-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LIjRgInESM9hrosi3rQV+xnwv1SzXXdUrr4U0ReRzoJuU3drFu6CzsuJpcs31bB8 OCo8Z2+7oW+1xZ0Engwhbw== 0000839437-96-000008.txt : 19960606 0000839437-96-000008.hdr.sgml : 19960606 ACCESSION NUMBER: 0000839437-96-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMFAC JMB HAWAII INC CENTRAL INDEX KEY: 0000839437 STANDARD INDUSTRIAL CLASSIFICATION: 6510 IRS NUMBER: 990217738 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-24180 FILM NUMBER: 96542561 BUSINESS ADDRESS: STREET 1: 900 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3124404800 MAIL ADDRESS: STREET 1: 900 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 FORMER COMPANY: FORMER CONFORMED NAME: 900 AQH FINANCE INC DATE OF NAME CHANGE: 19881113 10-K 1 YEAR END [PREFERRED] U.S. Securities and Exchange Commission Operations Center, Stop 0-7 6432 General Green Way Alexandria, VA 22312 Re: Amfac/JMB Hawaii, Inc. Commission File No. 33-24180 Form 10-K Gentlemen: Enclosed, for the above-captioned registrant, is one paper copy of which is manually executed of registrant's current report on Form 10-K for the year ended December 31, 1995. Please acknowledge receipt of the Form 10-K filing by signing and returning the enclosed self-adrressed postcard. Thank You, Very truly yours, By: Northbrook Corporation Parent Company By: _______________________ Gary Smith Vice President and Principal Accounting Officer SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934 For the fiscal year ended December 31, 1995 Commission File Number 33-24180 AMFAC/JMB HAWAII, INC. (Exact name of registrant as specified in its charter) Hawaii 99-0217738 (State of organization) (I.R.S. Employer Identification No.) AMFAC/JMB FINANCE, INC. (Exact name of registrant as specified in its charter) Illinois 36-3611183 (State of organization) (I.R.S. Employer Identification No.) 900 N. Michigan Ave., Chicago, Illinois 60611 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code 312-440-4800 See Table of Additional Registrants Below. Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K X State the aggregate market value of the voting stock held by non-affiliates of the registrant. Not applicable. As of February 26, 1996, each of Amfac/JMB Hawaii, Inc. and Amfac/JMB Finance, Inc. had 1,000 shares of Common Stock outstanding. All such Common Stock is owned by its respective parent and not traded on a public market. Certain pages of the prospectus of the registrant dated December 5, 1988 and filed with the Commission pursuant to Rules 424(b) and 424(c) under the Securities Act of 1933 are incorporated by reference in Part III of this Annual Report on Form 10-K. ADDITIONAL REGISTRANTS (1) Address,including, zip code, and Exact name of State or other IRS telephone number, registrant as jurisdiction of Employer including area code of specified in its incorporation or Identification registrant's principal Charter organization Number executive offices Amfac Property Hawaii 99-0150751 900 North Michigan Avenue Development Corp. Chicago, Illinois 60611 312/440-4800 Amfac Property Hawaii 99-0202331 900 North Michigan Avenue Investment Chicago, Illinois 60611 Corp. 312/440-4800 Amfac Sugar and Hawaii 99-0185633 900 North Michigan Avenue Agribusiness, Chicago,Illinois 60611 Inc. 312/440-4800 Kaanapali Water Hawaii 99-0185634 900 North Michigan Avenue Corporation Chicago, Illinois 60611 312/440-4800 Amfac Agri- Hawaii 99-0176334 900 North Michigan Avenue business, Inc. Chicago, Illinois 60611 312/440-4800 Kekaha Sugar Hawaii 99-0044650 900 North Michigan Avenue Company, Chicago, Illinois 60611 Limited 312/440-4800 The Lihue Hawaii 99-0046535 900 North Michigan Avenue Plantation Chicago, Illinois 60611 Company, 312/440-4800 Limited Oahu Sugar Hawaii 99-0105277 900 North Michigan Avenue Company, Chicago, Illinois 60611 Limited 312/440-4800 Pioneer Mill Hawaii 99-0105278 900 North Michigan Avenue Company, Chicago, Illinois 60611 Limited 312/440-4800 Puna Sugar Hawaii 99-0051215 900 North Michigan Avenue Company, Chicago, Illinois 60611 Limited 312/440-4800 H. Hackfeld Hawaii 99-0037425 900 North Michigan Avenue & Co., Ltd. Chicago, Illinois 60611 312/440-4800 Waiahole Hawaii 99-0144307 900 North Michigan Avenue Irrigation Chicago, Illinois 60611 Company, 312/440-4800 Limited Waikele Golf Hawaii 99-0304744 900 North Michigan Avenue Club, Inc. Chicago, Illinois 60611 312/440-4800 1) The Additional Registrants listed are wholly-owned subsidiaries of the registrant and are guarantors of the registrant's Certificate of Land Appreciation Notes due 2008. TABLE OF CONTENTS Page PART I Item 1. Business 1 Item 2. Properties 7 Item 3. Legal Proceedings 12 Item 4. Submission of Matters to a Vote of Security Holders 12 PART II Item 5. Market for the Company's and Finance's Common Equity and Related Security Holder Matters 13 Item 6. Selected Financial Data 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 8. Financial Statements and Supplementary Data 30 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 62 PART III Item 10. Directors and Executive Officers of the Registrant 62 Item 11. Executive Compensation 65 Item 12. Security Ownership of Certain Beneficial Owners and Management 66 Item 13. Certain Relationships and Related Transactions 66 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 68 SIGNATURES 73 PART I Item 1. Business All references to "Notes" are to Notes to the Consolidated Financial Statements contained in this report. Amfac/JMB Hawaii, Inc. (the "Company"), has assets substantially all of which are agricultural and developmental real property and related assets located in Hawaii. The Company is an affiliate of JMB Realty Corporation ("JMB") as a result of the 1988 merger (the "Merger") of an affiliate of JMB into Amfac, Inc. ("Amfac"), the former parent corporation of the Company (see Note 1 for discussion of Amfac, Inc. merger into its parent, Northbrook Corporation, in May 1995), and the subsequent merger of a subsidiary of such affiliate into Amfac Hawaii, Inc., which (after changing its name to Amfac/JMB Hawaii, Inc.) continues as the surviving corporation. Unless otherwise indicated, references herein to the Company shall include the Company's subsidiaries. The assets of the Company, held primarily through its wholly-owned subsidiaries, consist principally of approximately 50,900 acres of land, portions of which include acreage (i) in the process of development into residential, resort, commercial and industrial projects, (ii) currently being managed and operated as recreational facilities, and (iii) used in connection with the cultivation and processing of agricultural products, principally sugar cane and related sugar products. In addition, the Company leases approximately 55,350 acres of land used primarily in the production of sugar cane and for access to water sources. The real properties owned by the Company are located on the four principal islands of the State of Hawaii: Oahu, Maui, Kauai and Hawaii. The Company has no real property located outside of the United States. The Company's real properties are described in more detail under Item 2 below. The real estate development and agricultural operations of the Company comprise its two primary industry segments, "Property" and "Agricultural", respectively. The Company segregates total revenues, operating income (loss), total assets, capital expenditures and depreciation and amortization by each industry segment. At December 31, 1995, the Company employed 959 persons. PROPERTY. The Company is attempting to maximize the value of its owned land through land use planning, management and development. Such planning, management and development take into account local zoning and economic and political constraints in order to obtain the necessary land use designations for development and realize appreciated values. The Company also pursues opportunities, to the extent economically advantageous, to sell undeveloped and partially developed parcels of land, to develop directly the improvements at a particular property and, in some instances, to enter into joint venture arrangements for its land development activities. 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 cost of required infrastructure, the planned development of these land holdings and the ability to generate cash flow from these land holdings are longer term in nature than the Company's Waikele development on Oahu has been. Approximately 1,300 acres of the land owned by the Company are currently classified as urban district by the State of Hawaii Land Use Commission and have various zoning and land use approvals for residential, resort, commercial and industrial development, including 500 acres for the Company's three existing golf courses. Additional governmental approvals, permits and certifications will be required to be obtained with respect to the other 800 acres as part of the development process. There can be no assurance, however, that all of the necessary approvals or permits will be obtained. An additional 2,700 acres of Company-owned land are in the preliminary planning stages for urbanization and potential future sale or development. The Company intends to sell or develop all of such land in connection with various residential, resort, commercial and light industrial projects. The Company's development projects may be affected by competition from other projects of a similar nature in Hawaii, as well as from other states or countries offering resort-type properties. The Company's real estate development approach is intended to enhance the value of its real property in successive phases. The determination of whether to develop a property is based on factors such as location, physical characteristics, demographic patterns and perceived absorption rates, as well as regulatory and environmental considerations, zoning, availability of utilities and governmental services and estimated profitability. Generally, once the determination has been made to develop a property, the first step is to design a master development plan. The Company then seeks to obtain regulatory and environmental approvals. The approval process, which often requires a lengthy period of time (often at least three to five years), is a major factor in determining the viability and prospects for profitability of the Company's various development projects. The first phase in the regulatory approval process usually consists of obtaining proper state land use designations and County planning and zoning approvals for the intended development. Occasionally, environmental and special management area approvals will be required, particularly if the property borders the shoreline. Additionally, certain other permits and approvals (such as grading permits, building permits and subdivision approvals) must then be obtained. Upon receipt of such approvals and permits, the Company may then begin construction of infrastructure including roads, water mains, sewer lines and other public facilities. The expenditures for infrastructure are generally significant and usually required early in the project development process. All of the Company's development projects are subject to approval and regulation by various federal, state and county agencies, especially as it relates to the nature and extent of improvements, zoning, building densities, environmental impacts and in some instances marketing and sales. Generally, governmental entities have the right to impose limits or controls on growth in communities through limited land use designations, restrictive zoning, density reduction, impact fees and development requirements. Such limits and controls have materially affected, and in the future may affect materially, the utilization of the Company's real properties and the costs associated with developing such properties. Land use in Hawaii is regulated by both the State of Hawaii and each county (Hawaii, Kauai, Maui and Oahu), each in accordance with its own general set of objectives and policies. At the State level, all land is classified into four major land use districts: urban, rural, agricultural and conservation. The Company believes that it will generally be able to develop that portion of its land for which it has or can reasonably obtain an urban district classification. Conservation land is that land which is necessary for preserving natural conditions (e.g., watershed or prevention of soil erosion) and, hence, generally cannot be developed. Agricultural and rural districts are not permitted to have concentrated development. Certain lands, particularly shoreline parcels, are subject to special regulatory scrutiny. For these lands, the Company must obtain additional federal, state and/or county approvals, including a special management area permit from the county in which such land is located. Certain other approvals are also necessary once zoning has been obtained. Obtaining any and all of these approvals can involve a substantial amount of time and expense, and approvals may need to be resubmitted if there is any subsequent, substantial deviation from previously submitted plans. In connection with seeking approvals for its development plans, the Company has been required (and may be required in the future) to make significant improvements in public facilities (such as roads), to dedicate property for public use, to provide employee and affordable housing units and to make other concessions (monetary and otherwise). The ability of the Company to perform its development activities may be materially adversely affected by state or county restrictions that may be imposed in certain communities because of inadequate public facilities (such as roads and sewer facilities) and/or by local opposition to continued growth. The Company is subject to a number of statutes imposing registration, filing and disclosure requirements with respect to its residential real property developments including, among others, the Federal Interstate Land Sales Full Disclosure Act, the Federal Consumer Credit Protection Act and the State Uniform Land Sales Practices Act. During the past three years, the Company derived a significant portion of its property revenues in two of those years (1994 and 1993) from the sale of residential land parcels to Schuler Homes, Inc., a local home builder in Hawaii. The Company currently owns no patents, trademarks, licenses or franchises which are material to its business. AGRICULTURE. Substantially all of the Company's agricultural activities relate to the cultivation and processing of sugar cane. Approximately 8,700 acres of the Company's land holdings and approximately 16,000 acres of land leased by the Company are currently under cultivation. The remaining approximately 81,500 acres of owned and leased land are predominantly conservation land and land appurtenant to the cultivation of sugar cane. The Company is the second largest producer of raw sugar in Hawaii. During 1995, the Company implemented plans to restructure its sugar operations, including consolidation of the operations at its two Kauai plantations and changing to a seasonal mode of operations at each plantation (consistent with many other sugar operations). The Company anticipates that cost savings will be associated with these changes. Until June 1993, all of the sugar cane processed by the Company's four operating sugar mills was sold to California and Hawaiian Sugar Company ("C & H") under a long-term supply contract. In June 1993, the Company's sugar plantation subsidiaries, along with the other Hawaii sugar growers who owned interests in C&H, consummated the sale of their investment in C&H, which included their interests in C&H's refinery in Crockett, California and in certain other C&H assets, to another large Hawaii sugar grower. The Company's subsidiaries received gross proceeds of approximately $35.7 million. The Company's sugar plantation subsidiaries currently 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 new marketing agreement. HSTC sells the raw sugar production to C&H (under its new ownership) pursuant to a new long-term supply contract executed in conjunction with this transaction. The terms of the supply contract do not require a specified level of production by the Hawaii producers; however, HSTC is obligated to sell and C&H is obligated to purchase any raw sugar produced. HSTC returns to its raw sugar suppliers proceeds based upon the domestic sugar price less delivery and administrative costs. The Company recognizes revenues and related cost of sales upon delivery of its raw sugar by HSTC to C&H. Prior to the sale of the Company's interest in C&H, revenue and related costs were recognized upon the ultimate sale of refined sugar by 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. As of the date of this report, the United States Senate has approved a new Farm Bill, which includes a sugar program similar in nature to the program provided by the previous Farm Bill. This legislation provides for a loan rate of 18 cents per pound, the same level as today. However, the legislation includes certain other adjustments to the sugar program, including making crop loans recourse to the producer and repealing marketing allotments, which may over time depress the domestic price of raw sugar. The United States House of Representatives has not yet approved a new Farm Bill; a vote is not expected until March 1996. The Company is hopeful that final legislation (approved by both Houses of Congress and the President) will include support for the domestic sugar industry on a comparable basis with the previous legislation. However, at this stage there can be no assurance that the government loan rate will not be reduced or be eliminated entirely. Such a reduction or elimination of the loan rate could have a material adverse affect on the Company's agricultural operations, and possibly could cause the Company to evaluate the cessation of its remaining sugar cane operations. In August 1993, the Company announced its plans to phase out the sugar operations at its Oahu Sugar Company by mid- 1995, such phase out coinciding with the expiration of its major land lease on Oahu. Oahu Sugar, which operated almost entirely on leased land, had incurred losses in its sugar operations in prior years and expected those losses to continue in the future. For several months, Oahu Sugar had negotiated with the plantation's major lessor to reach an agreement on concessions in rent and other lease terms required by Oahu Sugar to continue its agricultural operations. To grant such concessions, the lessor required a long-term commitment from the plantation that it would continue its sugar operations. Because of the plantation's losses, along with the future uncertainties posed by the domestic agriculture price support legislation and international trade policy, Oahu Sugar could not agree to such a long-term commitment to stay in operation. Oahu Sugar completed the final harvest of its crop in April 1995. The Company has shut down Oahu Sugar and any estimated future costs related to the shut down are not expected to have a material adverse effect on the financial condition of the Company. In September 1992, Hurricane Iniki struck the Island of Kauai, causing considerable damage and loss to the people and businesses on Kauai. The Company has two sugar plantations on Kauai, both of which sustained considerable damage. The Company's real estate assets on Kauai suffered very little damage, since most of the Company's development expenditures up to that time had been focused on the islands of Oahu and Maui. The Company finalized the settlement of its insurance claims in 1995 for the damage suffered and collected approximately $30 million in proceeds over the three year period since the hurricane. In the past, the Company has considered various uses for its sugar-growing lands, such as alternative crops, to address the uncertainty of the long-term viability of the sugar industry. Although the Company still continues to explore alternative crops, including cultivating approximately 500 acres of coffee trees on Maui, alternative crops remain an insignificant portion of the Company's agriculture segment. The principal competitive factors in the Company's sugar agricultural business are price, sugar yields, processing capabilities, technological know-how and delivery. In addition, the Company's agricultural business must contend with high labor costs and with transportation expenses of shipping its raw sugar from Hawaii to the C & H refinery in California. As part of the Company's agriculture operations, the Company enters into commodities futures contracts and options in sugar as deemed appropriate to reduce the risk of future price fluctuations in sugar. These futures contracts and options are accounted for as hedges and, accordingly, gains and losses are deferred and recognized in cost of sales as part of the production cost. Except for C&H (through the Company's interest in HSTC, as discussed above), there is no single agricultural customer of the Company the loss of which would have a material adverse effect on the Company. 