community providing for infrastructure, neighborhoods, commercial and industrial areas, educational and other public facilities as well as open space. Once preliminary plans have been prepared, Castle must obtain numerous governmental approvals, licenses, permits and agreements, referred to as "entitlements," before it can commence development and construction of a project. In Hawaii, California and Arizona obtaining the necessary entitlements for large residential developments and master-planned communities is an extended process, which can involve a number of different governmental jurisdictions and agencies, considerable risk and expense, and substantial delays.
Before developing its Hawaii properties, Castle must obtain a variety of regulatory approvals from state and local governmental authorities relating to such matters as permitted land uses and levels of density, the installation of utilities and waste disposal services, and the dedication of acreage for open space, parks, schools and other community purposes. For example, if the current land classification is "Agricultural", the Hawaii State Land Use Commission must issue a final decision and order approving urban land uses and amending district boundaries. The city and/or county councils must enact ordinances or issue resolutions approving amendments to the relevant general plan and development plan and approving zoning changes and variances, and issue permits for shoreline management, if applicable. After these entitlements are granted, subdivision approvals and building permits must be obtained. Changes in circumstances or in applicable law may require amended or additional approvals. Castle may incur substantial direct costs in connection with the land use approval process in Hawaii. In addition to the costs and fees required in connection with various applications, counties may impose conditions having economic costs and consequences and assess "impact fees" based on anticipated effects of Castle's projects on existing communities, including such things as infrastructure, transportation, waste disposal, education and air quality.
Castle owns unentitled land in Los Angeles County and Santa Clara County, California. Castle also owns unentitled land at its Sierra Vista development in Arizona. While the requirements vary in each location, and while the amount of time it takes to obtain entitlements is generally shorter in Arizona than in California, the entitlement process for transforming such land into a developable parcel or a master-planned community includes such things as annexation proceedings involving the local municipalities, regulatory approvals relating to such matters as permitted land uses and levels of density, the installation of utilities and waste disposal services, and the dedication of acreage for open space, parks, schools, and other community purposes. In addition, upon receipt of a building permit for a finished homesite, homebuilders are required in California to pay impact fees based on governmental assessment of the effects
of their projects on existing communities, including such things as infrastructure, transportation, waste disposal, education and air quality of the communities.
The land development process for a master-planned community entails a range of activities, including design engineering, grading raw land, constructing public infrastructure such as streets, utilities and public facilities, and finishing individual lots. Castle arranges for the design and the construction and installation by contractors and subcontractors of the infrastructure in its master-planned communities. The development process results in finished and graded construction sites for homes or other facilities. In its master-planned communities, Castle generally coordinates home construction with commercial development and installation of parks and recreational facilities. In this process, Castle may contract with third parties to develop commercial zones, public areas and recreational amenities, which may include shopping centers, schools, libraries, community centers, parks, golf courses and other essential facilities. It is the policy of Castle to retain control over the location and character of non-residential properties, such as shopping centers and recreational facilities, within its master-planned communities. Castle develops its communities in phases to allow Castle flexibility to build to suit market conditions and to create stable and attractive neighborhoods. Consequently, at any particular time, the various phases of a project generally are in different stages of land development and construction.
HOME CONSTRUCTION AND WARRANTIES
For most of its projects, Castle contracts or subcontracts virtually all construction work. Independent contractors and subcontractors that are familiar with local requirements perform engineering, landscaping, master-planning and environmental impact analysis work. Castle engages consulting firms to assist in project planning and hires independent contractors and subcontractors to perform site development and construction work on individual projects. At all stages of production, Castle monitors and coordinates the activities of builders, contractors, subcontractors, consultants and suppliers.
Castle provides customary warranties to purchasers of its homes. Castle evaluates its contractors and subcontractors and its builders with respect to their ability to meet potential warranty obligations. In addition to customary warranties provided by Castle to its homebuyers, Castle is subject in California to a state law, which establishes a ten-year period during which consumers can seek redress for latent defects in new homes.
RESORTS
The island of Lana'i consists of approximately 90,500 acres and is the sixth largest of the Hawaiian Islands. The Company owns approximately 88,000 acres or 98% of the island. On Lana'i, Castle owns and operates two luxury resorts, with two championship golf courses and is also developing two luxury vacation home projects. For the purposes of this discussion, the activities of Castle on Lana'i will be divided into three areas: Resorts, Resort Developments and Other Businesses on Lana'i.
RESORTS
The Company owns and operates two luxury resorts, the Lodge at Koele and the Manele Bay Hotel, on Lana'i. The Company is responsible for all phases of lodging operations, including the hiring, training and supervision of all of the managers and employees necessary for the operation of the facilities, and the marketing and maintenance of the properties.
THE LODGE AT KOELE, a 102-room luxury hotel situated in the wooded highlands of the island, opened in mid-1990. This resort hotel includes tennis facilities, stables and a riding facility, an executive putting course, a fitness center, two restaurants, a retail shop and award-winning gardens. There is also a championship 18-hole golf course, the Experience at Koele, designed by Greg Norman and course architect Ted Robinson, with a clubhouse, a retail shop and restaurant. In 1996, the Lana'i Pines Sporting Clays facility was opened, featuring skeet, trap, compact sporting and a 14 station clays course catering to upscale shooters. In 1999, Lana'i Pines Sporting Clays added a 12 target archery range. The resort, golf course and restaurants have received numerous awards. In 1999, for the third consecutive year, the Koele resort made Conde Nast Traveler's Gold List and was also rated #1 in Hawaii and #10 in the world in overall rankings. It ranked #4 in the world in overall rankings in Conde Nast Traveler Reader's Choice Poll for the "50 Best Gold Resorts".
THE MANELE BAY HOTEL, a 249-room luxury oceanfront resort, was opened in 1991. The Manele Bay complex includes a 12,000 square foot conference center, a spa facility, tennis center and pro shop, three restaurants, a retail shop and a salon. The resort also features an 18-hole championship golf course, the Challenge at Manele, designed by Jack Nicklaus, and a clubhouse with a pro shop and restaurant. The Manele Bay Hotel, restaurants and golf course have
been recognized with numerous awards. In the 1999 Conde Nast Traveler's Gold List of "Best Places to Stay in the Whole World", the Manele Bay Hotel was ranked #8 in Hawaii and 38th in the world. It was also voted the third best golf resort in the world by Conde Nast readers and ranked #4 in Hawaii in the Travel & Leisure "World's Best Service" Survey."
