EX-99 8 kcgauditreport.txt 2001 KAPALUA COCONUT GROVE FINANCIAL STATEMENTS Kapalua Coconut Grove LLC Financial Statements for the Years Ended December 31, 2001, 2000 and 1999 and Independent Accountants' Report INDEPENDENT ACCOUNTANTS' REPORT To the Owners of Kapalua Coconut Grove LLC: We have audited the accompanying statement of financial position of Kapalua Coconut Grove LLC as of December 31, 2001, and the related statements of operations, changes in members' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Kapalua Coconut Grove LLC at December 31, 2001, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying statement of financial position of Kapalua Coconut Grove LLC as of December 31, 2000, and the related statements of operations, changes in members' equity, and cash flows for each of the two years in the period ended December 31, 2000 were not audited by us and, accordingly, we do not express an opinion on them. /S/DELOITTE & TOUCHE LLP Honolulu, Hawaii February 12, 2002 KAPALUA COCONUT GROVE LLC STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2001 AND 2000 ASSETS 2001 2000 (Unaudited) CASH AND CASH EQUIVALENTS $1,559,250 $ 24,691 ACCOUNTS RECEIVABLE 237,141 WORK IN PROGRESS 35,405,234 TOTAL $1,559,250 $35,667,066 LIABILITIES AND MEMBERS' EQUITY 2001 2000 (Unaudited) LIABILITIES: Customer deposits $14,617,028 Notes payable 3,313,865 Accounts payable and accrued liabilities $ 787,113 5,320,618 Contractors' retention payable 753,243 1,682,981 Total liabilities 1,540,356 24,934,492 MEMBERS' EQUITY 18,894 10,732,574 TOTAL $1,559,250 $35,667,066 See notes to financial statements. KAPALUA COCONUT GROVE LLC STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 2001 2000 1999 (Unaudited) (Unaudited) REVENUES: Real estate sales $70,250,191 Other 15,222 $ 237,236 $ 4,532 Total revenues 70,265,413 237,236 4,532 COSTS AND EXPENSES: Cost of real estate sales 54,419,251 Selling and marketing 1,756,750 General and administrative 103,092 361,622 349,992 Total costs and expenses 56,279,093 361,622 349,992 NET INCOME (LOSS) $13,986,320 $(124,386) $(345,460) See notes to financial statements. KAPALUA COCONUT GROVE LLC STATEMENTS OF CHANGES IN MEMBERS' EQUITY YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 Kapalua YCP Site Land Co. 29, Inc. Total BALANCE, JANUARY 1, 1999 (Unaudited) $ 5,026,210 $ 5,026,21 $10,052,420 Net loss (172,730) (172,730) (345,460) Cash contributions 575,000 575,000 1,150,000 BALANCE, DECEMBER 31, 1999 (Unaudited) 5,428,480 5,428,480 10,856,960 Net loss (62,193) (62,193) (124,386) BALANCE, DECEMBER 31, 2000 (Unaudited) 5,366,287 5,366,287 10,732,574 Net income 6,993,160 6,993,160 13,986,320 Cash distributions (12,350,000) (12,350,000) (24,700,000) BALANCE, DECEMBER 31, 2001 $ 9,447 $ 9,447 $ 18,894 See notes to financial statements. KAPALUA COCONUT GROVE LLC STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 2001 2000 1999 (Unaudited) (Unaudited) OPERATING ACTIVITIES: Net income (loss) $13,986,320 $(124,386) $(345,460) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Changes in assets and liabilities: Accounts receivable 237,141 (237,141) Work in progress 35,405,234 (23,135,748) (2,439,303) Customer deposits (14,617,028) 14,617,028 Accounts payable, accrued liabilities and retentions payable (5,463,243) 6,133,831 830,644 Net cash provided by (used in) operating activities 29,548,424 (2,746,416) (1,954,119) FINANCING ACTIVITIES: Repayments on notes payable (33,889,817) Borrowings on notes payable 30,575,952 2,747,711 566,155 Contributions from owners 1,150,000 Distributions to owners (24,700,000) Net cash provided by (used in) financing activities (28,013,865) 2,747,711 1,716,155 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,534,559 1,295 (237,964) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 24,691 23,396 261,360 CASH AND CASH EQUIVALENTS, END OF YEAR $1,559,250 $ 24,691 $ 23,396 See notes to financial statements. KAPALUA COCONUT GROVE LLC NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2001, 2000 (UNAUDITED) AND 1999 (UNAUDITED) 1. ORGANIZATION Kapalua Coconut Grove LLC ("KCG") is a Hawaii limited liability company whose members are Kapalua Land Company, Ltd., a subsidiary of Maui Land & Pineapple Company, Inc., and YCP Site 29, Inc. KCG was formed in June 1997 to own, develop, and sell luxury condominiums on the 12-acre parcel of beachfront property adjacent to the Kapalua Bay Hotel. Each member has a 50% interest in KCG. Kapalua Land Company, Ltd. previously owned the land and sold 50% of the parcel at fair market value to YCP Site 29, Inc. Each member contributed to the company its 50% interest in the land parcel for a total of $9.0 million and $1.1 million in cash. Neither member is personally liable for any debt, obligation or liability of KCG. The KCG operating agreement expires on December 31, 2095, unless sooner dissolved as allowed for in the agreement. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents - KCG considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Work in Progress - Work in progress is stated at the lower of cost or fair value, and includes all direct and indirect development costs and interest charges. Income Taxes - The net income of KCG for federal and state income tax purposes is reported by the members in their separate tax returns; accordingly, the KCG financial statements do not include any provision for income taxes. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual amounts could differ from those estimates. 3. WORK IN PROGRESS Work in progress as of December 31, 2000 consisted of: Site construction $22,086,000 Land 9,000,000 Project management and administration 1,997,000 Design, engineering, and planning 1,440,000 Financing 464,000 Marketing 418,000 Total $35,405,000 4. NOTES PAYABLE The $33,000,000 revolving construction loan was collateralized by the land and improvements, and interest was at the bank's base rate. At December 31, 2000, the balance outstanding was $3,314,000, and the notes were paid in full during 2001. 5. REAL ESTATE SALES Presales of the 36 luxury, residential condominiums constructed on the parcel began in 1999 and construction of all units were completed during the year ended December 31, 2001. As of December 31, 2001, sales of all units have been closed, title has been delivered to the buyers, and proceeds have been received by KCG. 6. COST OF REAL ESTATE SALES Cost of real estate sales for the year ended December 31, 2001 includes all costs related to the project as follows: Site construction $39,447,000 Land 9,000,000 Project management and administration 2,692,000 Design, engineering, and planning 1,496,000 Financing 1,103,000 Marketing 681,000 Total $54,419,000 7. RELATED PARTY TRANSACTIONS Kapalua Land Company, Ltd. was the managing member of KCG and provided services at $10,000 per month from July 1997 through June 2001, which was capitalized to the project. Kapalua Realty Company, Ltd., an affiliate of Kapalua Land Company, Ltd., provided real estate services and was paid $1,334,000 in sales commissions for the year ended December 31, 2001. Such amounts have been included in selling and marketing expenses in the statements of operations. ******