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. The Company historically has been involved in the production of energy through the burning of bagasse, the fibrous by- product from sugar cane processing, in the Company's sugar plantations' boilers. The Company is currently using these boilers to generate electrical energy and steam for the sugar plantations' own consumption and for the sale of the excess energy, if any, to the local public utilities. In early 1993, the Company completed the restructuring of the power generation operations at its sugar plantation in Lihue, Kauai by buying out a power plant equipment lease, entering into a long-term loan to finance the purchase and entering into a new power agreement with the local utility. The restructuring of the power operations at the Lihue plantation has resulted in additional cash flow to the Company each year. WATER RESOURCES. On the island of Kauai, Oahu and Maui, the Company controls approximately 300 million gallons of water per day, 100 million gallons of water per day on land which the Company owns and the remainder on land which is leased by the Company. The Company also owns extensive civil engineering improvements including tunnels, ditches and pumps which distribute water. Most of the Company's water is currently used for irrigating sugar cane. If sugar cane cultivation is curtailed, water resources may become available for other uses. However, there can be no assurance that the Company will be able to apply the water that it currently controls to other uses since landowners' rights under laws governing the use and ownership of water in Hawaii, especially as it pertains to surface water, are restricted and unsettled in many respects. The Company must maintain access to its significant water sources to conduct its agricultural operations and, in many cases, must demonstrate a sufficient supply of water in order to obtain land development permits. The Company believes that it has sufficient water sources for its present and planned uses; however, there can be no assurance that the Company will be able to retain or obtain sufficient water rights to support all of its current or future development plans. The Company owns the Waiahole Ditch, which is a series of tunnels and ditches (constructed in the early 1900's) that collects and has the capacity to transport in excess of twenty million gallons of water per day from the windward part of Oahu to the central Oahu plain. The Company has filed a petition with the State of Hawaii Water Commission (the "Commission") for continued use of water that flows through the Waiahole Ditch and is currently involved in administrative hearings before the Commission regarding such petition. Water from the Waiahole Ditch had previously been used to irrigate sugar cane by Oahu Sugar Company, a wholly-owned subsidiary of the Company. With the closure of the Company's sugar operations on Oahu, the Company had to apply for a new use permit for the Waiahole Ditch water. The Company is seeking to realize significant value from this extensive ditch system by finding alternate end users for the water. The State of Hawaii favors continuation of the flow of water through the Waiahole Ditch for many reasons, among them being the recharge of the central Oahu aquifer and the fact that central Oahu is one of the fastest growth areas in the State. However, there are a number of individuals and certain environmental groups that oppose the continued flow of water in the Ditch and want the water to remain on the windward side of Oahu. There has been an interim determination by the Water Commission that over one-half of the Waiahole Ditch water must remain on windward Oahu temporarily. There can be no assurance that the Water Commission will issue long-term use permits to the Company or to potential users on the leeward side. Amfac/JMB Finance, Inc. ("Finance") is a wholly-owned subsidiary of Northbrook Corporation ("Northbrook"). The sole business of Finance is to repurchase, upon request of the holders thereof, the Certificate of Land Appreciation Notes ("COLAS") pursuant to the Repurchase Agreement. In connection with such repurchase obligations of Finance, Northbrook has agreed to contribute sufficient capital or make loans to Finance pursuant to a Keep-Well Agreement, to enable Finance to meet its repurchase obligations of the COLAS. For a description of such obligations pursuant to the Repurchase Agreement and the Keep-Well Agreement referred to above, see Notes 2 and 3 of Notes to Balance Sheets of Finance. For a description of the COLAS, see Note 5 of Notes to Consolidated Financial Statements of the Company. Item 2. Properties LAND HOLDINGS. The major real properties owned by the Company are described below by island. (a) Oahu At December 31, 1995, the Company owned approximately 820 acres of land on Oahu. These consist of approximately 136 acres for the Waikele Golf Course at Waikele, approximately 60 acres at the Oahu Sugar Company mill site in Waipahu, approximately 500 acres on the northeastern, watershed area of Oahu which have been designated by the State as conservation lands and certain other land parcels. The Waikele project is a master-planned community developed by the Company. Waikele is situated on 577 acres of land located adjacent to Waipahu, a rapidly growing town eight miles west of downtown Honolulu, and at the intersection of Oahu's two major highways. Construction commenced in 1989 and includes approximately 2,900 residential units on 19 parcels, a retail commercial center and an 18-hole golf course. The development of the commercial center at Waikele is complete, while development of residential units, ranging from multi- family units to single-family homes, is continuing and is expected to be completed by the end of 1997. All of the residential land has been sold to 3 builders and are being developed into 19 separate housing offerings. The Waikele golf course opened for public play in May 1993. The Waikele project competes with other master-planned communities on Oahu. The Company expended approximately $.5 million, $3 million and $16.5 million in 1995, 1994 and 1993, respectively, for project costs at Waikele. Such costs include construction of roadways, utilities and related infrastructure improvements and the golf course and clubhouse. On a cumulative project-to- date basis, the Company has expended approximately $116.8 million on project costs and completed sales at Waikele of approximately $230 million. Such sales have included commercial property and parcel sales to home builders. Except for certain contingent participation rights and the future sale of a 3.3 acre church site, the Company has already received all of its proceeds from the sales of the residential and commercial parcels at Waikele. The Company is currently examining options for developing the approximately 60 acres of fee simple land it owns at the mill site of Oahu Sugar Company, and has begun the process of seeking community input and the necessary government approvals for a light industrial subdivision on a 31-acre portion of the property, which excludes property containing the sugar mill and adjacent buildings. In connection with the development of this property, the Company has received state land use urbanization for the entire 60-acre site. In addition, the Company has received an "industrial" city development plan designation for 25.5 acres of the proposed 31-acre light industrial subdivision, and is currently seeking such "industrial" designation for the remaining 5.5 acres. During 1995, the Company sold approximately 18 acres for $6.2 million, which includes $3.2 million for certain contingent participation rights at Waikele and an approximate $1.0 million deposit which represents the purchase price for 10 acres of land on Oahu. (b) Maui On the island of Maui, the Company owns approximately 13,800 acres of land, most of which is currently in agriculture or classified as conservation land. Approximately all of the Company's land holdings are located on West Maui near the Kaanapali Beach Resort area. Approximately 920 acres in West Maui are presently designated urban and zoned for resort and residential development, including approximately 320 acres comprising the two Kaanapali Golf Courses. The Company is currently pursuing development approvals for portions of the surrounding acreage. In March 1991, the Company received final land use approval from the State for development of approximately 240 residential lots on approximately 125 acres of land, known as "South Beach Mauka" and located adjacent to the existing Kaanapali Beach Resort. In connection with this land use approval, the Company is committed to providing additional housing on Maui in the affordable price range and to participating in the funding of the design and construction of the planned bypass highway extending from Lahaina to Kaanapali. The Company has entered into a development agreement with the State Department of Transportation covering the Company's participation in the design and construction of the bypass highway development. It is anticipated that, upon receipt of government approvals, the Company will expend up to $3.5 million (in the aggregate) in the design of the bypass highway widening of the existing highway. Financial participation by the Company of up to an additional $6.7 million for the construction of the bypass highway is subject to certain conditions related to future land use designations and zoning of Company lands. The development and construction of the bypass highway is expected to be a long-term project. During 1993, the Company obtained final land use approval from the State, and certification through the State's Housing Finance Development Corporation ("HFDC"), for the development of a project on approximately 300 acres of Company land known as "Puukolii Village" and also located near Kaanapali Beach Resort. The final land use approval and the HFDC development agreement contain certain conditions which must be satisfied in order for the Company to develop Puukolii Village. Moreover, development of certain portions of Puukolii Village cannot commence until after completion of the state-planned Lahaina bypass highway (mentioned above). The development of Puukolii Village is anticipated to satisfy the Company's commitment to provide affordable housing in connection with the South Beach Mauka land use approval (described above). The Company anticipates commencing construction of infrastructure improvements for Puukolii Village in 1996. On West Maui, the Company is continuing to market its Kaanapali Golf Estates, a new residential community, which is part of the South Beach Mauka project adjacent to Kaanapali Beach Resort. The Company currently has 20 homesites on the market, which are priced from approximately $250,000 to $1 million. The absorption period for this type of product is difficult to forecast under the current economic conditions. In 1996, the Company sold 8 homesites for approximately $1.4 million to a developer who plans to construct and sell houses on these lots. The planned development of the Company's land on Maui is longer term in nature than at Waikele. As Maui is less populated than Oahu and more dependent on the resort/tourism industry, much of the Company's land is intended for resort and resort-related uses. Due to overall economic conditions and trends in tourism, recent demand for these land uses has been relatively weak. The Company's currently available homesite product on Maui, which is primarily targeted to the second home buyer, has experienced very slow sales activity to date. The Company's competitors on Maui have also experienced slow sales activity in the second home market. The Company has over 300 acres of land in the adjacent North Beach Mauka area, currently designated by the State Land Use Commission for agricultural use, but with an underlying project district designation in the county community plan. The Company plans to seek State urbanization approval for this land. The Company is continuing to evaluate its planned products and the timing of development of its land holdings in light of the current weak market demand and the capital resources needed for future development. Concurrently, the Company is evaluating certain land parcels for bulk sales. These parcels are not considered strategic to the Company's long-term development plans. In early 1986, the Company entered into a joint venture agreement with Tobishima Pacific Inc., a wholly- owned subsidiary of a Japanese company, the purpose of which is to plan, manage and develop approximately 96 acres of beachfront property at Kaanapali (known as North Beach). The joint venture (in which the Company has a 50% interest) has State land use and County zoning approvals for the subdivision and development of the infrastructure improvements necessary to accommodate up to 3,200 hotel and/or condominium units on this site. These development plans may be affected by the current re-evaluations of state land designations and county community plans (discussed below). This North Beach property constitutes nearly all of the remaining developable beachfront acreage at Kaanapali. In October 1992, the Company completed construction of a 3-acre park for public use on the North Beach site, which is part of the master plan for this property and was a requirement imposed by Maui County in obtaining certain permits. The development of North Beach continues to be tied to the completion of the aforementioned Lahaina bypass highway or other traffic mitigation measures satisfactory to the Maui County Planning Commission. The Company is currently reviewing alternatives in providing other traffic mitigation measures, such as the widening of the Honoapiilani Highway, to the North Beach area. The Office of State Planning ("OSP") for the State of Hawaii is currently implementing changes to the State designations for land use throughout the State of Hawaii, a process that is performed every five years. The Company is not aware of any changes being made by the OSP that will materially affect the state land use designations sought for Company lands. In addition, citizen advisory committees ("CAC") reviewed Maui County's Community Plans to determine whether changes should be recommended, a process that is done every ten years. As previously reported, one of the citizens advisory committees involved in this review process recommended several changes to the Lahaina Community Plan that could have an adverse impact on Company lands, including one recommendation (among others) to downzone to park designation roughly two- thirds of the Company's North Beach property in Kaanapali. If the CAC recommendations are ultimately implemented, they could have a material adverse effect on the value of the North Beach property or on other Company lands. The Company continues to vigorously oppose the aforementioned CAC recommendations. The Company strongly believes that such recommendations regarding Company lands are wholly inappropriate and that the Company's arguments to retain the current zoning and other entitlements are meritorious. After the CAC made its recommendations, the Maui County Planning Commission held public hearings and then published its own recommendations as part of the Community Plan review process. The Commission disagreed with most of the CAC's recommendations and has recommended that there be no substantial change in the land use designation for the Company's lands, including North Beach. However, the Mayor of Maui County has expressed concern to the Planning Commission over further development at North Beach, and urged broad review of the Lahaina Community Plan issues. A committee of the Maui County Council conducted public hearings on the Community Plan and has concurred with the Planning Commission recommendation on North Beach. The Maui County Council has held public hearings and public readings on the Community Plan amendments in 1996. In February 1996, the Maui County Council adopted a Community Plan ordinance for West Maui that does not include any amendments to the current Community Plan designation of North Beach (thus rejecting the CAC recommendations). The ordinance will be sent to the Mayor of the County of Maui for approval or disapproval. If the Mayor disapproves the ordinance, she could require the West Maui Community Plan Amendment process be recommenced once again. While the Company is hopeful that its arguments will be heeded, there can be no assurance that the current zoning (and other land use designations and entitlements) for the North Beach property and other Company lands will be retained, or that efforts to recover just compensation for any loss of current entitlements would be successful. Management continues to evaluate and consider all alternatives in seeking favorable resolutions to these entitlements and zoning issues. Appropriate state land use designations and conformity with county community plans are essential elements to the land development process. It is impossible to predict the outcome of these reviews at this time and, accordingly, the Company cannot determine