ITEM 1. BUSINESS
Amfac/JMB Hawaii, L.L.C. (the "Company") is a Hawaii limited liability company. The Company is wholly-owned by Northbrook Corporation ("Northbrook"). The primary business activities of the Company are land development and sales, golf course management and agriculture. The Company owns approximately 34,000 acres of land located on the islands of Oahu, Maui, Kauai and Hawaii in the State of Hawaii. All of this land is held by the Company's wholly-owned subsidiaries. In addition to its owned lands, the Company leases approximately 49,000 acres of land used primarily in conjunction with its agricultural operations. The Company's operations are subject to significant government regulation.
In early March 1997, the Company restructured its operations into the following six separate operating divisions: Sugar, Golf, Coffee, Water, Land Management and Real Estate Development. The Company also formed a corporate services division to provide accounting, MIS, human resources, tax and other administrative services for the six operating divisions. At December 31, 1998, the Company and its subsidiaries employed 842 persons.
In February 1998, the Company announced the relocation of the headquarters for its real estate development division from Honolulu to Kaanapali, Maui. Due to poor market conditions on Kauai and a shortage of land inventory on Oahu, the focus of the Company's land development operations is on Maui. In connection with the office re-location, four executives and one administrative person resigned their positions with the Company. These changes resulted in one-time termination and relocation costs of approximately $.5 million during 1998. Annual recurring cost savings are expected to be approximately $.7 million from lower compensation, rent and other employee-related costs. The Company has hired a new president, a Maui resident, for the Maui development office which the Company believes will improve coordination of its planning and entitlement efforts, and in dealing with and responding to community concerns.
The Company is the successor to Amfac/JMB Hawaii, Inc. ("A/J Hawaii"). On March 3, 1998, A/J Hawaii was merged (the "Merger") with and into the Company pursuant to an Agreement and Plan of Merger dated February 27, 1998 by and between A/J Hawaii and the Company (which was then named Amfac/JMB Mergerco, L.L.C.). The Merger was consummated to change the Company's entity form from a corporation to a limited liability company. The Company was a nominally capitalized limited liability company which was formed on December 24, 1997, solely for the purpose of effecting the Merger. In the Merger, the Company succeeded to all the assets and liabilities of A/J Hawaii in accordance with the Hawaii Business Corporation Act and the Hawaii Uniform Limited Liability Company Act. In addition, A/J Hawaii, the Company, The First National Bank of Chicago (the "Trustee") and various guarantors entered into a Second Supplemental Indenture dated as of March 1, 1998. Pursuant to the Second Supplemental Indenture, the Company expressly assumed all obligations of A/J Hawaii under the Indenture dated as of March 14, 1989, as amended (the "Indenture") by and among A/J Hawaii, the Trustee and the guarantors named therein and the holders of the Certificates of Land Appreciation Notes due 2008 Class A (the "Class A COLAs") and the holders of the Certificates of Land Appreciation Notes Class B (the "Class B COLAs" and, collectively with the Class A COLAs, the "COLAs"). The Merger did not require the consent of the holders of the COLAs under the terms of the Indenture. The Company has succeeded to A/J Hawaii's reporting obligations under the Securities Exchange Act of 1934, as amended. Unless otherwise indicated, references to the Company prior to March 3, 1998 shall mean A/J Hawaii and A/J Hawaii's subsidiaries.
The real estate development, golf course operations and agricultural operations of the Company comprise its three primary industry segments, "Property", "Golf" and "Agriculture", respectively. The Company segregates total revenues, operating income (loss), total assets, capital expenditures and depreciation and amortization by each industry segment. The Company owns no patents, trademarks, licenses or franchises which are material to its business.
All references to "Notes" are to Notes to the Consolidated Financial Statements contained in this report.
PROPERTY SEGMENT.
The Company's Property segment is responsible for the following operations: land planning; obtaining land use, zoning and other governmental approvals; development activities and the selling or financing of developed and undeveloped land parcels. Land Management and Real Estate Development operations make up the Property segment. In general, the Company maintains and manages its land holdings until: (i) conditions are favorable for their sale, or (ii) a feasible development plan can be formed and approved. Once the Company has obtained the necessary development approvals ("entitlements"), the Company may elect to either sell the land with its entitlements or develop all or a portion of the land. In the past, the Company has typically done "horizontal" development work, including site work (e.g., grading, excavation) and installation of infrastructure (i.e., roadways and utilities). Once the horizontal development is complete, the Company often sells the "improved" development parcels to homebuilders, shopping center developers and others who will complete the "vertical" development of the site consistent with the Company's original development plans and the entitlements.
SALES OF AGRICULTURAL PROPERTIES. The Company has placed a substantial portion of its land holdings on the market to generate cash to finance the Company's operations, to meet debt service requirements and to raise cash to redeem on June 1, 1999, such Class B COLAs that are "put" to Amfac/JMB Finance, Inc. ("AJF") (see "Liquidity and Capital Resources" section below). The Company has currently listed for sale approximately 500 acres of land on Kauai and 250 acres on Maui. These lands consist primarily of unentitled agricultural and conservation parcels. Approximately 2,000 acres are under contract for sale with sales prices exceeding $7 million in the aggregate. However, these contracts have due diligence investigation periods which allow the prospective purchasers to terminate the agreements.
There can be no assurance that the signed contracts for sale will in fact close under their current terms or any other terms or that the Company will be successful in selling other lands at acceptable prices. During 1998, 1997 and 1996, the Company generated approximately $26.4 million, $7.4 million and $7.6 million, respectively, in revenue primarily from the sale of unentitled, agricultural and conservation land parcels.
DEVELOPMENT. Company management actively monitors development opportunities for its land holdings. As development opportunities arise, management typically prepares feasibility analyses to assess the profit potential of the development. As part of the feasibility analyses, management considers factors such as the location and physical characteristics of the property, demographic patterns and perceived market demand, estimated project costs, as well as regulatory and environmental considerations and availability of utilities and governmental services.
Once a decision is made to proceed with a development project, approvals must be obtained from both the State and County governments in Hawaii. The State of Hawaii Land Use Commission has classified all lands in Hawaii as urban, agricultural or conservation. In general, only lands classified as urban can be developed. Although in some cases agricultural lands can be used for lower density residential developments, agricultural lands are typically not developed. Conservation lands also cannot be developed, and are typically located in heavily forested, mountainous regions and along the oceanfront.
There are multiple layers of approvals required from the County governments in Hawaii. Initially, a project must be included in the "General" or "Community" plan for the applicable County. Next, the developer must apply for formal zoning. In general, zoning classifications are more detailed than either the State urbanization designation or the general or community plans. Zoning normally addresses the specific use of each parcel of land and the density of the development. The impact of the development on the local community is normally assessed as part of the zoning process. Zoning approvals in Hawaii are typically accompanied by impact fees and required improvements to public facilities and infrastructure, such as roadways, schools, utilities and parks that must be paid for by the developer.
For oceanfront parcels, a special management area ("SMA") permit must also be obtained from the County government, in addition to general or community plan and zoning approvals. The SMA permitting process allows the County an additional opportunity to review potential environmental, ecological and other impacts from the development, and may also result in additional conditions on, or concessions from, the developer.
The ability of the Company to develop its properties may be materially adversely affected by State or County restrictions or conditions that might be imposed in certain communities having either inadequate public infrastructure or local opposition to continued growth.
After all of the discretionary approvals described above have been received, a subdivision approval must be obtained along with certain other permits such as grading and building permits. Normally, these approvals are more ministerial in nature. However, the Company has experienced certain problems obtaining these permits in the past and, in one instance, has had to pay an impact fee to obtain a grading permit for one of its golf courses.
The following table shows the entitlement status of the Company's land holdings (in acres) as of December 31, 1998.
State Classification County Zoning --------------------- ---------------------------------------- Urban Agri. Cons. Hotel Com. Res. Agri. Cons. ----- ------ ------ ----- --------- ----- ------ ----- Maui 939 6,431 4,886 106 25 1,061 6,179 4,886
Kauai 722 10,676 9,760 -- 343 301 10,638 9,875
Oahu 154 -- 468 -- 15 -- -- 607
Hawaii 24 -- -- -- 4 20 -- -- ----- ------ ------ ----- ----- ----- ------ ------
Total 1,839 17,107 15,114 106 387 1,382 16,817 15,368 ===== ====== ====== ===== ===== ===== ====== ======
Explanations for the abbreviations used above are as follows:
Agri. - Agricultural Com. - Commercial/Industrial Res. - Residential (single or multi-family) Cons. - Conservation/Preservation/Open space
The Company's development projects are described in Item 2
ITEM 2. PROPERTIES
LAND HOLDINGS.
The major real properties owned by the Company are described below by island.
(a) OAHU.
On the island of Oahu, the Company owns approximately 620 acres of land of which approximately 150 acres is classified as urban and approximately 470 acres is classified as conservation open land. After the closure of the Oahu Sugar plantation in 1995, the Company began developing the 64-acre mill site located in Waipahu, which is approximately 10 miles west of downtown Honolulu near Pearl Harbor. The Company received county zoning approval for a light industrial subdivision on the property.
In November 1998, the Company sold a portion of this mill site property, which served as collateral for a $10 million loan from City Bank for an approximate sales price of $7.7 million in cash (plus 2% of the gross sales price of subsequent parcel sales of all or any portion of the property by the purchaser) and paid $6 million of the sales proceeds as a principal reduction on the loan. The purchaser assumed responsibility for completion of the infrastructure requirements for this portion of the mill- site development project. The Company received a one-year extension on repayment of the $4 million remaining balance of the loan which is secured by another parcel at the mill-site. The extended loan bears interest at the bank's base rate (7.75% at December 31, 1998) plus 1.25% and matures on December 1, 1999.
The Company is marketing the remaining land in bulk at the mill-site development. The Company does not anticipate expending funds for infrastructure at this development.
The Company also owns the Waikele Golf Course located at the Company's completed Waikele project. Waikele is located directly north of the Oahu Sugar mill site development in Central Oahu. The Waikele Golf Course has experienced a significant drop in play from eastbound (primarily Japanese) tour groups which has depressed rounds played, average rate and, as a result, net operating income. The Company has developed and implemented a marketing plan to return the golf course to its previous levels of profitability. It is difficult, however, to predict how effective these 15 efforts will be. The Waikele Golf Course generated approximately $5.0 million, $5.8 million and $6.0 million, respectively, in revenues during 1998, 1997 and 1996.
The Company's approximately 470 acres of conservation lands on Oahu, primarily watershed lands located on the northeastern side of the Ko'olau mountains, relate to the Waiahole Ditch. These lands will be sold as part of the Waiahole Ditch sale agreement with the State of Hawaii (assuming such transaction is ultimately completed).
(b) MAUI.
The Company owns approximately 12,200 acres of land on the island of Maui, most of which are classified as agricultural land (approximately 6,400 acres) and conservation land (approximately 4,900 acres) for State and County purposes. All of the Company's land holdings are located in West Maui near the Lahaina and the Kaanapali Beach Resort areas.
In general, the development of the Company's land on Maui is expected to be long-term in nature. Maui is less populated than Oahu and more dependent on the resort/tourism industry, so much of the Company's land is intended for resort and resort-related uses. Due to overall economic conditions and trends in tourism, demand for these land uses has been weak. The Company's homesite inventory on Maui, which is targeted to the second home buyer, has experienced slower sales activity over the past five years than originally expected. The Company's competitors on Maui have also experienced slow sales activity. The Company is continuing to evaluate its plans and the timing of development of its land holdings in light of the current weak market demand and the capital resources needed for future development.
The Company has determined that the focus of its development efforts should be on its Kaanapali/Honokowai land holdings (approximately 3,200 acres) on Maui. Although additional governmental approvals are required for most of these lands, approximately 900 acres of the Company's Kaanapali/Honokowai land holdings already have some form of entitlements. The Company believes its development efforts are best concentrated in this area where it has certain development approvals already secured.
The Company's Kahoma and Launiupoko properties (in total, approximately 7,000 acres) are considered to be better suited in the near term for agricultural uses and possibly for lower density, more rural developments. The Company has decided to sell certain portions of these land holdings as unentitled parcels, and may consider selling additional portions of these lands based upon market conditions and the cash needs of the Company. The Company had 250 acres of land on Maui listed for sale as of December 31, 1998. (See also discussion of land sales in "Liquidity and Capital Resources" below.)
The Company owns and operates the Royal Kaanapali Golf Courses ("RKGC"), which are two 18-hole golf courses located at the Kaanapali Beach Resort on West Maui. The courses occupy approximately 320 acres of land. The two Kaanapali golf courses generated approximately $9.5 million, $9.8 million and $9.2 million, respectively, in revenues during 1998, 1997 and 1996. (Reference is made to note 6 concerning the default notice issued as of January 1, 1999 by the lender concerning the indebtedness secured by the golf courses.)
The Company's primary development projects located in the Kaanapali/ Honokowai area are as follows:
Project Acres Uses Status - ------- ----- ---- ------
Kaanapali Golf Estates 204 Single family residential Actively selling/ pending infra- structure
North Beach Lot #1 14 280 Unit time share resort Fully zoned
North Beach 82 Hotel/condo/time share Pending SMA Lots #2, 3 & 4 approvals
North Beach Mauka 318 Golf/retail/time share/condo Needs urbaniza- tion & zoning
Puukolii Village 249 Single and multi-family Pending major residential/retail/commer- infrastructure cial/community/civic
Each of these projects is described in greater detail below.
KAANAPALI GOLF ESTATES. The Company is marketing Kaanapali Golf Estates ("KGE"), a residential community that is part of the Kaanapali Beach Resort in West Maui. KGE is divided into several parcels and is approved for 340 homesites of which the Company has sold approximately 90 homesites through individual lot and bulk parcel sales.
In May 1997, the Company obtained final subdivision approval for a 32- lot subdivision of one such parcel, referred to as "Parcel 17B". The Company commenced on-site construction of the subdivision improvements for Parcel 17B in August 1997 and completed these improvements in March 1998 at a cost of approximately $1.7 million. During 1997, the Company generated revenues of approximately $2.8 million from the sale of 18 lots at Parcel 17B. During 1998, the Company generated revenue of approximately $2.3 million from the sale of the remaining 14 lots at Parcel 17B.
In May 1998, the Company sold Parcel 18, an 18-lot subdivision in KGE, in bulk for $1.8 million.
Currently under contract for sale in bulk is 17 acre Parcel 16.
NORTH BEACH. In October 1998, the Company received the final county approval needed to develop the Kaanapali Ocean Resort ("KOR"), a 280 unit time share project on the 14 acre Lot 1 ("KOR Site") of Kaanapali North Beach. In connection with the special management area use permit with the County of Maui ("SMA Permit") for KOR, the Company signed a settlement agreement with certain Maui citizens who were opposing the project in "contested case hearings". Additionally, several opposing citizens who did not enter into the settlement agreement signed letters agreeing to withdraw from the contested case hearings. The Company submitted the (ultimately approved) settlement agreement to the Maui Planning Commission in October 1998. Key provisions of the settlement agreement include the Company's obligation to provide a new 10-acre public recreation area on North Beach, a maximum limit of 1,950 units density on North Beach (versus the existing 3,200 units) and a requirement to implement certain drainage improvements associated with the development of the Company's remaining Kaanapali lands.
Concurrent with construction of KOR, the Company plans to begin construction of improvements for a 13-acre public park at Wainee, Maui. The park land and improvements will be donated by the Company to the County of Maui. The Company has completed the purchase of Tobishima Pacific, Inc.'s ("TPI") 50% ownership interest in North Beach. The Company and TPI
were unable to agree on key operating decisions related to the development of KOR and the future development plan for the entire North Beach property.
To break the deadlock on these issues, the Company exercised a buy/sell option using a $12 million stated purchase price, and TPI elected to sell its interest. The Company financed with TPI 80% of the purchase price for TPI's interest in North Beach and signed a note and first mortgage in favor of TPI for $9.6 million for the balance. The note is payable in five equal, annual principal installments beginning in September 1999, with interest of 8.5% payable quarterly. In January 1999, the Company paid TPI $2.2 million on its note to release Lot #1 for KOR and the new 10-acre public recreation area at North Beach.
In February 1997, the Company formed a limited partnership with an affiliate of a time share company. Kaanapali Ownership Resorts L.P., the new limited partnership ("KOR"), is owned 85% by subsidiaries of the Company and 15% by Kaanapali Partners Limited Partnership, an affiliate of the owners of The Ridge Tahoe resort in Nevada. Construction plans for KOR are expected to be finalized and construction begun by summer 1999. The Company is working with various lenders to obtain construction and other financing for KOR. Assuming development proceeds, sales of time share intervals are scheduled to begin during the fall of 1999.
In September 1997, the Company and TPI entered into an agreement with Maui County providing the County with the option to purchase up to 33 acres at North Beach (separate from the KOR Site) for $15 million. In connection with receiving the SMA permit for KOR, the Company agreed to extend the County's option for a period of six to twelve months (depending on the election described below) in 1999 and to provide alternate park sites for the County's consideration. Specifically, the County could decide to purchase a smaller portion of the original 33 acre site for the original per acre purchase price. Alternatively, the County could decide to purchase 17 acres located directly to the south of the original option site again for the original per acre purchase price. Based on the County's actions, the option will expire June 30, 1999. The Company will work directly with the new County administration and Council on this option.
NORTH BEACH MAUKA. The Company has plans for an additional 18-hole golf course, condominiums, commercial/retail and residential uses. The Company also plans to evaluate adding a significant time-share component to the development plans for this 318-acre parcel. Currently, the Company has Community Plan approvals and R-3 zoning (residential, minimum 10,000 square foot lots) for North Beach Mauka. State urbanization is required, along with final zoning and subdivision.
PUUKOLII VILLAGE. The Company has regulatory approval to develop a project, known as "Puukolii Village", on approximately 249 acres located "Mauka" ("towards the mountains") of Kaanapali Beach Resort. A significant portion of this project will be affordable housing. Development of most of Puukolii Village cannot commence until after completion of the planned Lahaina/Kaanapali bypass highway. The proposed development of Puukolii Village is expected to satisfy the Company's affordable housing requirements in connection with its Kaanapali/Honokowai land use entitlements.
For the portion of Puukolii Village that is not dependent upon completion of the Lahaina/Kaanapali bypass highway, the Company has unsuccessfully attempted to sell several residential parcels to home builders and multi-family residential developers. Until such time that the Company reaches an acceptable agreement with a housing developer, limited funds will be expended on infrastructure for Puukolii Village.
MAUI INFRASTRUCTURE COSTS. In connection with certain of the Company's land use approvals on Maui, the Company has agreed to provide employee and affordable housing and to participate in the funding of the design and construction of the planned Lahaina/Kaanapali bypass highway. The Company has entered into an agreement with the State of Hawaii Department of Transportation covering the Company's participation in the design and construction of the bypass highway. In conjunction with state urbanization of the Company's Kaanapali Golf Estates project, the Company committed to spend up to $3.5 million, (of which approximately $.8 million has been spent as of December 31, 1998) toward the design of the highway. Due to lengthy delays by the State in the planned start date for the bypass highway, the Company recently funded approximately $1.0 million for the engineering and design of the widening (from 2 to 4 lanes) of the existing highway through the Kaanapali Beach Resort. The Company believes this $1.0 million will be credited against the $3.5 million commitment discussed above. The Company's remaining commitment of another $6.7 million for the construction of the bypass highway is subject to the Company obtaining future entitlements on Maui and the actual construction of the bypass highway. The development and construction of the bypass highway is expected to be a long-term project that will not be completed until the year 2004 or later.
(c) KAUAI.
The Company owns approximately 21,200 acres of land on the island of Kauai, the vast majority of which is classified and zoned, by the State of Hawaii and the County of Kauai respectively, as agricultural and conservation lands. There are two large contiguous parcels which comprise the bulk of these Kauai land holdings, located in Kapaa and Lihue/Hanamaulu on the eastern side of Kauai. Large portions of the agricultural lands are currently used for sugar cane cultivation, and portions of the conservation lands are utilized by the Company's sugar plantations to collect, store and transmit irrigation water from mountainous areas to the sugar cane fields.
The Company has state urbanization and county zoning for a 552 acre master-planned community known as the Lihue/Hanamaulu Town Expansion, which includes approximately 1,800 affordable and market rate residential units, commercial and industrial facilities and a number of community and other public uses. The Company does not plan to pursue subdivision and building permits for this project until the real estate market on Kauai improves.
The Company has decided to list for sale large portions of its remaining Kauai land holdings, which includes 2,000 acres in Kapaa. The Company has certain additional lands also listed for sale; however, many of these are smaller remnant parcels. The Company may consider selling additional portions of these lands based upon market conditions and the cash needs of the Company. (See also discussion of land sales in the "Liquidity and Capital Resources" section below.)
LEASES.
Several of the Company's plantation subsidiaries lease agricultural lands from unrelated third parties. Such leases vary in length from month-to-month to eight years and cover parcels of land ranging in size from one acre to over 20,000 acres. Certain of such leases provide the Company, as lessee, with licenses for water use. Almost all of the leased land of the Company is used in connection with the cultivation of sugar cane. Most of the leases provide that the Company pay fixed annual minimum rents (ranging from $10 to $131 per usable acre), plus additional rents based upon a percentage of gross receipts above a specified level. During the past three years, the Company has paid only minor amounts of percentage rent on the leases (listed below). There is no assurance that any of the Company's leases will be renewed.
The following summary lists the material land leases of the Company's subsidiaries, as lessees, and certain material terms thereof:
Annual Expiration Sugar Cane Gross Minimum Plantation Date Acreage Acreage Rent ---------- ------------- ---------- ------- -------- Kekaha month to month 6,892 27,720 $251,500 Lihue 10/30/99 4,054 6,200 $ 56,370 Lihue 12/15/02 0 3,106 $ 20,630 Lihue 12/31/99 1,822 4,783 $ 19,132 Lihue 6/28/06 773 844 $ 9,208 Pioneer month to month 889 1,639 $ 51,000 Pioneer 12/31/05 770 2,509 $100,937 Pioneer 12/07/04 450 450 $ 35,000 Pioneer 9/20/03 395 395 $ 4,115
OTHER PROPERTY.
In addition to the real property discussed above, the Company also owns three sugar mills, each with its own power plant. The mills and power plants are located in Lahaina, Maui and in Kekaha and Lihue, Kauai. Each of these facilities is involved in the production of raw sugar from sugar cane and the production of electrical and steam power.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceedings, other than ordinary routine litigation incidental to its business. The Company and/or certain of its affiliates have been named as defendants in several pending lawsuits. While it is impossible to predict the outcome of the pending (or threatened) litigation for which potential liability is not covered by insurance, the Company is of the opinion that the ultimate liability from such litigation will not materially adversely affect the Company's results of operations or its financial condition.
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 1997 and 1998.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE COMPANY'S AND AJF'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS
The Company is a wholly-owned subsidiary of Northbrook and, hence, there is no public market for the Company's membership interest. AJF is a wholly-owned subsidiary of Northbrook and there is no public market for AJF's common stock.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
AMFAC/JMB HAWAII, L.L.C. For the years ended December 31, 1998, 1997, 1996, 1995 and 1994 (Dollars in Thousands)
1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- Total revenues (c) . . . . . $ 99,654 86,383 97,406 101,607 157,963 ======== ======== ======== ======== ======== Net income (loss) (d). . $(41,735) (25,572) (34,166) 12,708 (13,033) ======== ======== ======== ======== ======== Net income (loss) per share (b)
Total assets . $431,080 464,245 483,605 521,598 614,547 ======== ======== ======== ======== ======== Amounts due affiliates - Senior debt financing . . $110,325 125,290 103,579 76,911 15,097 ======== ======== ======== ======== ======== Certificate of Land Apprecia- tion Notes. . $220,692 220,692 220,692 220,692 384,737 ======== ======== ======== ======== ========
(a) The above selected financial data should be read in conjunction with the financial statements and the related notes appearing elsewhere in this annual report on Form 10-K.