The following table sets forth combined operating statistics for the two hotels for fiscal years 1996 through 1999:
"Average daily room rate," for any period, is the aggregate room revenue from the two Lana'i resorts during such period, divided by the aggregate number of days during which guests occupied rooms at the two Lana'i resorts during such period. "Room revenue per available room," for any period, is the aggregate room revenue from the two Lana'i resorts during such period, divided by the number of rooms available at the two Lana'i resorts during such period.
The Lana'i resorts cater to upscale leisure travelers. In late 1998, Castle and Starwood Hotels and Resorts entered into an agreement whereby the Lodge at Koele and the Manele Bay Hotel became members of The Luxury Collection, an elite group of hotels that includes such properties as the St. Regis in New York and Aspen, Colorado; the Phoenician in Scottsdale, Arizona; the Hotel Danielli in Venice; Prince De Galles in Paris; and the Hotel Imperial in Vienna. While Castle operates its own computerized reservations service headquartered on Lana'i, the agreement provides the Lana'i resorts with access to Starwood's sales, marketing and reservations services and systems. Castle continues to manage the Lana'i resorts and directs an international sales and marketing program, including national advertising, publicity efforts, satellite sales offices in Honolulu, Los Angeles, Chicago and New York, and international representation. The majority of the guests of the Lana'i resorts come from the mainland United States, with roughly equal percentages from Asia and Europe. There is also a strong local market in Hawaii.
Tourism to Hawaii is affected by a number of variables, including, among others, general economic conditions, exchange rates, competition from other destinations, and the cost and availability of airline transportation. Lana'i is particularly vulnerable to changes in air service, which can be affected by adverse weather conditions. Many of these factors have had a negative effect on Hawaii tourism over the last several years, causing a decline in visitor arrivals from 1991 to 1994. Tourism (measured in terms of total visitor arrivals) improved in 1995, although the benefit of such improvement was felt primarily in Oahu and not on the neighbor islands, including Lana'i. In 1996, tourism was essentially flat, with the decline in mainland visitors offset by an increase in visitors from Japan. In 1997, tourism declined slightly overall with a decrease in Japanese business, due to a weak economy and an unfavorable exchange rate, only partially offset by an increase in arrivals from the mainland United States. In 1998 total visitor arrivals declined by approximately 1.9%, with a drop of more than 10% in arrivals from Japan and other Asian countries resulting from, at least in part, the Asian economic crisis. In 1998, statewide occupancy levels fell below 1997 levels in 11 of the 12 months. In 1999, total statewide occupancy was up 2% over 1998. This improvement was due to Westbound travel increasing by 6.6% and being partially offset by a decrease in Eastbound travel of 5.4%.
RESORT DEVELOPMENTS
GENERAL
Castle is a developer and builder of single-family and multi-family homes on the island of Lana'i. Castle develops land and designs, builds and sells high quality homes for the resort and local housing markets. Projects being developed or proposed include townhomes and detached single family homes for the luxury vacation homebuyer.
LUXURY VACATION HOME PROJECTS
The Koele Project. Koele, located at the edge of Lana'i City at an elevation of 1,800 feet, includes 632 acres zoned for hotels, golf, residential and park uses. The Lodge at Koele and the Experience at Koele golf course form the focus of the development. The first phase of the Koele luxury residential project includes the Villas at Koele, consisting of 88 proposed multi-family units on 18.5 acres, and 255 proposed single family units on 138 acres. The first phase of infrastructure, including all roads, utility and drainage improvements for the Villas at Koele and the 19 single family homesites in a project known as Puulani Ridge, was completed in August 1995. The development and sale of the residential property in the Koele Project is expected to occur over a twenty-year period.
The Villas at Koele are multi-family units, overlooking the Experience at Koele golf course. There are six floor plans ranging in size from approximately 1,360 square feet to approximately 2,660 square feet, with sales prices ranging from approximately $500,000 to $1,000,000. A sales center with six furnished model homes and sales office opened in December 1994, and construction on the first phase of 20 units commenced in March 1995. Pre-sales for the Villas at the Koele Project commenced in December 1994. As of December 31, 1999, there were eleven closings of sales of Villas townhomes (four in 1999, one in 1998, four in 1996 and two in 1995), three unsold completed units available for sale, and four units under construction.
Luxury single-family homes at Koele are sold as a custom house and lot package, where the buyer selects a lot and house design and the Company constructs the house. Single-family homesites are also sold with the owner having a choice of builder. Completed house and lot packages range in price from approximately $800,000 to $2,500,000. Homesites range in price from approximately $325,000 to $850,000. As of December 31, 1999, there had been four closings of homes at Puulani Ridge and one closing of a single-family homesite.
The vacation homes at Koele are marketed primarily to affluent individuals from the mainland United States and, to a lesser degree, Japan and Hawaii. Marketing efforts include local and national advertising and publicity, as well as those of an on-site sales team of licensed professionals. The majority of buyers are anticipated to be repeat guests of the Lodge at Koele or the Manele Bay Hotel. The development and construction of new luxury hotels in Hawaii and elsewhere, and continued economic weakness in Hawaii and Asia, could negatively impact occupancy levels at the resort hotels on Lana'i, resulting in a reduced number of vacation home sales. The Company continues to monitor the Koele project and explore alternatives to stimulate sales activity.
THE MANELE BAY PROJECT. The Manele Bay Project is located on approximately 868 acres on the southern coast of Lana'i. The property is currently zoned for hotel, golf course, commercial, residential, park and open space uses. The Manele Bay Hotel and The Challenge at Manele golf course form the centerpiece of the development.
The first increment of the Manele Bay Project is proposed to include 94 multi-family units on approximately 33.4 acres and 166 single-family homesites on approximately 145 acres. The development of this increment will proceed in phases. The first phase of this increment received all necessary approvals from the County of Maui and sales began in 1998. The Company does not currently have all required governmental approvals for the development of the second or any subsequent increments of the Manele Bay Project. There can be no assurance that Castle will obtain all such approvals and permits.