what impact (if any) these reviews will ultimately have on the Company's lands and their related entitlements. Further, the Department of the Army has determined that there are two wetlands sites on the North Beach property, totaling approximately 21,800 square feet. The Company has retained experts to evaluate these sites and to insure compliance with all laws. While there can be no assurance as to the ultimate determinations with respect to the wetlands issue, the Company does not anticipate that these sites will materially adversely affect the development plans for North Beach. During 1995, the Company sold 846 acres on Maui for approximately $14.0 million, including four residential lots at Kaanapali Golf Estates. The Company also owns and manages the championship Kaanapali Golf Courses, consisting of a clubhouse and two 18- hole golf courses located at the Kaanapali Beach Resort. Approximately 4,900 acres of the Company's land on Maui are designated as a conservation district. (c) Kauai The Company owns approximately 29,400 acres of land on the island of Kauai, most of which is on the eastern half of the island. The large parcels of Company land in eastern Kauai are predominantly used for sugar cane cultivation. The Company owns approximately 150 acres of land zoned for urban development and approximately 12,300 acres of land on Kauai has been classified as conservation land. In June 1994, the Company submitted a Land Use Boundary Amendment Petition with the State of Hawaii Land Use Commission ("LUC") and a General Plan Amendment Application with the County of Kauai for the urbanization of approximately 552 acres of land on Kauai currently in sugar cane cultivation. The proposed project is planned to be a mixed- use master planned community, which will include a variety of both affordable and market rate residential units, commercial and industrial projects and a number of community and public based facilities. The filing of these land use applications is the first step required in converting agriculture zoned land into urban zoned land. There are a number of additional reports, studies, applications and permits that will be required before final land use approvals are obtained. In May 1995, the County of Kauai approved the Company's General Plan Amendment, subject to a number of conditions (to be addressed during the subsequent zoning amendment process). In December 1995, the LUC granted the Company the land use amendments sought by the Company subject to a number of conditions. While the Company is optimistic that the proposed project will receive favorable support, it is anticipated that the full approval process will require at least 3 - 5 years. The entitlement process in Hawaii has historically been a very difficult and arduous process and there is no guarantee that all approvals will be obtained. Once construction commences, subject to market conditions, the entire project is expected to span over 20 years. During 1995, the Company sold, in the aggregate, 97 acres of miscellaneous land parcels on Kauai for approximately $8.3 million. (d) Hawaii The approximately 6,900 acres of land owned by the Company on the island of Hawaii are located on the eastern side of the island, primarily in the Keaau and Pahoa districts, south of the town of Hilo. Portions of these lands are currently leased to independent papaya growers. The Company does not currently have any plans for real property development on the island of Hawaii, but will continue to pursue ad hoc parcel sales when opportunities exist. During 1995, the Company sold, in the aggregate, 1,463 acres of miscellaneous land parcels on Hawaii for approximately $3.3 million. LONG-TERM LEASES. Each of the Company's plantation subsidiaries leases agricultural lands from unrelated third parties. Such leases vary in length from month-to-month to 10 years and cover parcels of land ranging in acreage from one acre to 27,474 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 its agricultural businesses, primarily in connection with the cultivation and processing of sugar cane, with approximately 16,400 acres currently under cultivation. Most of the leases provide for the Company to pay fixed annual minimum rents (ranging from $10 to $131 per usable acre) plus additional rents based upon a percentage of gross receipts generated by the Company's sugar cane operations on such land. The following summary lists the material agricultural land leases of the Company's subsidiaries, as lessees, and certain material terms thereof: Approximate Current Current Approximate Annual Additional Rent Expiration Sugar Cane Gross Minimum as % of Gross Renewal Lease Date Acreage Acreage Rent Receipts Option Kekaha month to month 7,926 27,474 $251,500 variable -- Lihue 10/30/99 4,054 6,200 $ 56,370 variable -- Lihue 12/15/02 0 3,106 $ 20,630 none -- Lihue 1/31/95(1) 1,805 2,194 $ 22,920 variable -- Pioneer month to month 889 1,639 $ 31,200 variable -- Pioneer 12/31/05 770 2,509 $100,917 7.25% -- (1) The Company has reached an agreement in principle with the lessor. Item 3. Legal Proceedings The Company and/or certain of its affiliates have been named as defendants in several pending lawsuits, most of which constitute routine litigation arising from the ordinary conduct of its businesses. While it is impossible to predict the outcome of the pending (or threatened) litigation and 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 financial condition. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during 1994 and 1995. PART II Item 5. Market for the Company's and Finance's Common Equity and Related Security Holder Matters The Company is a wholly-owned subsidiary of Northbrook Corporation and, hence, there is no public market for the Company's common stock. Finance is a wholly-owned subsidiary of Northbrook Corporation and there is no public market for Finance's common stock. Item 6. Selected Financial Data AMFAC/JMB HAWAII, INC. For the years ended December 31, 1995, 1994, 1993, 1992 and 1991 (Dollars in Thousands)
1995 1994 1993 1992(c) 1991 Total revenues (d) $101,607 157,963 140,462 230,212 201,997 ======= ======== ======== ======== ======== Net income (loss) (e) $ 12,708 (13,033) (509) (60,979) (3,402) ======== ======== ======== ======== ========= Net income (loss) per share (b) Total assets $527,598 614,547 644,711 633,995 705,493 ======= ======= ======== ======== ========= Amounts due affiliates - financing $ 76,911 15,097 15,097 28,098 28,098 ======== ======= ======== ======== ========= Certificate of Land Appreciation Notes $220,692 384,737 384,737 384,737 384,737 ======== ======= ======== ======== ========= (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 Corporation; therefore, net loss per share is not presented. (c) In 1992, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The Company elected to immediately recognize the cumulative effect of the change in accounting for postretirement benefits of $43,442 (after reduction of income taxes of $26,626), which is reflected in the 1992 net loss. (d) Total revenues includes interest income of $1,288 in 1995, $1,977 in 1994, $1,070 in 1993, $1,534 in 1992 and $2,825 in 1991. (e) 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. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources All references to "Notes" herein are to Notes to Consolidated Financial Statements contained in this report. On December 5, 1988, the Company commenced an offering to the public of COLAS pursuant to a Registration Statement on Form S-1 under the Securities Act of 1933. A total of 384,737 COLAS were issued prior to the termination of the offering on August 31, 1989. The net proceeds received from the sale of the COLAS totaled approximately $352 million (after deduction of organization and offering expenses of approximately $33 million). Such net proceeds have been used to repay a portion of the acquisition-related financing, which was incurred to pay certain costs associated with the Merger including a portion of the Merger consideration paid to shareholders of Amfac. On March 14, 1989, Amfac/JMB Finance, Inc. ("Finance"), a wholly-owned subsidiary of Northbrook Corporation ("Northbrook") and the Company entered into an agreement (the "Repurchase Agreement") concerning Finance's obligations (on June 1, 1995 and June 1, 1999) to repurchase, upon request of the holders thereof, the COLAS. The COLAS were issued in units consisting of one Class A COLA and one Class B COLA. As specified in the Repurchase Agreement, the repurchase of the Class A COLAS on June 1, 1995 may have been requested of Finance by the holders of such COLAS 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 repurchase of the Class B COLAS on June 1, 1999 may be requested of Finance 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. Through the date of this report, the cumulative interest paid per Class A COLA and Class B COLA is approximately $145 and $145, respectively. On March 14, 1989, Northbrook entered into a keep-well agreement with Finance, whereby it agreed to contribute sufficient capital or make loans to Finance to enable Finance to meet the COLA repurchase obligations, if any, described above. Notwithstanding Finance's repurchase obligations, the Company may elect to redeem any COLAS requested to be repurchased at the specified price. On March 15, 1995, pursuant to the indenture that governs the terms of the COLAS (the "Indenture"), the Company elected to offer to redeem (the "Redemption Offer") all Class A COLAS from its registered holders. Pursuant to the Redemption Offer, and in accordance with the terms of the Indenture, the Company was therefore obligated to purchase any and all Class A COLAS submitted pursuant to the Redemption Offer at a price of $365 per Class A COLA. In conjunction with the Company's Redemption Offer, the Company made a tender offer (the "Tender Offer") to purchase up to approximately $68 million principal value of the Class B COLAS at a price of $220 per Class B COLA from COLA holders electing to have their Class A COLAS repurchased. The two offers to repurchase the COLAS terminated on April 17, 1995 in accordance with their terms and with the Indenture. 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 of the Company of approximately $105 million on June 1, 1995. The Company used its available cash to purchase Class B COLAS pursuant to the Tender Offer and borrowed $52 million from Northbrook to purchase Class A COLAS pursuant to the Redemption Offer. The $52 million loan from Northbrook matures on June 1, 1997, is payable interest only and carries an interest rate per annum equal to the prime rate (8.5% at December 31, 1995) plus 2%. The Company has also borrowed from Northbrook approximately $9.8 million as of December 31, 1995 consisting of approximately $4.4 million for the August 1995 COLA Base Interest payment and approximately $5.4 million for working capital needs. Pursuant to the Indenture relating to the COLAS, these amounts borrowed from Northbrook are considered "Senior Indebtedness" to the COLAS. As a result of the repurchases, the Company retired approximately $164 million face value of COLA debt and recognized a financial statement gain of approximately $32.5 million (net of income taxes of $20.8 million, the write-off of deferred financing costs of $10.0 million, the write-off of accrued contingent base interest of $5.7 million and expenses of $.9 million). Such gain is treated as cancellation of indebtedness income for tax purposes and, accordingly, the income taxes related to the Class A Redemption Offer (approximately $9.1 million) will not be indemnified by the tax agreement with Northbrook (see Note 1). Pursuant to the terms of the Indenture relating to the COLAS, the Company is required to maintain a Value Maintenance Ratio of 1.05 to 1.00. Such ratio is equal to the relationship of the Company's Net Asset Value (defined as the excess of (i) Fair Market Value of the gross assets of the Company over (ii) the amount of the liabilities (excluding liabilities resulting from generally accepted accounting principles enacted subsequent to the date of the Indenture) of the Company other than the outstanding principal balance of the COLAS, any unpaid Mandatory and Contingent Base Interest, and certain other liabilities, to the sum of (x) the outstanding principal amount of the COLAS, plus (y) any unpaid Base Interest, plus (z) the outstanding principal balance of any Indebtedness incurred to redeem COLAS. The COLA Indenture requires the Company to obtain independent appraisals of the fair market value of the gross assets used to calculate the Value Maintenance Ratio as of December 31 in each even-numbered calendar year. Accordingly, the Company obtained independent appraisals of substantially all of its gross real estate assets as of December 31, 1994; the appraised values of such assets ranged in total from approximately $600-$650 million. In odd-numbered years (during which time appraisals are not required) the Fair Market Value of the gross assets of the Company used to compute the Value Maintenance Ratio is determined by the Company's management. To the extent that management believes that the aggregate Fair Market Value of the Company's assets exceeds by more than 5% the Fair Market Value of such assets included in the most recent appraisal, the Company must obtain an updated appraisal supporting such increase. As of December 31, 1995, management does not believe that the aggregate Fair Market Value of the Company's assets has increased by more than 5% from the appraisal values obtained as of December 31, 1994. Based on such values, and after consideration of the other components of the computation, the Company was in compliance with the Value Maintenance Ratio as of December 31, 1994 and December 31, 1995. It should be noted that the concept of Fair Market Value is intended to represent the value that an independent arm's-length purchaser, seeking to utilize such asset for its highest and best use would pay, taking into consideration the risks and benefits associated with such use or development, current restrictions on development (including zoning limitations, permitted densities, environmental restrictions, restrictive covenants, etc.) and the likelihood of changes to such restrictions; provided, however, that with respect to any Fair Market Value determination of all of the assets of the Company, such assets shall not be valued as if sold in bulk to a single purchaser. There can be no assurance that the Company's properties can be ultimately sold at prices equivalent to their appraised values. In June 1991, the Company obtained a five-year $66 million loan from the Employees' Retirement System of the State of Hawaii ("ERS"). An initial funding of $60 million was received in June 1991. The remaining balance of $6 million was added to the principal balance on July 1, 1992 in payment of the first year of accrued interest on the loan. The non- recourse loan is secured by a first mortgage on the Kaanapali Golf Courses, and is considered "Senior Indebtedness" (as defined in the Indenture relating to the COLAS). The loan bears 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 subsequent year (9% at July 1, 1995) plus one percent or (ii) ten percent per annum through June 30, 1994 and nine percent per annum thereafter. The loan is payable interest only on a quarterly basis. The annual interest payments are in excess of the cash flow generated by the Kaanapali Golf Courses and the Company ceased making required debt service payments in April 1995. The Company is working with the ERS to renegotiate the terms of the loan including a possible extension of the June 1996 maturity date. The principal balance is included in the current portion of long-term debt as of December 31, 1995 in the accompanying consolidated financial statements. In conjunction with the Company's loan negotiations, the Company made an interest payment of approximately $1.7 million in August 1995. The Company has not made all interest payments required under the current loan terms resulting in unpaid interest at December 31, 1995 of approximately $4.6 million. Although the Company expects to successfully conclude the loan renegotiation, there can be no assurance that the renegotiation will be consummated, or consummated on terms favorable to the Company. In October 1993, Waikele Golf Club, Inc. ("WGCI"), a wholly- owned subsidiary of the Company that owns and operates the Waikele Golf Course, obtained a five year $20 million loan facility from two lenders. The loan consists of two $10 million amortizing loans. Each loan bears interest only for the first two years with interest and principal payments based upon a 20 year amortization period for the remaining three years. The loans bear interest at prime (8.5% at December 31, 1995) plus 1/2% and LIBOR (5.7% at December 31, 1995) plus 3%, respectively. WGCI received an initial funding of $14 million of which $.6 million was held back by the lenders to pay interest. In October, 1994, in accordance with the loan agreement, the Company received an additional funding of $6 million and a release of the $.6 million interest holdback, both of which were contingent upon achieving a certain level of Net Operating Income (as defined) by the golf course during the first six months of 1994. The loan is secured by WGCI's assets (see Note 6), is guaranteed by the Company and is considered "Senior Indebtedness" (as defined in the COLA Indenture). Pursuant to an agreement entered into with the City of Honolulu in 1991 relating to the development of the Company's Waikele project, if the Company sells the Waikele golf course and depending on the price and resolution of certain issues, a payment of up to $15 million might be required to be given to the City to be used to assist in the City's affordable housing developments. A significant portion of the Company's cash needs result from the nature of the real estate development business, which requires significant investment in preparing development plans, seeking land urbanization and other governmental approvals, and completing infrastructure improvements prior to the realization of sales proceeds. The Company has funded its cash requirements to date primarily through the use of short-term bank borrowings, long-term financing secured by its golf courses on Maui and Oahu, borrowings from affiliates and revenues generated from the development and sale of its properties and investments. Funding of the Company's future cash requirements is dependent upon obtaining appropriate financing and revenues generated from the development and sale of its properties. Although under current market conditions development financing is difficult to obtain, the Company is not currently seeking this type of financing based upon the stage of development of its various land holdings in Hawaii. In order to generate additional cash flows for the Company, management has identified certain land parcels that are not included in the Company's long-term development plans. The Company continues to pursue an aggressive land sales program for these