(b) The Company is a wholly-owned subsidiary of Northbrook; therefore, net loss per share is not presented.
(c) Total revenues includes interest income of $976 in 1998, $386 in 1997, $463 in 1996, $1,288 in 1995 and $1,977 in 1994.
(d) In 1995, the Company recognized an extraordinary gain from the extinguishment of debt of $32,544 (after reduction of income taxes of $20,807), which is reflected in 1995 net income.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All references to "Notes" herein are to Notes to Consolidated Financial Statements contained in this report.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL.
A significant portion of the Company's cash needs result from the nature of the real estate development business, which requires a substantial investment in preparing development plans, seeking land urbanization and other governmental approvals and completing infrastructure improvements prior to sale. Additionally, the Company's sugar operations incur a cash deficit during the first half of the year of $10 to $20 million. This seasonal cash deficit is due to the sugar plantation's operating costs being incurred fairly ratably during the year, while revenues are received between May and December, concurrent with raw sugar deliveries to C&H. In addition to seasonal cash needs, in many years cash flow from sugar operations has been negative, requiring a net cash investment to fund the operating deficits and any capital costs. Other significant cash needs also include overhead expenses, debt service and the intended exercise of the Company's right to redeem on June 1, 1999 Class B COLAs that are "put" by the holders to AJF for repurchase.
The Company believes that additional borrowings from Northbrook or its affiliates will be necessary to meet its short-term and long-term liquidity needs. Northbrook or its affiliates has made such borrowings available to the Company in the past and, in the short-term, intends to continue making such borrowings available, to the extent it has available liquidity. However, there is no assurance that Northbrook or its affiliates will have sufficient funds, or that Northbrook or its affiliates will make such funds available to the Company, to meet the Company's long-term liquidity needs. To the extent that Northbrook or its affiliates make such borrowings available to the Company during 1999, Northbrook and its affiliates intend to defer until December 31, 2001 any interest accruing on such borrowings.
As of December 31, 1998, the Company agreed to exercise its option to redeem Class B COLAs that are "put" to AJF for repurchase (as described above under Item 1 - "Business"), in partial consideration for (a) the agreement by the Company's affiliate, Fred Harvey Transportation Company ("Fred Harvey"), to defer until December 31, 2001 all interest accruing from January 1, 1998 through December 31, 2001 and relating to the approximately $100 million of senior indebtedness of the Company currently owing to Fred Harvey (as described in Note 4 to the Consolidated Financial Statements of the Company); and (b) Northbrook agreeing to cause approximately $55.1 million of the Company's indebtedness that was senior to the COLAs to be contributed to the capital of the Company. In connection with the foregoing deferral of interest and contribution of capital, the Company agrees to allow the senior debt held by Northbrook and its affiliates to be secured by assets of the Company. As a result of the contribution, in the Company's December 31, 1998 balance sheet, the "Amounts due to Affiliates" were decreased, and the Company's "Member's equity (deficit)" was increased, by approximately $55.1 million. The deferral of interest, together with this contribution to capital, were made as part of the Company's effort to alleviate significant liquidity constraints and continue to meet the Value Maintenance Ratio requirement under the Indenture. At current interest rates, and assuming no further advances of senior indebtedness, approximately $45 million of such deferred interest relating to currently existing senior indebtedness will become due and payable on December 31, 2001. There can be no assurance that, at such time, the Company will either (i) have unrestricted cash available for meeting such obligation or (ii) have the ability to refinance such $45 million obligation. Failure to meet such obligation, if called, would cause all senior indebtedness owing to Fred Harvey or its affiliates to be
immediately due and payable. A default on senior indebtedness of such magnitude could constitute an event of default under the Indenture. To the extent that Northbrook or any of its affiliates make additional advances of senior indebtedness to the Company during 1999 (as described above), interest in excess of $45 million will be due and payable on December 31, 2001 and such excess could be substantial.
In recent years, the Company has funded its significant cash requirements primarily through senior debt borrowings from Northbrook and a subsidiary and to a lesser extent from revenues generated by the development and sale of its properties. Significant short-term cash requirements relate to the funding of agricultural deficits, interest expenses, costs to process the SMA permit for North Beach, development costs on Oahu and Maui and overhead expenses. At December 31, 1998, the Company had unrestricted cash and cash equivalents of approximately $24.6 million, subject to its election to redeem Class B COLAs as discussed below. The Company intends to use its cash reserves, land sales proceeds and proceeds from new financings or joint venture arrangements to meet its short-term liquidity requirements. However, there can be no assurance that new financings can be obtained or property sales completed. The Company's land holdings on Maui and Kauai are its primary sources of future land sale revenues. However, due to current market conditions, the difficulty in obtaining land use approvals and the high development costs of required infrastructure, the Company does not believe that it will be able to generate significant amounts of cash in the short-term from the development of these lands. As a result, the Company is marketing for sale certain unentitled agricultural and conservation parcels.
The Company has placed for sale a relatively large portion of its land holdings on the market to generate cash to finance the Company's operations, to meet debt service requirements and to meet potential obligations in connection with the possible exercise by the holders of Class B COLAs of their right to "put" to AJF their Class B COLAs on June 1, 1999. If all holders of Class B COLAs elect to exercise their "put" rights, AJF's maximum repurchase obligation would be approximately $117 million. The Company is obligated to cause AJF to comply with AJF's repurchase obligations, and therefore the Company may become liable with respect to all or a portion of the maximum $117 million Class B COLA repurchase obligation. In addition, the Company has the option to redeem Class B COLAs that are tendered to AJF for repurchase; the Company currently expects to exercise such option to the extent that it has access to available cash. The Company has approximately 500 acres of land on the Kauai and 250 acres on Maui currently listed for sale. These lands consist primarily of unentitled agricultural and conservation parcels. Approximately 2,000 acres are under contract for sale with sales prices approximating $7 million in the aggregate. However, these contracts have due diligence investigation periods which allow the prospective purchasers to terminate the agreements. There can be no assurance that the signed contracts for sale will in fact close under their current terms or any other terms or that the Company will be successful in selling these lands at acceptable prices.
During 1998, the Company generated approximately $41.3 million of land sales, of which approximately $16 million came from the sale of the 6,700 acre Kealia parcel in June 1998. The Company has received $11.2 million in cash from the sale of the Kealia parcel ($5.6 million at closing and $5.6 million from subsequent installment payments); the remaining $4.8 million is payable (pursuant to the terms of a first mortgage note and amendment) in March 1999. The sale of the 740-acre Olowalu parcel on Maui closed in September 1998 for a sales price of $9.6 million, paid in full at closing. The Company was able to lease back approximately 395 acres of the mauka ("towards the mountains") portion of Olowalu for its agricultural operations. While the Company is pursuing other bulk parcel sales, there can be no assurance that any such sales will be consummated. In November 1998, the Company received approximately $7.7 million in cash from the sale
of certain mill-site property at Oahu Sugar. The Company used a portion of the proceeds to pay down $6 million on the Company's $10 million City Bank loan and received a one-year extension on the repayment of the $4 million remaining balance. Additionally, the Company generated approximately $4.1 million of lot sales related to Kaanapali Golf Estates and approximately $3.0 million primarily from the sale of unentitled agricultural and conservation land parcels on Kauai and Hawaii. During 1997, the Company generated approximately $21.2 million of land sales, of which $4.8 million came from land related to Kaanapali Golf Estates on Maui; $5.2 million was from the four remaining oceanfront residential lots at Kai Ala Place; and $7.4 million was from the sale of unentitled agricultural and conservation land parcels on the islands of Kauai and Hawaii. During 1996, the Company generated approximately $13.4 million from sales of unentitled agricultural and conservation parcels and an additional $5.5 million from lot sales at the Kaanapali Golf Estates.
The Company continues to implement certain cost savings measures and to defer certain development costs and capital expenditures for longer-term projects. The Company's Property segment expended approximately $7.0 million, $10.1 million and $7.9 million in project costs during 1998, 1997 and 1996, respectively, and anticipates expending approximately $8.0 million in project costs during 1999. As of December 31, 1998, contractual commitments related to project costs totaled approximately $3.4 million.
The Company has completed the purchase of its former joint venture partner's 50% interest in the 96 acre beachfront parcel commonly referred to as Kaanapali North Beach. The Company and TPI were unable to agree on key operating decisions related to the development of KOR and the future development plan for the entire North Beach property. To break the deadlock on these issues, the Company exercised a buy/sell option using a $12 million stated purchase price, and TPI elected to sell its interest. The Company financed 80% of the purchase price for TPI's interest in North Beach and signed a note and first mortgage in favor of TPI for $9.6 million. The note is payable in five equal, annual principal installments beginning in September 1999 and with interest at 8.5% per annum payable quarterly beginning in December 1998. In January 1999, the Company paid TPI $2.2 million on its note to release Lot #1 for KOR and the new 10-acre public recreation area at North Beach.
The Company has made significant changes in the operations of its sugar plantations in an effort to reduce operating costs and increase productivity. The sugar industry in Hawaii has experienced significant difficulties for a number of years. Growers in Hawaii have long struggled with high costs of production, which have led to the closure of many plantations, including the Oahu Sugar Company. Transportation costs of raw sugar to the C&H refinery are also significant. Over the years, the Company has implemented numerous cost reduction and consolidation plans.
After lengthy negotiations with the union, in April 1998, the union membership at the Kauai plantation ratified a two-year contract which included a 10% reduction in wages as well as other concessions. In June 1998, the union membership at Pioneer Mill ratified a three-year contract which included a 9% reduction in wages for one year as well as other concessions. Although the concessions will have a meaningful, positive impact on current operations, they do not provide the type of structural changes that the Company was seeking to provide for long-term profitability and a secure future for the Company's sugar operations.
The Company has completed the 1998 harvest campaign. Decisions regarding the future of the Company's sugar operation will be made on a year-to-year basis taking into account the actual 1998 operating results and forecasts for the upcoming year. There can be no assurance that the Company will continue with sugar production in the future.
In March 1999, the Company announced its plans to shut down its sugar operations at Pioneer Mill on Maui at the end of the 1999 harvest season (September 1999). Pioneer Mill has consistently incurred losses in prior years and it was expected that those losses would continue in the future. The Company expects to use portions of the land at Pioneer Mill for alternative crops. The Company's estimated future costs to shut down sugar operations at Pioneer Mill are not expected to have a material adverse effect on the financial condition of the Company.
Company management cannot predict precisely the actual cost of a plantation shutdown until a shut down plan is developed. There are a significant number of factors that impact the actual cost including: the exact timing of the shutdown, potential environmental issues (currently unknown), the market and pricing for the possible sale or lease of the plantation's field and mill equipment, and employee termination costs (which are subject to union negotiation). Other significant unknowns (in the case of Kauai) relate to the costs associated with terminating the power sale agreements with the local utility company.
Changes in the price of raw sugar could also impact the level of agricultural deficits, and as a result the annual cash needs of the Company. Although government legislation, which is in place through 2002, sets a target price range for raw sugar, it is possible that such legislation could be amended or repealed resulting in a reduction in the price of raw sugar. Such a reduction could also cause the Company to consider the shutdown of its remaining sugar plantations.
1998 Compared to 1997
During 1998, cash increased by approximately $17.4 million from 1997. Net cash provided by operating activities of $6.6 million and financing activities of $26.6 million was primarily provided by $24.8 million of long-term senior debt financing proceeds from Northbrook and $9.6 million of additional debt related to the acquisition of TPI's 50% ownership interest in the 96 acre parcel at North Beach (as discussed below), partially offset by principal loan repayments on other long-term debt of approximately $7.7 million and cash used in investing activities of $15.8 million as discussed below.
During 1998, net cash flow provided by operating activities was $6.6 million, as compared to net cash flow used in operating activities of $10.4 million during 1997. The $17.0 million increase in net cash flow provided by operating activities during 1998 as compared to 1997 was due primarily to (i) a $27.7 million decrease in inventory primarily attributable to the increase in real estate sales in 1998 as compared to 1997 and a decrease in the real estate inventory held for sale at year-end; offset in part by (ii) a $4.5 million increase in receivable balances in 1998 as compared to 1997 related primarily to the increase in the receivable related to the sale of land parcels at Kealia of approximately $7.0 million offset by a decrease in sugar receivables from C&H of approximately $1.3 million; and (iii) a $5.4 million increase in the Company's net loss (after adjusting for items not requiring or providing cash) in 1998 as compared to 1997.
During 1998, net cash flow used in investing activities was $15.8 million as compared to $9.0 million during 1997. The $6.8 million increase in net cash used in investing activities was principally due to (i) an increase in property additions of $17.6 million primarily due to the acquisition of TPI's 50% ownership interest in North Beach for $12 million (as discussed above); and (ii) a decrease of $6.9 million in other assets during 1998 compared to 1997 primarily due to the reclassification of a note receivable recorded in connection with a prior year land sale from noncurrent to current in 1998 as compared to an increase in other assets of $2.1 million for such note in 1997 and the reclassification of approximately $1.8 million of other assets to inventory in 1998. The note receivable which is due in 1999 has an outstanding balance of approximately $1.1 million and is classified in current receivables at December 31, 1998.
During 1998, net cash flow provided by financing activities increased to $26.6 million from $19.7 million during 1997. The $6.9 million increase is due primarily to (i) an increase in net advances by affiliates (senior debt) totaling $24.8 million during 1998 as compared to $16.6 million during 1997 (see Note 4) and (ii) $9.6 million of additional debt related to the acquisition of TPI's 50% ownership interest in the 96 acre parcel of North Beach compared to $5.0 million of additional long-term financing primarily related to the loan secured by the golf course owned by WGCI in 1997. These amounts were also partially offset by $7.7 million and $2.0 million of principal loan repayments on long-term debt in 1998 and 1997, respectively.
1997 Compared to 1996
In 1997, cash increased by $.4 million from 1996. Net cash flow used in operating activities of $10.3 million and in investing activities of $9.0 million was primarily provided by $16.6 million of long-term financing proceeds from Northbrook and $5.0 million related to refinancing proceeds from the Waikele Golf Club, Inc. ("WGCI") loan (see Note 6), partially offset by principal loan repayments on long-term debt of approximately $2.0 million.
During 1997, net cash flow used in operating activities was $10.3 million, as compared to net cash flow used in operating activities of $27.4 million during 1996. The $17.1 million decrease in net cash flow used in operating activities was due primarily to: (i) a $15.7 million increase in working capital resulting from a refinancing as long-term debt of operating advances from Northbrook and (ii) a decrease in 1997 of the Company's net loss by $1.4 million (after adjusting for items not requiring or providing cash).
During 1997, net cash flow used in investing activities was $9.0 million as compared to $9.8 million in 1996. The $.8 million decrease in net cash flow used in investing activities was principally due to property additions of $2.8 million in 1997 as compared to $4.3 million of property additions in 1996. The property additions consisted primarily of machinery and equipment improvements at the Company's sugar plantations.
During 1997, net cash flow provided by financing activities decreased to $19.7 million from $34.3 million in 1996. The $14.6 million decrease is due primarily to (i) a decrease in net advances by affiliates (senior debt) totaling $16.6 million in 1997 as compared to $26.7 million in 1996 (see Note 4) and (ii) $5.0 million of additional long-term financing primarily related to the loan secured by the golf course owned by WGCI in 1997 as compared to an additional $10 million in borrowings in 1996 related to the loan facility which is secured by a mortgage on property under development on the former mill site of Oahu Sugar (see Note 6). These amounts were also partially offset by $2.0 million and $2.4 million of principal loan repayment on long-term debt in 1997 and 1996, respectively.
COLA RELATED OBLIGATIONS. AJF and the Company are parties to the Repurchase Agreement pursuant to which AJF is obligated to repurchase on June 1, 1999 the Class B COLAs tendered by the holders thereof. Northbrook agreed, pursuant to the Keep-Well Agreement, to contribute sufficient capital or make loans to AJF to enable AJF to meet the COLA repurchase obligations, if any, described above. In addition, the Company is obligated to cause AJF to comply with AJF's repurchase obligation. AJF currently does not have significant assets, and the Company is uncertain of the extent to which AJF will be able to perform its repurchase obligation. Notwithstanding AJF's repurchase obligations, the Company has the option to redeem the Class B COLAs that are "put" to AJF for repurchase. The Company currently expects to exercise such option to the extent that it has or can obtain access to available cash.
The COLAs were issued in units consisting of one Class A COLA and one Class B COLA. The repurchase of the Class B COLAs on June 1, 1999 may be required of AJF by the holders of such COLAs at a price equal to 125% of the original principal amount of such COLAs ($500) minus all payments of principal and interest allocated to such COLAs since August 31, 1989 (the "Final Issuance Date"). As of December 31, 1998, the Company had approximately 156,000 Class A COLAs and approximately 286,000 Class B COLAs outstanding, with a principal balance of approximately $78 million and $143 million, respectively. The redemption price for the Class B COLAs at June 1, 1999 will be approximately $410 per unit. Therefore, the maximum potential repurchase obligation will be $117.3 million (of which approximately $37 million relates to Class B COLAs held by an affiliate of the Company as described below). At December 31, 1998, the cumulative interest paid per Class A COLA and Class B COLA was approximately $205 and $205, respectively. The Company expects to redeem the Class B COLAs which are tendered by holders in lieu of the repurchase by AJF.
AF Investors, LLC, a Delaware limited liability company and an affiliate of the Company ("AF Investors"), currently holds approximately 89,330 Class B COLAs as described below. AF Investors will cause some, but not all, of such Class B COLAs to be "put" pursuant to the Repurchase Agreement. AF Investors has agreed to take back senior debt of the Company for the portion so put to the extent that the Company does not have sufficient cash available to meet the put obligation and currently intends to retain at least $10 million to $15 millioin of its Class B COLAs. Notwithstanding AJF's obligation under the Repurchase Agreement, the Company's obligation to cause AJF to perform under the Repurchase Agreement, Northbrook's obligation under the Keep-Well Agreement, the Company's intention to redeem Class B COLAs, (thereby reducing or potentially eliminating AJF's obligation, and as a consequence, Northbrook's obligation), AJF, Northbrook and the Company in the aggregate do not currently have, and are not expected to have by June 1, 1999, sufficient available resources to meet the maximum potential obligation of approximately $81 million should all Class B COLAs (excluding Class B COLAs held by AF Investors) be put pursuant to the Repurchase Agreement (approximately $117 million including the Class B COLAs held by AF Investors). Failure to meet these obligations could lead to a claim against the Company, AJF and, in turn, Northbrook. The number, if any, of Class B COLA holders (other than AF Investors) who will elect to have their Class B COLAs redeemed is not currently determinable and, accordingly, the amount of resources necessary to enable the Company to redeem such Class B COLAs is not determinable. Based upon prior experience, the Company does not anticipate that all of the Class B COLAs will be "put" pursuant to the Repurchase Agreement and does anticipate having sufficient resources to redeem the Class B COLAs actually put to the Company. However, there can be no assurance that the Company and its affiliates will have sufficient resources to redeem the Class B COLAs actually put to the Company.
On January 30, 1998, Amfac Finance Limited Partnership ("Amfac Finance"), an Illinois limited partnership and an affiliate of the Company, extended a tender offer to purchase (the "Class B Tender Offer") up to $65.4 million principal amount of separately Certificated Class B COLAs ("Separate Class B COLAs") for cash at a unit price of $375 to be paid by Amfac Finance on each Separate Class B COLA tendered on or about March 24, 1998. The maximum cash to be paid under the Class B Tender Offer was approximately $49.0 million (130,842 Separate Class B COLAs at a unit price of $375 each). Approximately 62,857 Separate Class B COLAs were submitted to Amfac Finance for repurchase pursuant to the Class B Tender Offer, requiring an aggregate payment by Amfac Finance of approximately $23.6 million on March 31, 1998. In addition, on October 23, 1998, Amfac Finance extended a Tender Offer to Purchase (the "Class A/B Tender Offer") up to approximately $22.5 million principal amount of Jointly Certificated Class A and B COLAs (together "COLA Units") for cash at a unit price of $460 to be paid by Amfac Finance on each COLA Unit on or about December 23, 1998. The maximum cash to be paid under the Tender Offer was approximately $12.2
million (26,600 COLA Units at a unit price of $460 for each COLA Unit). Approximately 26,473 COLA Units were submitted to Amfac Finance for repurchase pursuant to the Tender Offer requiring an aggregate payment by Amfac Finance of approximately $12.2 million on December 23, 1998. Neither the Class B nor the Class A/B Tender Offer reduced the outstanding indebtedness of the Company. In December 1998, Amfac Finance contributed its COLA Units to AF Investors. The COLA Units held by AF Investors remain outstanding pursuant to the terms of the Indenture. Except as provided in the last sentence of this paragraph, AF Investors is entitled to the same rights and benefits of any other holder of COLA Units, including having the right to have AJF repurchase on June 1, 1999, the separate Class B COLAs that it owns. AF Investors currently intends to require some, but not all of the Class B COLAs which it will own on such date to be repurchased pursuant to the Repurchase Agreement. AF Investors has agreed to take back senior debt of the Company for the portion so put to the extent that the Company does not have sufficient cash available to meet the put obligation.
Because AF Investors is an affiliate of the Company, AF Investors will not be able to participate in determining whether the holders of the required principal amount of debt under the Indenture have concurred in any direction, waiver or consent under the terms of the Indenture.
As a result of the Class B and Class A/B Tender Offers, the Company recognized approximately $7.9 million and $14.3 million, respectively, of taxable gain in accordance with income tax regulations for certain transactions with affiliates. Such gain is treated as cancellation of indebtedness income for income tax purposes only and, accordingly, the income taxes related to the Class B Tender Offer (approximately $3.1 million) and Class A/B Tender Offer (approximately $5.7 million) were, or will be, indemnified by Northbrook through the tax agreement between Northbrook and the Company (See Note 1 to Notes to the Consolidated Financial Statements).
Pursuant to the terms of the Indenture, the Company is required to maintain a Value Maintenance Ratio (defined in the Indenture) of 1.05 to 1.00. Such ratio is equal to the relationship of the Company's Net Asset Value to the sum of: (i) the outstanding principal amount of the COLAs, (ii) any unpaid Base Interest that is required to be paid, and (iii) the outstanding principal balance of any Indebtedness incurred to redeem COLAs (the "COLA Obligation"). Net Asset Value represents the excess of the Fair Market Value (as defined in the Indenture) of the gross assets of the Company over the liabilities of the Company other than the COLA obligations and certain other liabilities. The COLA Indenture requires the Company to obtain independent appraisals of the fair market value of the gross assets used to calculate the Value Maintenance Ratio as of December 31 in each even-numbered calendar year.
The Company has received independent appraisals indicating that the appraised value of substantially all of its gross assets as of December 31, 1998, was at least approximately $453 million. Based upon the appraisals and, where a lower value was indicated, a contract to sell, the Company was able to meet the Value Maintenance Ratio as of December 31, 1998. It should be noted that, under the Indenture, the concept of Fair Market Value generally is defined as the value that an independent arm's-length purchaser, seeking to utilize such asset for its highest and best use would pay, taking into consideration the risks and benefits associated with such use or development, current restrictions on development (including zoning limitations, permitted densities, environmental restrictions, restrictive covenants, etc.) and the likelihood of changes to such restrictions; provided, however, that with respect to any Fair Market Value determination of all of the assets of the Company, such assets shall not be valued as if sold in bulk to a single purchaser. There can be no assurance that the Company will be able to sell its real estate assets for their aggregate appraised value. Because of the size and diversity of the real estate holdings of the Company and the uncertainty of the Hawaii real estate market, it is likely that it would take a considerable period of time for the Company to sell its assets. In recent years, the Company has sold some of its real estate for less than their appraised value to meet cash needs.