The Company began construction of the first 26 multi-family units and began accepting contracts and/or reservations in December of 1996. These multi-family units, called The Terraces at Manele Bay, have five floor plans ranging in size from approximately 1,560 square feet to approximately 3,200 square feet. They are currently priced from approximately $800,000 to $2.1 million. As of December 31, 1999, 19 Terrace units, including four models, had been completed. In 1999, construction began on the second phase of the Terrace project, which will consist of an additional 27 multi-family units. The single-family lots at Manele are currently priced from approximately $650,000 to approximately $3.2 million. The development and sale of the residential property at the Manele Bay Project is expected to occur over a twenty-year period. As of December 31, 1999, there were three closings of single-family homesites and eighteen closings of Terrace units (eleven in 1999 and seven in 1998). As of March 1, 2000, there were sales contracts for five Terrace units and three homesites with closings expected to occur throughout 2000.
OTHER BUSINESSES ON LANA'I
The Company is involved in a number of other businesses on Lana'i, including a residential redevelopment project and the operation of commercial properties and various support services.
LANA'I CITY RESIDENTIAL REAL ESTATE PROJECT. The Company has a residential redevelopment project within Lana'i City that includes up to approximately 250 single family homes that are planned to be sold. This project involves the demolition of old plantation homes and rebuilding on the lots new single family homes mirroring the plantation style architecture. The single family plantation style homes are proposed to range in size from approximately 780 square feet to 1,344 square feet with prices ranging from approximately $115,000 to $260,000. In connection with obtaining County approvals for this project, Castle agreed to an affordable housing program to include 195 affordable housing and/or rental units. As of December 31, 1999, there were 37 plantation style homes that had been completed, 26 sales had closed and 5 were under contract for sale.
Castle also plans to develop, build and manage approximately 164 multi-family units for rental to employees of Castle and other residents of Lana'i. Of these, 40 quad units have been completed and are available for rentals. An additional 24 elderly housing units were completed in 1999. These are available for rental and are managed by Hale Mahaolu, Inc., a non-profit agency unaffiliated with the Company.
COMMERCIAL PROPERTIES AND SUPPORT SERVICES. The Company owns and manages approximately 113,000 square feet of improved commercial lease space within Lana'i City. The Company is also engaged in a number of support businesses or activities on the island of Lana'i. These support operations include the management of approximately 542 residential rental units in Lana'i City, and prior to 1997, the management of a diversified agricultural program. Castle's agricultural operation on Lana'i included cattle grazing, forage production, a limited number of small crops and raising beef cattle and hogs. In 1997, Castle sold the cattle operation and has discontinued substantially all of its remaining agricultural operations. In addition, Castle owns and operates a water company, which is regulated by the Hawaii Public Utilities Commission and provides water service to the resorts, commercial customers, government entities and the residents of Lana'i City. Castle also owns and operates motor vehicles used to transport resort guests and employees, which business is also licensed by the Hawaii Public Utilities Commission.
COMMERCIAL REAL ESTATE
HAWAII PROPERTIES
On the island of Oahu, Castle is the developer and manager of the Mililani Technology Park, the Iwilei Cannery Development, the Town Center of Mililani and the Dole Plantation. In the case of the Mililani Technology Park and the Dole Plantation, Castle utilized undeveloped Company land and processed the property through the entire range of development, including entitlements and permits, planning, design, construction of site infrastructure, and construction and management of building improvements. The Town Center of Mililani is an integral part of the Mililani master-planned community and its development has been timed with the growth of the surrounding community. The Iwilei Cannery Development is an on-going conversion of a former pineapple cannery into an office-retail-entertainment commercial center. The following paragraphs describe each of the properties in more detail.
MILILANI TECHNOLOGY PARK is a high technology/business park approximately two miles from Mililani Town and has approximately 226 acres remaining for development. The park is planned to be an employment center for Central Oahu and Oahu's North Shore. The zoning for Mililani Technology Park requires that no less than 45% of the initial acreage be sold or ground leased to high technology companies. Phase One of the Mililani Technology Park, with approximately 90 acres remaining, has received all necessary entitlements. Subdivision improvements for all but approximately 28 acres of Phase One are in place. Of the 100 acres in Phase One, 50 acres have been sold. As of December 31, 1999, 4 developed lots in Phase One, totaling approximately 19 acres, were being marketed for sale, with an additional 28 undeveloped acres remaining in this Phase. Phase Two, consisting of approximately 136 acres, has been classified as Urban by the Hawaii State Land Use Commission. The City approved the Development Plan amendment for Phase Two in December 1995. The zoning application will be submitted for City approval when market conditions warrant. Major development work is required in Phase Two, including subdivision improvements, construction of a one million-gallon off-site water reservoir and adding capacity to off-site sewer lines. There are two buildings owned by Castle in the park: the 29,000 square foot Verifone Building, and the 21,000 square foot multi-tenant office building known as the Leilehua Building. Castle leases the Leilehua Building land from a third party. As of December 31, 1999, the Leilehua Building was 89% leased, with a monthly weighted average rent of $1.65 per square foot. Verifone was acquired by Hewlett-Packard in 1998. In November 1997, Verifone downsized to approximately 8,110 square feet of the Verifone Building. In the first quarter of 1999, Castle relocated its Oahu headquarters to the second floor of the Verifone Building from the Castle & Cooke Building at the Iwilei Cannery Development, occupying approximately 16,160 square feet. The remaining 4,700 square feet are available for lease to a third party.
IWILEI CANNERY DEVELOPMENT. This property, previously used by Dole for its Hawaii pineapple cannery operations, consists of approximately 42 acres (after completion of in process roadway dedication) and is located approximately 10 minutes driving time to downtown Honolulu, 10-15 minutes driving time to the Honolulu International Airport, and 15-20 minutes driving time to Waikiki. The property is in various stages of development. The current operating properties within the Iwilei development include a single-tenant building (925 Dillingham), a multi-tenant building (801 Dillingham), and a multi-tenant office and retail center (the Dole Center). The 925 and 801 Dillingham buildings include 55,000 square feet and 46,000 square feet, respectively, of rentable office space. The Dole Center consists of multi-tenant office space (Dole Office Building and Castle & Cooke Building), a retail center (the Shops at Dole Cannery), a 1,200-stall parking structure, which, along with the 748-stall surface parking lot, serves the entire Dole Center. The Shops at Dole Cannery consists of approximately 200,000 rentable square feet of retail
space, 48,000 square foot banquet facilities (Dole Visitor Center) and the 18-screen Signature Theaters (80,000 square feet) that opened in May 1999. Signature Theaters, a chain theater operator headquartered in Northern California, signed a long-term lease for what was formerly the Dole Can Plant. This 80,000 square foot, 18-screen multi-plex, opened in May 1999, was the first urban theater complex in Honolulu offering stadium seating and state-of-the-art audio and visual equipment. At December 31, 1999, the Cannery Development had approximately 820,000 rentable square feet which was 71% leased to third parties.