non-strategic assets. During 1995, the Company generated approximately $30.8 million in land sales, most of which related to non-strategic parcels. In addition, the Company received an approximate $1.0 million deposit, which represents the purchase price for 10 acres on Oahu. During 1994, the Company generated approximately $44.3 million in property sales primarily from the sale of the last two remaining residential parcels at the Waikele project on Oahu for approximately $37 million. The remaining $7.3 million of property sales in 1994 related to land sales on the islands of Maui, Kauai and Hawaii. Additionally, the Company received an approximate $4.2 million deposit, which represented the purchase price for 452 acres on Maui. At December 31, 1995, the Company had cash and cash equivalents of approximately $11.7 million. The Company intends to use its cash reserves, sales proceeds and financing or joint venture arrangements to meet its short-term and long-term liquidity requirements, which include funding the remaining development costs at Waikele and on West Maui, Oahu and Kauai, agricultural deficits, payment of interest expense, and the repayment of principal on debt obligations, as necessary. The Company's long-term remaining liquidity is dependent upon its ability to obtain additional financing and the consummation of certain property sales. There can be no assurance that additional long-term financing can be obtained or property sales consummated. The Company's land holdings on Maui and Kauai are its primary source of future land sale revenues. However, due to current market conditions, the difficulty in obtaining land use approvals and the high development cost of required infrastructure, the planned development of these land holdings and the ability to generate cash flow from these land holdings are longer term in nature than Waikele. Accordingly, if no such financing can be obtained or additional property sales consummated, the Company will defer (to the extent possible) development costs and capital expenditures to meet long-term liquidity requirements. Additionally, the Company's plans for property sales may also be adversely impacted by the inability of potential buyers to obtain financing. The Company did not generate a sufficient level of Net Cash Flow to pay Base Interest on the COLAS (see Note 5) in excess of four percent for 1993, 1994 and 1995. During 1995 and 1994, the Company implemented certain cost savings measures, which deferred development project costs and capital expenditures for longer-term projects. The Company's Property segment is anticipated to expend approximately $17.0 million in project costs during 1996. During 1995, the Company implemented a plan to restructure its sugar operations, including consolidation of the operations at its two Kauai plantations and changing to a seasonal mode of operations at each of its plantations (consistent with other global sugar operations). The Company anticipates that cost savings related to the sugar operations will be associated with these changes. 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. As of the date of this report, the U.S. Senate and the U.S. House of Representatives have approved a new Farm Bill, which includes a sugar program similar in nature to the program provided by the previous Farm Bill. Both versions of this legislation provide for a loan rate of 18 cents per pound, the same level as today. However, the legislation includes certain other adjustments to the sugar program, including making crop loans recourse to the producer and repealing marketing allotments, which may over time depress the domestic price of raw sugar. House and Senate members still must meet to reconcile certain differences. The Company is hopeful that final legislation (approved by both Houses ofCongress and the President) will include support for the domestic sugar industry on a comparable basis with the previous legislation. However, at this stage there can be no assurance that the government loan rate will not be reduced or be eliminated entirely. Such a reduction or elimination of the loan rate could have a material adverse effect on the Company's agricultural operations, and possibly could cause the Company to evaluate the cessation of its remaining sugar cane operations. In August 1993, the Company announced its plans to phase out the sugar operations at its Oahu Sugar Company by mid- 1995, such phase out coinciding with the expiration of its major land lease on Oahu. Oahu Sugar, which operated almost entirely on leased land, had incurred losses in its sugar operations in prior years and expected those losses to continue in the future. For several months, Oahu Sugar had negotiated with the plantation's major lessor to reach an agreement on concessions in rent and other lease terms required by Oahu Sugar to continue its agricultural operations. To grant such concessions, the lessor required a long-term commitment from the plantation that it would continue its sugar operations. Because of the plantation's losses, along with the future uncertainties posed by the domestic agriculture price support legislation and international trade policy, Oahu Sugar could not agree to such a long-term commitment to stay in operation. Oahu Sugar completed the final harvest of its crop in April 1995. The Company has shut down Oahu Sugar and any estimated future costs related to the shut down are not expected to have a material adverse effect on the financial condition of the Company. The Company is currently examining options for developing the fee simple land it owns adjacent to the Oahu Sugar mill site, including seeking the necessary government approvals for a light industrial subdivision for a portion of the property, as discussed below. One of the Company's subsidiaries, The Lihue Plantation Company, Limited, restructured its power generating operations by paying $15 million in November 1992 for the purchase of the power generation equipment at its sugar plantation in Lihue, Kauai, pursuant to a buyout provision in the equipment's lease. In January 1993, Lihue obtained a ten-year $13.3 million amortizing loan to replace the internal funds used for this purchase. 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 of its subsidiaries. In conjunction with its acquisition of the power generation equipment, Lihue negotiated a new power purchase agreement with the local utility, which became effective on November 1, 1992. This restructuring of the power generating operations at the Lihue plantation has resulted in additional cash flow to the Company each year. Results of Operations General: The Company and its subsidiaries report its taxes as a 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 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). Effective January 1, 1993, the Company adopted SFAS No. 109-Accounting for Income Taxes. SFAS No. 109 establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise's activities during the current and preceding years. SFAS No. 109 changed the Company's previous practice in that it requires the recognition of deferred taxes and the recording of a provision for taxes in the separate financial statements of a member of a consolidated tax group. Deferred taxes arise due to differences between the Company's book and tax bases of its assets and liabilities. Current and deferred taxes have been allocated to the Company as if it were a separate taxpayer. However, the tax indemnification agreement does not require the Company to actually pay income taxes (other than income taxes that 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). Accordingly, current taxes payable, to the extent the tax indemnification agreement does not require the Company to actually pay such income taxes, have been reflected as deemed contributions to additional paid-in capital in the accompanying financial statements. In addition, beginning December 31, 1995, deferred taxes payable are also being reflected as deemed paid-in capital. Deferred taxes payable were previously reflected as a liability in the Company's financial statements. The Company believes that this change results in a better reflection of the effect of the tax indemnification agreement; such change has no impact on the Company's consolidated statements of operations or on its cash flows. Cash and cash equivalents, short-term investments, Certificate of Land Appreciation Notes, other long-term liabilities and deferred expenses decreased and the long-term portion of amounts due affiliates increased as of December 31, 1995 as compared to December 31, 1994 primarily due to the COLA repurchases as discussed above (see Note 5). Current portion of long-term debt increased and long-term debt decreased as of December 31, 1995 as compared to December 31, 1994, due primarily to the reclassification of the ERS loan from long-term to current (see Note 6). The current portion of amounts due to affiliates increased as of December 31, 1995 as compared to December 31, 1994 primarily due to income tax payable resulting from the redemption of the Class A COLAS (see Note 5), interest accrued on related party debt (see Note 4) and the payment by Northbrook of pension costs, severance and termination benefits and certain insurance costs on behalf of the Company (see Note 9). Interest expense decreased for the year ended December 31, 1995 as compared to the year ended December 31, 1994 primarily due to the net decrease in interest related to the early redemption of the COLAS, which was partially offset by interest expense increasing on the acquisition- related financing and ERS loan due to increases in the prime rate. Interest expense increased for the year ended December 31, 1994 as compared to the year ended December 31, 1993 primarily due to a decrease in capitalized interest on project development costs. Agriculture: The Company's Agriculture segment is responsible for activities related to the cultivation, processing and sale of sugar cane and other agricultural products. Agriculture's revenues are primarily derived from the Company's sale of its raw sugar. Prior to the sale of the Company's interest in C&H (see Note 3), the price the Company received from C&H for its raw sugar represented the net sales price C&H received for refined sugar, less operating expenses and capital expenditures. Currently, the price the Company receives is based upon the domestic price of sugar (less delivery and administrative costs), which is impacted by U.S. government price support legislation. As of the date of this report, the U.S. Senate and the U.S. House of Representatives have approved a new Farm Bill, which includes a sugar program similar in nature to the program provided by the previous Farm Bill. Both versions of this legislation provide for a loan rate of 18 cents per pound, the same level as today. However, the legislation includes certain other adjustments to the sugar program, including making crop loans recourse to the producer and repealing marketing allotments, which may over time depress the domestic price of raw sugar. House and Senate members still must meet to reconcile certain differences. The Company is hopeful that final legislation (approved by both Houses of Congress and the President) will include support for the domestic sugar industry on a comparable basis with the previous legislation. However, at this stage there can be no assurance that the government loan rate will not be reduced or be eliminated entirely. Such a reduction or elimination of the loan rate could have a material adverse effect on the Company's agricultural operations, and possibly could cause the Company to evaluate the cessation of its remaining sugar cane operations. In conjunction with the sale of its interests in C&H, the Company entered into a new marketing agreement with the co- operatively-owned HSTC to sell their raw sugar production. HSTC sells the raw sugar production to C&H (under its new ownership) pursuant to a new long-term supply contract executed in conjunction with this transaction. The terms of the supply contract do not require a specified level of production by the Hawaii producers; however, HSTC is obligated to sell and C&H is obligated to purchase any raw sugar produced. HSTC is an agricultural cooperative owned by the major Hawaii producers of raw sugar (including the Company). HSTC returns to its raw sugar suppliers proceeds based upon the domestic sugar price less delivery and administrative charges. The Company recognizes revenue and related cost of sales upon delivery of its raw sugar from HSTC to C&H. In its previous arrangement with C&H, revenue and related costs had been recognized upon ultimate sale of refined sugar by C&H. In addition, all deliveries of raw sugar to C&H through the date of sale were recognized as revenue as of the date of the sale transaction. As a result of the C&H sale transaction discussed above (see Note 3), the Company recognized a gain of approximately $16.6 million on the transaction for the year ended December 31, 1993. As part of the Company's agriculture operations, the Company enters into commodities futures contracts and options in sugar as deemed appropriate to reduce the risk of future price fluctuations in sugar. These futures contracts and options are accounted for as hedges and, accordingly, gains and losses are deferred and recognized in cost of sales as part of the production cost. In September 1992, Hurricane Iniki struck the Island of Kauai causing considerable damage and loss to the people and businesses on Kauai. The Company has two sugar plantations on Kauai, both of which sustained considerable damage. The Company's real estate assets on Kauai suffered very little damage, since most of the Company's development expenditures up to that time had been focused on the islands of Oahu and Maui. The Company finalized the settlement of its insurance claims in 1995 for damage suffered and collected approximately $30 million in proceeds over the approximately three year period. Accounts receivable decreased as of December 31, 1995 as compared to December 31, 1994 due primarily to the receipt of the aforementioned insurance proceeds related to the final settlement of the Iniki claims and a lower sugar receivable as a result of the termination of operations at Oahu Sugar Company. The decrease was partly offset by certain other insurance claims receivable as of December 31, 1995, which have subsequently been collected. Accrued expenses decreased as of December 31, 1995 as compared to December 31, 1994, primarily due to payments of certain costs accrued in conjunction with the sale of the Company's interest in C&H and the cessation of operations at Oahu Sugar Co. during 1995. Other long-term liabilities decreased as of December 31, 1995 as compared to December 31, 1994, in part due to the recognition of a previously deferred credit related to the reduction of the Company's accumulated postretirement benefit obligation as a result of the cessation of operations at Oahu Sugar Company during 1995. Inventories and prepaid expenses decreased as of December 31, 1995 as compared to December 31, 1994 primarily due to termination of operations at Oahu Sugar Company. Machinery and equipment decreased as of December 31, 1995 as compared to December 31, 1994 primarily due to the sale of substantially all of the machinery and equipment of Oahu Sugar Company, which ceased operations in April 1995. Oahu Sugar received net proceeds of approximately $3.0 million after accrued expenses, which approximates the carrying value of the equipment at the date of sale. Agriculture's revenues from sugar operations decreased for the year ended December 31, 1995 as compared to the year ended December 31, 1994 as a result of lower production due to less acres harvested. Non-sugar revenues also decreased due to non- recurring revenues received in 1994. Agriculture's operating loss for the year ended December 31, 1995 increased as compared to the year ended December 31, 1994 due to a deterioration of gross margin resulting from lower production and the receipt of non-recurring non-sugar revenues in 1994. The lower production is attributable to the shutdown of Oahu Sugar and inclement weather which adversely affected operations at the Company's two Kauai plantations. Inclement weather has a greater impact on the Company's seasonal mode of operations because of reduced flexibility in the harvesting schedule. Agriculture's revenue from sugar operations increased approximately 15% for the year ended December 31, 1994 as compared to the year ended December 31, 1993 due to an increase in the return per ton for 1994 and an increase in the sugar sales volume (predominately in the fourth quarter) of approximately 5% and 9% per annum, respectively. This was offset in part by a decrease in various non-sugar revenues. Agriculture experienced a $3.9 million operating loss for the year ended December 31, 1994 as compared to operating income of $1.1 million for the year ended December 31, 1993 due to lower non-sugar revenues and a higher inventory write down as a result of lower anticipated 1995 production volumes, which more than offset certain cost reductions. Property: The Company's Property segment is responsible for the following: land planning and development activities; obtaining land use, zoning and other governmental approvals; selling or financing developed and undeveloped land parcels; and the management and operation of the Company's golf course facilities. As discussed below, the North Beach joint venture owns approximately 96 acres of beachfront property on Maui that have regulatory approvals for hotel development. In accordance with the provisions of the COLA Indenture, appraisals were performed for certain properties in 1994, which reflected a decline in value of the North Beach property. Accordingly, the Company recorded, as a matter of prudent accounting practice, a $3.5 million reduction to the carrying value of its investment in the North Beach joint venture in 1994 to properly reflect the estimated market value of the property in its then current state of development. This reduction is attributed to the softness in the market for the development and sale of resort-oriented real estate. Inventory decreased as of December 31, 1995 as compared to December 31, 1994 in part due to the sale of land parcels in 1995, which was offset in part by the transfer of costs from land and land improvements discussed below. Land and land improvements decreased as of December 31, 1995 as compared to December 31, 1994 primarily due to the reclassification of various land parcels actively held for sale to inventories. Property revenues and cost of sales decreased for the year ended December 31, 1995 as compared to December 31, 1994 and increased as of December 31, 1994 as compared to December 31, 1993 primarily due to the level of sales activity at Waikele. During 1995, the Company generated approximately $30.8 million in land sales, most of which relate to non-strategic parcels. In addition, the Company received an approximate $1.0 million deposit, which represents the purchase