The Company uses the effective interest method and as such interest on the COLAs is accrued at the Mandatory Base Interest rate (4% per annum). The Company has not generated a sufficient level of Net Cash Flow to incur or pay Contingent Base Interest (interest in excess of 4%) on the COLAs (see Note 5) from 1990 through 1998. Contingent Base Interest through 2008 is due and payable only to the extent of Net Cash Flow. Net Cash Flow for any period is generally an amount equal to 90% of the Company's net cash revenues, proceeds and receipts after payment of cash expenditures, excluding federal and state income taxes and after the establishment by the Company of reserves. At December 31, 2008, certain levels of Contingent Base Interest may also be due and payable to the extent of Maturity Market Value. Maturity Market Value generally means 90% of the excess of the Fair Market Value of the Company's assets at maturity over its liabilities (including Qualified Allowance (described in the next paragraph), but only to the extent earned and payable from Net Cash Flow generated through maturity) at maturity. Approximately $113.1 million of the $120.7 million cumulative deficiency of deferred Contingent Base Interest related to the period from August 31, 1989 (Final Issuance Date) through December 31, 1998 has not been accrued in the accompanying consolidated financial statements as the Company believes that it is not probable at this time that a sufficient level of Net Cash Flow will be generated in the future or that there will be sufficient Maturity Market Value as of December 31, 2008 (the COLA maturity date) to pay any such unaccrued deferred Contingent Base Interest. The following table is a summary of Mandatory Base Interest and deferred Contingent Base Interest (i.e. not currently due and payable) for the years ended December 31, 1998, 1997 and 1996 (dollars are in millions):
1998 1997 1996 ------ ------ ------
Mandatory Base Interest paid . . . . . . . . . . $ 8.8 8.8 8.8 Contingent Base Interest due and paid. . . . . . -- -- -- Cumulative deferred Contingent Base Interest at end of year. . . . . . . . . . . . $120.7 107.4 94.2
Net Cash Flow was $0 for 1998, 1997 and 1996.
With respect to any calendar year, JMB Realty Corporation ("JMB"), an affiliate of the Company, or its affiliates may receive a Qualified Allowance in an amount equal to 1.5% per annum of the Fair Market Value of the gross assets of the Company (other than cash and cash equivalents and certain other types of assets as provided for in the Indenture) for providing certain advisory services to the Company. The aforementioned advisory services, which are provided pursuant to a 30-year Services Agreement entered into between the Company and JMB in November 1988, include making recommendations in the following areas: (i) the construction and development of real property; (ii) land use and zoning changes; (iii) the timing and pricing of properties to be sold; (iv) the timing, type and amount of financing to be incurred; (v) the agricultural business; and (vi) the uses (agricultural, residential, recreational or commercial) for the land. However, the Qualified Allowance shall be earned and paid for each year prior to maturity of the COLAs only if the Company generates sufficient Net Cash Flow to pay Base Interest for such year in an amount equal to 8% . Any portion of the Qualified Allowance not paid for any year shall cumulate without interest and JMB or its affiliates shall be paid such deferred amount in succeeding years, only after the payment of all Contingent Base Interest for such succeeding year and then, only to the extent that Net Cash Flow exceeds levels specified in the Indenture.
A Qualified Allowance for 1989 of approximately $6.2 million was paid on February 28, 1990. Approximately $74.1 million of Qualified Allowance related to the period from January 1, 1990 through December 31, 1998 has not been earned and paid, and is payable only to the extent that future Net Cash Flow is sufficient. Accordingly, because the Company does not believe it is probable at this time that a sufficient level of Net Cash Flow will be generated in the future to pay the Qualified Allowance, the Company has not accrued for any Qualified Allowance payments in the accompanying consolidated financial statements. JMB has informed the Company that no incremental costs or expenses have been incurred relating to the provision of these advisory services. The Company believes that using an incremental cost methodology is reasonable. The following table is a summary of the Qualified Allowance for the years ended December 31, 1998, 1997 and 1996 (dollars are in millions):
1998 1997 1996 ------ ------ ------
Qualified Allowance calculated . . . . . . . . . $ 9.8 10.1 9.2 Qualified Allowance paid . . . . . . . . . . . . -- -- -- Cumulative deficiency of Qualified Allowance at end of year. . . . . . . . . . . . $ 74.1 64.3 54.4
After the maturity date of the COLAs, JMB will continue to provide advisory services pursuant to the Services Agreement, the Qualified Allowance for such years will continue to be 1.5% per annum of the Fair Market Value of the gross assets of the Company and its subsidiaries, and the Qualified Allowance will continue to be payable from the Company's Net Cash Flow. Upon the termination of the Services Agreement, if there has not been sufficient Net Cash Flow to pay the cumulative deficiency in the Qualified Allowance, if any, such amount would not be due or payable to JMB.
Upon maturity, holders of COLAs will be entitled to receive the remaining outstanding principal balance of the COLAs plus unpaid Mandatory Base Interest plus additional interest equal to certain levels of unpaid Contingent Base Interest, to the extent of the Maturity Market Value of the Company's assets at maturity over its liabilities (including Qualified Allowance, but only to the extent earned and payable from Net Cash Flow generated through maturity) at maturity, which liabilities have been incurred in connection with its operations), plus 55% of the remaining Maturity Market Value.
RESULTS OF OPERATIONS
GENERAL:
The Company and its subsidiaries report its taxes as a part of the consolidated tax return for Northbrook. The Company and its subsidiaries have entered into a tax indemnification agreement with Northbrook, which indemnifies the Company and its subsidiaries for responsibility for all past, present and future federal and state income tax liabilities (other than income taxes which are directly attributable to cancellation of indebtedness income caused by the repurchase or redemption of securities as provided for in or contemplated by the Repurchase Agreement).
Current and deferred taxes have been allocated to the Company as if the Company were a separate taxpayer in accordance with the provisions of SFAS No. 109 - Accounting for Income Taxes. However, to the extent the tax indemnification agreement does not require the Company to actually pay income taxes, current taxes payable or receivable (excluding income taxes which are directly attributable to cancellation of indebtedness income caused by the repurchase or redemption of securities as provided for in or contemplated by the Repurchase Agreement) have been reflected as deemed contributions to additional paid-in capital or distributions from related earnings (deficit)/member's equity (deficit) in the accompanying consolidated financial statements. As such, the deferred income tax liabilities reflected on the Company's consolidated balance sheet are not expected to result in cash payments by the Company.
YEAR 2000
The year 2000 issue is the result of computer programs being written using two digits rather than four to define a year. Consequently, any computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations including, among other things, a temporary inability to process transactions or engage in other normal business activities.
The Company is reviewing its computer systems for year 2000 compliancy. The Company has completed an internal assessment of its information system technology and currently does not anticipate any hardware upgrade; however, it had determined a need to upgrade portions of the Company's software so that its computer systems would function properly with respect to dates in the year 2000 and thereafter.
The Company has completed an internal review of its accounting, human resources and payroll applications which are supported by approximately six different major software vendors. Except for the golf course and water company division, the Company has received software upgrades for the financial applications and expects to complete testing and implementation of the new software upgrades by the end of March 1999. The Company has installed the software upgrade for the payroll application, which is expected to be year 2000 compliant. However, the Company uses a third party service bureau to process its payroll and it is not currently possible to conduct testing to verify that the software provided will be year 2000 compliant. The Company has not incurred and does not expect to incur any costs with respect to the testing and implementation of the software upgrades. The accounting systems at the golf courses and the water company are not yet year 2000 compliant. The Company currently expects new accounting system software to be tested and implemented by the end of September 1999 at a cost of approximately $60,000 to $80,000. However, in the event the Company's system reveals that, contrary to software vendors' claims, the system upgrades or new software are not year 2000 compliant, the Company believes it has the ability to make the necessary changes through the use of third party consultants as well as the utilization of internal resources. The Company does not have an estimate of the length of time which could potentially be required to make these changes, nor an estimate of the costs involved to make such changes.
The Company's agriculture operations are testing and reviewing their operational systems at certain of their plantations. At those locations where a review has not been completed, reviews are expected to be completed by the end of the first quarter of 1999. The agriculture operations have also begun identifying and contacting key third party vendors with whom these operations have a material relationship to determine their year 2000 readiness and expect to have completed contacting its key vendors by the end of March 1999. If these vendors are not year 2000 compliant or are unsuccessful in their efforts to become year 2000 compliant, a disruption in service and supplies may result in the inability of the Company to process and deliver its agricultural products to market. The subsequent loss in revenues may have a material adverse effect on the financial position of the Company.
The Company's Property operations (which include the development and sales activities of the Company's land operations as well as the Company's water operations) and the Company's Golf operations have reviewed their operational systems in the fourth quarter of 1998. Key third party vendors with whom these operations have a material relationship were contacted to determine their year 2000 readiness. While these vendors have indicated that they are or expect to be year 2000 compliant by the end of 1999, there can be no assurance that they will be successful in their efforts to become year 2000 compliant. A disruption in service and/or supplies may disrupt the Company's conduct of its real estate activities, its water deliveries and/or its golf operations. A resulting loss in revenues might have a material adverse effect on the financial position of the Company.
The Company's transfer agent has been upgrading its computer systems so that its computer systems will function properly with respect to dates in the years 2000 and thereafter. The Company's transfer agent has begun testing its computer systems and will continue to test throughout 1999. The Company has no contingency plans in place in the event that the Company's transfer agent systems upgrades are not year 2000 compliant.
The Company has reviewed its non-information technology systems (such as its telephone, utilities, sprinkler and alarm systems) and has contacted the appropriate third party vendors to determine their year 2000 compliancy. The Company does not have an estimate of the cost, if any, that may be required to make its non-information systems year 2000 compliant. In addition, the Company has begun contacting the various banks, insurance companies and state regulatory agencies with whom the Company has material relationships to determine their year 2000 readiness. The entities contacted have indicated that they are currently implementing and/or are testing the required changes to be year 2000 compliant.
If the steps taken by the Company and its vendors to be year 2000 compliant are not successful, the Company could experience various operational difficulties. These could include, among other things, an inability to process transactions to the correct accounting period, difficulties in posting general ledger interfaces, an inability to process computer-generated checks, bank transactions posted to the wrong periods, and the failure of scheduling applications which are date sensitive.
The Company currently has no contingency plans in place in the event it does not complete all phases of the year 2000 compliance program. The Company plans to continue to monitor the on-going results of the review and testing phases as well as the status of completion to determine whether such a plan is necessary.
The foregoing discussion of year 2000 issues and the Company's responses thereto is based upon information presently known and certain assumptions and estimates (including those relating to costs and timing of remediation) currently made by the Company, as well as statements and representations made to the Company by its third party vendors. There are various risks that assumptions and estimates made by the Company will not prove to be correct, that delays in testing or remediation may occur and/or that significant additional remediation efforts may be required. In addition, the Company is also relying on the efforts and statements and representations of third parties, in particular its third party software vendors. Accordingly, the information concerning the year 2000 issues and the Company's responses thereto, including the nature, extent, timing and cost of the Company's remediation efforts, are subject to change and such changes could be material. In addition, there is no assurance that the software applications and packages currently believed to be year 2000 compliant will prove to be so after testing.
SENIOR DEBT. Interest expense increased for the year ended December 31, 1998 as compared to the year ended December 31, 1997 due to additional senior debt financing from affiliates.
The following table sets forth operating results by industry segment (see Note 13), for the years indicated (in 000's):
1998 1997 1996 -------- -------- -------- Agriculture Segment: Revenues. . . . . . . . . . . . . . . $ 34,551 41,949 51,805 Cost of sales . . . . . . . . . . . . 33,534 40,862 54,640 -------- ------- ------- 1,017 1,087 (2,835) Operating expenses. . . . . . . . . . 5,066 4,460 4,690 -------- ------- ------- Operating income (loss) . . . . . . . (4,049) (3,373) (7,525) -------- ------- ------- Golf Segment: Revenues. . . . . . . . . . . . . . . 14,485 15,618 15,191 Cost of sales . . . . . . . . . . . . 9,911 9,877 9,687 -------- ------- ------- 4,574 5,741 5,504 Operating expenses. . . . . . . . . . 1,861 2,021 1,959 -------- ------- ------- Operating income. . . . . . . . . . . 2,713 3,720 3,545 -------- ------- ------- Property Segment: Revenues. . . . . . . . . . . . . . . 49,642 28,430 29,947 Cost of sales . . . . . . . . . . . . 57,657 27,580 24,940 -------- ------- ------- (8,015) 850 5,007 Operating expenses: Reduction to carrying value of investments in real estate. . . . (16,805) (2,279) (18,315) Other . . . . . . . . . . . . . . . (7,290) (7,692) (7,820) -------- ------- ------- Operating income (loss): Reduction to carrying value of investments in real estate . . . . (16,805) (2,279) (18,315) Other. . . . . . . . . . . . . . . . (15,305) (6,842) (2,813) -------- ------- ------- Unallocated operating expenses (primarily overhead). . . . . . . . . (2,349) (3,225) (3,045) -------- ------- ------- Total operating loss . . . . . . . . . . . $(35,795) (11,999) (28,153) ======== ======= =======
The variances in the above-noted results of operations for the Agriculture segment, Golf segment and the Property segment are discussed in the following sections.
AGRICULTURE SEGMENT:
The Company's Agriculture segment is responsible for activities related to the cultivation, processing and sale of sugar cane and coffee. Agriculture's revenues are primarily derived from the Company's sale of its raw sugar. Reference is made to the "Liquidity and Capital Resources" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of potential uncertainties regarding the price of raw sugar and the continuation of the Company's sugar cane operations.
As part of the Company's agriculture operations, the Company enters into commodities futures contracts and options in raw sugar as deemed appropriate to reduce the risk of future price fluctuations. These futures contracts and options are accounted for as hedges and, accordingly, gains and losses are deferred and recognized in cost of sales as part of the production cost.
1998 Compared to 1997
During 1998, agriculture revenues were $34.6 million as compared to $41.9 million in 1997. The $7.3 million decrease was due primarily to a decrease of $7.5 million in revenues resulting from a 20% decrease in the tons of sugar sold in 1998 as compared to 1997, offset in part by a $.3 million increase in revenues resulting from a 1% increase in the price of sugar to $362 per ton in 1998 as compared to $359 per ton in 1997. During 1998, approximately 87,300 tons of sugar were sold as compared to 109,000 tons of sugar in 1997. The Company harvested approximately 9,700 and 11,300 acres in 1998 and 1997, respectively.
During 1998, cost of sales were $33.5 million as compared to $40.8 million in 1997. The $7.3 million decrease was due primarily to: (i) a $7.6 million decrease in cost of sales resulting from a 20% reduction in the tons of sugar sold in 1998 as compared to 1997 (as discussed above); offset in part by an increase in the unit cost per ton (or $2.2 million increase in cost of sales) due to a certain level of fixed costs which negatively impacted the cost per ton due to the lower production volume and (ii) a reduction of $1.7 million in reserves for future costs related to a discontinued sugar operation.
Agriculture operating expenses were $5.1 million and $4.5 million for 1998 and 1997, respectively, and consisted primarily of depreciation expense.
The increase in the operating loss of $4.0 million in 1998 as compared to $3.4 million in 1997 was due primarily to the reductions in revenues and cost of sales (as discussed above).
1997 Compared to 1996
During 1997, agriculture revenues were $41.9 million as compared to $51.8 million in 1996. The $9.9 million decrease was due primarily to (i) a decrease of $6.6 million in revenues resulting from a 14% decrease in the tons of sugar sold in 1997 as compared to 1996. During 1997, approximately 109,000 tons of sugar were sold as compared to 127,000 tons of sugar sold in 1996. Approximately 12,000 tons of the raw sugar produced in late 1995 were delivered to C&H and recognized in revenues in 1996; (ii) a $1.6 million decrease in revenues resulting from a 4% decrease in the average price of sugar to $359 per ton in 1997 as compared to $374 per ton in 1996; and (iii) a $1.4 million decrease in other agricultural revenues.
During 1997, cost of sales were $40.8 million as compared to $54.6 million in 1996. The $13.8 million decrease was due primarily to: (i) a $7.2 million decrease in cost of sales resulting from a 14% reduction in the tons of sugar sold in 1997 as compared to 1996 (as discussed above); and (ii) a $6.6 million decrease in cost of sales primarily attributable to cost reduction efforts for certain expenditures related to sugar production.
Agriculture operating expenses were $4.5 million and $4.7 million for 1997 and 1996, respectively, and consisted primarily of depreciation expense.
The decrease in the operating loss of $7.5 million in 1996 as compared to $3.4 million in 1997 was due primarily to the reductions in revenues and cost of sales (as discussed above).
PROPERTY SEGMENT:
The Company's Property segment is responsible for land planning and development activities; obtaining land use, zoning and other governmental approvals and selling or financing developed and undeveloped land parcels.
1998 Compared to 1997
Revenues increased to $49.6 million during 1998 from $28.4 million during 1997. Property revenues include revenues from land sales of approximately $41.3 million and $21.2 million for 1998 and 1997, respectively. Land sales included revenues for 1998 of approximately $16 million from the sale of the 6,700 acre Kealia parcel on Kauai, $9.6 million from the sale of the 740-acre Olowalu parcel on Maui, $4.1 million of land sales related to Kaanapali Golf Estates, $7.7 million from the sale of certain mill-site property at the Company's former Oahu Sugar Plantation and $3.9 million primarily from the sale of various other land parcels on Oahu, Kauai and Hawaii. The Company has received $11.2 million of the $16 million Kealia parcel sales proceeds and the remaining $4.8 million is payable (pursuant to the terms of a first mortgage note and amendment) in March 1999.
During 1998, property cost of sales were $57.7 million as compared to $27.6 million in 1997. The $30.1 million increase in costs was due primarily to an increase in sales volume associated with land parcels sold (as discussed above).
Property operating expenses were $7.3 million and $7.7 million for 1998 and 1997, respectively, and consisted primarily of employment costs and other general and administrative expenses.
Property sales and cost of sales increased in 1998 as compared to 1997 due to higher sales volume. Operating income deteriorated primarily due to lower margins realized on property sold during 1998.
In accordance with the provisions of the COLA Indenture, appraisals were performed for substantially all of the assets of the Company as of December 31, 1998 which reflected a decline in value for certain properties. Certain of the assets appraised as of December 31, 1998 are properties that are either being actively marketed by the Company or properties for which the Company intends to sell in the near future. Four of the land parcels expected to be disposed of by the Company within the next two years, having a cost basis of approximately $20.2 million, were estimated by the Company to have a total fair market value (less costs to sell) of approximately $13.2 million as of December 31, 1998. Accordingly, the Company recorded a $7 million loss in the fourth quarter of 1998 related to these properties. Additionally, the Company reduced its carrying value of one of its land parcels in the fourth quarter of 1998 by $9.8 million to properly reflect the estimated market value of this land parcel.
1997 Compared to 1996
Revenues decreased slightly to $28.4 million in 1997 from $30 million in 1996. Property revenues included revenues from land sales of approximately $21.2 million and $18.9 million for 1997 and 1996, respectively. Land sales included revenues in 1997 from $5.2 million of land sales related to the remaining four oceanfront lots at Kai Ala Place in Kaanapali, approximately $4.8 million of land sales related to Kaanapali Golf Estates and $11.2 million primarily from the sale of unentitled agricultural and conservation and various other land parcels on Kauai, Hawaii and Maui. Approximately $5.5 million of 1996 land sales related to the Kaanapali Golf Estates and the remaining $13.4 million was primarily from the sale of unentitled agricultural and conservation and various other land parcels on Maui, Kauai and Hawaii.
During 1997, property cost of sales were $27.6 million as compared to $24.9 million in 1996. The $2.7 million increase was due primarily to an increase in costs associated with land parcels sold (as discussed above).
Property operating expenses were $7.7 million and $7.8 million for 1997 and 1996, respectively, and consisted primarily of employment costs and other general and administrative expenses.
In accordance with the provisions of the Indenture, appraisals were performed for certain assets of the Company as of December 31, 1996 which reflected a decline in value for certain properties. Certain of the assets appraised as of December 31, 1996 are properties that were either being actively marketed by the Company or properties for which the Company had a plan to sell the assets in the near future. Five of the land parcels expected to be disposed of by the Company within the next two years, having a cost basis of approximately $40.3 million were estimated by the Company to have a total fair value, less costs to sell, of approximately $22.0 million as of December 31, 1996. Accordingly, the Company recorded an $18.3 million loss in the fourth quarter of 1996 related to these properties, and the Company reduced its carrying value of one of its land parcels in the fourth quarter of 1997 by $2.3 million to properly reflect the estimated market value of this land parcel.
Property sales and cost of sales increased for the year ended December 31, 1997 as compared to the year ended December 31, 1996 (as discussed above), however, operating income deteriorated primarily due to lower margins realized on property sold during 1997.
GOLF SEGMENT:
The Company's golf segment is responsible for the management and operation of the two golf courses at Kaanapali Golf Courses in Kaanapali, Maui and the Waikele Golf Club on Oahu.
1998 Compared to 1997
During 1998, golf revenues were $14.5 million as compared to $15.6 million in 1997. The $1.1 million decrease is due primarily to a 5% decrease in the total golf rounds played and a 1% decrease in the average rate per round at the three courses. During 1998, approximately 187,000 rounds of golf were played as compared to 196,000 in 1997.
Golf cost of sales were $9.9 million in 1998 and 1997. Golf operating expenses of $1.9 million and $2.0 million in 1998 and 1997, respectively, consisted primarily of depreciation expense.
The decrease in the operating income of $2.7 million in 1998 as compared to $3.7 million in 1997 was due primarily to the reduction in revenues (as discussed above).
1997 Compared to 1996
During 1997, golf revenues were $15.6 million as compared to $15.2 million in 1996. The $.4 million increase is due primarily to a 2% increase in the total golf rounds played at the three courses. During 1997, approximately 196,000 rounds of golf were played as compared to 192,000 in 1996.
Golf cost of sales were $9.9 million and $9.7 million in 1997 and 1996, respectively. Golf operating expenses were $2.0 million in 1997 and 1996, and consisted primarily of depreciation expense.
The increase in the operating income of $3.7 million in 1997 as compared to $3.5 million in 1996 was due primarily to the increase in revenues (as discussed above).
INFLATION
Due to the lack of significant fluctuations in the level of inflation in recent years, inflation generally has not had a material effect on real estate development.
In the future, high rates of inflation may adversely affect real estate development generally because of their impact on interest rates. High interest rates not only increase the cost of borrowed funds to the Company, but can also have a significant effect on the affordability of permanent mortgage financing to prospective purchasers. However, high rates of inflation may permit the Company to increase the prices that it charges in connection with real property sales, subject to general economic conditions affecting the real estate industry and local market factors.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's future earnings, cash flows and fair values relevant to financial instruments are dependent upon prevalent market rates. Market risk is the risk of loss from adverse changes in market prices and interest rates. The Company manages its market risk by matching projected cash inflows from operating properties, financing activities, and investing activities with projected cash outflows to fund debt payments, capital expenditures and other cash requirements. The Company also utilizes certain derivative financial instruments to limit market risk. The Company's primary risk exposure is to interest rate risk. The Company's derivatives are used for hedging purposes rather than speculation. The Company does not enter into financial instruments for trading purposes.
The Company's long-term debt arrangements are both fixed and variable rate. Based upon the Company's indebtedness and interest rates at December 31, 1998, a 1% increase in market rates would decrease future earnings and cash flows by approximately $1.4 million. A 1% decrease in market rates would increase future earnings and cash flows by approximately $1.4 million.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMFAC/JMB HAWAII, L.L.C.
INDEX
Report of Independent Auditors Consolidated Balance Sheets, December 31, 1998 and 1997 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Member's Equity (Deficit) for the years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
SCHEDULE
Valuation and Qualifying Accounts . . . . . . . . . II
Schedules not filed:
All schedules other than the one indicated in the index have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.
AMFAC/JMB FINANCE, INC.