In 1998, Castle formed a venture with Horizon/Glen Outlet Centers Limited Partnership ("Horizon"), a large developer of outlet centers in the United States, and the lessee of property at the Dole Cannery under a long-term master space lease that was to expire in 2044 (the "Cannery Lease"). Under this agreement, Horizon contributed to the venture (i) its rights and obligations under the Cannery Lease, and (ii) substantially all of its economic interest in an approximately 368,000 square foot factory outlet center now known as the Prime Outlets at Lake Elsinore ("Prime Outlets") in Lake Elsinore, California, subject to existing mortgage financing, together with certain undeveloped property comprising approximately 200 acres and located adjacent to the Prime Outlets. In exchange for its contributions to the venture, Horizon was released from all continuing obligations under the Cannery Lease. The Company owns a substantial majority of the venture and controls its operations. As of December 31, 1999, the Prime Outlets was approximately 96% leased. In the fourth quarter of 1998, Castle purchased an additional 3.89 acres of undeveloped land adjacent to the Prime Outlets.
Home Depot, the largest home improvement retailer in the United States, is leasing a nine-acre parcel at the Iwilei Cannery Development on which it has built a 136,000 square foot store. This, its first store in Hawaii, opened in late 1999.
TOWN CENTER OF MILILANI is the fifth largest community shopping center on Oahu. The Town Center, which sits on approximately 45 acres (41 acres of which are owned by Castle), was built in phases with the first phase completed in 1987. In 1993, Wal-Mart entered into a ground lease for 11 acres and built a 137,000 square foot store (their first store in Hawaii) which opened in 1994. The Town Center contains approximately 490,000 rentable square feet, of which Castle owns approximately 442,000 rentable square feet. At December 31, 1999, approximately 89% of Castle's property was leased. Most of the 48,000 square feet vacancy is attributable to Woolworth. (As part of a nationwide store closing, Woolworth negotiated an early termination of its 30,400 square feet lease at the Town Center.) Also in March 1998, a lease was signed with Consolidated Theaters, the largest theater operator in Honolulu, for a 14-screen multi-plex, which opened in late 1999. An additional 15,000 square feet is vacant as a result of Consolidated vacating their old theatre space. Approximately 12,000 square feet of additional retail space or office space could be added to the Town Center.
DOLE PLANTATION, located just north of the town of Wahiawa on a major road leading to the North Shore of Oahu, is a retail visitor operation, occupying two buildings totaling approximately 11,000 square feet on approximately 250 acres (approximately 243 acres of which is a proposed expansion area). The property is zoned for agricultural use, but has a special use permit to operate a retail store restricted to selling agricultural and related products. The main products sold are clothing and other items with the Dole logo, products made in Hawaii, and food and beverages generally made with pineapples. The Dole Plantation is one of the busiest tourist attractions on Oahu and had over 870,000 visitors during 1999 and revenues of approximately $6.5 million. A hedge maze, with the center in the shape of a pineapple, was completed and opened in April 1998, and was designated by the 1998 Guinness Book of World Records as the world's largest permanent maze.
The Leilehua, Verifone, Iwilei Cannery Development and Dole Plantation properties were pledged as collateral in connection with Castle's credit agreement with a group of banks prior to November 1999. In November 1999, Castle's credit agreement was restructured and the properties were released as collateral. According to 1997 appraisals by independent third parties engaged by the banks, the total appraised value for the Leilehua, Verifone and Dole Plantation properties was approximately $16 million, excluding the undeveloped land. According to a 1998 appraisal by an independent third party engaged by the banks, the income-producing leases of the Iwilei Cannery Development, including the Home Depot lease, were valued at approximately $62 million. The Town Center is pledged as collateral in connection with Castle's fixed rate loan from Teachers Insurance and Annuity Association of America which funded at the end of 1998 (the "Teachers" Loan).
THE HAWAII COMMERCIAL REAL ESTATE MARKET
The Oahu downtown commercial office market has declined in the last few years with a vacancy rate of 3.5% in 1990 climbing to a high of approximately 19% in 1996, and decreasing to approximately 13% at the end of 1999. This is the result of a declining economy and an increase in the development of office space since 1991. Since 1990, the Oahu retail industry has experienced a slow economy and the entry into the Hawaii market of large discount retailers has had an adverse effect on smaller local retailers. See "The Hawaii Economy and Housing Market" for a discussion of the Hawaii economy.
BAKERSFIELD PROPERTIES
In Bakersfield, California, Castle owns two industrial parks comprising 96 acres (Stockdale Industrial Park and Gateway Industrial Park), two industrial warehouses (Harvel and 7021 Schirra Court), two office buildings (10000 Ming Avenue and One Riverwalk), a shopping center (The Marketplace), and a 50% interest in a general partnership that owns a shopping center (Town & Country). Castle owns 42 acres of undeveloped highway commercial land at Highway 99 and Bear Mountain Boulevard (Highway 99 at Bear Mountain). In addition, Castle owns an undeveloped industrial park (Stockdale Industrial Park Phase VI) which includes 285 acres of land currently being planned for development. The 42 acres at Highway 99 at Bear Mountain, the two industrial parks (Stockdale Industrial Park and Gateway Industrial Park) and the undeveloped industrial park (Stockdale Industrial Park Phase VI) are currently being marketed for sale. The following paragraphs describe each of these properties in more detail.
HARVEL, located at 7001 Schirra Court, is an industrial warehouse of tilt-up construction completed in August of 1998. The building contains approximately 100,000 square feet and is fully leased to Harvel Plastics at a current monthly base rent of $0.306 per square foot.
7021 SCHIRRA COURT is an industrial warehouse of tilt-up construction containing approximately 150,000 square feet. At December 31, 1999, the building was fully leased to the Step 2 Company with a monthly weighted average base rent of $0.24 per square foot.
10000 MING AVENUE is a Class A, suburban office building constructed in 1984 containing approximately 214,000 square feet. The total site consists of approximately 18.5 acres and is located in southwest Bakersfield. In November 1997, Castle signed a 10-year lease with AERA Energy, LLC. AERA occupies 185,000 square feet at a monthly base rent of $1.73 per square foot with the remaining 29,000 square feet occupied by All American Pipeline, resulting in a monthly weighted average base rent for the property of $1.63 per square foot.