price for 10 acres on Oahu. During 1994, the Company generated approximately $44.3 million of land sales, primarily from the sales of the remaining two residential parcels at the Waikele project on Oahu for approximately $37 million. The balance of the 1994 proceeds resulted from the sale of parcels aggregating 225 acres on various islands for approximately $7.3 million. Additionally, the Company received an approximate $4.2 million deposit, which represented the purchase price for 452 acres of agriculture-zoned land on Maui. The gain from such sale is being deferred due to certain profit participation rights retained by the Company. During 1993, the Company generated approximately $36.8 million of land sales, of which $23.1 million was from sales of residential parcels at the Waikele project on Oahu. In addition, the Company sold various parcels on the islands of Maui and Kauai, aggregating 38 and 80 acres for approximately $6.6 and $7 million, respectively. In April 1993, the Company received approximately $2 million from the disposition of certain land parcels on Kauai, which was recorded as a deposit due to certain closing conditions. The Company expended approximately $.5 million, $3 million and $16.5 million in 1995, 1994 and 1993, respectively, for project costs at Waikele. Such costs include construction of roadways, utilities and related infrastructure improvements and the golf course and clubhouse. On a cumulative project-to- date basis, the Company has expended approximately $116.8 million on project costs and has completed sales at Waikele of approximately $230 million. Such sales have included commercial property and parcel sales to home builders. Except for certain contingent participation rights and the future sale of a 3.3 acre church site, the Company has received all of its proceeds from the sales of the residential and commercial parcels at Waikele. The Company is currently examining options for developing the approximately 60 acres of fee simple land it owns at the mill site of Oahu Sugar Company, and has begun the process of seeking community input and the necessary government approvals for a light industrial subdivision on an approximately 31-acre portion of the property, which excludes property containing the sugar mill and adjacent buildings. In connection with the development of this property, the Company has received state land use urbanization for the entire 60-acre site. In addition, the Company has received an "industrial" city development plan designation for 25.5 acres of the proposed 31- acre light industrial subdivision, and is currently seeking such "industrial" designation for the remaining 5.5 acres. In March 1991, the Company received final land use approval from the State for development of approximately 240 residential lots on approximately 125 acres of land known as "South Beach Mauka" and located adjacent to the existing Kaanapali Beach Resort. In connection with this land use approval, the Company is committed to providing additional housing on Maui in the affordable price range, and to participating in the funding of the design and construction of the planned bypass highway extending from Lahaina to Kaanapali. The Company has entered into a development agreement with the State Department of Transportation covering the Company's participation in the design and construction of the bypass highway development. It is anticipated that, upon the receipt of government approvals, the Company will expend up to $3.5 million (in the aggregate) in the design of the bypass highway and/or the widening of the existing highway. Financial participation by the Company of up to $6.7 million for the construction of the bypass highway is subject to certain conditions related to certain future land use designations and zoning of Company lands. The development and construction of the bypass highway is expected to be a long- term project. During 1993, the Company obtained final land use approval from the State, and certification through the State's Housing Finance Development Corporation ("HFDC"), for the development of a project on approximately 300 acres of Company land known as "Puukolii Village", which is also located near Kaanapali Beach Resort. In connection with this land use approval, the Company is committed to providing additional housing on Maui in the affordable price range. The final land use approval and the HFDC development agreement contain certain conditions which must be satisfied in order for the Company to develop Puukolii Village, including realigning the access road (which will benefit uses for adjacent Company lands in future periods). Moreover, development of certain portions of Puukolii Village cannot commence until after completion of the state-planned Lahaina bypass highway (mentioned above). The proposed development of Puukolii Village is anticipated to satisfy the Company's affordable housing requirements in connection with the South Beach Mauka land use approval as well as the North Beach property. (described above). The Company anticipates commencing construction of infrastructure for Puukolii Village in 1996. The planned development of the Company's land on Maui is longer term in nature than Waikele. As Maui is less populated than Oahu and more dependent on the resort/tourism industry, much of the Company's land is intended for resort and resort- related uses. Due to overall economic conditions and trends in tourism, recent demand for these land uses has been relatively weak. The Company's currently available homesite product on Maui, which is targeted to the second home buyer, has experienced very slow sales activity to date. The Company's competitors on Maui have also experienced slow sales activity in the second home market. The Company is continuing to evaluate its planned products and the timing of development of its land holdings in light of the current weak market demand and the capital resources needed for future development. The Company is marketing Kaanapali Golf Estates, a new residential community, which is part of South Beach Mauka adjacent to the Kaanapali Beach Resort in West Maui. The Company currently has approximately 20 homesites on the market, which are priced from approximately $250,000 to in excess of $1 million. The absorption period for this type of product is difficult to forecast under the current economic conditions. In 1996, the Company sold 8 homesites for approximately $1.4 million to a developer who plans to construct and sell houses on these lots. In addition, the Company has subdivided an ocean front parcel in Kaanapali into six single family homesites of approximately one acre each. The individual lot prices range from $1.9 million to $2.4 million. Sales of two of the lots in the project closed in December 1995, generating total sales proceeds of approximately $4.1 million. The Company is marketing the remaining 4 lots. In early 1986, the Company entered into a joint venture agreement with Tobishima Pacific Inc., a wholly- owned subsidiary of a Japanese company, the purpose of which is to plan, manage and develop approximately 96 acres of beachfront property at Kaanapali (known as "North Beach"). The joint venture (in which the Company has a 50% interest) has State land use and County zoning approvals for the subdivision and development of the infrastructure improvements necessary to accommodate up to 3,200 hotel and/or condominium units on this site. These development plans may be affected by the current review of state land designations (discussed below). This North Beach property constitutes nearly all of the remaining developable beachfront acreage at Kaanapali. In October 1992, the Company completed construction of a 3-acre park on the North Beach site, which is part of the master plan for this property and was a requirement imposed by the County in obtaining certain permits. The development of North Beach continues to be tied to the completion of the aforementioned Lahaina bypass highway or other traffic mitigation measures satisfactory to the Maui County Planning Commission. The Company is currently reviewing alternatives in providing other traffic mitigation measures. The Office of State Planning ("OSP") for the State of Hawaii is currently implementing changes to the State designations for land use throughout the State of Hawaii, a process that is performed every five years. The Company is not aware of any changes being made by the OSP that will materially affect the current state land use designations for Company lands. In addition, citizen advisory committees ("CAC") reviewed Maui County's Community Plans to determine whether changes should be recommended, a process that is done every ten years. As previously reported, one of the citizen advisory committees involved in this review process recommended several changes to the Lahaina Community Plan that could have an adverse impact on Company lands, including one recommendation (among others) to downzone to park designation roughly two-thirds of the Company's North Beach property in Kaanapali. If the CAC recommendations are ultimately followed, they could have a material adverse effect on the value of the North Beach property or on other Company lands. The Company continues to vigorously oppose the aforementioned CAC recommendations. The Company strongly believes that such recommendations regarding Company lands are wholly inappropriate and that the Company's arguments to retain the current zoning and other entitlements are meritorious. After the CAC made its recommendations, the Maui County Planning Commission held public hearings and then published its own recommendations as part of the Community Plan review process. The Commission disagreed with most of the CAC's recommendations and has recommended that there be no substantial change in the land use designation for the Company's lands, including North Beach. However, the Mayor of Maui County has expressed concern to the Planning Commission over further development at North Beach, and urged broad review of the Lahaina Community Plan issues. A committee of the Maui County Council conducted public hearings on the Community Plan and has concurred with the Planning Commission recommendation on North Beach. The Maui County Council has held public hearings and public readings on the Community Plan amendments in 1996. In February 1996, the Maui County Council adopted a Community Plan ordinance for West Maui that does not include any amendments to the current Community Plan designation of North Beach (thus rejecting the CAC recommendations). The ordinance will be sent to the Mayor of the County of Maui for approval or disapproval. If the Mayor disapproves the ordinance, she could require the West Maui Community Plan Amendment process be recommenced once again. While the Company is hopeful that its arguments will be heeded, there can be no assurance that the current zoning (and other land use designations and entitlements) for the North Beach property and other Company lands will be retained, or that efforts to recover just compensation for any loss of current entitlements would be successful. Management continues to evaluate and consider all alternatives in seeking favorable resolutions to these entitlements and zoning issues. Appropriate state land use designations and conformity with county community plans are essential elements to the land development process. It is impossible to predict the outcome of these reviews at this time and, accordingly, the Company cannot determine what impact (if any) these reviews will ultimately have on the Company's lands. Further, the Department of the Army has determined that there are two wetlands sites on the North Beach property, totaling approximately 21,800 square feet. The Company has retained experts to evaluate these sites and to insure compliance with all laws. While there can be no assurance as to the ultimate determinations with respect to the wetlands issue, the Company does not anticipate that these sites will materially adversely affect the development plans for North Beach. In June 1994, the Company submitted a Land Use Boundary Amendment Petition with the State of Hawaii Land Use Commission ("LUC") and a General Plan Amendment Application with the County of Kauai for the urbanization of approximately 552 acres of land on Kauai currently in sugar cane cultivation. The proposed project is planned to be a mixed use master planned community which will include a variety of both affordable and market rate residential units, commercial and industrial projects and a number of community and public based facilities. The filing of these land use applications is the first step required in converting agriculture zoned land into urban zoned land. There are a number of additional reports, studies, applications and permits that will be required before final land use approvals are obtained. In May 1995, the County of Kauai approved the Company's General Plan Amendment Application, subject to a number of conditions (to be addressed during the subsequent zoning amendment process). In December 1995, the LUC granted the Company the land use amendments sought by the Company subject to a number of conditions. While the Company is optimistic that the proposed project will receive favorable support, it is anticipated that the approval process will require at least 3 - 5 years. The entitlement process in Hawaii has historically been a very difficult and arduous process and there is no guarantee that all approvals will be obtained. Once construction commences, subject to market conditions, the project is expected to span over 20 years. 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 8. Financial Statements and Supplementary Data AMFAC/JMB HAWAII, INC. INDEX Report of Independent Auditors Consolidated Balance Sheets, December 31, 1995 and 1994 Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Stockholder's Equity (Deficit) for the years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 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, 1995 and 1994 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 Board of Directors and Stockholder AMFAC/JMB HAWAII, INC. We have audited the accompanying consolidated balance sheets of Amfac/JMB Hawaii, Inc. as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholder's equity (deficit), and cash flows for each of the three years in the period ended December 31, 1995. 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, Inc. at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, 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 18, 1996 AMFAC/JMB HAWAII, INC. Consolidated Balance Sheets December 31, 1995 and 1994 (Dollars in Thousands) A s s e t s
1995 1994 Current assets: Cash and cash equivalents $11,745 31,702 Short-term investments -- 31,998 Receivables - net 8,720 14,943 Inventories 49,641 52,765 Prepaid expenses 3,102 4,379 ------- -------- Total current assets 73,208 135,787 ------- -------- Investments 45,080 45,046 ------- -------- Property, plant and equipment: Land and land improvements 336,069 346,169 Machinery and equipment 56,882 58,339 Construction in progress 1,428 1,060 ------- -------- 394,379 405,568 Less accumulated depreciation and amortization 27,762 24,221 ------- -------- 366,617 381,347 Deferred expenses 14,225 25,826 Other assets 28,468 26,541 ------- -------- $527,598 614,547 ======== ======== L i a b i l i t i e s Current liabilities: Accounts payable $8,562 9,882 Accrued expenses 13,268 15,372 Current portion of long-term debt 67,730 1,428 Current portion of deferred income taxes 10,902 4,205 Amounts due to affiliates 22,862 1,005 ------- ------- Total current liabilities 123,324 31,892 ------- ------- Amounts due to affiliates 76,911 15,097 Accumulated postretirement benefit obligation 61,037 67,378 AMFAC/JMB HAWAII, INC. Consolidated Balance Sheets - Continued December 31, 1995 and 1994 (Dollars in Thousands) 1995 1994 Long-term debt 26,765 95,556 Other long-term liabilities 34,366 45,077 Deferred income taxes 98,691 98,817 Certificate of Land Appreciation Notes 220,692 384,737 -------- -------- Total liabilities 641,786 738,554 -------- -------- Commitments and contingencies (notes 3, 4, 5, 6, 7, 8, 9, and 11) S t o c k h o l d e r ' s E q u i t y ( D e f i c i t ) Common stock, no par value Authorized, issued and outstanding 1,000 shares 1 1 Additional paid-in capital 11,495 14,384 Retained earnings (deficit) (125,684) (138,392) -------- -------- Total stockholder's equity (deficit) (114,188) (124,007) -------- -------- $527,598 614,547 ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
AMFAC/JMB HAWAII, INC. Consolidated Statements of Operations Years ended December 31, 1995, 1994 and 1993 (Dollars in Thousands)
1995 1994 1993 Revenues: Agriculture $47,656 89,237 84,208 Property 52,663 66,749 55,184 ------- ------- -------- 100,319 155,986 139,392 ------- ------- -------- Cost of sales: Agriculture 53,430 86,181 76,742 Property 30,853 38,531 29,653 ------- ------- -------- 84,283 124,712 106,395 Operating expenses: Reduction to carrying value of investments in real estate -- 5,000 -- Selling, general and administrative 11,666 13,817 13,720 Depreciation and amortization 6,723 7,216 5,807 ------- ------- -------- Total costs and expenses 102,672 150,745 125,922 ------- ------- -------- Operating income (loss) (2,353) 5,241 13,470 ------- ------- -------- Non-operating income (expenses): Gain on sale of investment -- -- 16,625 Amortization of deferred costs (1,557) (2,086) (2,110) Interest income 1,288 1,977 1,070 Interest expense (25,233) (25,929) (23,520) ------- ------- -------- (25,502) (26,038) (7,935) Income (loss) before taxes and extraordinary item (27,855) (20,797) 5,535 Income tax (benefit) expense (8,019) (7,764) 6,044 ------- -------- ------- Loss before extraordinary item (19,836) (13,033) (509) Extraordinary gain from extinquishment of debt (less applicable income taxes of $20,807) 32,544 -- -- ------- -------- -------- Net income (loss) $12,708 (13,033) (509) ======== ======== ======== The accompanying notes are an integral part of the consolidated financial statements
AMFAC/JMB HAWAII, INC. Consolidated Statements of Stockholder's Equity (Deficit) Years ended December 31, 1995, 1994 and 1993 (Dollars in Thousands)
Total Stock- Retained holder's Common Paid-In Earnings Equity Stock Capital (Deficit) (Deficit) Balance, December 31, 1992 $ 1 (12,246) (124,850) (137,095) Net loss -- -- (509) (509) Capital contribution - current income taxes (note 12) -- 1,876 -- 1,876 ------- -------- -------- --------- Balance, December 31, 1993 1 (10,370) (125,359) (135,728) Net loss -- -- (13,033) (13,033) Capital contribution - current income taxes (note 12) -- 24,754 -- 24,754 ------- -------- -------- --------- Balance, December 31, 1994 1 14,384 (138,392) (124,007) Net income -- -- 12,708 12,708 Capital contribution - current income taxes (note 12) -- (2,889) -- (2,889) ------- -------- --------- -------- Balance, December 31, 1995 $ 1 11,495 (125,684) (114,188) ======= ======== ========= ======== The accompanying notes are an integral part of the consolidated financial statements.