INDEX
Report of Independent Auditors Balance Sheets, December 31, 1998 and 1997 Notes to the Balance Sheets
Schedules not filed:
All schedules have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.
REPORT OF INDEPENDENT AUDITORS
The Member AMFAC/JMB HAWAII, L.L.C.
We have audited the accompanying consolidated balance sheets of Amfac/JMB Hawaii, L.L.C. as of December 31, 1998 and 1997, and the related consolidated statements of operations, member's equity (deficit), and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule listed in the Index at Item 8. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Amfac/JMB Hawaii, L.L.C. at December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Honolulu, Hawaii March 8, 1999
AMFAC/JMB HAWAII, L.L.C.
Consolidated Balance Sheets
December 31, 1998 and 1997
(Dollars in Thousands)
A s s e t s -----------
1998 1997 -------- -------- Current assets: Cash and cash equivalents . . . . . . . . . . . $ 26,526 9,115 Receivables - net. . . . . . . . . . . . . . . 13,248 6,743 Inventories. . . . . . . . . . . . . . . . . . 29,770 61,469 Prepaid expenses . . . . . . . . . . . . . . . 2,048 2,648 -------- -------- Total current assets . . . . . . . . . . 71,592 79,975 -------- -------- Investments. . . . . . . . . . . . . . . . . . . 40 46,496 -------- -------- Property, plant and equipment: Land and land improvements . . . . . . . . . . 291,617 262,233 Machinery and equipment. . . . . . . . . . . . 65,641 63,497 Construction in progress . . . . . . . . . . . 737 1,035 -------- -------- 357,995 326,765 Less accumulated depreciation and amortization . . . . . . . . . . . . . . 44,865 38,726 -------- -------- 313,130 288,039 Deferred expenses. . . . . . . . . . . . . . . . 10,862 11,872 Other assets . . . . . . . . . . . . . . . . . . 35,456 37,863 -------- -------- $431,080 464,245 ======== ========
L i a b i l i t i e s --------------------- Current liabilities: Accounts payable . . . . . . . . . . . . . . . $ 6,773 6,289 Accrued expenses . . . . . . . . . . . . . . . 8,111 9,213 Current portion of long-term debt. . . . . . . 7,166 11,243 Current portion of deferred income taxes . . . 81 4,325 Amounts due to affiliates. . . . . . . . . . . 12,310 10,719 -------- -------- Total current liabilities. . . . . . . . 34,441 41,789 -------- -------- Amounts due to affiliates - senior debt financing. . . . . . . . . . . . . . . . . . . 110,325 125,290 Accumulated postretirement benefit obligation. . 51,314 54,375 Long-term debt (including $66,000 of indebtedness considered to be in default as of January 1, 1999) . . . . . . . . . . . . 100,240 94,312 Other long-term liabilities. . . . . . . . . . . 30,908 34,525 Deferred income taxes. . . . . . . . . . . . . . 60,971 84,151 Certificate of Land Appreciation Notes . . . . . 220,692 220,692 -------- -------- Total liabilities. . . . . . . . . . . . 608,891 655,134 -------- --------
Commitments and contingencies (notes 3, 4, 5, 6, 7, 8, 9, and 11)
AMFAC/JMB HAWAII, L.L.C.
Consolidated Balance Sheets - Continued
M e m b e r ' s E q u i t y ( D e f i c i t ) -------------------------------------------------
1998 1997 -------- --------
Common stock, no par value Authorized, issued and outstanding 1,000 shares. . . . . . . . . . . . . . . . -- 1 Additional paid-in capital . . . . . . . . . . . -- 14,384 Retained earnings (deficit). . . . . . . . . . . -- (205,274) Member's equity (deficit). . . . . . . . . . . . (177,811) -- -------- --------
Total member's equity (deficit). . . . . (177,811) (190,889) -------- --------
$431,080 464,245 ======== ========
The accompanying notes are an integral part of the consolidated financial statements.
AMFAC/JMB HAWAII, L.L.C.
Consolidated Statements of Operations
Years ended December 31, 1998, 1997 and 1996 (Dollars in Thousands)
1998 1997 1996 -------- -------- -------- Revenues: Agriculture. . . . . . . . . . . . $ 34,551 41,949 51,805 Property . . . . . . . . . . . . . 49,642 28,430 29,947 Golf . . . . . . . . . . . . . . . 14,485 15,618 15,191 -------- -------- -------- 98,678 85,997 96,943 -------- -------- -------- Cost of sales: Agriculture. . . . . . . . . . . . 33,534 40,862 54,640 Property . . . . . . . . . . . . . 57,657 27,580 24,940 Golf . . . . . . . . . . . . . . . 9,911 9,877 9,687 -------- -------- -------- 101,102 78,319 89,267 Operating expenses: Selling, general and administrative . . . . . . . . . 9,994 11,188 11,160 Depreciation and amortization. . . 6,572 6,210 6,354 Reduction to carrying value of investments in real estate . . . 16,805 2,279 18,315 -------- -------- -------- Total costs and expenses . . 134,473 97,996 125,096 -------- -------- -------- Operating loss . . . . . . . (35,795) (11,999) (28,153) -------- -------- -------- Non-operating income (expenses): Amortization of deferred costs . . (1,238) (1,347) (1,222) Interest income. . . . . . . . . . 976 386 463 Interest expense . . . . . . . . . (33,437) (29,649) (26,297) -------- -------- -------- (33,699) (30,610) (27,056) -------- -------- --------
Loss before taxes. . . . . . . . (69,494) (42,609) (55,209) Income tax benefit . . . . . . . (27,759) (17,037) (21,043) -------- -------- --------
Net income (loss). . . . . . $(41,735) (25,572) (34,166) ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements.
AMFAC/JMB HAWAII, L.L.C.
Consolidated Statements of Member's Equity (Deficit)
Years ended December 31, 1998, 1997 and 1996
(Dollars in Thousands)
Total Stock- Total Retained holder's Member's Common Paid-In Earnings Equity Equity Stock Capital (Deficit) (Deficit) (Deficit) ------ ------- --------- --------- --------- Balance, December 31, 1995. . . . . . $ 1 14,384 (128,573) (114,188) --
Net loss . . . . -- -- (34,166) (34,166) -- Capital distri- bution - current income taxes (note 12) . . . -- -- (5,217) (5,217) -- -------- -------- -------- -------- ---------
Balance, December 31, 1996. . . . . . 1 14,384 (167,956) (153,571) -- Net loss . . . . -- -- (25,572) (25,572) -- Capital distri- bution - current income taxes (note 12) . . . -- -- (11,746) (11,746) -- -------- -------- -------- -------- --------- Balance, December 31, 1997. . . . . . 1 14,384 (205,274) (190,889) --
Conversion to limited liability Company . . . . (1) (14,384) 205,274 190,889 (190,889) Net loss . . . . -- -- -- -- (41,735) Capital distri- bution - current income taxes (note 12) . . . -- -- -- -- (335) Contribution of certain senior debt financing. -- -- -- -- 55,148 -------- -------- -------- -------- --------- Balance, December 31, 1998. . . . . . $ -- -- -- -- (177,811) ======== ======== ======== ======== =========
The accompanying notes are an integral part of the consolidated financial statements.
AMFAC/JMB HAWAII, L.L.C.
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
(Dollars in Thousands)
1998 1997 1996 -------- -------- -------- Cash flows from operating activities: Net income (loss). . . . . . . . . $(41,735) (25,572) (34,166) Items not requiring (providing) cash: Depreciation and amortization. . 6,572 6,210 6,354 Amortization of deferred costs . 1,238 1,347 1,222 Equity in earnings of investments. . . . . . . . . . 81 111 (14) Income tax benefit . . . . . . . (27,759) (17,037) (21,043) Reduction to carrying value of investments in real estate. . . 16,805 2,279 18,315 Deferred interest. . . . . . . . 794 1,039 1,441 Interest on advances from affiliates . . . . . . . . . . 15,355 5,083 -- Other long-term liabilities. . . (3,288) -- -- Changes in: Receivables - net. . . . . . . . (6,505) (2,002) 3,979 Inventories. . . . . . . . . . . 46,879 19,201 22,052 Prepaid expenses . . . . . . . . 600 791 (337) Accounts payable . . . . . . . . 484 570 (2,843) Accrued expenses . . . . . . . . (1,102) (61) (3,994) Amounts due to affiliates. . . . 1,591 1,814 (13,957) Other long-term liabilities. . . (3,386) (4,125) (4,489) -------- -------- -------- Net cash provided by (used in) operating activities . . . . . . . . 6,624 (10,352) (27,480) -------- -------- -------- Cash flows from investing activities: Property additions . . . . . . . . (17,596) (2,766) (4,257) Property sales, disposals and retirements - net. . . . . . . . 514 160 63 Investments in joint ventures and partnerships . . . . . . . . -- (420) (1,093) Other assets . . . . . . . . . . . 2,031 (4,928) (4,467) Other long-term liabilities. . . . (798) (1,063) (53) -------- -------- -------- Net cash used in investing activities . . . (15,849) (9,017) (9,807) -------- -------- -------- Cash flows from financing activities: Deferred expenses. . . . . . . . . (43) (244) 28 Net amounts due to affiliates. . . . 24,828 16,628 26,668 Net (repayments) proceeds of long-term debt . . . . . . . . . . 1,851 3,364 7,582 -------- -------- -------- Net cash provided by financing activities . . . 26,636 19,748 34,278 -------- -------- --------
AMFAC/JMB HAWAII, L.L.C.
Consolidated Statements of Cash Flows - Continued
1998 1997 1996 -------- -------- --------
Net increase (decrease) in cash and cash equivalents . . . . . . . . 17,411 379 (3,009) Cash and cash equivalents, beginning of year. . . . . . . . 9,115 8,736 11,745 -------- -------- -------- Cash and cash equivalents, end of year. . . . . . . . . . . $ 26,526 9,115 8,736 ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid for interest (net of amount capitalized). . . . . . $ 17,436 24,816 31,111 ======== ======== ======== Schedule of non-cash investing and financing activities: Transfer of property actively held for sale to real estate inventories and accrued costs relating to real estate sales . $ 15,180 23,862 29,219 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements.
AMFAC/JMB HAWAII, L.L.C.
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF ACCOUNTING
Amfac/JMB Hawaii, L.L.C. (the "Company") is a Hawaii limited liability company. The Company is wholly-owned by Northbrook Corporation ("Northbrook"). The primary business activities of the Company are land development and sales, golf course management and agriculture. The Company owns approximately 34,000 acres of land located on the islands of Oahu, Maui, Kauai and Hawaii in the State of Hawaii. All of this land is held by the Company's wholly-owned subsidiaries. In addition to its owned lands, the Company leases approximately 49,000 acres of land used primarily in conjunction with its agricultural operations. The Company's operations are subject to significant government regulation.
The Company is the successor to Amfac/JMB Hawaii, Inc. ("A/J Hawaii"). On March 3, 1998, A/J Hawaii was merged (the "Merger") with and into the Company pursuant to an Agreement and Plan of Merger dated February 27, 1998 (the "Merger Agreement") by and between A/J Hawaii and the Company (which was then named Amfac/JMB Mergerco, L.L.C.). The Merger was consummated to change the Company's form of entity from a corporation to a limited liability company. The Company was a nominally capitalized limited liability company which was formed on December 24, 1997, solely for the purpose of effecting the Merger. The Company succeeded to all the assets and liabilities of A/J Hawaii in accordance with the Hawaii Business Corporation Act and the Hawaii Uniform Limited Liability Company Act. In addition, A/J Hawaii, the Company, The First National Bank of Chicago (the "Trustee") and various guarantors entered into a Second Supplemental Indenture dated as of March 1, 1998, pursuant to which the Company expressly assumed all obligations of A/J Hawaii under the Indenture dated as of March 14, 1989, as amended (the "Indenture") by and among A/J Hawaii, the Trustee and the guarantors named therein and the holders of Certificates of Land Appreciation Notes due 2008 Class A (the "Class A COLAs") and the Certificates of Land Appreciation Notes Class B (the "Class B COLAs" and, collectively, with the Class A COLAs the "COLAs"). The Merger did not require the consent of the holders of the COLAs under the terms of the Indenture. The Company has succeeded to A/J Hawaii's reporting obligations under the Securities Exchange Act of 1934, as amended. Unless otherwise indicated, references to the Company prior to March 3, 1998 shall mean A/J Hawaii and A/J Hawaii's subsidiaries.
The Company will continue until at least December 31, 2027, unless earlier dissolved. Except as noted in Notes 2 and 3 to Notes to the Balance Sheets of Amfac/JMB Finance, Inc., the Company's sole member (Northbrook) is not obligated for any debt, obligation or liability of the Company.
The Company has three primary business segments. The agriculture segment ("Agriculture") is responsible for the Company's activities related to the cultivation and processing of sugar cane and other agricultural products. The real estate segment ("Property") is responsible for development and sales activities related to the Company's owned land, all of which is in the State of Hawaii. The golf segment ("Golf") is responsible for the management and operation of the Company's golf course facilities.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
STATEMENT OF CASH FLOWS
The Company's policy is to consider all amounts held with original maturities of three months or less in U.S. government obligations, certificates of deposit and money market funds (approximately $24,188 and $5,400 at December 31, 1998 and 1997, respectively) as cash equivalents which approximates market. These amounts include $1,923 and $2,067 at December 31, 1998 and 1997, respectively, which were restricted primarily to fund debt service on long-term debt related to the acquisition of power generation equipment (see note 6).
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"), "Disclosures about Fair Value of Financial Instruments", requires entities to disclose the SFAS No. 107 value of certain on-and off-balance sheet financial instruments for which it is practicable to estimate. Value is defined in SFAS No. 107 as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Company believes the carrying amounts of its financial instruments classified as current assets and liabilities in its balance sheet approximate SFAS No. 107 value due to the relatively short maturity of these instruments. Except for the loan secured by the Kaanapali Golf Courses, the Company believes the carrying value of its long-term debt (notes 4 and 6) approximates fair value. The debt secured by the Kaanapali Golf Courses has been declared in default by the lender as of January 1, 1999 (see note 6), and as a consequence, the Company considers the disclosure of the SFAS 107 value of such debt to be impracticable. SFAS No. 107 states that quoted market prices are the best evidence of the SFAS No. 107 value of financial instruments, even for instruments traded only in thin markets. On March 15, 1995, pursuant to the indenture that governs the terms of the COLAs (the "Indenture"), the Company elected to exercise its right to redeem, and therefore was obligated to purchase, any and all Class A COLAs submitted pursuant to the Redemption Offer at a price of $.365 per Class A COLA (see note 5). In conjunction with the Company's election to repurchase the Class A COLAs submitted for repurchase, the Company made a tender offer (the "Tender Offer") to purchase up to approximately $68,000 principal value of the Class B COLAs at a price of $.220 per Class B COLA from COLA holders electing to have their Class A COLAs repurchased. The Redemption Offer and the Tender Offer expired on June 1, 1995. Since such expiration, the secondary market for COLAs has been extremely limited. Since June 1, 1995, a limited number of COLA units have been sold in transactions arranged by brokers for amounts ranging from approximately $.250 to $.348 per Class B COLA and from approximately $.301 to $.565 per combined Class A and Class B COLA. Based on the range of transactions since June 1, 1995 and the number of COLAs outstanding (with a per unit carrying value of $1.0 and a total carrying value of $220,692 at December 31, 1998 in the accompanying consolidated financial statements), the implied SFAS No. 107 value of the COLAs would range from approximately $79,000 to $133,000. However, due to restrictions on prepayment and redemption as specified in the COLA Indenture, as well as the methodology used to determine such value, the Company does not believe that it would be able to refinance or repurchase all of its outstanding COLA units as of December 31, 1998 at this value. Reference is made to note 5 for results of the Redemption and Tender Offer. In January 1998 and October 1998, an affiliate of the Company extended two separate Tender Offers to purchase up to approximately $65,421 principal of Separately Certificated Class B COLAs and $22,500 principal amount of jointly Certificated COLAs Class A and Class B, respectively (see Note 5).
INVENTORY CAPITALIZATION AND RECOGNITION OF REVENUE FROM THE SALE OF SUGAR
The Company capitalizes all of the expenditures incurred in bringing crops to their existing condition and location. Such capitalized expenditures include those costs related to the planting, cultivation and growing of sugar cane grown on the agricultural properties of the Company. Inventory reflected in the accompanying consolidated balance sheets at December 31, 1998 and 1997, which includes $11,300 and $10,800, respectively, related to agricultural operations, is not in excess of its estimated net realizable value. Reductions in the estimated net realizable value of unsold sugar are recognized when anticipated. In determining the net realizable value of unsold sugar, the price the Company uses is based upon the domestic price of sugar. The Company recognizes revenue and related cost of sales upon delivery of its raw sugar to the California and Hawaii Sugar Company ("C&H").
The price of raw sugar that the Company receives is based upon the price of domestic sugar (less delivery and administrative costs) as currently controlled by U.S. Government price support legislation. On April 4, 1996, President Clinton signed the Federal Agriculture Improvement and Reform Act of 1996 ("the Act"). The Act, which expires in 2002, sets a target price range for raw sugar. The target raw sugar price established by the government, is supported primarily by the setting of quotas to restrict the importation of raw sugar to the U.S. There can be no assurance that, in the future, the government price support will not be reduced or eliminated entirely. Such a reduction or an elimination of price supports could have a material adverse affect on the Company's agriculture operations, and possibly could cause the Company to evaluate the cessation of its remaining sugar cane operations.
As part of the Company's agriculture operations, the Company enters into commodities futures contracts and options in sugar as deemed appropriate to reduce the risk of future price fluctuations in sugar. The sugar futures contracts obligate the Company to make or receive a payment equal to the net change in value of the contracts at its maturity. The sugar option contracts permit, but do not require, the Company to purchase specified numbers of futures contracts at specified prices until the expiration dates of the contracts. The sugar futures and options contracts are designated as hedges of the Company's firm sales commitments, are short-term in nature to correspond to the commitment period, and are effective in hedging the Company's exposure to changes in sugar prices during that cycle.
These contracts are marked to market with unrealized gains and losses deferred and recognized in earnings when realized as an adjustment to cost of sales as part of the production cost (the deferral accounting method). The related amounts due to or from the exchange are included in inventory. Unrealized changes in fair value of contracts no longer effective as hedges are recognized in income from the date the contracts become ineffective until their expiration.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The Company expects to adopt the Statement effective January 1, 2000. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. The Company does not anticipate that the adoption of this Statement will have a significant effect on results of operations or financial position.
INVESTMENTS
Investments in certain partnerships and joint ventures, if any, over which the Company exercises significant influence are accounted for by the equity method. To the extent the Company engages in such activities as general partner, the Company is contingently liable for the obligations of its partnership and joint venture investments.
LAND DEVELOPMENT
Project costs associated with the acquisition, development and construction of real estate projects are capitalized and classified as construction in progress. Such capitalized costs are not in excess of the project's estimated fair value as reviewed periodically or as considered necessary. In addition, interest is capitalized to qualifying assets during the period that such assets are undergoing activities necessary to prepare them for their intended use. Such capitalized interest is charged to cost of sales as revenue from the real estate development is recognized. Interest costs of approximately $766, $1,272 and $1,327 have been capitalized for the years ended 1998, 1997, and 1996, respectively.
Land actively held for sale and any related development costs transferred from construction in progress are reported as inventories in the accompanying consolidated balance sheets and are stated at the lower of cost or fair value less costs to sell.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standard Board issued Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operation when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of.
In accordance with the provisions of the COLA Indenture, appraisals were performed for certain assets of the Company as of December 31, 1998, which reflected a decline in value for certain properties. Certain of the assets appraised as of December 31, 1998 are properties that are either being actively marketed by the Company or properties for which the Company intends to sell in the near future. Four of the land parcels expected to be disposed of by the Company within the next two years, having a cost basis of approximately $20,193, were estimated by the Company to have a total fair market value (less costs to sell) of approximately $13,188 as of December 31, 1998. Accordingly, the Company recorded a $7,005 loss in the fourth quarter of 1998 related to these properties. Additionally, the Company reduced its carrying value of one of its land parcels in the fourth quarter of 1998 by $9,800 to properly reflect the estimated market value of this land parcel.
In accordance with the provisions of the COLA Indenture, appraisals were performed for certain assets of the Company as of December 31, 1996, which reflected a decline in value for certain properties. Certain of the assets appraised as of December 31, 1996 were properties that were either being actively marketed by the Company or properties for which the Company had plans to sell soon after December 31, 1996. Five of the land parcels then expected to be disposed of by the Company within two years after December 31, 1996 having a cost basis of approximately $40,280, were estimated by the Company to have a total fair market value, less costs to sell, of approximately $21,965 as of December 31, 1996. Accordingly, the Company recorded a $18,315 loss in the fourth quarter of 1996 related to these properties and the Company reduced its carrying value of one of its land parcels in the fourth quarter of 1997 by $2.3 million to properly reflect the estimated market value of this land parcel.
EFFECTIVE INTEREST
For financial reporting purposes, the Company uses the effective interest rate method and accrued interest on the COLAs at 4% per annum ("Mandatory Base Interest") for the years ended December 31, 1998, 1997 and 1996.
INTEREST RATE SWAPS AND CAPS
Net interest received (paid) on contracts that qualify as hedges is recognized over the life of the contract as an adjustment to interest income (expense) of the hedged financial instrument.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is based on the straight-line method over the estimated economic lives of 20-40 years for land improvements and 3-18 years for machinery and equipment, or the lease term, whichever is less. Maintenance and repairs are charged to operations as incurred. Renewals and significant betterments and improvements are capitalized and depreciated over their estimated useful lives.
DEFERRED EXPENSES
Deferred expenses consist primarily of financing costs related to the COLAs. Such costs are being amortized over the term of the COLAs on a straight-line basis.
RECOGNITION OF PROFIT FROM REAL PROPERTY SALES
For real property sales, profit is recognized in full when the collectibility of the sales price is reasonably assured and the earnings process is virtually complete. When the sale does not meet the requirements for full profit recognition, a portion of the profit is deferred until such requirements are met.
INCOME TAXES
The Company and its subsidiaries report their taxes as part of the consolidated tax return of the Company's parent, Northbrook. The Company and its subsidiaries have entered into a tax indemnification agreement with Northbrook in which Northbrook indemnifies the Company and its subsidiaries for responsibility for all past, present and future federal and state income tax liabilities (other than income taxes which are directly attributable to cancellation of indebtedness income caused by the repurchase or redemption of securities as provided for in or contemplated by the Repurchase Agreement).
Current and deferred taxes have been allocated to the Company as if the Company were a separate taxpayer in accordance with the provisions of SFAS No. 109-Accounting for Income Taxes. However, to the extent the tax indemnification agreement does not require the Company to actually pay income taxes, current taxes payable or receivable have been reflected as deemed contributions to additional paid-in capital or distributions to retained earnings (deficit)/member's equity (deficit) in the accompanying consolidated financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the December 31, 1996 and 1997 financial statements have been reclassified to conform to the December 31, 1998 presentation.