ONE RIVERWALK is a 73,000 square foot Class A suburban office building which was completed in February 1999. Castle & Cooke mainland communities headquarters occupies approximately 17,000 square feet and effective March 1, 1999, a Dole Food Company subsidiary began leasing approximately 25,000 square feet. During the first quarter of 1999, Dole vacated the space they occupied in the One Riverwalk building. Castle and Dole subsequently entered into a lease termination agreement whereby Dole would pay Castle rent through December 2001 or until Castle finds a replacement tenant. Additionally, Dole will pay for all tenant improvements made to the space. An additional 18,000 square feet is leased to third parties. One Riverwalk is leased with a weighted average monthly rent of $1.64 per square foot.
THE MARKETPLACE is a 32-acre, 300,000 square foot shopping center that has an "upscale" Georgian theme with a large fountain as an amenity. Phases I and II (249,000 square feet) are 98% leased. Vons (a major southern California grocery store chain) and Edwards Cinema are the anchor tenants leasing 57,000 and 58,000 square feet, respectively. Vons opened in November of 1996 and Edwards Cinema opened in March of 1997. The Marketplace is leased with a weighted average monthly rent of $1.22 per square foot. The remaining 51,000 square feet of space is planned to be completed in 2000.
TOWN & COUNTRY is a 173,000 square foot shopping center held by a partnership in which Castle has a 50% ownership interest. The center was built in 1986 and includes Albertsons Grocery Store and Longs Drug Stores as the major tenants. As of December 31, 1999, the center was 100% leased with a weighted average monthly rent of $1.06 per square foot.
THE BAKERSFIELD COMMERCIAL OFFICE REAL ESTATE MARKET
Vacancies in southwest Bakersfield, where Castle's properties are located, have averaged between a high of 19%, in 1991 and a current 13%. See "The Bakersfield Economy and Housing Market" for a discussion of the Bakersfield economy.
OTHER PROPERTIES
Castle owns and operates office buildings in Georgia (Premier Plaza), North Carolina (Landmark Center, Horizons at Six Forks and 4700 Falls) and Arizona (Regents Center) and an apartment complex in North Carolina (One Norman Square). Castle also owns one golf course and is completing construction of another in San Jose, California (Coyote Creek); owns a golf course in Sierra Vista, Arizona (Pueblo Del Sol); owns a golf course in Keene's Pointe (Orlando Florida); and owns a landfill in San Jose, California (Kirby Canyon) that is leased to and operated by a third party. Castle also owns a substantial majority interest in a venture that owns substantially all of the economic interest in an outlet shopping center (Prime Outlets) in Lake Elsinore, California. Except as otherwise noted below, all office leases are full service, with excess operating expenses passed through to the tenants. The following paragraphs describe each of the properties in more detail.
PREMIER PLAZA includes One Premier Plaza and Two Premier Plaza. One Premier Plaza is a Class A, suburban multi-tenant office building constructed in 1988 located in the North Central sub-market of Atlanta, Georgia consisting of approximately 188,000 square feet. At December 31, 1999, this building had an occupancy rate of 89% with a monthly weighted average base rent of $1.74 per square foot. Two Premier Plaza, a sister Class A building at the same location, consists of approximately 129,000 square feet and was completed in December 1997. At December 31, 1999, it was approximately 99% leased with a monthly weighted average base rent of $1.92 per square foot.
LANDMARK CENTER consists of two Class A office buildings constructed in 1984 and 1986, respectively, located in northeastern Raleigh, North Carolina. Building One consists of approximately 82,000 square feet and Building Two consists of approximately 84,000 square feet. Total site area is 7.02 acres. At December 31, 1999, Landmark Center had an occupancy rate of 100% with a monthly weighted average base rent of $1.52 per square foot.
HORIZON AT SIX FORKS consists of two multi-tenant office buildings and two single-tenant buildings located in Raleigh, North Carolina. The buildings are Class A and were constructed in 1989, 1990, and 1996. The two multi-tenant office buildings consist of approximately 32,000 and 27,850 square feet, respectively. The two single-tenant buildings consist of approximately 20,500 and 46,700 square feet, respectively. The total site area is 12.31 acres. At December 31, 1999, the properties were 100% leased with a monthly weighted average base rent of $1.18 per square foot. Some of the leases are full service and some are net of electric and/or janitorial expenses.
4700 FALLS is a class A suburban multi-tenant office building constructed in 1999 and granted a temporary certificate of occupancy in January 2000. The building located in Raleigh, North Carolina consists of approximately 173,000 square feet. At December 31, 1999. Leases for 9,660 square feet have been executed, and lease negotiations were in process with other prospective tenants. The weighted average base rent for the executed leases was $1.75 per square foot.
REGENTS CENTER consists of two office buildings located in Tempe, Arizona. Regents Center I was constructed in 1989 and consists of approximately 62,000 square feet with a total site area of 4.27 acres. At December 31, 1999, it was 100% occupied by DHL Worldwide Express at a monthly base rent of $1.90 per square foot. Regents Center II, an approximately 43,000 square foot building, was completed in 1998. The building is 100% leased to IKON Office Solutions at a monthly base rent of $1.60 per square foot.
SRP SITE located in Tempe, AZ is approximately 15.35 acres located at the corner of Elliott and Kyrene Roads. The undeveloped site will support approximately 96,000 square feet of garden office space. In addition, there are three to four retail pads that can be sold for development.
ORLANDO CARRIER HOTEL is a former Costco warehouse building located on approximately 8.8 acres in Eatonville, Florida, a suburb of Orlando. The 113,000 square foot facility, built in 1985, is currently under renovation for the conversion to a telecommunications carrier hotel. The facility will be marketed to telecommunications companies for the purpose of housing their switch operations. Currently lease negotiations are underway with three tenants, who would occupy approximately 50% of the building.
ONE NORMAN SQUARE APARTMENTS located in Cornelius, North Carolina, a suburb of Charlotte, is a 192-unit apartment complex constructed in 1993. At December 31, 1999, the property was 75% leased with an average monthly lease rent of $755 per unit.
COYOTE CREEK GOLF COURSE, located approximately 2.5 miles south of San Jose, California, and formerly known as Riverside Golf Course, consists of two 18-hole daily-fee courses. In August 1999, Castle completed a new 18-hole daily-fee golf course adjacent to the existing course. This course was designed by Jack Nicklaus and approximately 22,000 rounds were played at an average of $62 per round in 1999. In conjunction with the construction of the new golf course, the existing clubhouse was replaced with an approximately 12,000 square foot clubhouse that serves both the new Jack Nicklaus course and the existing course. In January of 2000, the existing golf course was taken out of play and is being renovated with a new Jack Nicklaus design. It is expected that this course will re-open in the second quarter of 2001.