AMFAC/JMB HAWAII, INC. Consolidated Statements of Cash Flows Years ended December 31, 1995, 1994 and 1993 (Dollars in Thousands)
1995 1994 1993 -------- -------- ------- Cash flows from operating activities: Net income (loss) $12,708 (13,033) (509) Items not requiring (providing) cash: Depreciation and amortization 6,723 7,216 5,807 Amortization of deferred costs 1,557 2,086 2,110 Equity in earnings of investments 69 69 59 Income tax expense (benefit) 12,788 (7,764) 6,044 Extraordinary gain from extinguishment of debt(53,351) -- -- Reduction to carrying value of investments in real estate -- 5,000 -- Gain on sale of investment in C&H -- -- (16,625) Changes in: Receivables - net 6,223 29 909 Inventories 12,364 33,437 3,583 Prepaid expenses 1,277 1,453 275 Accounts payable (1,320) (4,093) (2,512) Accrued expenses (2,104) (1,116) (433) Amounts due to affiliates 12,751 922 (1,806) Other long-term liabilities (7,006) (2,258) (18,715) ------- ------- -------- Net cash provided by (used in) operating activities 2,679 21,948 (21,813) ------- ------- -------- Cash flows from investing activities: Property additions (5,145) (6,763) (11,222) Property sales, disposals and retirements - net` 4,478 129 80 Investments in joint ventures and partnerships (103) (174) (147) Short-term investments 31,998 (31,998) -- Other assets (1,927) (1,442) (2,824) Other long-term liabilities (4,945) 1,413 7,515 Proceeds from the sale of C&H -- -- 35,680 ------- ------- ------- Net cash provided by (used in) investing activities 24,356 (38,835) 29,082 ------- ------- ------- Cash flows from financing activities: Deferred expenses 29 (394) (1,238) Payment to redeem and purchase Certificate of AMFAC/JMB HAWAII, INC. Consolidated Statements of Cash Flows - Continued Years ended December 31, 1995, 1994 and 1993 (Dollars in Thousands) 1995 1994 1993 ------- ------- ------- Land Appreciation Notes (COLAS) (105,452) -- -- Net borrowings (repayments) under bank line-of-credit agreement -- (8,000) 8,000 Net amounts due to affiliates 61,814 -- (13,001) Net (repayments) proceeds of long-term debt (2,489) 5,103 25,881 Other costs related to extinguishment of debt (894) -- -- ------- ------- -------- Net cash provided by (used in) financing activities activities (46,992) (3,291) 19,642 ------- ------- ------- Net increase (decrease) in cash and cash equivalents (19,957) (20,178) 26,911 Cash and cash equivalents, beginning of year 31,702 51,880 24,969 ------- ------- ------- Cash and cash equivalents, end of year $ 11,745 31,702 51,880 ======= ======= ======= Supplemental disclosure of cash flow information: Cash paid for interest(net of amount capitalized)$24,347 25,898 23,297 ======= ======= ======= 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 9,240 9,531 32,914 ======= ======= ======= Disposition of debt: Gain on extinguishment of debt $53,351 -- -- Face value of debt extinguished (164,045) -- -- Other costs related to debt extinguishement 894 -- -- Write-off of Contingent Base Interest (5,667) -- -- Write-off of deferred COLA costs 10,015 -- -- -------- ------- ------- Cash paid to redeem and purchase COLAS $(105,452) -- -- ========= ======= ======= The accompanying notes are an integral part of the consolidated financial statements.
AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements December 31, 1995, 1994 and 1993 (Dollars in Thousands) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BASIS OF ACCOUNTING On November 17, 1988, the stockholders of Amfac, Inc. ("Amfac") agreed to the merger ("Merger") of Amfac with an affiliate of JMB Realty Corporation ("JMB"). The Merger was consummated on November 18, 1988. Amfac/JMB Hawaii, Inc. ("the Company"), was wholly-owned by Amfac, a subsidiary of Northbrook Corporation ("Northbrook"). In May 1995, Amfac merged into Northbrook, with Northbrook being the surviving corporation. The Company, or its subsidiaries hold title to substantially all of the agricultural and developmental real property and related assets of its parent corporation, Northbrook, located in Hawaii. The Company is wholly-owned by Northbrook, and is an affiliate of JMB as a result of the Merger and the subsequent merger of a subsidiary of an affiliate of JMB into Amfac Hawaii, Inc., which (after changing its name to Amfac/JMB Hawaii, Inc.) continues as the surviving corporation. On December 5, 1988, the Company commenced a public offering of Certificate of Land Appreciation Notes due 2008 ("COLAS") of which a total of 384,737 COLAS were subscribed for and issued. The offering terminated on August 31, 1989. The Company has two primary business segments. The agriculture segment ("Agriculture") is responsible for the Company's activities related to the cultivation and processing of sugar cane and other agricultural products. The real estate segment ("Property") is responsible for land development activities related to the Company's owned land in the State of Hawaii. 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 $3,700 and $25,427 at December 31, 1995 and 1994, respectively) as cash equivalents which approximates market. These amounts include $1,623 and $2,139 at December 31, 1995 and 1994, respectively, which were restricted primarily to fund debt service on long-term debt related to the acquisition of power generation equipment (see note 6). SHORT-TERM INVESTMENTS Statement of Financial Accounting Standards No. 115 ("SFAS No. 115"), "Accounting for Certain Investments in Debt and Equity Securities", requires that certain debt and equity securities that are bought and held principally for the purpose of selling in the near term as well as debt securities that are not held with the positive intent and ability to hold to maturity to be reported at fair value. The Company held approximately $0 and $9,818 in AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) corporate debt securities and approximately $0 and $22,180 in U.S. Government Agency obligations as of December 31, 1995 and December 31, 1994, respectively. Due to the relative short- term nature of the Company's investments and its policy of generally holding such securities to maturity, the Company considers its investments in such securities, which are recorded at cost, to approximate fair value. 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. The Company believes the carrying value of its long-term debt (notes 4 and 6) approximates fair value. 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 consummated on June 1, 1995. Since such expiration, the secondary market for COLAS has been extremely thin. 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 $.281 per Class B COLA and from approximately $.490 to $.540 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, 1995 in the accompanying consolidated financial statements), the implied SFAS No. 107 value of the COLAS would range from approximately $109,000 - $121,000. 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, 1995 at this value. Reference is made to Note 5 for results of the Redemption and Tender Offer. 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 AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) December 31, 1995 and 1994 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. Prior to the 1993 sale of the California and Hawaii Sugar Company ("C&H"), revenue and related costs have been recognized upon the ultimate sale of refined sugar by C&H. After the sale of C&H, the Company recognizes revenue and related cost of sales upon delivery of its raw sugar to C&H (see Note 3). While raw sugar prices in the U.S. are currently maintained above the world sugar prices as a result of price supports, there can be no assurance that in the future such prices will be maintained at the current level. As of the date of this report, the U.S. Senate and the U.S. House of Representatives have approved a new Farm Bill, which includes a sugar program similar in nature to the program provided by the previous Farm Bill. Both versions of this legislation provide for a loan rate of 18 cents per pound, the same level as today. However, the legislation includes certain other adjustments to the sugar program, including making crop loans recourse to the producer and repealing marketing allotments, which may over time depress the domestic price of raw sugar. House and Senate members still must meet to reconcile certain differences. The Company is hopeful that final legislation (approved by both Houses of Congress and the President) will include support for the domestic sugar industry on a comparable basis with the previous legislation. However, at this stage there can be no assurance that the government loan rate will not be reduced or be eliminated entirely. Such a reduction or elimination of the loan rate could have a material adverse effect on the Company's agricultural 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. These futures contracts and options are accounted for as hedges and, accordingly, gains and losses are deferred and recognized in cost of sales as part of the production cost. INVESTMENTS 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 AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) 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. No material amounts have been capitalized for the years ended 1995 and 1994. Interest costs of approximately $2,643 have been capitalized for the year ended 1993. 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. The Company adopted SFAS No. 121 in the fourth quarter effective January 1, 1995, with no effect on the accompanying financial statements. 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, 1995, 1994 and 1993. 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. AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) 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 that indemnifies the Company and its subsidiaries for responsibility for all past, present and future federal and state income tax liabilities (other than income taxes which are directly attributable to cancellation of indebtedness income caused by the repurchase or redemption of securities as provided for in or contemplated by the Repurchase Agreement). Current and deferred taxes have been allocated to the Company as if the Company were a separate taxpayer in accordance with the provision of SFAS No. 109-Accounting for Income Taxes. However, to the extent the tax indemnification agreement does not require the Company to actually pay income taxes, current taxes payable or receivable have been reflected as deemed contributions or distributions to additional paid-in capital 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. AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) (2) ASSETS AND LIABILITIES INFORMATION 1995 1994 ------ -------- Receivables - net: Trade accts and notes (net of allowance) 2,252 1,898 Sugar and molasses 3,877 5,633 Insurance claims, net 1,440 5,512 Other 1,151 1,900 ------- ------- $ 8,720 14,943 ======= ======= Accrued expenses: Payroll and benefits $2,592 3,361 Interest 7,929 7,043 Other 2,747 4,968 ------- ------- $13,268 15,372 ======= ======= (3) INVESTMENTS The Company's investments at December 31, 1995 and 1994 consist of the following: Carrying Value --------------- Ownership Description Percentage 1995 1994 - - ----------- ----------- ------ ------ Sugar Cooperatives 26.0% $ 40 40 North Beach Joint Venture 50.0% 45,040 45,006 ------- ------- $45,080 45,046 ======= ======= In June 1993, the Company's sugar plantation subsidiaries, along with the other Hawaii sugar growers who owned interests in the California and Hawaii Sugar Company ("C&H"), consummated the sale of their investment in C&H, which included their interests in C&H's refinery in Crockett, California and in certain other C&H assets, to another large Hawaii sugar grower. The Company's subsidiaries received gross proceeds of approximately $35,700 and recognized a gain of approximately $16,625 on the aforementioned sale of its 35% equity interest in C&H. AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) 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 new marketing agreement. HSTC sells the raw sugar production to C&H (under its new ownership) pursuant to a new long-term supply contract executed in conjunction with this transaction. 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 percent 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. Prior to the sale of the Company's interest in C&H, revenue and related costs were recognized upon the ultimate sale of refined sugar by 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. In accordance with the COLA Indenture, appraisals were performed for certain properties of the Company in 1994, which reflected a decline in value of the North Beach property. Accordingly, the Company recorded, as a matter of prudent accounting practice, a $3,500 reduction to the carrying value of its investment in the North Beach Joint Venture in 1994 to properly reflect the estimated market value of the property in its then current state of development. This reduction was attributed to the weakness in the market for the development and sale of resort-oriented real estate due to overall economic conditions and trends in tourism. The following is the condensed, combined financial statement information (unaudited) of HSTC and the North Beach joint venture: 1995 1994 --------------- ----------------- North Beach North Beach Joint Venture HSTC Joint Venture HSTC Current assets $ 210 30,819 131 21,878 Noncurrent assets 40,122 3,797 40,122 5,688 Current liabilities (205) (30,307) (144) (20,457) Noncurrent liabilities -- (4,200) -- (7,000) -------- ------- ------- -------- Equity $ 40,127 109 40,109 109 ======== ======= ======== ======== 1995 1994 1993 ------ ----- ------ Revenue $202,954 312,526 154,680 Cost and expenses 20,513 28,472 20,685 -------- -------- -------- Net income $182,441 284,054 133,995 ======== ======== ======== AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) (4) AMOUNTS DUE AFFILIATES - FINANCING The maturity date of the approximately $15,097 of remaining acquisition-related financing owed to affiliates has been extended to June 1, 1997 and bears interest at a rate per annum based upon the prime interest rate (8.5% at December 31, 1995), plus one percent. On July 30, 1993, using a portion of the proceeds from the sale of its interests in C&H, the Company paid down approximately $13,000 on the acquisition- related financing. On June 1, 1995, the Company borrowed $52,000 from Northbrook to redeem Class A COLAS pursuant to the Redemption Offer (see note 5). The Company has also borrowed approximately $9,814 as of December 31, 1995, consisting of approximately $4,400 for the August 1995 COLA Base Interest payment and approximately $5,414 for working capital needs. The loans from Northbrook are payable interest only, mature on June 1, 1997 and carry 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 considered "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 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 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). 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 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 incurred in connection with its operations), plus 55% of the remaining Maturity Market Value. On March 14, 1989, Amfac/JMB Finance ("Finance"), a wholly- owned subsidiary of Northbrook, and the Company entered into an agreement (the "Repurchase Agreement") concerning Finance's obligations to repurchase, on June 1, 1995 and 1999, the COLAS upon request of the holders thereof. The COLAS were issued in two units consisting of one Class A and one Class B COLA. As specified in the Repurchase Agreement, the repurchase of the Class A COLAS may have been requested by the holders of such COLAS on June 1, 1995 at a price equal to the original principal amount of such COLAS ($.5) minus all payments of principal and interest allocated to such COLAS. The cumulative interest paid per Class A COLA through June 1, 1995 was $.135. The repurchase of the Class B COLAS may be requested of Finance by the holders of such COLAS on June 1, 1999 at a price equal to 125% of the original principal amount of such COLAS ($.5) minus all payments of principal and interest allocated to such COLAS. Through the date of this report, the cumulative interest paid per Class A and Class B COLA is approximately $.145 and $.145, respectively. On March 14, 1989, Northbrook entered into a keep-well agreement with Finance, whereby it agreed to contribute sufficient capital or make loans to Finance to enable Finance to meet its COLA repurchase obligations described above. Notwithstanding Finance's repurchase obligations, the Company may elect to redeem any COLAS requested to be repurchased at the specified price. On March 15, 1995, pursuant to the indenture that governs the terms of the COLAS (the "Indenture"), the Company elected to offer to redeem (the "Redemption Offer") all Class A COLAS from the registered holders, thereby eliminating Finance's obligation to satisfy the Class A COLA repurchase options requested by such holders as of June 1, 1995. Pursuant to the Redemption Offer, and in accordance with the terms of the Indenture, the Company was therefore obligated to purchase any and all Class A COLAS submitted pursuant to the Redemption Offer at a price of $.365 per Class A COLA. In conjunction with the Company's Redemption Offer, the Company made a tender offer (the "Tender Offer") to purchase up to approximately $68,000 principal value of the Class B COLAS at a price of $.220 per Class B COLA from COLA holders electing to have their Class A COLAS repurchased. The two offers to repurchase the COLAS terminated on April 17, 1995 in accordance with their terms and with the Indenture. 