(2) ASSETS AND LIABILITIES INFORMATION
1998 1997 -------- -------- Receivables - net: Trade accounts and notes (net of allowance) . . . . . . . . . . . . $ 1,458 1,529 Sugar and molasses . . . . . . . . . . . . . 2,780 4,055 Other. . . . . . . . . . . . . . . . . . . . 9,010 1,159 -------- -------- $ 13,248 6,743 ======== ======== Accrued expenses: Payroll and benefits . . . . . . . . . . . . $ 2,118 2,537 Interest . . . . . . . . . . . . . . . . . . 4,306 4,454 Other. . . . . . . . . . . . . . . . . . . . 1,687 2,222 -------- -------- $ 8,111 9,213 ======== ========
(3) INVESTMENTS
The Company's investments at December 31, 1998 and 1997 consist of the following:
Ownership Carrying Percentage Value ----------------- ----------------- Description 1998 1997 1998 1997 - ----------- -------- -------- -------- ------ Sugar Cooperatives . . . . . . . 26% 26.0% $ 40 41 North Beach Joint Venture. . . . 100% 50.0% -- 46,455 ------- ------ $ 40 46,496 ======= ======
The Company's sugar plantation subsidiaries sell their raw sugar production to the Hawaiian Sugar and Transportation Company ("HSTC"), which is an agricultural cooperative owned by the major Hawaii producers of raw sugar (including the Company), under a marketing agreement. HSTC sells the raw sugar production to C&H pursuant to a long-term supply contract. The terms of the supply contract do not require a specified level of production by the Hawaii producers; however, HSTC is obligated to sell and C&H is obligated to purchase any raw sugar produced. The Company holds a 26% equity interest in HSTC. HSTC returns to its raw sugar suppliers proceeds based upon the domestic sugar price less delivery and administrative charges. The Company recognizes revenues and related cost of sales upon delivery of its raw sugar to C&H.
The North Beach joint venture was formed during 1986 to plan, manage and develop approximately 96 acres of beachfront property located at the Kaanapali Beach Resort on West Maui. The Company has completed the purchase of Tobishima Pacific, Inc.'s ("TPI") 50% ownership interest in the 96-acre beachfront parcel commonly referred to as Kaanapali North Beach. The Company and TPI were unable to agree on key operating decisions related to the development of the Kaanapali Ocean Resort and the future development plan for the entire North Beach property. To break the deadlock on these issues, the Company exercised a buy/sell option with a $12 million purchase price and TPI elected to sell its interest. The Company financed 80% of the purchase price for TPI's interest in North Beach and signed a note and first mortgage in favor of TPI for $9.6 million. The note is payable in five equal, annual principal installments beginning in September 1999 and with interest at 8.5% per annum payable quarterly. In January 1999, the Company paid TPI approximately $2,200 on its note to release Lot #1 for the Kaanapali Ocean Resort and the new 10-acre public recreation area at North Beach.
The Company's investment in the North Beach joint venture is 100% and accordingly is consolidated in the Company's financial statements. The following is the condensed, combined financial statement information (unaudited) of HSTC and the North Beach joint venture:
1998 1997 ------- ------------------- North Beach Joint HSTC Venture HSTC ------- ------- -------
Current assets . . . . . . . . . . . $15,215 319 20,289
Noncurrent assets. . . . . . . . . . 4 40,100 16 Current liabilities. . . . . . . . . (15,110) (274) (20,196) Noncurrent liabilities . . . . . . . -- -- -- ------- ------- ------- Equity . . . . . . . . . . . . . . . $ 109 40,145 109 ======= ======= =======
1998 1997 1996 ------- ------- -------
Revenue . . . . . . . . . . . . $147,156 135,929 203,342 Cost and expenses . . . . . . . 13,464 16,169 19,618 -------- ------- ------- Net income. . . . . . . . . . . $133,692 119,760 183,724 ======== ======= =======
(4) AMOUNTS DUE AFFILIATES - SENIOR DEBT FINANCING
The approximately $15,097 of remaining acquisition-related financing owed to affiliates had a maturity date of June 1, 1998 and bore interest at a rate per annum based upon the prime interest rate (7.75% at December 31, 1998), plus one percent. In addition to the $52,000 borrowed from Northbrook in 1995 to redeem Class A COLAs pursuant to the Redemption Offer (see Note 5), the Company had also borrowed approximately $18,746 and $9,814 during 1996 and 1995, respectively, to fund COLA Mandatory Base Interest payments, Royal Kaanapali Golf Course debt interest payments and other operational needs. These loans from Northbrook were payable interest only, had a maturity date of June 1, 1998 and carried an interest rate per annum equal to the prime interest rate plus two percent. Pursuant to the Indenture relating to the COLAs, the amounts borrowed from Northbrook are "Senior Indebtedness" to the COLAs.
In February 1997, the above-noted affiliate loans, along with certain other amounts due Northbrook, were converted into a new $104,759 ten year note payable. In 1998, the $104,759 note was cancelled pursuant to a split Note Agreement and bifurcated into two nine-year notes: (i) a $99,595 note payable to an affiliate of Northbrook and (ii) a $15,000 note payable (with an initial balance of $7,920) to Northbrook. The bifurcated notes are payable interest only and accrue interest at the prime rate plus 2%. The Company borrowed an additional $16,628 during 1997 and $24,828 during 1998 to fund COLA Mandatory Base Interest payments and other operational needs from a subsidiary of Northbrook under a separate note which is payable interest only and accrues at the prime rate plus 2%.
As of December 31, 1998, the Company agreed to exercise its option to redeem Class B COLAs that are "put" to AJF for repurchase (as described above under Item 1 - "Business"), in partial consideration for (a) the agreement by the Company's affilaite, Fred Harvey Transportation Company ("Fred Harvey"), to defer until December 31, 2001 all interest accruing from January 1, 1998 through December 31, 2001 and relating to the approximately $100,000 of senior indebtedness of the Company currently owing to Fred Harvey (as described in Note 4 to the Consolidated Financial Statements of the Company); and (b) Northbrook agreeing to cause approximately $55,100 of the Company's indebtedness that was senior to the
COLAs to be contributed to the capital of the Company. In connection with the foregoing deferral of interest and contribution of capital, the Company agrees to allow the senior debt held by Northbrook and its affiliates to be secured by assets of the Company. As a result of the contribution, in the Company's December 31, 1998 balance sheet, the "Amounts due to Affiliates" were decreased, and the Company's "Member's equity (deficit)" was increased, by approximately $55,100. The deferral of interest together with this contribution to capital were made as part of the Company's effort to alleviate significant liquidity constraints and continue to meet the Value Maintenance Ratio requirement under the Indenture. At current interest rates, and assuming no further advances of senior indebtedness, approximately $45,000 of such deferred interest relating to currently existing senior indebtedness will become due and payable on December 31, 2001. At such time, there can be no assurance that the Company will either (i) have unrestricted cash available for meeting such obligation or (ii) have the ability to refinance such $45,000 obligation. Failure to meet such obligation, if called, would cause all senior indebtedness owing to Fred Harvey or its affiliates to be immediately due and payable. A default on senior indebtedness of such magnitude could constitute an event of default under the Indenture. To the extent that Northbrook or any of its affiliates make additional advances of senior indebtedness to the Company during 1999, Northbrook or its affiliates intend to defer any interest accruing on such additional indebtedness until December 31, 2001. Therefore, interest in excess of $45,000 may be due and payable on December 31, 2001 and any such excess may be substantial.
The total amount due Northbrook and its subsidiary as of December 31, 1998 was $110,325, which includes deferred interest to affiliates on senior debt of $13,896, ($10,731 of which has been deferred until December 31, 2001, as described above). Pursuant to the Indenture, the amounts borrowed from Northbrook or its affiliates are "Senior Indebtedness" to the COLAs.
(5) CERTIFICATE OF LAND APPRECIATION NOTES
The COLAs are unsecured debt obligations of the Company. Interest on the COLAs is payable semi-annually on February 28 and August 31 of each year. The COLAs mature on December 31, 2008, and bear interest after the Final Issuance Date (August 31, 1989) at a rate of 10% per annum ("Base Interest") of the outstanding principal balance of the COLAs on a cumulative, non-compounded basis, of which 6% per annum is contingent ("Contingent Base Interest") and due and payable only to the extent of Net Cash Flow (Net Cash Flow for any period is generally an amount equal to 90% of the Company's net cash revenues, proceeds and receipts after payment of cash expenditures, including the Qualified Allowance (as defined) other than federal and state income taxes and after the establishment by the Company of reserves) or Maturity Market Value (as defined below). The Company has not generated a sufficient level of Net Cash Flow to incur or pay Contingent Base Interest on the COLAs from 1990 through 1998. Approximately $113,028 of the $120,652 cumulative deferred Contingent Base Interest (i.e. not due and payable in the absence of events which have not occurred) related to the period from August 31, 1989 (Final Issuance Date) through December 31, 1998 has not been accrued in the accompanying consolidated financial statements as the Company believes that it is not probable at this time that a sufficient level of Net Cash Flow will be generated in the future or that there will be sufficient Maturity Market Value (as defined below) as of December 31, 2008 (the COLA maturity date) to pay such unaccrued and deferred Contingent Base Interest. The following table is a summary of Mandatory Base Interest and Contingent Base Interest for the years ended December 31, 1998, 1997 and 1996:
1998 1997 1996 -------- ------ ------ Mandatory Base Interest paid . . . . $ 8,828 8,828 8,828 Contingent Base Interest due and paid. . . . . . . . . . . . -- -- -- Cumulative deferred Contingent Base Interest at end of year. . . . $120,652 107,411 94,169
Net Cash Flow was $0 for 1998, 1997 and 1996.
In each calendar year, principal reductions may be made from remaining Net Cash Flow, if any, in excess of all current and unpaid deferred Contingent Base Interest and will be made at the election of the Company (subject to certain restrictions). The COLAs will bear additional contingent interest in any year, after any principal reduction, equal to 55% of remaining Net Cash Flow. Upon maturity, holders of COLAs will be entitled to receive the remaining outstanding principal balance of the COLAs plus Unpaid Mandatory Base Interest plus additional interest equal to
certain levels of the unpaid Contingent Base Interest, to the extent of the Maturity Market Value (Maturity Market Value generally means 90% of the excess of the Fair Market Value (as defined) of the Company's assets at maturity over its liabilities (including Qualified Allowance, but only to the extent earned and payable from Net Cash Flow generated through maturity) at maturity, which liabilities have been incurred in connection with its operations), plus 55% of the remaining Maturity Market Value.
On March 14, 1989, Amfac/JMB Finance ("AJF"), a wholly-owned subsidiary of Northbrook, and the Company entered into an agreement (the "Repurchase Agreement") concerning AJF's obligations to repurchase, on June 1, 1995 and 1999, the COLAs upon request of the holders thereof. The COLAs were issued in two units consisting of one Class A and one Class B COLA. As specified in the Repurchase Agreement, the repurchase of the Class A COLAs may have been requested by the holders of such COLAs on June 1, 1995 at a price equal to the original principal amount of such COLAs ($.5) minus all payments of principal and interest allocated to such COLAs. The cumulative interest paid per Class A COLA through June 1, 1995 was $.135. The repurchase of the Class B COLAs may be requested of AJF by the holders of such COLAs on June 1, 1999 at a price equal to 125% of the original principal amount of such COLAs ($.5) minus all payments of principal and as of December 31, 1998, the cumulative interest paid per Class A and Class B COLA was approximately $205 and $205, respectively.
On March 14, 1989, Northbrook entered into a Keep-Well Agreement with AJF, whereby it agreed to contribute sufficient capital or make loans to AJF to enable AJF to meet its COLA repurchase obligations described above. Notwithstanding AJF's repurchase obligations, the Company may elect, and intends to so elect, to redeem any COLAs requested to be repurchased at the specified price.
AF Investors currently holds 89,330 Class B COLAs (with a put value of $36,625) as described below. AF Investors will cause some, but not all, of such Class B COLAs to be "put" pursuant to the Repurchase Agreement. AF Investors has agreed to take back senior debt of the Company for the portion so put to the extent that the Company does not have sufficient cash available to meet the put obligation and currently intends to retain at least $10,000 to $15,000 of its Class B COLAs. AF Investor's Class B COLAs were contributed by Amfac Finance Limited Partnership ("Amfac Finance"), an Illinois limited partnership and an affiliate of the Company, to AF Investors in December 1998. AF Investors does not intend to require cash payments in the event it chooses to exercise its right to "put" any or all of its Class B COLAs unless sufficient cash would be available to the Company after satisfying the put obligation on the non-affiliated Class B COLA holders. Notwithstanding AJF's obligation under the Repurchase Agreement, the Company's obligation to cause AJF to perform under the Repurchase Agreement, Northbrook's obligation under the Keep-Well Agreement, and the election that the Company intends to make to redeem Class B COLAs put to AJF (thereby reducing or potentially eliminating AJF's obligation, and as a consequence, Northbrook's), AJF, Northbrook and the Company in the aggregate do not currently have, and are not expected to have by June 1, 1999, sufficient available resources to meet the maximum potential obligation of approximately $81 million should all Class B COLAs
(excluding the Class B COLAs held by AF Investors) be put pursuant to the Repurchase Agreement (approximately $117 million including the Class B COLAs held by AF Investors). Failure to meet these obligations could lead to a claim against the Company, AJF and, in turn, Northbrook. The number, if any, of Class B COLA holders (other than AF Investors) who will elect to have their Class B COLAs redeemed is not currently determinable and, accordingly, the amount of resources necessary to enable the Company to redeem such Class B COLAs is not determinable. Based upon prior experience, the Company does not anticipate that all of the Class B COLAs will be "put" pursuant to the Repurchase Agreement and does anticipate having sufficient resources to redeem the Class B COLAs actually put to the Company. However, there can be no assurance that the Company and its affiliates will have sufficient resources to redeem the Class B COLAs actually put to the Company.
On March 15, 1995, pursuant to the indenture that governs the terms of the COLAs (the "Indenture"), the Company elected to offer to redeem (the "Redemption Offer") all Class A COLAs from the registered holders, thereby eliminating AJF's obligation to satisfy the Class A COLA repurchase options requested by such holders as of June 1, 1995. Pursuant to the Redemption Offer, and in accordance with the terms of the Indenture, the Company was therefore obligated to purchase any and all Class A COLAs submitted pursuant to the Redemption Offer at a price of $.365 per Class A COLA. In conjunction with the Company's Redemption Offer, the Company made a tender offer (the "Tender Offer") to purchase up to approximately $68,000 principal value of the Class B COLAs at a price of $.220 per Class B COLA from COLA holders electing to have their Class A COLAs repurchased. Approximately 229,000 Class A COLAs were submitted for repurchase pursuant to the Redemption Offer and approximately 99,000 Class B COLAs were submitted for repurchase pursuant to the Tender Offer, requiring an aggregate payment by the Company of approximately $105,450 on June 1, 1995. The Company used its available cash to purchase Class B COLAs pursuant to the Tender Offer and borrowed $52,000 from Northbrook to purchase Class A COLAs pursuant to the Redemption Offer. As of December 31, 1998, the Company had approximately 156,000 Class A COLA units and approximately 286,000 Class B COLA units outstanding, with a principal balance of approximately $78,000 and $143,000, respectively.
As a result of repurchases, the Company retired approximately $164,045 in face value of COLA debt and recognized a financial statement extraordinary gain of approximately $32,544 (net of income taxes of $20,807, the write-off of deferred financing costs of $10,015, the write-off of accrued Contingent Base Interest of $5,667 and expenses of $894). Such gain was treated as cancellation of indebtedness income for tax purposes and, accordingly, the income taxes related to the Class A Redemption Offer (approximately $9,106) were not indemnified by the tax agreement with Northbrook (see note 1).
On January 30, 1998, Amfac Finance extended a Tender Offer to Purchase (the "Class B Tender Offer") up to approximately $65,421 Principal amount of Separately Certificated Class B COLAs ("Separate Class B COLAs") for cash at a unit price of $.375 to be paid by Amfac Finance on each Separate Class B COLA on or about March 24, 1998. The maximum cash to be paid under the Class B Tender Offer was approximately $49,066 (130,842 Separate Class B COLAs at a unit price of $.375 for each separate Class B COLA). Approximately 62,857 Separate Class B COLAs were submitted to Amfac Finance for repurchase pursuant to the Tender Offer, requiring an aggregate payment by Amfac Finance of approximately $23,571 on March 31, 1998. In addition, on October 23, 1998, Amfac Finance extended a Tender Offer to Purchase (the "Class A/B Tender Offer") up to approximately $22.5 million principal amount of Jointly Certificated Class A and B COLAs (together "COLA Units") for cash at a unit price of $460 to be paid by Amfac Finance on each COLA Unit on or about December 23, 1998. The maximum cash to be paid under the Tender Offer was approximately $12.2 million (26,600 COLA Units at a unit price of $460 for each COLA Unit). Approximately 26,473 COLA Units were submitted to Amfac Finance for repurchase pursuant to the Tender Offer requiring an aggregate payment by Amfac Finance of approximately $12.2 million on December 23, 1998. Neither the Class B nor the Class A/B Tender
Offer reduced the outstanding indebtedness of the Company. In December 1998, Amfac Finance contributed its COLA Units to AF Investors. The COLA Units held by AF Investors remain outstanding pursuant to the terms of the Indenture. Except as provided in the last sentence of this paragraph, AF Investors is entitled to the same rights and benefits of any other holder of COLA Units, including having the right to have AJF repurchase on June 1, 1999, the separate Class B COLAs that it owns. AF Investors currently intends to require some, but not all of the Class B COLAs which it will own on such date to be repurchased pursuant to the Repurchase Agreement. AF Investors has agreed to take back senior debt of the Company for the portion so put to the extent that the Company does not have sufficient cash available to meet the put obligation. Because AF Investors is an affiliate of the Company, AF Investors will not be able to participate in determining whether the holders of the required principal amount of debt under the Indenture have concurred in any direction, waiver or consent under the terms of the Indenture.
As a result of the Class B and Class A/B Tender Offers, the Company recognized approximately $7.9 million and $14.3 million, respectively, of taxable gain in accordance with income tax regulations for certain transactions with affiliates. Such gain is treated as cancellation of indebtedness income for income tax purposes only and, accordingly, the income taxes related to the Class B Tender Offer (approximately $3.1 million) and Class A/B Tender Offer (approximately $5.7 million) were, or will be, indemnified by Northbrook through the tax agreement between Northbrook and the Company (See Note 1 to Notes to the Consolidated Financial Statements).
The terms of the Indenture place certain restrictions on the Company's declaration and payment of dividends. Such restrictions generally relate to the source, timing and amounts which may be declared and/or paid. The COLAs also impose certain restrictions on, among other things, the creation of additional indebtedness for certain purposes, the Company's ability to consolidate or merge with or into other entities, and the Company's transactions with affiliates.
(6) LONG-TERM DEBT
In June 1991, the Company obtained a five-year $66,000 loan from the Employees' Retirement System of the State of Hawaii ("ERS"). The nonrecourse loan is secured by a first mortgage on the Kaanapali Golf Courses, and is "Senior Indebtedness" (as defined in the Indenture relating to the COLAs). The loan bore interest at a rate per annum equal to the greater of (i) the base interest rate announced by the Bank of Hawaii on the first of July for each year or (ii) ten percent per annum through June 30, 1993 and nine percent per annum thereafter.
In April 1996, the Company reached an agreement to amend the loan with the ERS, extending the maturity date for five years. In exchange for the loan extension, the ERS received the right to participate in the "Net Disposition Proceeds" (as defined) related to the sale or the refinancing of the golf courses or at the maturity of the loan. The ERS share of the Net Disposition Proceeds increases from 30% through June 30, 1997, to 40% for the period from July 1, 1997 to June 30, 1999 and to 50% thereafter. The loan amendment effectively adjusted the interest rate as of January 1, 1995 to 9.5% until June 30, 1996. After June 30, 1996, the loan bears interest at a rate per annum equal to 8.73%. The loan amendment requires the Company to pay interest at the rate of 7% for the period from January 1, 1995 to June 30, 1996, 7.5% from July 1, 1996 to June 30, 1997, 7.75% from July 1, 1997 to June 30, 1998 and 8.5% thereafter ("Minimum Interest"). The Company made payments in 1998 and 1997 totaling $5,240 and $4,989, respectively, which represents the Minimum Interest due through September 30, 1998. Accrued Minimum Interest as of December 31, 1998 was $1,414. The scheduled minimum payments are paid quarterly on the principal balance of the $66,000 loan. The difference between the accrued interest expense and the Minimum Interest payment accrues interest and is payable on an annual basis from excess cash flow, if any, generated from the Kaanapali Golf Courses. The annual interest payments were in excess of the cash flow
generated by the Kaanapali Golf Courses. The total accrued interest payable from excess cash flow was approximately $4,983 as of December 31, 1998. Although the outstanding loan balance remains nonrecourse, certain payments and obligations, such as the Minimum Interest payments and the ERS's share of appreciation, if any, are recourse to the Company. However, the Company's obligations to make future Minimum Interest payments and to pay the ERS a share of appreciation would be terminated if the Company tendered an executed deed to the golf course property to the ERS in accordance with the terms of the amendment. Due to depressed golf course revenues, the Company did not pay to the ERS the Minimum Interest payment due on January 1, 1999. As expected, the Company received a default notice from the ERS and is currently pursuing renegotiation of the loan terms.
In January 1993, The Lihue Plantation Company, Limited ("Lihue") obtained a ten-year $13,250 loan used to fund the acquisition of Lihue's power generation equipment. The $13,250 loan, constituting "Senior Indebtedness" under the COLAs' Indenture, consists of two ten year amortizing term loans of $10,000 and $3,250, respectively, payable in forty consecutive installments commencing July 1, 1993 in the principal amount of $250 and $81, respectively (plus interest). The remaining balance of the $3,250 loan was fully repaid in January 1997. The $10,000 loan has an outstanding balance of $3,260 as of December 31, 1998 and bears interest at a rate equal to prime rate (7.75% at December 31, 1998) plus three and one half percent. Lihue has purchased an interest rate agreement which protects against fluctuations in interest rates and effectively caps the prime rate at eight percent for the first seven years of the loan agreement. The loan is secured by the Lihue power generation equipment, sugar inventories and receivables, certain other assets and real property of the Company and has limited recourse to the Company and certain other subsidiaries.
In October 1993, Waikele Golf Club, Inc. ("WGCI"), a wholly-owned subsidiary of the Company that owns and operates the Waikele Golf Course, obtained a five year $20,000 loan facility from two lenders. The loan consisted of two $10,000 amortizing loans. Each loan bore interest only for the first two years and interest and principal payments based upon an assumed 20 year amortization period for the remaining three years. The loans bore interest at prime plus 1/2% and LIBOR (5.172% at December 31, 1998) plus 3%, respectively. In February 1997, WGCI entered into an amended and restated loan agreement with the Bank of Hawaii, whereby the outstanding principal amount of the loan has been increased to $25,000, the maturity date has been extended to February 2007, the interest rate has been changed to LIBOR plus 2% until the fifth anniversary and LIBOR plus 2.5% thereafter and principal is to be repaid based on a 30-year amortization schedule. The loan is secured by WGCI's assets (the golf course and related improvements and equipment), is guaranteed by the Company, and is "Senior Indebtedness" (as defined in the Indenture relating to the COLAs). As of December 31, 1998, the outstanding balance was $24,546, with scheduled annual principal maturities of $246 in 1999 through 2006 and the balance of $22,578 in 2007.
In December 1996, Amfac Property Development Corp. ("APDC"), a wholly- owned subsidiary of the Company, obtained a $10,000 loan facility from City Bank. The loan is secured by a mortgage on property under development at the mill-site of Oahu Sugar (the sugar plantation was closed in 1995), and is "Senior Indebtedness" (as defined in the Indenture relating to the COLAs). The loan bears interest at the bank's base rate (8.5% at September 30, 1998) plus .5% and originally was scheduled to mature on December 1, 1998. In November 1998, APDC sold certain mill-site property which served as collateral for the $10,000 City Bank loan for an approximate sales price of $7,690 in cash plus 2% of the gross sales price of subsequent parcel sales of all or any portion of the property by the purchaser. The bank required $6,000 of the sales proceeds as a principal reduction on the loan in order to release the collateral. APDC received a one-year extension on the $4,000 remaining balance of the loan which is secured by another parcel at the mill-site. The extended loan bears interest at the bank's base rate (7.75% at December 31, 1998) plus 1.25% and matures on December 1, 1999.