PUEBLO DEL SOL GOLF COURSE, located in Sierra Vista, Arizona, is an 18-hole daily-fee course surrounded by Castle's residential development. In 1999, approximately 36,500 rounds were played at an average fee of $17.50 per round. In 1996, the Company completed a 7,000 square foot clubhouse at the Pueblo Del Sol Golf Course and made certain improvements to the golf course.
KEENE'S POINTE COUNTRY CLUB, located in Orlando Florida, opened in the third quarter of 1999. Keene's Pointe is an 18-hole daily-fee course designed by Jack Nicklaus and is surrounded by residential property being developed by the Keene's Pointe Partnership. In 1999, approximately 7,600 rounds were played at an average fee of $56 per round. Also opening in the third quarter of 1999 was the 23,000 square foot Keene's Pointe Clubhouse which will serve the golf course and surrounding communities.
THE SADDLE CREEK GOLF CLUB located in Copperopolis, California, is an 18-hole daily-fee course designed by Morrish & Associates surrounded by Castle's residential development. From May of 1999 through December 1999, approximately 19,000 rounds were played at an average fee of $42.50 per round. Also, Castle expects to open a 12,000 square foot clubhouse in the fourth quarter of 2000, which will serve the golf course and surrounding community.
PRIME OUTLETS, located in Lake Elsinore, California, is an approximately 368,000 square foot factory outlet center. As of December 31, 1999, the Prime Outlets was approximately 80% leased.
KIRBY CANYON, located approximately 2.5 miles south of San Jose, California, is an operating landfill leased to a large waste management company.
The Schirra Court, 10000 Ming, The Marketplace, One Premier Plaza, Two Premier Plaza, Horizon at Six Forks, Regents Center I and II, One Norman Square and Coyote Creek Golf Course properties are pledged as collateral for Castle's credit agreement with a group of banks. According to 1997 appraisals by independent third parties engaged by the banks, the total appraised value of the Schirra Court, The Marketplace, One Premier Plaza, Horizon at Six Forks, Regents Center I, One Norman Square and Coyote Creek Golf Course properties was approximately $90 million. According to 1998 appraisals by independent third parties engaged by the banks, Two Premier Plaza and Regents Center II had a combined value of approximately $23 million. According to a 1998 appraisal by an independent third party engaged by the banks, the total appraised value of 10000 Ming was approximately $29 million. Landmark Center is pledged as collateral in connection with the Teachers Loan.
COMPETITION AND OTHER INDUSTRY FACTORS
Castle's real estate operations are cyclical and highly sensitive to changes in general and local economic conditions. Such conditions are levels of consumer confidence, employment, income, interest rates, demand for housing and office space and the availability of financing for mortgages, acquisitions and construction. Other factors include shifts in population, fluctuations in the real estate market, changes in the desirability and preferences for residential, commercial and industrial areas, increased competition in the luxury resort market, and the effects of changes in tax laws. Land use planning, management and development are also subject to local zoning, economic and political constraints. The State of Hawaii's regulatory process is lengthy and time-consuming. The process of securing proper approvals and permits can be costly, and no assurances can be given that requested approvals will be obtained.
The real estate industry is highly competitive, with developers and homebuilders competing for desirable properties, financing, raw materials and skilled labor. Castle generally competes against a number of large, well-capitalized real estate developers for residential, commercial and industrial projects. Castle competes for residential sales with other developers, homebuilders and the re-sale housing market, and for commercial and industrial sales and leases with other developers with the same or similar products. Castle competes primarily on the basis of location, price, quality, design, service, and reputation.
Hawaii is home to a number of the top resort hotels in the world. Castle's Lana'i resort hotels are in competition with these resorts for both individual travelers and high level groups. Moreover, because Lana'i is considered a world-class destination, it competes with resort hotels around the world with a similar guest profile. Furthermore, increased competition in the market can be expected as additional luxury resort hotels are opened around the world.
In addition to the general risks of real estate development and resort operation and development, Castle is subject to some special or more pronounced risks with respect to its Hawaii properties. These include the availability of construction materials and labor and the costs thereof (including transportation costs); adverse changes in the market for real estate due to the adverse changes in international economic conditions which lessen travel, tourism and investment in Hawaii; costs associated with environmental matters; and delays in obtaining permits or approvals for development. Competition for the acquisition of developable land is particularly intense in Hawaii, largely due to the concentration of land ownership and the limited supply of available land that is entitled for development.
In 1995, the Hawaii Supreme Court issued a decision (commonly known in Hawaii as the "PASH Decision") which held that native Hawaiians possess rights to engage in traditional and customary practices on undeveloped land in Hawaii. The PASH Decision has created some uncertainty as to what these rights are and how they may be exercised in light of other legally recognized rights of private property owners. The Company is sensitive to the recognition of legitimate native Hawaiian rights and supports establishing a process whereby these rights can be fairly determined while preserving the rights of property owners. To date, the Company has not experienced any adverse impact on its operations as a result of the PASH Decision. At this time, however, there can be no assurance that a process will be established to balance these rights of native Hawaiians with those of property owners, and that the exercise of such native Hawaiian rights will not adversely affect the Company's development and other operations.
ENVIRONMENTAL AND REGULATORY MATTERS
Castle is subject to local, state and federal statutes, ordinances, rules and regulations, including those protecting health and safety, archeological preservation laws, cultural and environmental laws, including without limitation the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act and the Endangered Species Act. The particular environmental requirements that apply to any given community vary greatly according to the condition and the present and former uses of the site. Environmental laws may cause Castle to incur substantial compliance, mitigation and other costs, may restrict or prohibit development in certain environmentally sensitive areas, and may delay or prevent completion of Castle's projects and adversely impact the profitability of such projects.
Portions of Castle's properties in California, Keene's Pointe and on Lana'i contain habitat for endangered or potentially endangered species. Some of the properties held for development by Castle in California, Florida and Hawaii were formerly sites of large agricultural operations, which necessarily involved the use of pesticides and other
agricultural chemicals. In addition, petroleum operations conducted by third parties are or have been located on or adjacent to land owned by Castle in Bakersfield and Hawaii.