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 a result of the 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 is treated as cancellation of indebtedness income for tax purposes and, accordingly, the income taxes related to the Class A Redemption Offer (approximately $9,106) will not be indemnified by the tax agreement with Northbrook (see note 1). The terms of the Indenture relating to the COLAS place certain restrictions on the Company's declaration and payment of dividends. Such restrictions generally relate to the source, timing and amounts 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"). An initial funding of $60,000 was received in June 1991. The remaining balance of $6,000 was added to the principal balance on July 1, 1992 in payment of the first year of accrued interest on the loan. The non-recourse loan is secured by a first mortgage on the Kaanapali Golf Courses, and is considered "Senior Indebtedness" (as defined in the Indenture relating to the COLAS). The loan bears 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 subsequent year (9% at July 1, 1995) plus one percent or (ii) ten percent per annum through June 30, 1993 and nine percent per annum thereafter. The loan is payable interest only on a quarterly basis. The annual interest payments are in excess of the cash flow generated by the Kaanapali Golf Courses and the Company ceased making required debt service payments in April 1995. The Company has been working with the ERS to renegotiate the terms of the loan including a possible extension of the June 1996 maturity date. The principal balance has been included in the current portion of long-term debt as of December 31, 1995 in the accompanying consolidated financial statements. In conjunction with the Company's renegotiations, the Company made an interest payment of $1,650 in August 1995. The Company has not made all interest payments required under the current loan terms resulting in unpaid interest at December 31, 1995 of $4,620. Although the Company expects to successfully conclude the loan renegotiation, there can be no assurance that new terms will be consummated, or consummated on terms favorable to the Company. 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 $10,000 and $3,250 loans have outstanding balances of $7,500 and $1,079, respectively, as of December 31, 1995 and bear interest at a rate equal to prime rate (8.5% at December 31, 1995) plus three and one half percent and prime rate plus four and one-half percent, respectively. Lihue has purchased an interest rate agreement which protects against fluctuations in interest rates and effectively caps the AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) prime rate for the first seven years of the loan agreement at eight percent. 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 consists of two $10,000 amortizing loans. Each loan bears 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 bear interest at prime plus 1/2% and LIBOR (5.7% at December 31, 1995) plus 3%, respectively. WGCI received an initial funding of $14,000, of which $600 was held back by the lenders to pay interest. In October 1994, in accordance with the loan agreement, the Company received an additional funding of $6,000 and a release of the $600 interest holdback, both of which were contingent upon achieving a certain level of Net Operating Income (as defined) by the golf course during the first six months of 1994. The loan is secured by WGCI's assets (the golf course and related improvements and equipment), is guaranteed by the Company, and is considered "Senior Indebtedness" (as defined in the Indenture relating to the COLAS). As of December 31, 1995, the outstanding balance was $19,916, with scheduled annual principal maturities of $405 in 1996 and 1997 and the balance of $19,106 in 1998. (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: 1995 1994 1993 ------ ----- ------- Minimum and fixed rents $2,789 3,956 3,953 Contingent payments 1,261 2,476 1,502 Property taxes, insurance and other charges 445 669 409 ------- ------ ------ $4,495 7,101 5,864 ========= ======== ======= Future minimum lease payments under noncancelable operating leases aggregate approximately $11,546 and are due as follows: 1996, $1,588; 1997, $1,559; 1998, $1,465; 1999, $1,397; 2000, $1,181; and thereafter, $4,356. AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) (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 $961, $1,000 and $1,200 for the years ended December 31, 1995, 1994 and 1993, 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. AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) Net periodic postretirement benefit cost for 1995, 1994 and 1993 includes the following components: December 31, December 31, December 31, 1995 1994 1993 ---------------- --------------- -------------- Life Life Life Medical Ins. Medical Ins. Medical Ins. Plans Plans Total Plans Plans Total Plans Plan Total Service cost $ 378 15 393 483 17 500 754 18 772 Interest cost 1,991 296 2,287 3,428 292 3,720 4,891 298 5,189 Amortization of net(gain)loss (3,310) 24 (3,286)(1,290) 35 (1,255) -- -- -- ----- ------ ------ ------ ---- ------ ----- ----- ---- Net periodic postretirement benefit cost (credit) $(941) 335 (606) 2,621 344 2,965 5,645 316 5,961 ===== ====== ===== ====== ====== ===== ====== ===== ===== The following table sets forth the plans' combined funded status reconciled with the amounts included in the Company's consolidated financial statements at December 31, 1995 and 1994: December 31, December 31, 1995 1994 ---------------- --------------- Life Life Medical Ins. Medical Ins. Plans Plan Total Plans Plan Total Accumulated postretirement benefit obligaion: Retirees $16,048 3,915 19,963 29,092 3,921 33,013 Fully eligible active plan members 310 29 339 1,213 46 1,259 Other active plan members 6,928 153 7,081 7,761 214 7,975 ------ ------ ------ ------ ------ ----- 23,286 4,097 27,383 38,066 4,181 42,247 Unrecognized net gain (loss) 33,958 (304) 33,654 25,376 (245) 25,131 ------ ------ ------ ------ ------ ---- Accrued postretirement benefit cost 57,244 3,793 61,037 63,442 3,936 67,378 ====== ====== ====== ====== ===== ====== AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) For measuring the expected postretirement benefit obligation, an 11% annual rate of increase in the per capita claims cost was assumed for 1996 through 2002. 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 in the assumed healthcare trend rate by 1% in each year would increase the medical plans' accumulated postretirement benefit obligation as of December 31, 1995 by 9% and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by 8%. During 1995, premiums for health benefits for retirees were adjusted to match actual claims experience. This adjustment resulted in a reduction to the cost absorbed by the Company due to the cost sharing provisions of the health care benefit plan. This adjustment also resulted in the reduction of the accumulated postretirement benefit obligation as of December 31, 1995. 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, 1995, 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, 1995, 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 as of December 31, 1995 and 1994 was 7.5% and 7.5%, respectively. (9) TRANSACTIONS WITH AFFILIATES The Company incurred interest expense of approximately $5,360, $1,267 and $1,605 for the years ended December 31, 1995, 1994 and 1993, respectively, in connection with the financing obtained from an affiliate (see note 4), of which $4,865 was unpaid as of December 31, 1995. With respect to any calendar year, JMB or its affiliates are entitled to, with respect to any calendar year, 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)). However, such amounts shall be paid for each year only following the payment of a specified level of Base Interest to the holders of the COLAS. Any portion of the Qualified Allowance not paid for any year shall accumulate without interest. A Qualified Allowance for 1989 of approximately $6,200 was paid AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) on February 28, 1990. Any Qualified Allowance for 1990 through 1995 has been deferred and is payable only to the extent future Net Cash Flows are sufficient to pay the holders of the COLAS a specified level of return, and accordingly, no such amounts have been reflected in the accompanying consolidated financial statements. 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, 1995, 1994 and 1993 was approximately $587, $500 and $3,160, respectively, of which $587 was unpaid as of December 31, 1995. In addition, as of December 31, 1995, 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, 1995. JMB Insurance Agency, Inc. earns insurance brokerage commissions in connection with providing the placement of insurance coverage for certain of the properties and operations of the Company. Such commissions are comparable to those available to the Company in similar dealings with unaffiliated third parties. The total of such commissions in 1995 was approximately $653, all of which was paid as of December 31, 1995. Northbrook and its affiliates allocate certain charges for services to the Company based upon the estimated level of services, of which $8,253 was unpaid as of December 31, 1995. 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. (10) SIGNIFICANT CUSTOMER During 1994 and 1993, approximately 24% and 17%, respectively, of the Company's revenues were derived from the sale of land parcels at Waikele to a single builder. 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. AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) The Company's property segment had contractual commitments (related to project costs) of approximately $2,800 as of December 31, 1995. 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, 1995, certain portions of the Company's land not currently under development or used in sugar operations are mortgaged as security for $1,128 of performance bonds related to property development. (12) INCOME TAXES Total income tax expense (benefit) for the years ended December 31, 1995, 1994 and 1993 was allocated as follows: 1995 1994 1993 ------- ------- -------- Income (loss) before extraordinary gain $(8,019) (7,764) 6,044 Extraordinary gain 20,807 -- -- ------- ------- ------ $12,788 (7,764) 6,044 ======= ======= ====== Income tax expense (benefit) attributable to income (loss) before extraordinary gain for the years ended December 31, 1995, 1994 and 1993 consists of: Current Deferred Total -------- --------- ------- Year ended December 31, 1995: U.S. federal $(10,475) 3,689 (6,786) State (1,904) 671 (1,233) -------- ----- ------ (12,379) 4,360 (8,019) ======= ======= ======= Year ended December 31, 1994: U.S. federal $ 20,946 (27,515) (6,569) State 3,808 (5,003) (1,195) ------- -------- -------- $24,754 (32,518) (7,764) ======= ======== ======== Year ended December 31, 1993: U.S. federal $ 1,587 4,059 5,646 State 289 109 398 -------- -------- -------- $ 1,876 4,168 6,044 ======= ======= ======== AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) Income tax expense related to the COLA redemption approximated $20,807. Of this amount, approximately $9,106 is attributable to current taxes related to the redeemed Class A COLA's and, accordingly, will not be indemnified by Northbrook (see note 9). Current income tax expense attributable to the Class B COLA's of approximately $9,490 is indemnified by Northbrook and, accordingly, is 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 expense (benefit) attributable to income (loss) before extraordinary gain differs from the amounts computed by applying the U.S. federal income tax rate of 35 percent to pretax income (loss) before extraordinary gain as a result of the following: 1995 1994 1993 ------ ------ ------ Computed "expected" tax expense (benefit) $(9,749) (7,279) 1,937 Increase (reduction) in income taxes resulting from: Pension and Core Retirement Award expense 2,478 365 452 State income taxes, net of federal income tax benefit (823) (796) 265 Adjustment to deferred tax assets and liabilities for enacted changes in tax laws and rates -- -- 3,457 Other, net 75 (54) (67) ------- ------- ------- Total $(8,019) (7,764) 6,044 ======== ======= ======= AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) 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, 1995 and 1994 are as follows: 1995 1994 Deferred tax (assets): Postretirement benefits $(23,804) (28,461) Interest accruals (3,149) (5,345) Other accruals (3,074) (4,513) -------- -------- Total deferred tax assets (30,027) (38,319) -------- -------- Deferred tax liabilities: Accounts receivable related to profit on sales of sugar 3,332 2,255 Inventories, principally due to sugar production costs, capitalized costs, captitalized interest and purchase accounting adjustments 4,716 1,962 Plant and equipment, principally due to depreciation and purchase accounting adj. 7,696 6,146 Land and land improvements, principally due to purchase accounting adjustments 101,204 105,926 Deferred gains due to installment sales for income tax purposes 8,492 10,079 Investments in unconsolidated entities, principally due to purchase acct'g adjs. 14,180 14,973 ------- ------- Total deferred tax liabilities 139,620 141,341 ------- ------- Net deferred tax liability $109,593 103,022 ========= ======== AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Concluded (Dollars in Thousands) (13) SEGMENT INFORMATION Agriculture and Property 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 1995, 1994 and 1993 are set forth below: 1995 1994 1993 Revenues: Agriculture $ 47,656 89,237 84,208 Property 52,663 66,749 55,184 -------- -------- -------- $ 100,319 155,986 139,392 ======== ======== ======== Operating income (loss): Property $ 11,122 12,934 18,947 Agriculture (10,882) (3,893) 1,119 Other (2,593) (3,800) (6,596) -------- -------- -------- $ (2,353) 5,241 13,470 ======== ======== ======== Total assets: Property $199,999 207,980 233,993 Agriculture 304,170 321,906 333,600 Other 23,429 84,661 77,118 -------- -------- -------- $527,598 614,547 644,711 ======== ======== ======== Capital expenditures: Property $ 1,529 2,872 1,957 Agriculture 3,616 3,891 9,265 Other -- -- -- ------- -------- -------- $ 5,145 6,763 11,222 ======= ======== ======== Depreciation and amortization: Property $ 1,991 2,128 1,185 Agriculture 4,538 4,889 4,287 Other 194 199 335 ------- ------- -------- $ 6,723 7,216 5,807 ======= ======= ======== (14) SUBSEQUENT EVENT On February 29, 1996, an interest payment of approximately $4,414 was paid to the holders of COLAS. The Company borrowed approximately $4,414 from Northbrook to make the interest payment. Schedule II AMFAC/JMB HAWAII, INC. Valuation and Qualifying Accounts Years ended December 31, 1995, 1994 and 1993 (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, 1995: Allowance for doubtful accounts: Trade accounts $ 285 102 -- 26 361 Claims and other 1,144 -- -- 1,144 -- ------ ------ ------ ------ ------ $1,429 102 -- 1,170 361 ====== ====== ====== ====== ======= Year ended December 31, 1994: Allowance for doubtful accounts: Trade accounts $ 235 89 -- 39 285 Claims and other 1,144 -- -- -- 1,144 ------ ------ ------ ------- ------- $1,379 89 -- 39 1,429 ====== ====== ====== ======= ======= Year ended December 31, 1993: Allowance for doubtful accounts: Trade accounts $ 224 16 -- 5 235 Claims and other -- -- 1,144 -- 1,144 ------- ------ ------ ------ ------- $ 224 16 1,144 5 1,379 ======= ====== ====== ====== ======
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, 1995 and 1994. 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, 1995 and 1994, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Honolulu, Hawaii March 18, 1996 AMFAC/JMB FINANCE, INC. Balance Sheets December 31, 1995 and 1994 (Dollars in thousands, except per share information) A S S E T S
1995 1994 ------ ------ Current assets: Cash $ 1 1 Receivable from an affiliate (Note 2) -- 140,425 ------- -------- $ 1 140,426 ======= ======== 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 Current liabilities: Repurchase obligations (Note 3) $ -- 140,425 Common stock, $1 par value; authorized, issued and outstanding - 1,000 shares 1 1 ------- ------- $ 1 140,426 ======= ======= The accompanying notes are an integral part of these balance sheets.