In September 1998, Amfac Property Investment Corporation. ("APIC"), a wholly-owned subsidiary of the Company, purchased TPI's 50% ownership interest in the 96-acre beachfront parcel (commonly referred to as Kaanapali North Beach) for $12,000. APIC paid $2,400 in cash and signed a note for $9,600. The note is secured by a mortgage on the property in favor of TPI and is "Senior Indebtedness" (as defined in the Indenture relating to the COLAs). The note is payable in five annual installments in the principal amount of $1,920 beginning in September 1999. The note bears interest of 8.5% and is payable quarterly. In January 1999, the Company paid TPI approximately $2,200 on its note to release Lot #1 for the Kaanapali Ocean Resort and the new 10-acre public recreation area at North Beach.
(7) RENTAL ARRANGEMENTS
As Lessee
The Company rents, as lessee, various land, facilities and equipment under operating leases. Most land leases provide for renewal options and minimum rentals plus contingent payments based on revenues or profits. Included in rent expense are minimum rentals and contingent payments for operating leases in the following amounts:
1998 1997 1996 ------- ------- ------- Minimum and fixed rents. . . . . $ 2,236 2,280 2,357 Contingent payments. . . . . . . 1,219 1,340 1,181 Property taxes, insurance and other charges. . . . . . . 857 1,008 1,241 ------- ------ ------ $ 4,312 4,628 4,779 ======= ====== ======
Future minimum lease payments under noncancelable operating leases aggregate approximately $9,190 and are due as follows: 1999, $1,577; 2000, $1,586; 2001, $1,437; 2002, $1,311, 2003, $1,178 and thereafter $2,101. There can be no assurance that any of the Company's leases will be renewed.
(8) EMPLOYEE BENEFIT PLANS
The Company participates in benefit plans covering substantially all its employees, which provide benefits based primarily on length of service and compensation levels. These plans are administered by Northbrook in conjunction with other plans providing benefits to employees of Northbrook and its affiliates.
Northbrook's policy is to fund pension costs in accordance with the minimum funding requirements under provisions of the Employee Retirement Income Security Act ("ERISA"). Under ERISA guidelines, amounts funded may be more or less than the pension expense recognized for financial reporting purposes. One of the Company's defined benefit plans, the Retirement Plan for the Employees of Amfac, Inc. (the "Plan"), terminated effective December 31, 1994. The settlement of the plan occurred in May 1995. The Company replaced this plan with the "Core Retirement Award Program", a defined contribution plan that commenced on January 1, 1995. In the new plan, an Eligible Employee (as defined) is credited with an annual contribution equal to 3% of the employee's qualified compensation. The new plan's cost to the Company and the benefits provided to the participants are comparable to the former plan.
Charges for pension and Core Retirement Award costs allocated to the Company aggregated approximately $545, $545 and $628 for the years ended December 31, 1998, 1997 and 1996, respectively.
In addition to providing pension benefits, the Company also provides certain healthcare and life insurance benefits to eligible retired employees of some of its businesses. Where such benefits are offered, substantially all employees may become eligible for such benefits if they reach a specified retirement age while employed by the Company and if they meet a certain length of service criteria. The postretirement healthcare plan is contributory and contains cost-sharing features such as deductibles and copayments. However, these features, as they apply to bargaining unit retirees, are subject to collective bargaining provisions of a labor contract between the Company and the International Longshoremen's & Warehousemen's Union. The postretirement life insurance plan is non-contributory. The Company continues to fund benefit costs for both plans on a pay-as-you-go basis.
For measuring the expected postretirement benefit obligation, an 11% annual rate of increase in the per capita claims cost was assumed for 1997 through 2003. This rate was assumed to decrease to 6% in 2003 and remain at that level thereafter. The healthcare cost trend rate assumption has a significant effect on the amount of the obligation and periodic cost reported. An increase and (decrease) in the assumed healthcare trend rate by 1% in 1998 would increase and (decrease) the medical plans' accumulated postretirement benefit obligation as of December 31, 1998 by $900 and ($801), respectively, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $100 and ($90), respectively.
Net periodic postretirement benefit cost (credit) for 1998, 1997 and 1996 includes the following components:
1998 1997 1996 Total Total Total ------- ------ ------ Service cost . . . . . . . . . . . . . $ 287 303 417 Interest cost. . . . . . . . . . . . . 1,817 1,867 1,970 Amortization of net (gain) loss. . . . (2,907) (3,160) (3,366) ------- ------ ------ Net periodic postretirement benefit cost (credit) . . . . . . . . $ (803) (990) (979) ======= ====== ======
The following table sets forth the plans' change in benefit obligation and benefit cost as of December 31, 1998 and 1997 as follows:
December 31, December 31, 1998 1997 ------------ ------------ Benefit obligation at beginning of year. . $ 25,384 26,101 Service cost . . . . . . . . . . . . . . . 286 302 Interest cost. . . . . . . . . . . . . . . 1,818 1,867 Actuarial gains. . . . . . . . . . . . . . (864) (589) Employer contribution. . . . . . . . . . . (2,258) (2,297) ---------- ----------
Benefit obligation at end of year. . . . . 24,366 25,384 Unrecognized net actuarial gain. . . . . . 26,948 28,991 ---------- ---------- Accumulated postretirement benefit cost. . $ 51,314 54,375 ========== ==========
The Company currently amortizes unrecognized gains over the shorter of 10 years or the average remaining service period of active plan participants. However, due to the significant amount of unrecognized gain at December 31, 1998, which is included in the financial statements as a liability, and the disproportionate relationship between the unrecognized gain and accumulated postretirement benefit obligation at December 31, 1998, the Company may, in the future, change its amortization policy to accelerate the recognition of the unrecognized gain. In considering such change, the Company would need to determine whether significant changes in the accumulated postretirement benefit obligation and unrecognized gain may occur in the future as a result of changes in actuarial assumptions, experience and other factors. Any future change to accelerate the amortization of the unrecognized gain would have no effect on the Company's cash flows, but could have a significant effect on its statement of operations.
The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.5% as of December 31, 1998 and 1997.
(9) TRANSACTIONS WITH AFFILIATES
With respect to any calendar year, JMB Realty Corporation ("JMB"), an affiliate of the Company, or its affiliates may receive a Qualified Allowance in an amount equal to: (i) approximately $6,200 during each of the calendar years 1989 through 1993; and (ii) thereafter, 1-1/2% per annum of the Fair Market Value (as defined) of the gross assets of the Company and its subsidiaries (other than cash and cash equivalents and Excluded Assets (as defined)) for providing certain advisory services for the Company. The aforementioned advisory services, which are provided pursuant to a 30-year Services Agreement entered into between the Company, certain of its subsidiaries and JMB in November 1988, include making recommendations in the following areas: (i) the construction and development of real property; (ii) land use and zoning changes; (iii) the timing and pricing of properties to be sold; (iv) the timing, type and amount of financing to be incurred; (v) the agricultural business; and, (vi) the uses (agricultural, residential, recreational or commercial) for the land. However, the Qualified Allowance shall be earned and paid for each year prior to maturity of the COLAs only if the Company generates sufficient Net Cash Flow to pay Base Interest to the holders of the COLAs for such year of an amount equal to 8% of the balance of the COLAs for such year; any portion of the Qualified Allowance not paid for any year shall cumulate without interest and JMB or its affiliates shall be paid such amount with respect to any succeeding year, after the payment of all Contingent Base Interest for such year, to the extent of 100% of remaining Net Cash Flow until an amount equal to 20% of the Base Interest with respect to such year has been paid, and thereafter, to the extent of the product of (a) remaining Net Cash Flow, multiplied by (b) a fraction, the numerator of which is the cumulative deficiency as of the end of such year in the Qualified Allowance and the denominator of which is the sum of the cumulative deficiencies as of the end of such year in the Qualified Allowance and Base Interest. A Qualified Allowance for 1989 of approximately $6,200 was paid on February 28, 1990. Approximately $74,102 of Qualified Allowance related to the period from January 1, 1990 through December 31, 1998 has not been earned and paid and is payable only from future Net Cash Flow. Accordingly, because the Company does not believe it is probable at this time that a sufficient level of Net Cash Flow will be generated in the future to pay the Qualified Allowance, the Company has not accrued for any Qualified Allowance in the accompanying consolidated financial statements. JMB has informed the Company that no incremental costs or expenses have been incurred relating to the provision of these advisory services. The Company believes that using an incremental cost methodology is reasonable. The following table is a summary of the Qualified Allowance for the years ended December 31, 1998, 1997 and 1996.
1998 1997 1996 ------- ------ ------ Qualified Allowance calculated . . . $ 9,776 10,082 9,240 Qualified Allowance paid . . . . . . $ -- -- -- Cumulative deficiency of Qualified Allowance at end of year. . . . . . $74,102 64,326 54,407
Net Cash Flow was $0 for 1998, 1997 and 1996.
After the maturity date of the COLAs, JMB will continue to provide advisory services pursuant to the Services Agreement, the Qualified Allowance for such years will continue to be 1-1/2% per annum of the Fair Market Value of the gross assets of the Company and its subsidiaries and the Qualified Allowance will continue to be payable from the Company's Net Cash Flow. Upon the termination of the Services Agreement, if there has not been sufficient Net Cash Flow to pay the cumulative deficiency in the Qualified Allowance, if any, such amount would not be due or payable to JMB.
The Company, its subsidiaries and their joint ventures reimburse Northbrook, JMB and their affiliates for direct expenses incurred on their behalf, including salaries and salary-related expenses incurred in connection with the management of the Company's or its subsidiaries' and the joint ventures' operations. The total of such costs for the years ended December 31, 1998, 1997 and 1996 was approximately $669, $658 and $653, respectively, of which $1,275 was unpaid as of December 31, 1998. In addition, as of December 31, 1998, the current portion of amounts due to affiliates includes $9,106 of income tax payable related to the Class A COLA Redemption Offer (see Note 5). Also, the Company pays a non-accountable reimbursement of approximately $30 per month to JMB or its affiliates in respect of general overhead expense, all of which was paid as of December 31, 1998.
JMB Insurance Agency, Inc., an affiliate of JMB, earns insurance brokerage commissions in connection with providing the placement of insurance coverage for certain of the properties and operations of the Company. Such commissions are comparable to those available to the Company in similar dealings with unaffiliated third parties. The total of such commissions for the years ended December 31, 1998, 1997 and 1996 was approximately $587, $742 and $774, respectively, all of which was paid as of December 31, 1998.
Northbrook and its affiliates allocated certain charges for services to the Company based upon the estimated level of services for the years ended December 31, 1998, 1997 and 1996 of approximately $923, $780 and $1,460, respectively, of which $1,928 was unpaid as of December 31, 1998. These services and costs are intended to reflect the Company's separate costs of doing business and are principally related to the inclusion of the Company's employees in the Northbrook pension plan, payment of severance and termination benefits and reimbursement for insurance claims paid on behalf of the Company. All amounts described above, deferred or currently payable, do not bear interest and are expected to be paid in future periods.
In February 1997, the affiliate loans (see Note 4), along with certain other amounts due Northbrook, were converted into a new $104,759 ten-year note payable. The new note was payable interest only and accrued interest at the prime rate plus 2%. In 1998, the $104,759 note was cancelled pursuant to a Split Note Agreement and bifurcated into two nine-year notes (i) a $99,595 note payable to an affiliate of Northbrook and (ii) a $15,000
note payable (with an initial balance of $7,920) to Northbrook. The bifurcated notes were payable interest only and accrue interest at the prime rate plus 2%. The Company borrowed an additional $16,628 during 1997 and $24,828 during 1998 to fund COLA Mandatory Base Interest payments and other operational needs from a subsidiary of Northbrook under a separate note which is payable interest only and accrues at the prime rate plus 2%. In October 1997, the Company repaid $7,000 of the amount due the affiliate.
In connection with such affiliated loans, the Company incurred interest expense of approximately $15,355, $12,083 and $8,935 for the years ended December 31, 1998, 1997 and 1996, respectively.
As of December 31, 1998, the Company agreed to exercise its option to redeem Class B COLAs that are "put" to AJF for repurchase (as described above under Item 1 - "Business"), in partial consideration for (a) Fred Harvey's agreement to defer until December 31, 2001 all interest accruing from January 1, 1998 through December 31, 2001 and relating to the approximately $100,000 of senior indebtedness of the Company currently owing to Fred Harvey (as described in Note 4 to the Consolidated Financial Statements of the Company); and (b) Northbrook agreeing to cause approximately $55,100 of the Company's indebtedness that was senior to the COLAs to be contributed to the capital of the Company. As a result of the contribution, in the Company's December 31, 1998 balance sheet, the "Amounts due to Affiliates" were decreased, and the Company's "Member's equity (deficit)" was increased, by approximately $55,100. The deferral of interest together with this contribution to capital were made as part of the Company's effort to alleviate significant liquidity constraints and continue to meet the Value Maintenance Ratio requirement under the Indenture. At current interest rates, and assuming no further advances of senior indebtedness, approximately $45,000 of such deferred interest relating to currently existing senior indebtedness will become due and payable on December 31, 2001. At such time, there can be no assurance that the Company will either (i) have unrestricted cash available for meeting such obligation or (ii) have the ability to refinance such $45,000 obligation. Failure to meet such obligation, if called, would cause all senior indebtedness owing to Fred Harvey or its affiliates to be immediately due and payable. A default on senior indebtedness of such magnitude could constitute an event of default under the Indenture. To the extent that Northbrook or any of its affiliates make additional advances of senior indebtedness to the Company during 1999, Northbrook or its affiliates intend to defer any interest accruing on such additional indebtedness until December 31, 2001. Therefore, interest in excess of $45,000 may be due and payable on December 31, 2001 and any such excess may be substantial.
The total amount due Northbrook and its subsidiary as of December 31, 1998 was $110,325, which includes deferred interest to affiliates on the senior debt of approximately $13,896 ($10,731 of which has been deferred until December 31, 2001, as described above). Pursuant to the Indenture relating to the COLAs, the amounts borrowed from Northbrook are "Senior Indebtedness" to the COLAs.
(10) SIGNIFICANT CUSTOMER
As a result of the Company's interest in HSTC, C&H is contractually bound to purchase all of the sugar the Company produces. If, for any reason, C&H were to cease its operations, the Company would seek other purchasers for its sugar.
(11) COMMITMENTS AND CONTINGENCIES
The Company is involved in various matters of litigation and other claims. Management, after consultation with legal counsel, is of the opinion that the Company's liability (if any) when ultimately determined will not have a material adverse effect on the Company's financial position.
The Company's property segment had contractual commitments (related to project costs) of approximately $3,365 as of December 31, 1998. Additional development expenditures are dependent upon the ability to obtain financing and the timing and extent of property development and sales.
As of December 31, 1998, certain portions of the Company's land not currently under development are mortgaged as security for $2,477 of performance bonds related to property development.
(12) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1998, 1997 and 1996 consists of:
Current Deferred Total -------- -------- --------
Year ended December 31, 1998: U.S. federal . . . . . . . . . . . $ (283) (23,205) (23,488) State. . . . . . . . . . . . . . . (52) (4,219) (4,271) -------- -------- -------- $ (335) (27,424) (27,759) ======== ======== ========
Year ended December 31, 1997: U.S. federal . . . . . . . . . . . $ (9,939) (4,477) (14,416) State. . . . . . . . . . . . . . . (1,807) (814) (2,621) -------- -------- -------- $(11,746) (5,291) (17,037) ======== ======== ======== Year ended December 31, 1996: U.S. federal . . . . . . . . . . . $ (4,414) (13,391) (17,805) State. . . . . . . . . . . . . . . (803) (2,435) (3,238) -------- -------- -------- $ (5,217) (15,826) (21,043) ======== ======== ========
In 1995, income tax expense related to the COLA redemption approximated $20,807. Of this amount, approximately $9,106 was attributable to current taxes related to the redeemed Class A COLA's and, accordingly, was not indemnified by Northbrook (see note 9). Current income tax expense attributable to the Class B COLA's of approximately $9,490 was indemnified by Northbrook and, accordingly, was deducted from the 1995 current tax benefit of $12,379 attributable to loss before extraordinary gain to derive the 1995 capital contribution related to current income taxes.
Income tax benefit differs from the amounts computed by applying the U.S. federal income tax rate of 35 percent to pretax loss as a result of the following: 1998 1997 1996 -------- -------- --------
Computed "expected" tax benefit. . . $(24,324) (14,914) (19,323) Increase (reduction) in income taxes resulting from: Pension and Core Retirement Award expense . . . . . . . . . . 232 226 321 State income taxes, net of federal income tax benefit. . . . (2,847) (1,747) (2,158) Other, net . . . . . . . . . . . . . (582) 42 117 Charitable deduction of appreciated property . . . . . . . (238) (644) -- -------- -------- -------- Total . . . . . . . . . . . . . $(27,759) (17,037) (21,043) ======== ======== ========
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31, 1998 and 1997 are as follows:
1998 1997 -------- -------- Deferred tax (assets): Postretirement benefits . . . . . . . . . . . . $(20,012) (21,206) Interest accruals . . . . . . . . . . . . . . . (3,047) (3,021) Cancellation of Debt Income on COLA tenders. . . . . . . . . . . . . . . . . (8,639) -- Other accruals. . . . . . . . . . . . . . . . . (2,039) (3,274) -------- -------- Total deferred tax assets . . . . . . . . (33,737) (27,501) -------- -------- Deferred tax liabilities: Accounts receivable related to profit on sales of sugar. . . . . . . . . . . . . . 3,216 3,960 Inventories, principally due to sugar production costs, capitalized costs, capitalized interest and purchase accounting adjustments. . . . . . . (870) (1,422) Plant and equipment, principally due to depreciation and purchase accounting adjustments . . . . . . . . . . . . . . . . . 9,920 8,759 Land and land improvements, principally due to purchase accounting adjustments. . . . 75,163 84,004 Deferred gains due to installment sales for income tax purposes . . . . . . . . . . . . . 7,676 7,456 Investments in unconsolidated entities, principally due to purchase accounting adjustments. . . . . . . . . . . . . . . . . . (316) 13,220 -------- -------- Total deferred tax liabilities. . . . . . . 94,789 115,977 -------- -------- Net deferred tax liability. . . . . . . . . $ 61,052 88,476 ======== ========
(13) SEGMENT INFORMATION
Agriculture, Property and Golf comprise the separate industry segments of the Company. Operating income (loss)-Other consists primarily of unallocated overhead expenses and Total assets-Other consists primarily of cash and deferred expenses.
Total revenues, operating income (loss), assets, capital expenditures, and depreciation and amortization by industry segment for 1998, 1997 and 1996 are set forth below:
1998 1997 1996 -------- -------- -------- Revenues: Agriculture. . . . . . . . . . . $ 34,551 41,949 51,805 Property . . . . . . . . . . . . 49,642 28,430 29,947 Golf . . . . . . . . . . . . . . 14,485 15,618 15,191 -------- -------- -------- $ 98,678 85,997 96,943 ======== ======== ========
1998 1997 1996 -------- -------- -------- Operating income (loss): Property: Reduction to carrying value of investments in real estate . . . . . . . . . . . $(16,805) (2,279) (18,315) Other. . . . . . . . . . . . . (15,305) (6,842) (2,813) Agriculture. . . . . . . . . . . (4,049) (3,373) (7,525) Other. . . . . . . . . . . . . . (2,349) (3,225) (3,045) Golf . . . . . . . . . . . . . . 2,713 3,720 3,545 -------- -------- -------- $(35,795) (11,999) (28,153) ======== ======== ======== Total assets: Property . . . . . . . . . . . . $121,957 145,768 147,109 Agriculture. . . . . . . . . . . 197,288 222,693 239,222 Other. . . . . . . . . . . . . . 34,191 18,807 19,011 Golf . . . . . . . . . . . . . . 77,644 76,977 78,263 -------- -------- -------- $431,080 464,245 483,605 ======== ======== ======== Capital expenditures: Property . . . . . . . . . . . . $ 13,612 276 230 Agriculture. . . . . . . . . . . 2,052 2,132 3,160 Other. . . . . . . . . . . . . . -- 13 252 Golf . . . . . . . . . . . . . . 1,932 345 615 -------- -------- -------- $ 17,596 2,766 4,257 ======== ======== ======== Depreciation and amortization: Property . . . . . . . . . . . . $ 822 865 831 Agriculture. . . . . . . . . . . 4,496 3,890 4,120 Other. . . . . . . . . . . . . . 4 45 55 Golf . . . . . . . . . . . . . . 1,250 1,410 1,348 -------- -------- -------- $ 6,572 6,210 6,354 ======== ======== ========
(14) Subsequent Events
COLA Interest Payment
On March 1, 1999, an interest payment (representing Mandatory Base Interest through February 28, 1998) of approximately $4,414 was paid to the holders of COLAs.
Maui Sugar Operations
In March 1999, the Company announced its plans to shut down its sugar operations at Pioneer Mill on Maui at the end of the 1999 harvest season (September 1999). Pioneer Mill has consistently incurred losses in prior years and it was expected that those losses would continue in the future. The Company expects to use portions of the land at Pioneer Mill for alternative crops. The Company's estimated future costs to shut down sugar operations at Pioneer Mill are not expected to have a material adverse effect on the financial condition of the Company.
Schedule II
AMFAC/JMB HAWAII, L.L.C.
Valuation and Qualifying Accounts
Years ended December 31, 1998, 1997 and 1996
(Dollars in Thousands)
Additions Additions Balance at Charges to Charges to Balance at Beginning Cost and Other End Description of Period Expenses Accounts Deductions of Period - ----------- ---------- ---------- ---------- ---------- ----------
Year ended December 31, 1998: - ---------------------------- Allowance for doubtful accounts: Trade accounts $ 625 76 106 595 Claims and other -- -- -- -- -- ------ ----- ----- ----- ----- $ 625 76 106 595 ====== ===== ===== ===== =====
Year ended December 31, 1997: - ---------------------------- Allowance for doubtful accounts: Trade accounts $ 318 394 -- 87 625 Claims and other -- -- -- -- -- ------ ----- ----- ----- ----- $ 318 394 -- 87 625 ====== ===== ===== ===== =====
Year ended December 31, 1996: - ---------------------------- Allowance for doubtful accounts: Trade accounts $ 361 11 -- 54 318 Claims and other -- -- ---- -- -- ------ ----- ----- ----- ----- $ 361 11 -- 54 318 ====== ===== ===== ===== =====
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder AMFAC/JMB FINANCE, INC.
We have audited the accompanying balance sheets of Amfac/JMB Finance, Inc. as of December 31, 1998 and 1997. These balance sheets are the responsibility of the Company's management. Our responsibility is to express an opinion on these balance sheets based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheets are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheets. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in all material respects, the financial position of Amfac/JMB Finance, Inc. at December 31, 1998 and 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Honolulu, Hawaii March 8, 1999
AMFAC/JMB FINANCE, INC.
Balance Sheets
December 31, 1998 and 1997
(Dollars in thousands, except per share information)
A S S E T S -----------
1998 1997 -------- --------
Current assets: Cash . . . . . . . . . . . . . . . . . . . . . . $ 1 1 ======== ========
L I A B I L I T Y A N D S T O C K H O L D E R ' S E Q U I T Y -------------------------------------------------------------------
Commitments and contingencies (Notes 2 and 3)
Common stock, $1 par value; authorized, issued and outstanding - 1,000 shares . . . . . . . . . . . . . . . $ 1 1 ======== ========
The accompanying notes are an integral part of these balance sheets.
AMFAC/JMB FINANCE, INC.
Notes to the Balance Sheets
December 31, 1998 and 1997
(Dollars in Thousands)
(1) ORGANIZATION AND ACCOUNTING POLICY
Amfac/JMB Finance, Inc. ("AJF") was incorporated November 7, 1988 in the State of Illinois. AJF has had no financial operations. All of the outstanding shares of AJF are owned by Northbrook Corporation ("Northbrook").
(2) KEEP-WELL AGREEMENT
On March 14, 1989, Northbrook entered into a Keep-Well Agreement with AJF, whereby it agreed to contribute sufficient capital or make loans to AJF to enable AJF to meet the COLA repurchase obligations described below in note 3.