Although environmental laws have not had a material adverse effect on Castle's capital expenditures, earnings or competitive position to date, and management is not currently aware of any environmental compliance issues that are expected to have a material adverse effect on Castle, no assurance can be given that such laws will not have a material adverse effect on Castle in the future. In connection with the Distribution, Castle assumed and indemnified Dole against any environmental liabilities associated with properties obtained from Dole and certain other real estate projects completed by Dole prior to the Distribution Date.
The availability and quality of water can affect real estate development and operations. California has experienced drought conditions from time to time, resulting in certain water conservation measures and, in some cases, rationing by local municipalities with which Castle does business. Similarly, water availability and quality can affect the Company in other locations where it does business. Although Castle has not suffered any curtailment of its development activity or operations as a result of drought or problems with the availability or quality of water, restrictions on the Company's operations resulting from water unavailability could have an adverse effect upon Castle's operations.
Changes in federal income tax laws and state and local property tax laws may affect demand for new homes and therefore the value of developable real property. In addition, Hawaii imposes "roll-back" taxes on agricultural land which is reclassified for other purposes. Three years after reclassification of agricultural land for higher urban or rural use, or earlier if the land is put to such higher use, the owner is assessed the difference between the normal tax rate and the preferential agricultural tax rate which was paid during the preceding ten years, plus interest at the statutory rate.
Castle's real estate operations are subject to approval and regulation by various federal, state and county agencies. Approval may be required with respect to the layout, design and extent of improvements, as well as construction, land use, water use, zoning, health, environmental and numerous other matters. Approvals may also be required for sales and marketing activities, sales literature, contract forms and the like. Castle is subject to a number of laws imposing registration, filing and disclosure requirements with respect to its residential developments, including the Lana'i resort residential development. For example, the Federal Consumer Credit Protection Act requires, among other things, that certain disclosures be made to purchasers about finance charges in credit transactions. Various federal, state and local authorities regulate the manner in which Castle conducts its sales activities and other dealings with its customers.
LICENSES
Castle is licensed as a general building contractor by the states of Hawaii and California and has applied for licensing in Florida, and is licensed as a real estate broker in Hawaii and Florida and has applied for licensing in California. These licenses must be renewed periodically. Castle holds liquor licenses for its Lana'i resort development and the Dole Plantation in Hawaii, the Seven Oaks Country Club in Bakersfield, the Coyote Creek Golf Course in San Jose, the Pueblo Del Sol Golf Course in Sierra Vista, and has applied for a liquor license for the Keene's Pointe Country Club in Orlando. Castle also holds a motor carrier certificate for its Lana'i operations.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The major raw materials and operating supplies used by the Company are lumber, concrete, roofing material, steel frames, and plumbing and electrical fixtures. Materials used in the construction of Castle's homes are generally available from a number of sources. However, material prices may fluctuate due to various factors, including demand or supply shortages.
Castle is subject to certain risks associated with the availability and cost of materials and labor, delays in construction schedules and cost overruns. Environmental regulations can also have an adverse impact on the availability and price of certain materials such as lumber. Additionally, Castle's operations are susceptible to delays caused by strikes or other events involving trade unions, weather disturbances, and international events affecting the shipping industry and the transportation of building materials.
Independent contractors, subcontractors and suppliers from customary trade sources generally secure the materials and supplies used in the construction work conducted by Castle. Construction time for Castle's homes depends on the time of the year, the local labor situation, the availability of materials and supplies and other factors. Castle is not presently experiencing any serious labor or material shortages; however, the residential construction industry has in the past experienced serious labor and material shortages, including lumber, insulation, drywall and
cement. Delays in construction of homes due to these shortages or to inclement weather conditions could have an adverse effect upon Castle's homebuilding operations.
EMPLOYEES
At December 31, 1999, the Company had approximately 1,840 full and part-time employees, including corporate staff, supervisory personnel of construction projects, maintenance crews to service completed projects, resort and hotel staff, as well as persons engaged in administrative, legal, finance and accounting, engineering, land acquisition and development, and sales and marketing activities. At December 31, 1999, certain of Castle's Hawaii employees were affiliated with the Carpenters' Union (68 employees), and the International Longshoremen's and Warehousemen's Union (784 employees). The Company's California and other Mainland employees are not unionized. In addition, Castle hires contractors and subcontractors for many of its development and homebuilding operations. The Company believes that its relations with the employees have been satisfactory.
ITEM 2.
ITEM 2. PROPERTIES
The Company owns and maintains executive offices in Los Angeles, California and auxiliary executive offices in Honolulu, and Lana'i City, Hawaii, Bakersfield, California and Kannapolis, North Carolina. In the first quarter of 1999, Castle moved its Oahu headquarters from their offices in the Castle & Cooke Building at the Iwilei Cannery Development to the Verifone Building in Mililani Technology Park. Also in the first quarter of 1999, Castle moved its Bakersfield offices from 10000 Ming Avenue to the newly-constructed One Riverwalk office building. The Company and each of its subsidiaries believe that their property and equipment are generally well maintained, in good operating condition and adequate for their present needs.
The following is a description of the Company's significant properties.
HAWAII - RESIDENTIAL
Castle's residential landholdings and unentitled agricultural and conservation landholdings on Oahu, as of December 31, 1999, are described in the following table.
- ------------------------------- (1) Number of units refers to the remaining (unsold and, in certain cases, undeveloped) approved units and units on entitled land as of December 31, 1999.
(2) Wholly-owned subsidiaries of Castle, one of which is the managing general partner, own 50% of the limited partnership that owns Royal Kunia. The partnership is controlled by Castle and included in the Company's consolidated financial statements.
(3) Na Pu'u Nani, located on the island of Hawaii, is held by a joint venture in which a wholly-owned subsidiary of Castle owns a 30% interest and is the managing general partner.
(4) Property has no approvals for development. In Hawaii, obtaining the many necessary approvals for residential and commercial developments is an extended process, which can involve a number of different governmental jurisdictions and agencies, considerable risk and expense, and substantial delays.
(5) Includes approximately 125 acres of non-developable open space associated with the Mililani Mauka Phase I and Phase II-A properties.
(6) The City and County of Honolulu announced plans for a large regional park and sports complex in Central Oahu on this property. The Company has been negotiating the terms of the transfer of this property with the City and County since the County announced its intention to proceed to acquire the property through eminent domain proceedings.
MAINLAND - RESIDENTIAL
Castle's residential, open space and agricultural landholdings in California, Florida and Arizona as of December 31, 1999 are described in the following table.