On March 15, 1995, pursuant to the indenture that governs the terms of the COLAs (the "Indenture"), AMFAC/JMB Hawaii, L.L.C. (the "Company") elected to exercise its right to redeem, and therefore was obligated to purchase, any and all Class A COLAs submitted pursuant to the June 1, 1995 Redemption Offer at a price of $.365 per Class A COLA. Pursuant to the Company's election to redeem the Class A COLAs for repurchase, the Company assumed AJF's maximum amount of its liability from the June 1, 1995 COLA repurchase obligation of $140,425.
(3) REPURCHASE OBLIGATION
On March 14, 1989, AJF and the Company entered into an agreement (the "Repurchase Agreement") concerning AJF's obligation (on June 1, 1995 and 1999) to repurchase, upon request of the holders thereof, the Certificate of Land Appreciation Notes due 2008 ("COLAs"), issued by the Company. A total aggregate principal amount of $384,737 of COLAs were issued during the offering, which terminated on August 31, 1989. The COLAs were issued in two units consisting of one Class A and one Class B COLA. As specified in the Repurchase Agreement, the repurchase of the Class A COLAs may have been requested of AJF by the holders of such COLAs on June 1, 1995 at a price equal to the original principal amount of such COLAs ($.500) minus all payments of principal and interest allocated to such COLAs. The cumulative interest paid per Class A COLA through June 1, 1995 was $.135. The repurchase of the Class B COLAs may be requested of AJF by the holders of such COLAs on June 1, 1999 at a price equal to 125% of the original principal amount of such COLAs ($.500) minus all payments of principal and interest allocated to such COLAs. To date, the cumulative interest paid per Class A and Class B COLA is approximately $.215 and $.215, respectively.
On June 1, 1999, each COLA investor has an option to have his or her Class B COLAs repurchased by AJF at a price of approximately $410 per each Class B COLA, which represents the 125% of the original investment of $500 less all interest paid through such date that has been allocated to the Class B COLAs (approximately $215 per Class B COLA, which includes the payment of Mandatory Base Interest paid through March 1, 1999). In lieu of AJF's repurchase obligation, the Company, may, in its sole discretion, elect, and intends to so elect, to redeem the Class B COLAs from the investors who exercise their repurchase option in 1999 at the same discounted price. The maximum potential amount of such liability if every COLA holder elects repurchase is approximately $117,306. AF Investors, LLC ("AF Investors"), a Delaware limited liability company and an affiliate of the Company, currently holds 89,330 Class B COLAs (put value of approximately $36.6 million). Such Class B COLAs were contributed by Amfac
Finance Limited Partnership ("Amfac Finance"), an Illinois limited partnership and an affiliate of the Company, to AF Investors in December 1998. AF Investors does not intend to require cash payments in the event it chooses to exercise its right to "put" any or all of its Class B COLAs unless sufficient cash would be available to the Company after satisfying the put obligation to the non-affiliated Class B COLA holders. AF Investors will cause some, but not all, of such Class B COLAs to be "put" pursuant to the Repurchase Agreement. AF Investors has agreed to take back senior debt of the Company for the portion so put to the extent that the Company does not have sufficient cash available to meet the put obligation and currently intends to retain at least $10,000 to $15,000 of its Class B COLAs. As of the date of this report, there are insufficient funds currently available to satisfy the maximum potential repurchase obligation (approximately $117 million if every COLA holder elects repurchase including the Class B COLAs held by AF Investors). As of December 31, 1998, Northbrook Corporation and its subsidiaries (including the Company) had approximately $53.6 million in unrestricted cash, cash equivalents, and liquid short-term investments; of these amounts, approximately $24.6 million in unrestricted cash, cash equivalents, and liquid short-term investments; were held by the Company. Notwithstanding AJF's obligation under the Repurchase Agreement, the Company's obligation to cause AJF to perform under the Repurchase Agreement, Northbrook's obligation under the Keep-Well Agreement, and the election that the Company intends to make to offer to redeem Class B COLAs, (thereby reducing or potentially eliminating AJF's obligation, and as a consequence, Northbrook's), AJF, Northbrook and the Company in the aggregate do not have, and are not expected to have by June 1, 1999, sufficient available resources to meet the maximum potential obligation of approximately $81 million should all Class B COLAs (excluding the Class B COLAs held by AF Investors) be put pursuant to the Repurchase Agreement. Failure to meet their obligations could lead to a claim against AJF and, in turn, Northbrook. The number, if any, of Class B COLA holders (other than AF Investors) who will elect to have their Class B COLAs redeemed is not currently determinable and, accordingly, the amount of resources necessary to enable the Company to redeem such Class B COLAs is not determinable. Based upon prior experience, the Company does not anticipate that all of the Class B COLAs will be "put" pursuant to the Repurchase Agreement and does anticipate having sufficient resources to redeem the Class B COLAs actually put to the Company. However, there can be no assurance that the Company and its affiliates will have sufficient resources to redeem the Class B COLAs actually put to the Company.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with the accountants during the fiscal years 1998 and 1997.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of December 31, 1998, the directors, executive officers and certain other officers of the Company were as follows:
Position Held with Name the Company ---------- ------------
Judd D. Malkin Chairman Neil G. Bluhm Vice Chairman H. Rigel Barber Manager Gary Grottke President and Manager Peggy H. Sugimoto Senior Vice President, Chief Financial Officer, and Manager Tamara G. Edwards Vice President Scott Nunokawa President of significant subsidiary Richard Edsall Executive Vice President of significant subsidiary
Certain of these officers are also officers and/or directors of JMB and numerous affiliated companies of JMB (hereinafter collectively referred to as "JMB affiliates") and many of such officers are also partners of certain partnerships (herein collectively referred to as the "Associate Partnerships") which are associate general partners (or general partners thereof) in publicly offered real estate limited partnerships. The publicly offered partnerships in which the Associate Partnerships are partners have not engaged in the agriculture business and have primarily purchased, or made mortgage loans securing, existing commercial, retail, office, industrial and multi-family residential rental buildings. However, certain partnerships sponsored by JMB and other affiliates of JMB are engaged in development activities including planned communities, none of which are in Hawaii.
There is no family relationship among any of the foregoing directors or officers.
The foregoing directors have been elected to serve one-year terms until the next annual meeting to be held on the second Tuesday of August 1999 or until his successor is elected and qualified.
There are no arrangements or understandings between or among any of said directors or officers and any other person pursuant to which any director or officer was selected as such.
The business experience during the past five years of the directors and such officers of the Company includes the following:
Judd D. Malkin (age 61) has been Chairman of the Company since 1988, Mr. Malkin is also Chairman of the Board of JMB, an officer and/or director of various JMB affiliates and an individual general partner of several publicly offered real estate limited partnerships affiliated with JMB. Mr. Malkin has been associated with JMB since October 1969. Mr. Malkin is a director of Urban Shopping Centers, Inc., an affiliate of JMB that is a real estate investment trust in the business of owning, managing and developing shopping centers. He is a Certified Public Accountant.
Neil G. Bluhm (age 61) has been Vice Chairman of the Company since 1994. Mr. Bluhm held various other officer positions with the Company from 1988 through 1993 and served as a Director from November 1989 to January 1994. Mr. Bluhm is also President and director of JMB, an officer and/or director of various JMB affiliates and an individual general partner of several publicly offered real estate limited partnerships affiliated with JMB. Mr. Bluhm has been associated with JMB since August 1970. Mr. Bluhm is a director of Urban Shopping Centers, Inc., an affiliate of JMB that is a real estate investment trust in the business of owning, managing and developing shopping centers. He is a member of the Bar of the State of Illinois and a Certified Public Accountant.
H. Rigel Barber (age 50) has been Manager of the Company since April 1997. Mr. Barber is an Executive Vice President and Chief Executive Officer of JMB Realty Corporation. He has a Bachelors degree from Yale University and a law degree from Northwestern University. Prior to joining JMB, Mr. Barber was a partner in the law firm of Mayer Brown & Platt.
Gary R. Grottke (age 43) has been President of the Company since April 1997 and has served as a Manager since August 1996. He was an officer of JMB from May 1989 to December 1993. Prior to joining JMB in 1989, Mr. Grottke was a Senior Manager at Peat, Marwick, Mitchell & Co. He holds a Masters degree in Business Administration from the Krannert School of Management at Purdue University and is a Certified Public Accountant.
Peggy H. Sugimoto (age 48) has been Senior Vice President and Chief Financial Officer of the Company since 1994 and had been Manager from August 1996 to February 1999. Ms. Sugimoto has been associated with the Company since 1976. She is a Certified Public Accountant.
Tamara G. Edwards (age 44) has been Vice President of the Company since August 1996 and has been Manager since February 1999. Ms. Edwards has been President and Director of several of the subsidiaries since March 1997. Ms. Edwards served as Senior Counsel for the Company from 1995 through 1997. She is a member of the California and Florida Bar Associations.
Scott Nunokawa (age 38) joined the Company in October 1998 and is serving as President of the Company's property development subsidiaries. Prior to joining the Company, Mr. Nunokawa served as Vice President of Business Development and Land Use Planning for C. Brewer Homes, Inc. He holds a Bachelors degree from the University of Hawaii. He is a licensed real estate broker.
Richard Edsall (age 45) has been Executive Vice President of certain of the Company's subsidiaries since April 1998. Prior to joining the Company, Mr. Edsall served as Vice President and held various positions at Seminis Vegetable Seeds from 1975-1997. He holds a Masters degree in Business Administration from California Lutheran University.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Certain of the officers and directors of the Company listed in item 10 above are officers and/or directors of JMB or Northbrook and are compensated by JMB, Northbrook, or an affiliate thereof (other than the Company and its subsidiaries). The Company will reimburse Northbrook, JMB and their affiliates for any expenses incurred while providing services to the Company as described under the caption "Description of the COLAs - Limitations on Mergers and Certain Other Transactions" at pages 42-43 of the Prospectus, a copy of which is incorporated herein by reference. In addition, JMB may earn an amount, the Qualified Allowance (as defined), as described under the caption "Description of the COLAs - Certain Definitions" at page 51 of the Prospectus, a copy of which is incorporated herein by reference. See Item 13 below.
SUMMARY COMPENSATION TABLE
Annual Compensation (1)(3)(5) -------------------------------------
Other Annual Compensa- Principal Salary Bonus tion Name (2)(6) Position Year ($) (4) ($) ($) - --------------- --------- ----- ------- ------ --------- Gary Grottke President 1998 400,000 N/A N/A and Manager 1997 350,000 N/A N/A 1996 199,500 N/A N/A
Peggy Sugimoto Senior Vice 1998 145,000 35,000 President 1997 140,000 30,000 N/A Chief Financial 1996 132,000 23,000 N/A Officer and Manager
Tamara G. Edwards Vice President 1998 135,000 50,000 1997 115,000 15,000 N/A 1996 103,000 13,000 N/A
Scott Nunokawa President of a 1998 26,481 (6) significant 1997 -- -- N/A subsidiary 1996 -- -- N/A
Richard Edsall (6) Executive 1998 112,673 -- N/A Vice President 1997 -- -- N/A of significant 1996 -- -- N/A subsidiary - ----------
(1) Compensation for Edward G. Karl, former President and CEO and Director, was allocated and charged to the Company by Northbrook. Allocated salary for 1998, 1997 and 1996 was $0, $0 and $75,000, respectively. No bonus or other compensation for Mr. Karl was allocated and charged to the Company by Northbrook for 1998, 1997 and 1996.
(2) The Company does not have a compensation committee. During 1998, 1997 and 1996, Mr. Malkin and Mr. Grottke participated in the deliberations concerning executive officer compensation.
(3) Includes CEO and 4 most highly compensated executives whose salary and bonus exceed $100,000.
(4) Salary for Mr. Grottke represents the portion of his total compensation allocated and charged to the Company by Northbrook.
(5) Compensation (including salary, bonus and severance) for Chris J. Kanazawa, former Senior Vice President and Director for 1998, 1997 and 1996 was $199,134, $350,000 and $475,000, respectively. Compensation (including salary, bonus and severance) for Teney K. Takahashi, former Vice President for 1998, 1997 and 1996 was $177,089, $231,000 and $291,000, respectively. Compensation (including salary, bonus and severance) for Timothy E. Johns, former Vice President for 1998, 1997 and 1996 was $108,219, $139,000 and $131,350, respectively.
(6) As Mr. Nunokawa and Mr. Edsall were hired by the Company during the year, the salary amount disclosed in the above table is the amount earned for the partial year of employment with the Company. Mr. Nunokawa's and Mr. Edsall's annualized salary had they been employed by the Company for the entire year was $135,000 and $155,000, respectively.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding shares of the Company are owned by Northbrook. Approximately 6.4% of the shares of Northbrook are owned by JMB and approximately 90.2% are owned directly or indirectly by individuals who are shareholders or employees of JMB or members of their families (or trusts for their benefit). The remaining shares are owned by third parties that are not related to JMB. Randi Malkin Steinberger, Stephen Malkin and Barry Malkin, individually or through trusts which they control, each have beneficial ownership of approximately 9.7% of the shares of Northbrook. Leslie Bluhm, Andrew Bluhm and Meredith Bluhm, individually or through trusts which they control, each have beneficial ownership of approximately 10.0% of the shares of Northbrook. Kathleen Schreiber, in her capacity as trustee of various trusts for the benefit of members of her family, which trusts comprise the managing partners of a partnership which owns Northbrook shares, has beneficial ownership of approximately 6.1% of the shares of Northbrook. Stuart Nathan, Executive Vice President and a director and shareholder of JMB, and his children, Scott Nathan and Robert Nathan, collectively have beneficial ownership of approximately 5.1% of the shares of Northbrook; each of them, primarily by virtue of their status as general partners of partnerships which own such shares would also be considered to individually have beneficial ownership of substantially all of such shares.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than as contained under Items 10 and 11 above, and this Item 13, there were no other significant transactions or business relationships with Northbrook, JMB, affiliates or their management.
The Company, its subsidiaries and the joint ventures in which the Company or its subsidiaries are partners are permitted to engage in various transactions involving Northbrook, JMB and their affiliates, as described under the captions "Description of the COLAs - Limitation on Dividends, Purchases of Capital Stock and Indebtedness" and "Limitations on Mergers and Certain Other Transactions" and "Purchase or Joint Venture of Properties by Affiliates; Development of Properties as Excluded Assets; Residual Value of Company in Certain Projects" at pages 41-45, and "Risk Factors - Conflicts of Interest" at page 19 of the Prospectus, a copy of which descriptions are hereby incorporated herein by reference to Exhibit 28.1 to the Company's Report on Form 10-K for December 31, 1988 (File No. 33-24180) dated March 21, 1989. The relationship of the Company (and its directors and executive officers and certain other officers) to its affiliates is set forth above in Item 10.
The approximately $15 million of remaining acquisition-related financing owed to affiliates had a maturity date of June 1, 1998 and bore interest at a rate per annum based upon the prime interest rate (7.75% at December 31, 1998), plus one percent. In addition to the $52 million borrowed from Northbrook in 1995 to redeem Class A COLAs pursuant to the Redemption Offer (see Note 5), the Company had also borrowed approximately $18.7 million and $9.8 million during 1996 and 1995, respectively, to fund COLA Mandatory Base Interest payments, ERS interest payments and other operational needs. These loans from Northbrook were payable interest only, were to mature on June 1, 1998 and carried an interest rate per annum equal to the prime interest rate plus two percent. Pursuant to the Indenture relating to the COLAs, the amounts borrowed from Northbrook are "Senior Indebtedness" to the COLAs.
In February 1997, the above-noted affiliate loans, along with certain other amounts due Northbrook, were converted into a new $104 million ten year note payable. In 1998, the $104.8 million note was cancelled pursuant to a split Note Agreement and bifurcated into two nine-year notes (i) a $99.5 million note payable to an affiliate of Northbrook and (ii) a $15 million note payable (with an initial balance of $7.9 million) to Northbrook. The bifurcated notes are payable interest only and accrue interest at the prime rate plus 2%. The Company borrowed an additional $16.6 million during 1997 and $24.8 million during 1998 to fund COLA Mandatory Base Interest payments and other operational needs from a subsidiary of Northbrook under a separate note which is payable interest only and accrues at the prime rate plus 2%.
As of December 31, 1998, the Company agreed to exercise its option to redeem Class B COLAs that are "put" to AJF for repurchase (as described above under Item 1 - "Business"), in partial consideration for (a) Fred Harvey's agreement to defer until December 31, 2001 all interest accruing from January 1, 1998 through December 31, 2001 and relating to the approximately $100 million of senior indebtedness of the Company currently owing to Fred Harvey (as described in Note 4 to the Consolidated Financial Statements of the Company); and (b) Northbrook agreeing to cause approximately $55.1 million of the Company's indebtedness that was senior to the COLAs to be contributed to the capital of the Company. In connection with the foregoing deferral of interest and contribution of capital, the Company agrees to allow the senior debt held by Northbrook and its affiliates to be secured by assets of the Company. As a result of the contribution, in the Company's December 31, 1998 balance sheet, the "Amounts due to Affiliates" were decreased, and the Company's "Member's equity (deficit)" was increased, by approximately $55.1 million. The deferral of interest together with this contribution to capital were made as part of the Company's effort to alleviate significant liquidity constraints and continue to meet the Value Maintenance Ratio requirement under the Indenture. At current interest rates, and assuming no further advances of senior indebtedness, approximately $45 million of such deferred interest relating to currently existing senior indebtedness will become due and payable on December 31, 2001. At such time, there can be no assurance that the Company will either (i) have unrestricted cash available for meeting such obligation or (ii) have the ability to refinance such $45 million obligation. Failure to meet such obligation, if called, would cause all senior indebtedness owing to Fred Harvey or its affiliates to be immediately due and payable. A default on senior indebtedness of such magnitude could constitute an event of default under the Indenture. To the extent that Northbrook or any of its affiliates make additional advances of senior indebtedness to the Company during 1999, Northbrook or its affiliates intend to defer any interest accruing on such additional indebtedness until December 31, 2001. Therefore, interest in excess of $45 million may be due and payable on December 31, 2001 and any such excess may be substantial.
The total amount due Northbrook and its subsidiary as of December 31, 1998 was $110.3 million, which includes deferred interest to affiliates on senior debt of approximately $13.9 million ($10.7 million of which has been deferred until December 31, 2001, as described above). Pursuant to the Indenture, the amounts borrowed from Northbrook or its affiliates are "Senior Indebtedness" to the COLAs.
The Company incurred interest expense of approximately $15.4 million, $12.8 million and $8.9 million for the years ended 1998, 1997 and 1996, respectively, in connection with the acquisition and additional senior debt financing obtained from affiliates.
With respect to any calendar year, JMB or its affiliates may receive a Qualified Allowance in an amount equal to 1-1/2% per annum of the Fair Market Value (as defined) of the gross assets of the Company and its subsidiaries (other than cash and cash equivalents and Excluded Assets (as defined)) for providing certain advisory services for the Company. The aforementioned advisory services, which are provided pursuant to a 30-year Services Agreement entered into between the Company, certain of its subsidiaries and JMB in November 1988, include making recommendations in the following areas: (i) the construction and development of real property; (ii) land use and zoning changes; (iii) the timing and pricing of properties to be sold; (iv) the timing, type and amount of financing to be incurred; (v) the agricultural business; and, (vi) the uses (agricultural, residential, recreational or commercial) for the land. However, the Qualified Allowance shall be earned and paid for each year prior to maturity of the COLAs only if the Company generates sufficient Net Cash Flow to pay Base Interest to the holders of the COLAs for such year of an amount equal to 8% of the average outstanding principal balance of the COLAs for such year; any portion of the Qualified Allowance not paid for any year shall cumulate without interest and JMB or its affiliates shall be paid such amount with respect to any succeeding year, after the payment of all Contingent Base Interest for such year, to the extent of 100% of remaining Net Cash Flow until an amount equal to 20% of the Base Interest with respect to such year has been paid, and thereafter, to the extent of the product of (a) remaining Net Cash Flow, multiplied by (b) a fraction, the numerator of which is the cumulative deficiency as of the end of such year in the Qualified Allowance and the denominator of which is the sum of the cumulative deficiencies as of the end of such year in the Qualified Allowance and Base Interest. A Qualified Allowance for 1989 of approximately $6.2 million was paid on February 28, 1990. Approximately $74.1 million of Qualified Allowance related to the period from January 1, 1990 through December 31, 1998 has not been earned and paid and is payable only from future Net Cash Flow. Accordingly, because the Company does not believe it is probable at this time that a sufficient level of Net Cash Flow will be generated in the future to pay Qualified Allowance, the Company has not accrued for any Qualified Allowance in the accompanying consolidated financial statements. JMB has informed the Company that no incremental costs or expenses have been incurred relating to the provision of these advisory services. The Company believes that using an incremental cost methodology is reasonable. The following table is a summary of the Qualified Allowance for the years ended December 31, 1998, 1997 and 1996 (dollars are in millions):
1998 1997 1996 -------- -------- --------
Qualified Allowance calculated . . . . $ 9.8 10.1 9.2 Qualified Allowance paid . . . . . . . -- -- -- Cumulative deficiency of Qualified Allowance at end of year . . . . . . $ 74.1 64.3 54.4
Net Cash Flow was $0 for 1998, 1997 and 1996.
After the maturity date of the COLAs, JMB will continue to provide advisory services pursuant to the Services Agreement, the Qualified Allowance for such years will continue to be 1-1/2% per annum of the Fair Market Value of the gross assets of the Company and its subsidiaries and the Qualified Allowance will continue to be payable from the Company's Net Cash Flow. Upon the termination of the Services Agreement, if there has not been sufficient Net Cash Flow to pay the cumulative deficiency in the Qualified Allowance, if any, such amount would not be due or payable to JMB.
The Company, its subsidiaries and their joint ventures, reimburse Northbrook, JMB and their affiliates for direct expenses incurred on their behalf, including salaries and salary related expenses incurred in connection with the management of the Company's or its subsidiaries and the joint ventures' operations. The total of such costs through December 31, 1998, 1997 and 1996 was $.7 million, $.7 million and $.7 million, respectively, of which $1.3 million was unpaid as of December 31, 1998. In addition, as of December 31, 1998, the current portion of amounts due affiliates includes approximately $9.1 million of income tax payable related to the Class A Redemption Offer. Also, the Company pays a non-accountable reimbursement of approximately $.030 million per month to JMB or its affiliates in respect of general overhead expense, all of which was paid as of December 31, 1998.
JMB Insurance Agency, Inc. an affiliate of JMB, earns insurance brokerage commissions in connection with providing the placement of insurance coverage for certain of the properties and operations of the Company. Such commissions are comparable to those available to the Company in similar dealings with unaffiliated third parties. The total of such commissions for the years ended December 31, 1998, 1997 and 1996 was approximately $.6 million, $.7 million and $.8 million, all of which was paid as of December 31, 1998.
Northbrook and its affiliates allocated certain charges for services to the Company based upon the estimated level of services for the years ended December 31, 1998, 1997 and 1996 of approximately $.9 million, $.8 million and $1.5 million, respectively, of which $1.9 million was unpaid as of December 31, 1998. These services and costs are intended to reflect the Company's separate costs of doing business and are principally related to the inclusion of the Company's employees in the Northbrook pension plan, payment of severance and termination benefits and reimbursement for insurance claims paid on behalf of the Company. All amounts described above, deferred or currently payable, do not bear interest and are expected to be paid in future periods.
On January 30, 1998, Amfac Finance Limited Partnership ("Amfac Finance"), an Illinois limited partnership and an affiliate of the Company extended a tender offer to purchase (the "Class B Tender Offer") up to $65.4 million principal amount of separately Certificated Class B COLAs ("Separate Class B COLAs") for cash at a unit price of $375 to be paid by Amfac Finance on each Separate Class B COLA on or about March 24, 1998. The maximum cash to be paid under the Class B Tender Offer was $49.0 million (130,842 Separate Class B COLAs at a unit price of $375 each). Approximately 62,857 Separate Class B COLAs were submitted to Amfac Finance for repurchase pursuant to the Class B Tender Offer requiring an aggregate payment by Amfac Finance of approximately $23.6 million on March 31, 1998. In addition, on October 23, 1998, Amfac Finance extended a Tender Offer to Purchase (the "Class A/B Tender Offer") up to approximately $22.5 million principal amount of Jointly Certificated Class A and B COLAs (together "COLA Units") for cash at a unit price of $460 to be paid by Amfac Finance on each COLA Unit on or about December 23, 1998. The maximum cash to be paid under the Tender Offer was approximately $12.2 million (26,600 COLA Units at a unit price of $460 for each COLA Unit). Approximately 26,473 COLA Units were submitted to Amfac Finance for repurchase pursuant to the Tender Offer requiring an aggregate payment by Amfac Finance of approximately $12.2 million on December 23, 1998. Neither the Class B nor the Class A/B Tender Offer reduced the outstanding indebtedness of the Company. In December 1998, Amfac Finance contributed its COLA Units to AF Investors. The COLA Units held by AF Investors remain outstanding pursuant to the terms of the Indenture. Except as provided in the last sentence of this paragraph, AF Investors is entitled to the same rights and benefits of any other holder of COLA Units, including having the right to have AJF repurchase on June 1, 1999, the separate Class B COLAs that it owns. AF Investors currently intends to require some, but not all of the Class B COLAs which it will own on such date to be repurchased pursuant to the Repurchase Agreement. AF Investors has agreed to take back senior debt of
the Company for the portion so put to the extent that the Company does not have sufficient cash available to meet the put obligation and currently intends to retain at $10 million to $15 million of its Class B COLAs. Because AF Investors is an affiliate of the Company, AF Investors will not be able to participate in determining whether the holders of the required principal amount of debt under the Indenture have concurred in any direction, waiver or consent under the terms of the Indenture.
As a result of the Class B and Class A/B Tender Offers, the Company recognized approximately $7.9 million and $14.3 million, respectively, of taxable gain in accordance with income tax regulations for certain transactions with affiliates. Such gain is treated as cancellation of indebtedness income for income tax purposes only and, accordingly, the income taxes related to the Class B Tender Offer (approximately $3.1 million) and Class A/B Tender Offer (approximately $5.7 million) were, or will be, indemnified by Northbrook through the tax agreement between Northbrook and the Company (See Note 1 to Notes to the Consolidated Financial Statements).
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
See Index to Financial Statements and Supplementary Data filed with this report.
(2) Exhibits
See Index to Exhibits, which is incorporated herein by reference.
(b) Reports on Form 8-K: The following reports on Form 8-K were filed during the last quarter of the period covered by this report
None.
(c) Exhibits:
The Exhibits required by Item 601 of Regulation S-K are listed in the Index to Exhibits, which is incorporated herein by reference.
All other schedules have been omitted since the required information is presented in the financial statements and the related notes or is not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AMFAC/JMB HAWAII, L.L.C.
By: Edward J. Kroll Vice President Date: March 8, 1999
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.
By: Gary R. Grottke President and Manager Date: March 8, 1999
By: Peggy Sugimoto Senior Vice President, Chief Financial Officer Date: March 8, 1999
By: Edward J. Kroll Vice President and Principal Accounting Officer Date: March 8, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AMFAC/JMB FINANCE, INC.
By: Edward J. Kroll Vice President Date: March 8, 1999
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.
By: Gary R. Grottke President Date: March 8, 1999
By: Gary Nickele Director Date: March 8, 1999
By: Edward J. Kroll Vice President Finance, Principal Accounting Officer Date: March 8, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AMFAC LAND COMPANY, LTD.
By: Edward J. Kroll Vice President Date: March 8, 1999
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.
By: Tamara G. Edwards President and Director Date: March 8, 1999
By: Gary R. Grottke Vice President and Director Date: March 8, 1999
By: Peggy Sugimoto Vice President Date: March 8, 1999
By: Edward J. Kroll Vice President and Principal Accounting Officer Date: March 8, 1999
By: Chester A. Richardson Vice President and Director Date: March 8, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AMFAC PROPERTY DEVELOPMENT CORP.
By: Edward J. Kroll Vice President Date: March 8, 1999
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.
By: Scott Nunokawa President Date: March 8, 1999
By: Peggy Sugimoto Senior Vice President - Finance Date: March 8, 1999
By: Edward J. Kroll Vice President and Principal Accounting Officer Date: March 8, 1999
By: Chester A. Richardson Vice President and Director Date: March 8, 1999
By: Tamara G. Edwards Vice President and Director Date: March 8, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AMFAC PROPERTY INVESTMENT CORP.
By: Edward J. Kroll Vice President Date: March 8, 1999
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.
By: Scott Nunokawa President Date: March 8, 1999
By: Peggy Sugimoto Senior Vice President - Finance Date: March 8, 1999
By: Edward J. Kroll Vice President and Principal Accounting Officer Date: March 8, 1999
By: Tamara G. Edwards Vice President and Director Date: March 8, 1999
By: Chester A. Richardson Vice President and Director Date: March 8, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
H. HACKFELD & CO., LTD.
By: Edward J. Kroll Vice President Date: March 8, 1999
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.
By: Gary R. Grottke President and Director Date: March 8, 1999
By: Tamara G. Edwards Vice President and Director Date: March 8, 1999
By: Peggy Sugimoto Vice President Date: March 8, 1999
By: Edward J. Kroll Vice President and Principal Accounting Officer Date: March 8, 1999
By: Chester A. Richardson Vice President and Director Date: March 8, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
KAANAPALI ESTATE COFFEE, INC.
By: Edward J. Kroll Vice President Date: March 8, 1999
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.
By: Gary R. Grottke President and Director Date: March 8, 1999
By: Peggy Sugimoto Vice President Date: March 8, 1999
By: Edward J. Kroll Vice President and Principal Accounting Officer Date: March 8, 1999
By: Tamara G. Edwards Vice President and Director Date: March 8, 1999
By: Chester A. Richardson Vice President and Director Date: March 8, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
KAANAPALI WATER CORPORATION
By: Edward J. Kroll Vice President Date: March 8, 1999
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.
By: Gary R. Grottke President and Director Date: March 8, 1999
By: Peggy Sugimoto Senior Vice President - Finance Date: March 8, 1999
By: Edward J. Kroll Vice President and Principal Accounting Officer Date: March 8, 1999
By: Chester A. Richardson Vice President and Director Date: March 8, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
KEKAHA SUGAR COMPANY, LIMITED
By: Edward J. Kroll Vice President Date: March 8, 1999
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.
By: Gary R. Grottke President and Director Date: March 8, 1999
By: Richard Edsall Executive Vice President Date: March 8, 1999
By: Peggy Sugimoto Vice President Date: March 8, 1999
By: Edward J. Kroll Vice President and Principal Accounting Officer Date: March 8, 1999
By: Chester A. Richardson Vice President and Director Date: March 8, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE LIHUE PLANTATION COMPANY, LIMITED
By: Edward J. Kroll Vice President Date: March 8, 1999
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.
By: Gary R. Grottke President and Director Date: March 8, 1999
By: Richard Edsall Executive Vice President Date: March 8, 1999
By: Peggy Sugimoto Vice President Date: March 8, 1999
By: Edward J. Kroll Vice President and Principal Accounting Officer Date: March 8, 1999
By: Chester A. Richardson Vice President and Director Date: March 8, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
OAHU SUGAR COMPANY, LIMITED
By: Edward J. Kroll Vice President Date: March 8, 1999
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.
By: Gary R. Grottke President and Director Date: March 8, 1999
By: Tamara G. Edwards Vice President & Director Date: March 8, 1999
By: Peggy Sugimoto Vice President Date: March 8, 1999
By: Edward J. Kroll Vice President and Principal Accounting Officer Date: March 8, 1999
By: Chester A. Richardson Vice President and Director Date: March 8, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PIONEER MILL COMPANY, LIMITED
By: Edward J. Kroll Vice President Date: March 8, 1999
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.
By: Gary R. Grottke President and Director Date: March 8, 1999
By: Richard Edsall Executive Vice President Date: March 8, 1999
By: Peggy Sugimoto Vice President Date: March 8, 1999
By: Edward J. Kroll Vice President and Principal Accounting Officer Date: March 8, 1999
By: Chester A. Richardson Vice President and Director Date: March 8, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PUNA SUGAR COMPANY, LIMITED
By: Edward J. Kroll Vice President Date: March 8, 1999
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.
By: Gary Grottke President and Director Date: March 8, 1999
By: Tamara G. Edwards Vice President & Director Date: March 8, 1999
By: Peggy Sugimoto Vice President Date: March 8, 1999
By: Edward J. Kroll Vice President and Principal Accounting Officer Date: March 8, 1999
By: Chester A. Richardson Vice President and Director Date: March 8, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WAIAHOLE IRRIGATION COMPANY, LIMITED
By: Edward J. Kroll Vice President Date: March 8, 1999
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.
By: Gary R. Grottke President and Director Date: March 8, 1999
By: Peggy Sugimoto Senior Vice President and Director Date: March 8, 1999
By: Edward J. Kroll Vice President and Principal Accounting Officer Date: March 8, 1999
By: Chester A. Richardson Vice President and Director Date: March 8, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WAIKELE GOLF CLUB, INC.
By: Edward J. Kroll Vice President Date: March 8, 1999
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.
By: Tamara G. Edwards President Date: March 8, 1999
By: Gary R. Grottke Vice President and Director Date: March 8, 1999
By: Peggy Sugimoto Senior Vice President - Finance and Director Date: March 8, 1999
By: Edward J. Kroll Vice President and Principal Accounting Officer Date: March 8, 1999
By: Chester A. Richardson Vice President and Director Date: March 8, 1999
EXHIBIT INDEX
Exhibit No. Exhibit - ----------- -------
2.1 Agreement and Plan of Merger by and between Amfac/JMB Hawaii, Inc. and Amfac/JMB Hawaii, L.L.C. dated as of February 27, 1998. (13)
3.1 Articles of Incorporation of Amfac/JMB Hawaii, Inc. (1)
3.2 Amended and Restated By-Laws of Amfac/JMB Hawaii, Inc. (1)
3.3 Articles of Incorporation of Amfac/JMB Finance, Inc. (1)
3.4 Amended and Restated By-Laws of Amfac/JMB Finance, Inc. (1)
3.7 Articles of Incorporation of Amfac Property Development Corp.
3.8 Amended and Restated By-Laws of Amfac Property Developments Corp. (1)
3.9 Articles of Incorporation of Amfac Property Investment Corp. (1)
3.10 Amended and Restated By-Laws of Amfac Property Investment Corp. (1)
3.11 Articles of Incorporation of Amfac Sugar and Agribusiness, Inc. (1)
3.12 Amended and Restated By-Laws of Kaanapali Water Corporation (1)
3.13 Articles of Incorporation of Kaanapali Water Corporation. (1)
3.14 Amended and Restated By-Laws of Amfac Agribusiness, Inc. (1)
3.15 Articles of Incorporation of Amfac Agribusiness, Inc. (1)
3.16 Amended and Restated By-Laws of Kekaha Sugar Company, Limited. (1)
3.17 Articles of Association of Kekaha Sugar Company, Limited. (1)
3.18 Amended and Restated By-Laws of The Lihue Plantation Company, Limited. (1)
3.19 Articles of Association of The Lihue Plantation Company, Limited (1)
3.20 Amended and Restated By-Laws of Oahu Sugar Company, Limited. (1)
3.21 Articles of Association of Oahu Sugar Company, Limited.(1)
3.22 Amended and Restated By-Laws of Pioneer Mill Company, Limited (1)
Exhibit No. Exhibit - ----------- -------
3.23 Articles of Association of Pioneer Mill Company, Limited. (1)
3.24 Amended and Restated By-Laws of Puna Sugar Company, Limited. (1)
3.25 Articles of Association of Puna Sugar Company, Limited. (1)
3.26 Amended and Restated By-Laws of H. Hackfeld & Co., Ltd.
3.27 Articles of Association of H. Hackfeld & Co., Ltd. (1)
3.28 Amended and Restated By-Laws of Waiahole Irrigation Company, Limited.
3.29 Articles of Incorporation of Waiahole Irrigation Company, Limited. (1)
4.1 Indenture, including the form of COLAs, among Amfac/JMB Hawaii, Inc., its subsidiaries as Guarantors and Continental Bank National Association, as Trustee (dated as of March 14, 1989). (2)
4.2 Amendment dated as of January 17, 1990 to the Indenture relating to the COLAs. (2)
4.3 $28,097,832 Promissory Note from Amfac, Inc. to Amfac/JMB Hawaii, Inc. Extended and Reissued Effective December 31, 1993. (3)
4.4 The five year $66,000,000 loan with the Employees' Retirement System of the State of Hawaii to Amfac/JMB Hawaii, Inc. as of June 25, 1991. (4)
4.5 $15,000,000 Credit Agreement dated March 31, 1993 among AMFAC/JMB Hawaii, Inc. and Continental Bank N.A (5).
4.6 $10,000,000 loan agreement between Waikele Golf Club, Inc. and ORIX USA Corporation. $10,000,000 loan agreement between Waikele Golf Club, Inc. and Bank of Hawaii. (6)
4.7 $52,000,000 Promissory Note to Northbrook Corporation from Amfac/JMB Hawaii, Inc., effective May 31, 1995 is filed herewith. (7)
4.8 Agreement for delivery and sale of raw sugar between Hawaii Sugar Transportation Corporation, as seller, and C&H, as Buyer, dated June 4, 1993. (8)
4.9 Standard Sugar Marketing Contracts between Hawaiian Sugar Transportation Company and Hawaii Sugar Growers dated June 4, 1993. (9)
4.10 Amendment to the $66,000,000 loan with the Employees' Retirement System of the State of Hawaii to Amfac/JMB Hawaii, Inc. as of April 18, 1996. (9)
4.11 Amended and Restated $52,000,000 Promissory Note to Northbrook Corporation from Amfac/JMB Hawaii, Inc. extended and reissued effective June 1, 1996. (10)
Exhibit No. Exhibit - ----------- -------
4.12 Amended and Restated $28,087,832 Promissory Note from Amfac, Inc. to Amfac/JMB Hawaii, Inc. extended and reissued effective June 1, 1996. (10)
4.13 $10,000,000 loan agreement between Amfac Property Development Corp. and City Bank at December 18, 1996. (11)
4.14 Amended and Restated $25,000,000 loan agreement with the Bank of Hawaii dated February 4, 1997. (12)
4.15 Limited Partnership Agreement for Kaanapali Ownership Resorts, L.P. dated February 1, 1997 for development of time-share resort on Kaanapali. (11)
4.16 Second Supplement to the Indenture dated as of March 1, 1998. (13)
4.17 $104,759,324 promissory Note between Northbrook Corporation and Amfac Land Company, Ltd. dated January 1, 1998. (13)
4.18 Revolving Credit Note between Fred Harvey Transportation Company, Inc. and Amfac Land Company, Ltd., dated January 1, 1998. (13)
4.19 Note Split Agreement between Northbrook Corporation and Amfac/JMB Hawaii, Inc., effective January 1, 1998.
4.20 $99,594,751.09 Promissory Note between Northbrook Corporation and Amfac/JMB Hawaii, Inc., dated January 1, 1998.
4.21 $15,000,000.00 Promissory Note between Northbrook Corporation and Amfac/JMB Hawaii, Inc., dated January 1, 1998.
10.1 Escrow Deposit Agreement. (1)
10.2 General Lease S-4222, dated January 1, 1969, by and between the State of Hawaii and Kekaha Sugar Company, Limited. (1)
10.3 Grove Farm Haiku Lease, dated January 25, 1974 by and between Grove Farm Company, Incorporated and The Lihue Plantation Company, Limited. (1)
10.4 General Lease S-4412, dated October 31, 1974, by and between the State of Hawaii and the Lihue Plantation Company, Limited. (1)
10.5 General Lease S-4576, dated March 15, 1978, by and between the State of Hawaii and The Lihue Plantation Company, Limited. (1)
10.6 General Lease S-3821, dated July 8, 1964, by and between the State of Hawaii and East Kauai Water Company, Ltd. (1)
10.7 Amended and Restated Power Purchase Agreement, dated as of June 15, 1992, by and between The Lihue Plantation Company, Limited and Citizens Utilities Company. (1)
Exhibit No. Exhibit - ----------- -------
10.8 U.S. Navy Waipio Peninsula Agricultural Lease, dated May 26, 1964, between The United States of America (as represented by the U.S. Navy) and Oahu Sugar Company, Ltd. (1)
10.9 Amendment to the Robinson Estate Hoaeae Lease, dated May 15, 1967, by and between various Robinsons, heirs of Robinsons, Trustees and Executors, etc. and Oahu Sugar Company, Limited amending and restating the previous lease. (1)
10.10 Amendment to the Campbell Estate Lease, dated April 16, 1970, between Trustees under the Will and of the Estate of James Campbell, Deceased, and Oahu Sugar Company, Limited amending and restating the previous lease. (1)
10.11 Bishop Estate Lease No. 24,878, dated June 17, 1977, by and between the Trustees of the Estate of Bernice Pauahi Bishop and Pioneer Mill Company, Limited. (1)
10.12 General Lease S-4229, dated February 25, 1969, by and between the State of Hawaii, by its Board of Land and Natural Resources and Pioneer Mill Company, Limited. (1)
10.13 Honokohau Water License, dated December 22, 1980, between Maui Pineapple Company Ltd. and Pioneer Mill Company, Limited. (1)
10.14 Water Licensing Agreement, dated September 22, 1980, by and between Maui Land & Pineapple Company, Inc. and Amfac, Inc. (1)
10.15 Joint Venture Agreement, dated as of March 19, 1986, by and between Amfac Property Development Corp. and Tobishima Properties of Hawaii, Inc. (1)
10.16 Development Agreement, dated March 19, 1986, by and between Kaanapali North Beach Joint Venture and Amfac Property Investment Corp. and Tobishima Pacific, Inc. (1)
10.19 Keep-Well Agreement between Northbrook Corporation and Amfac/JMB Finance, Inc. (2)
10.20 Repurchase Agreement, dated March 14, 1989, by and between Amfac/JMB Hawaii, Inc. and Amfac/JMB Finance, Inc. (2)
10.21 Amfac Hawaii Tax Agreement, dated November 21, 1988 between Amfac/JMB Hawaii, Inc., and Amfac Property Development Corp.; Amfac Property Investment Corp.; Amfac Sugar and Agribusiness, Inc.; Kaanapali Water Corporation; Amfac Agribusiness, Inc.; Kekaha Sugar Company, Limited; The Lihue Plantation Company, Limited; Oahu Sugar Company, Limited; Pioneer Mill Company, Limited; Puna Sugar Company, Limited; H. Hackfeld & Co., Ltd.; and Waiahole Irrigation Company, Limited. (2) Amfac-Amfac Hawaii Tax Agreement, dated February 21, 1989 between Amfac, Inc. and Amfac/JMB Hawaii, Inc. (2) Services Agreement, dated November 18, 1988, between Amfac/JMB Hawaii, Inc., and Amfac Property Development Corp.; Amfac Property Investment Corp.; Amfac Sugar and
Exhibit No. Exhibit - ----------- -------
Agribusiness, Inc.; Kaanapali Water Corporation; Amfac Agribusiness, Inc.; Kekaha Sugar Company, Limited; The Lihue Plantation Company, Limited; Oahu Sugar Company, Limited; Pioneer Mill Company, Limited; Puna Sugar Company, Limited; H. Hackfeld & Co., Ltd.; and Waiahole Irrigation Company, Limited and JMB Realty Corporation. (2)
10.22 Amfac-Amfac Hawaii Tax Agreement, dated February 21, 1989 between Amfac, Inc. and Amfac/JMB Hawaii, Inc. (2)
10.23 Services Agreement, dated November 18, 1988, between Amfac/JMB Hawaii, Inc., and Amfac Property Development Corp.; Amfac Property Investment Corp.; Amfac Sugar and Agribusiness, Inc.; Kaanapali Water Corporation; Amfac Agribusiness, Inc.; Kekaha Sugar Company, Limited; The Lihue Plantation Company, Limited; Oahu Sugar Company, Limited; Pioneer Mill Company, Limited; Puna Sugar Company, Limited; H. Hackfeld & Co., Ltd.; and Waiahole Irrigation Company, Limited and JMB Realty Corporation. (2)
10.24. Amended buy-sell notice dated August 27, 1998 from APIC are filed herewith. (14)
10.25. Assignment and assumption agreement dated September 30, 1998, executed by TPI and APIC are filed herewith. (14)
10.26. Purchase money promissory note secured by mortgage dated September 30, 1998, executed by APIC are filed herewith. (14)
10.27. Assignment and Contribution Agreement effective December 31, 1998 between Northbrook Corporation and Amfac/JMB Hawaii, L.L.C.
10.28. Note Modification Agreement dated December 31, 1998 between Amfac/JMB Hawaii, L.L.C. and Fred Harvey Transportation Company.
19.0 $35,700,000 agreement for sale of C&H and certain other C&H assets, to A&B Hawaii, Inc. in June 1993. (7) Subsidiaries of Amfac/JMB Hawaii, Inc. (1) A copy of pages 19, 41-45 and 51 of the Prospectus of the Company dated December 5, 1988 (relating to SEC Registration Statement on Form S-1 (as amended) File No. 33-24180) and hereby incorporated by reference. (2) Pursuant to Item 6.01 (b)(4) of Regulation SK, the registrant hereby undertakes to provide the Commission upon its request a copy of any agreement with respect to long-term indebtedness of the registrant and its consolidated subsidiaries that does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis.
(1) Previously filed as exhibits to the Company's Registration Statement of Form S-1 (as amended) under the Securities Act of 1933 (File No. 33-24180) and hereby incorporated by reference.
(2) Previously filed as exhibits to the Company's Form 10-K report under the Securities Act of 1934 (File No. 33-24180) filed on March 27, 1989 and hereby incorporated by reference.
(3) Previously filed as exhibits to the Company's Form 10-K report under the Securities Act of 1934 (File No. 33-24180) filed on March 27, 1991 and hereby incorporated by reference.
(4) Previously filed as exhibits to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33-24180) filed on August 13, 1991 and hereby incorporated by reference.
(5) Previously filed as exhibit to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33-24180) filed on May 14, 1993 and hereby incorporated by reference.
(6) Previously filed as exhibit to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33-24180) filed on November 11, 1993 and hereby incorporated by reference.
(7) Previously filed as exhibits to the Company's Form 10-K report under the Securities Act of 1934 (File No. 33-24180) filed on March 27, 1994 and hereby incorporated by reference.
(8) Previously filed as an exhibit to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33-24180) filed May 12, 1995 and hereby incorporated by reference.
(9) Previously filed as an exhibit to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33-24180) filed May 13, 1996 and hereby incorporated by reference.
(10) Previously filed as exhibit to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33-24180) filed on August 13, 1996 and hereby incorporated by reference.
(11) Previously filed as exhibit to the Company's Form 10-K report under the Securities Act of 1934 (File No. 33-24180) filed March 21, 1997 and hereby incorporated by reference.
(12) Previously filed as exhibit to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33-24180) filed May 15, 1996 and hereby incorporated by reference.
(13) Previously filed as exhibit to the Company's Form 8-K report under the Securities Act of 1934 (File No. 33-24180) filed March 3, 1998 and hereby incorporated by reference.
(14) Previously filed as exhibit to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33-24180) filed November 12, 1998 and hereby incorporated by reference.
No annual report or proxy material for 1998 was sent to the COLA holders of the Company. An annual report will be sent to the COLA holders subsequent to this filing.