- --------------------------------- (1) Number of lots refers to the remaining (unsold and, in certain cases, undeveloped) lots that either have entitlements or are planned for future development as of December 31, 1999.
COMMERCIAL
The total land owned by Castle on the island of Oahu and designated by Castle for commercial or industrial development is approximately 753 acres. Approximately 542 acres are not fully entitled commercial or industrial lands and may not all be developed for commercial or industrial uses.
In California, Castle owns approximately 838 acres of land, which are intended for commercial use, including approximately 531 entitled acres in Bakersfield. Castle owns approximately 164 acres in Sierra Vista, Arizona, which are used to operate the 18-hole Pueblo Del Sol Golf Course.
Castle's commercial land in San Jose, California consists of 149 acres that are used for the operation of the 18-hole Coyote Creek Golf Course, an additional 149 acres that are used for a new 18-hole golf course that was completed in mid-1999 and 760 acres that have been leased to a third party for the Kirby Canyon landfill site.
Castle's Lindero Canyon property is currently undeveloped and consists of approximately 10 acres located in Westlake Village, California.
Castle's Mountaingate commercial property is located in Los Angeles County. This consists of an approximately 67-acre closed landfill site that is being mined for methane gas by a third party.
Castle's commercial landholdings as of December 31, 1999, are described in the following table.
PROPERTY
- --------------------------------- (1) Leasehold (2) The property is zoned for agricultural use, but has a special use permit to operate a retail store restricted to selling agricultural and related products. (3) Six acres are improved and five acres partially improved.
Certain operating properties of Castle are under mortgages in favor of Castle lenders.
(1) The Company owns substantially all of the economic interest in this property which is held by a limited partnership.
RESORTS
The island of Lana'i is the sixth largest of the islands of Hawaii. Castle owns approximately 88,000 acres or 98% of the island. Of the total acreage on the island (approximately 90,500 acres), approximately 3,228 acres are classified by the Hawaii State Land Use Commission as Urban, 38,197 acres are classified as Conservation, 46,678 acres are classified as Agricultural and 2,397 acres are classified as Rural.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in various claims and legal actions incident to its operations. In the opinion of management, after consultation with legal counsel, none of such claims is expected to have a material adverse effect on the financial condition or other operating results of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the quarter ended December 31, 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
Below is a list of the names and ages of all executive officers of the Company as of March 20, 2000 indicating their positions with the Company and their principal occupations during at least the past five years. Each of such executive officers serves at the discretion of the Board of Directors.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of March 16, 2000, there were approximately 8,664 holders of record of the Company's Common Stock. The Company's Common Stock is traded on the New York Stock Exchange ("NYSE") under the symbol "CCS". The following table shows the market price range of the Company's Common Stock for each quarterly period in 1999 and 1998:
The payment and amount of cash dividends on Castle Common Stock will be subject to the discretion of Castle's Board of Directors. Castle anticipates that it will retain all earnings for use in its business and will not pay cash dividends on shares of Castle Common Stock in the foreseeable future. Furthermore, the terms of the Credit Agreement restrict the payment of dividends on the Castle Common Stock. Castle's dividend policy will be reviewed by Castle's Board of Directors from time to time as may be appropriate and payment of dividends will depend upon Castle's financial position, capital requirements and Credit Agreement restrictions and such other factors as Castle's Board of Directors deems relevant.
No equity securities of Castle were sold by Castle since the Distribution that were not registered under the Securities Act of 1933, as amended.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
There is hereby incorporated by reference the information appearing under the caption "Results of Operations and Selected Financial Data" on page 17 of the Castle Annual Report.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
There is hereby incorporated by reference the information appearing under the caption "Management's Discussion and Analysis of Results of Operations and Financial Position" on pages 18 through 23 of the Castle Annual Report.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
There is hereby incorporated by reference the information appearing on pages 24 through 39 of the Castle Annual Report. See also Item 14 of this report
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in the Company's independent public accountants for 1999, 1998 and 1997 nor have there been any disagreements with the Company's independent public accountants on accounting principles or practices for financial statement disclosures.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information regarding the Company's directors that appears under the caption "Election of Directors" in the Company's definitive proxy statement for its 2000 Annual Meeting of Stockholders (the "2000 Proxy Statement"). There is hereby incorporated by reference the Company's executive officers and related information under "Executive Officers of the Registrant", which is set forth in Part I hereof.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information that appears under the captions "Compensation of Directors" and "Compensation of Executive Officers" in the 2000 Proxy Statement.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information with respect to security ownership that appears under the captions "Beneficial Ownership of Certain Stockholders" and "Security Ownership of Directors and Executive Officers" in the 2000 Proxy Statement.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information that appears under the caption "Certain Transactions" in the 2000 Proxy Statement.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
2. FINANCIAL STATEMENT SCHEDULES:
All other schedules are omitted because they are not applicable, not required or the information is included elsewhere in the financial statements or notes thereto.
3. EXHIBITS
The Company agrees to furnish to the Securities and Exchange Commission upon request a copy of each instrument with respect to issues of long-term debt of the Company and its subsidiaries, the authorized principal amount of which does not exceed 10% of the consolidated assets of the Company and its subsidiaries.
Executive Compensation Plans and Arrangements - Exhibits 10.1, 10.2, 10.3, 10.4, 10.5, 10.6 and 10.7:
*- To be filed by amendment
(b) REPORTS ON FORM 8-K:
No current reports on Form 8-K were filed by the Company during the last quarter of the year ended December 31, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 24, 2000 By: /s/ DAVID H. MURDOCK --------------------- David H. Murdock CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Castle & Cooke, Inc.:
We have audited in accordance with auditing standards generally accepted in the United States, the financial statements included in Castle & Cooke, Inc.'s annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 3, 2000. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The financial statement Schedule III-Real Estate and Accumulated Depreciation is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The information included in the schedule for the year ended December 31, 1999, has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California February 3, 2000
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued) CASTLE & COOKE, INC. As of December 31, 1999 (000's)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION CASTLE & COOKE, INC. As of December 31, 1999 (000's)
(1) This property is pledged as collateral in connection with the Company's long-term note payable related to the 12/31/98 Teachers transaction.
(2) This property is pledged as collateral in connection with the Company's long-term note payable related to the 11/5/99 Teachers transaction.
(3) Aggregate cost for federal income tax purposes as of December 31, 1999 is $263 mill+B32ion.
EXHIBIT INDEX
*- To be filed by amendment