AMFAC/JMB FINANCE, INC. Notes to the Balance Sheets December 31, 1995 and 1994 (Dollars in Thousands) (1) ORGANIZATION AND ACCOUNTING POLICY Amfac/JMB Finance, Inc. ("Finance") was incorporated November 7, 1988 in the State of Illinois. Finance has had no financial operations. All of the outstanding shares of Finance are owned by Northbrook Corporation ("Northbrook"). (2) RECEIVABLE FROM AN AFFILIATE On March 14, 1989, Northbrook entered into a keep-well agreement with Finance, whereby it agreed to contribute sufficient capital to Finance to enable Finance to meet the COLA repurchase obligations described below in Note 3. Pursuant to Northbrook's obligation to Finance under the keep- well agreement, Finance has recorded a receivable equal to the maximum amount of its liability from the COLA repurchase obligations of approximately $140,425 and accordingly, had classified such amount as a current asset on its financial statements. On March 15, 1995, pursuant to the indenture that governs the terms of the COLAS (the "Indenture"), Amfac/JMB Hawaii, Inc. 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. Pursuant to Amfac/JMB Hawaii, Inc.'s election to redeem the Class A COLAS for repurchase, Amfac/JMB Hawaii, Inc. assumed Finance's maximum amount of its liability from the COLA repurchase obligations of $140,425 and accordingly, Finance removed the receivable and liability from its financial statements. (3) REPURCHASE OBLIGATIONS On March 14, 1989, Finance and a subsidiary of Northbrook (Amfac/JMB Hawaii, Inc.) entered into an agreement (the "Repurchase Agreement") concerning Finance's obligation (on June 1, 1995 and 1999) to repurchase, upon request of the holders thereof, the Certificate of Land Appreciation Notes due 2008 ("COLAS"), to be issued by Amfac/JMB Hawaii, Inc. in conjunction with the acquisition of Amfac/JMB Hawaii, Inc.. A total aggregate principal amount of $384,737 of COLAS were issued during the offering, which terminated on August 31, 1989. The COLAS were issued in two units consisting of one Class A and one Class B COLA. As specified in the Repurchase Agreement, the repurchase of the Class A COLAS may have been requested of Finance by the holders of such COLAS on June 1, 1995 at a price equal to the original principal amount of such COLAS ($.500) minus all payments of principal and interest allocated to such COLAS. The cumulative interest paid per Class A COLA through June 1, 1995 was $.135. The repurchase of the Class B COLAS may be requested of Finance by the holders of such COLAS on June 1, 1999 at a price equal to 125% of the original principal amount of such COLAS ($.500) minus all payments of principal and interest allocated to such COLAS. To date, the cumulative interest paid per Class B COLA is approximately $.145. 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 1995 and 1994. PART III Item 10. Directors and Executive Officers of the Registrant As of December 31, 1995, 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 Edward G. Karl President,Chief Executive Officer and Director Gary Grottke Executive Vice President, Chief Operating Officer and Director Chris J. Kanazawa Senior Vice President and Director Peggy H. Sugimoto Senior Vice President and Chief Financial Officer Bert L. Hatton Vice President P. Eric Hohmann Vice President Timothy E.Johns Vice President Teney K. Takahashi Vice President 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 1996 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 58) is 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 58) is 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. Edward G. Karl (age 40) is President and Chief Executive Officer since January 1994. He was previously an officer of JMB and various partnerships related to JMB. Prior to joining JMB in 1984, Mr. Karl was a Manager at Peat, Marwick, Mitchell & Co. He is a Certified Public Accountant. Gary R. Grottke (age 40) is Executive Vice President and Chief Operating Officer since January 1994. 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 45) is Senior Vice President and Chief Financial Officer since 1994. Ms. Sugimoto has been associated with the Company since 1976. She is a Certified Public Accountant. Chris Kanazawa (age 43) is Senior Vice President and Director of the Company since January 1, 1994 and has served as such since January 1990. Prior to assuming this position, Mr. Kanazawa was Vice President of Amfac Property Development Corporation (1986 to 1990). He has been associated with the Registrant since September 1981. Mr. Kanazawa holds a Bachelors degree in Economics from the University of Hawaii and a Masters degree in Business Administration from the University of Southern California. Bert L. Hatton (age 44) is Vice President of Amfac/JMB Hawaii - Properties Division since January 1993. Mr. Hatton has also served in the past as the Company's Senior Vice President of Sugar Operations. He has been associated with Amfac/JMB Hawaii since July 1980. P. Eric Hohmann (age 37) is Vice President of Amfac/JMB Hawaii, Inc. - Properties Division since 1994. Mr. Hohmann served for 4 years as a Vice President of Amfac Property Development Corporation, which is a wholly-owned subsidiary of the Company. Prior to 1990, Mr. Hohmann was associated with JMB for 5 years. He holds a Masters degree in Business Administration from the UCLA Anderson Graduate School of Business. Timothy E. Johns (age 39) is Vice President of Amfac/JMB Hawaii - Properties Division since January 1994. He holds a J.D. degree from the University of Southern California Law Center and is a member of the Hawaii State Bar Association. Teney K. Takahashi (age 57) is Vice President of Amfac/JMB Hawaii - Properties since rejoining the Company in April 1995. Prior to rejoining Amfac, Mr. Takahashi served as President and Director of Princeville Corporation, and President and Director of Malama Pacific, Inc. Mr. Takahashi previously worked for Amfac from 1973 - 1988. Item 11. Executive Compensation Except for the executive officers listed on the table below, certain of the listed officers and directors of the Company 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 description was filed herewith and incorporated herein by reference. In addition, JMB and its affiliates are entitled to receive 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 description was filed herewith and is incorporated herein by reference. See Item 13 below. SUMMARY COMPENSATION TABLE Annual Compensation Other Annual Compensa- Name Principal Salary Bonus tion (1) Position Year ($) (2) ($) ($) Edward G. President, Chief Exec. 1995 75,000 N/A N/A Karl Officer and Director 1994 72,000 N/A N/A 1993 N/A N/A N/A Gary Executive Vice Pres. 1995 190,000 N/A N/A Grottke and Chief Operating 1994 187,500 N/A N/A Officer 1993 N/A N/A N/A Chris Vice President 1995 250,000 175,000 N/A Kanazawa & General Manager of 1994 250,000 75,000 N/A the Company's Oahu 1993 150,000 73,000 N/A Development Corporation P. Eric Vice President 1995 142,000 85,000 N/A Hohmann 1994 135,000 30,000 N/A 1993 N/A N/A N/A Bert L. Vice President 1995 129,000 10,000 N/A Hatton of Asset Management 1994 125,000 25,000 N/A 1993 120,000 29,000 N/A (1) Includes CEO and 4 most highly compensated executives whose salary and bonus exceed $100,000. (2) Salaries for Mr. Karl and Mr. Grottke represent the portions of their total compensation allocated and charged to the Company. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT All of the outstanding shares of the Company are owned by Northbrook. Approximately 6% of the shares of Northbrook are owned by JMB and approximately 91% are owned directly or indirectly by individuals who are shareholders or employees of JMB or members of their families (or trusts for their benefit). Randi Malkin Steinberger, Stephen Malkin and Barry Malkin, individually or through trusts which they control, each have beneficial ownership of approximately 9.8% 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 10.1% 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 slightly more than 5% 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. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Other than as set forth in Notes to Consolidated Financial Statements and Notes to Balance Sheets contained under Item 8 above, 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 27, 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 Company incurred interest expense of approximately $5.4 million, $1.3 million and $1.6 million for the years ended 1995, 1994 and 1993, respectively, in connection with the acquisition and additional financing obtained from an affiliate, of which $4.9 million was unpaid as of December 31, 1995. JMB or its affiliates are entitled to, with respect to any calendar year, a Qualified Allowance in an amount equal to: (i) approximately $6.2 million during each of the calendar years 1989 through 1993; and (ii) thereafter, 1-1/2% per annum of the Fair Market Value (as defined) of the gross assets of the Company and its subsidiaries (other than cash and cash equivalents and Excluded Assets (as defined)). However, such amount shall be paid for each year only following the payment of a specified level of Base Interest to the holders of the COLAS. Any portion of the Qualified Allowance not paid for any year shall accumulate without interest. A Qualified Allowance for 1989 of approximately $6.2 million was paid on February 28, 1990. Any Qualified Allowance for 1990 through 1995 has been deferred and is payable only to the extent future Net Cash Flows (as defined) are sufficient to pay the holders of the COLAS a specified level of return, and accordingly, no such amounts have been reflected in the accompanying consolidated financial statements. 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, 1995, 1994 and 1993 was $.6 million, $.5 million, $3.2 million, respectively, of which $.6 million was unpaid as of December 31, 1995. In addition, as of December 31, 1995, 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 $.03 million per month to JMB or its affiliates in respect of general overhead expense, all of which was paid as of December 31, 1995. JMB Insurance Agency, Inc. earns insurance brokerage commissions in connection with providing the placement of insurance coverage for certain of the properties and operations of the Company. Such commissions are comparable to those available to the Company in similar dealings with unaffiliated third parties. The total of such commissions in 1995 was approximately $.7 million, all of which was paid as of December 31, 1995. Northbrook and its affiliates allocate certain charges for services to the Company based upon the estimated level of services, of which $8.3 million was unpaid as of December 31, 1995. 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. PART IV 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 and Supplementary Data filed with this report.) (2) Exhibits 3.1* Articles of Incorporation of Amfac/JMB Hawaii, Inc. 3.2* Amended and Restated By-Laws of Amfac/JMB Hawaii, Inc. 3.3* Articles of Incorporation of Amfac/JMB Finance,Inc. 3.4* Amended and Restated By-Laws of Amfac/JMB Finance, Inc. 3.7* Articles of Incorporation of Amfac Property Development Corp. 3.8* Amended and Restated By-Laws of Amfac Property Developments Corp. 3.9* Articles of Incorporation of Amfac Property Investment Corp. 3.10* Amended and Restated By-Laws of Amfac Property Investment Corp. 3.11* Articles of Incorporation of Amfac Sugar and Agribusiness, Inc. 3.12* Amended and Restated By-Laws of Kaanapali Water Corporation 3.13* Articles of Incorporation of Kaanapali Water Corporation. 3.14* Amended and Restated By-Laws of Amfac Agribusiness, Inc. 3.15* Articles of Incorporation of Amfac Agribusiness, Inc. 3.16* Amended and Restated By-Laws of Kekaha Sugar Company, Limited. 3.17* Articles of Association of Kekaha Sugar Company, Limited. 3.18* Amended and Restated By-Laws of The Lihue Plantation Company, Limited. 3.19* Articles of Association of The Lihue Plantation Company, Limited 3.20* Amended and Restated By-Laws of Oahu Sugar Company, Limited. 3.21* Articles of Association of Oahu Sugar Company, Limited. 3.22 Amended and Restated By-Laws of Pioneer Mill Company, Limited 3.23* Articles of Association of Pioneer Mill Company, Limited. 3.24 Amended and Restated By-Laws of Puna Sugar Company, Limited. 3.25* Articles of Association of Puna Sugar Company, Limited. 3.26 Amended and Restated By-Laws of H.Hackfeld & Co., Ltd. 3.27* Articles of Association of H.Hackfeld & Co., Ltd. 3.28 Amended and Restated By-Laws of Waiahole Irrigation Company, Limited. 3.29* Articles of Incorporation of Waiahole Irrigation Company, Limited. 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). 4.2*** Amendment dated as of January 17, 1990 to the Indenture relating to the COLAS. 4.3*** $28,097,832 Promissory Note from Amfac, Inc. to Amfac/JMB Hawaii, Inc. Extended and Reissued Effective December 31, 1993. 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. 4.5***** $15,000,000 Credit Agreement dated March 31, 1993 among AMFAC/JMB Hawaii, Inc. and Continental Bank N.A. 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. 4.7 $52,000,000 Promissory Note to Northbrook Corporation from Amfac/JMB Hawaii, Inc., effective May 31, 1995 is filed herewith. 10.1* Escrow Deposit Agreement. 10.2* General Lease S-4222, dated January 1,1969, by and between the State of Hawaii and Kekaha Sugar Company, Limited. 10.3* Grove Farm Haiku Lease, dated January 25, 1974 by and between Grove Farm Company, Incorporated and The Lihue Plantation Company, Limited. 10.4* General Lease S- 4412, dated October 31, 1974, by and between the State of Hawaii and the Lihue Plantation Company, Limited. 10.5* General Lease S- 4576, dated March 15, 1978, by and between the State of Hawaii and The Lihue Plantation Company, Limited. 10.6* General Lease S-3827, dated July 8, 1964, by and between the State of Hawaii and East Kauai Water Company, Ltd. 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. 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. 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. 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. 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. 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. 10.13* Honokohau Water License, dated December 22, 1980, between Maui Pineapple Company Ltd. and Pioneer Mill Company, Limited. 10.14* Water Licensing Agreement, dated September 22, 1980, by and between Maui Land & Pineapple Company, Inc. and Amfac, Inc. 10.15* Joint Venture Agreement, dated as of March 19, 1986, by and between Amfac Property Development Corp. and Tobishima Properties of Hawaii, Inc. 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. 10.19** Keep-Well Agreement between Northbrook Corporation and Amfac/JMB Finance, Inc. 10.20** Repurchase Agreement, dated March 14, 1989, by and between Amfac/JMB Hawaii, Inc. and Amfac/JMB Finance, Inc. 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. 10.22** Amfac-Amfac Hawaii Tax Agreement, dated February 27, 1989 between Amfac, Inc. and Amfac/JMB Hawaii, Inc. 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. 19.0*******$35,700,000 agreement for sale of C&H and certain other C&H assets, to A&B Hawaii, Inc. in June of 1993. 22.1* Subsidiaries of Amfac/JMB Hawaii, Inc. 28.1** 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. 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. * 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. ** 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. *** 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. **** 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. ***** 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. ****** 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. ******* 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. (b)No Reports on Form 8-K were required or filed since the beginning of the last quarter of the period covered by this report. No annual report or proxy material for 1995 was sent to the COLA holders of the Company. An annual report will be sent to the COLA holders subsequent to this filing. 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, INC. By: Gary Smith Vice President Date: February 26, 1996 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: Edward G. Karl President, Chief Executive Officer and Director Date: February 26, 1996 By: Peggy Sugimoto Senior Vice President and Chief Financial Officer Date: February 26, 1996 By: Gary Grottke Executive Vice President, Chief Operating Officer and Director Date: February 26, 1996 By: Gary Smith Vice President and Principal Accounting Officer Date: February 26, 1996 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: Gary Smith Vice President Date: February 26, 1996 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: Edward G. Karl President and Principal Executive Officer Date: February 26, 1996 By: Steven E. Plonsker Senior Vice President Date: February 26, 1996 By: Gary Nickele Director Date: February 26, 1996 By: Gary Smith Vice President Finance and Principal Accounting Officer Date: February 26, 1996 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: Gary Smith Vice President Date: February 26, 1996 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: Chris J. Kanazawa President and Director Date: February 26, 1996 By: Gary Grottke Vice President and Director Date: February 26, 1996 By: Gary Smith Vice President and Principal Accounting Officer Date: February 26, 1996 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: Gary Smith Vice President Date: February 26, 1996 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: Chris J. Kanazawa President and Director Date: February 26, 1996 By: Gary Grottke Vice President and Director Date: February 26, 1996 By: Gary Smith Vice President and Principal Accounting Officer Date: February 26, 1996 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. WAIKEKE GOLF CLUB, INC. By: Gary Smith Vice President Date: February 26, 1996 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: Chris J. Kanazawa President and Director Date: February 26, 1996 By: Gary Grottke Vice President and Director Date: February 26, 1996 By: Gary Smith Vice President and Principal Accounting Officer Date: February 26, 1996 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 SUGAR AND AGRIBUSINESS,INC. By: Gary Smith Vice President Date: February 26, 1996 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: Robert B. Heiserman, Jr. President Date: February 26, 1996 By: Gary Grottke Vice President and Director Date: February 26, 1996 By: Gary Nickele Director Date: February 26, 1996 By: Gary Smith Vice President and Principal Accounting Officer Date: February 26, 1996 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: Gary Smith Vice President Date: February 26, 1996 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: Chris J. Kanazawa President and Director Date: February 26, 1996 By: Gary Grottke Vice President and Director Date: February 26, 1996 By: Gary Smith Vice President and Principal Accounting Officer Date: February 26, 1996 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 AGRIBUSINESS, INC. By: Gary Smith Vice President Date: February 26, 1996 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: Robert B. Heiserman, Jr. President Date: February 26, 1996 By: Gary Grottke Vice President and Director Date: February 26, 1996 By: Gary Nickele Director Date: February 26, 1996 By: Gary Smith Vice President and Principal Accounting Officer Date: February 26, 1996 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: Gary Smith Vice President Date: February 26, 1996 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: Robert B. Heiserman, Jr. President Date: February 26, 1996 By: Gary Grottke Vice President and Director Date: February 26, 1996 By: Gary Nickele Director Date: February 26, 1996 By: Gary Smith Vice President and Principal Accounting Officer Date: February 26, 1996 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: Gary Smith Vice President Date: February 26, 1996 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: Robert B. Heiserman, Jr. President Date: February 26, 1996 By: Gary Grottke Vice President and Director Date: February 26, 1996 By: Gary Nickele Director Date: February 26, 1996 By: Gary Smith Vice President and Principal Accounting Officer Date: February 26, 1996 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: Gary Smith Vice President Date: February 26, 1996 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: Robert B. Heiserman, Jr. President Date: February 26, 1996 By: Gary Grottke Vice President and Director Date: February 26, 1996 By: Gary Nickele Director Date: February 26, 1996 By: Gary Smith Vice President and Principal Accounting Officer Date: February 26, 1996 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: Gary Smith Vice President Date: February 26, 1996 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: Robert B. Heiserman, Jr. President Date: February 26, 1996 By: Gary Grottke Vice President and Director Date: February 26, 1996 By: Gary Nickele Director Date: February 26, 1996 By: Gary Smith Vice President and Principal Accounting Officer Date: February 26, 1996 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: Gary Smith Vice President Date: February 26, 1996 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: Robert B. Heiserman, Jr. President Date: February 26, 1996 By: Gary Grottke Vice President and Director Date: February 26, 1996 By: Gary Nickele Director Date: February 26, 1996 By: Gary Smith Vice President and Principal Accounting Officer Date: February 26, 1996 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: Gary Smith Vice President Date: February 26, 1996 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: Robert B. Heiserman, Jr. President Date: February 26, 1996 By: Gary Grottke Vice President and Director Date: February 26, 1996 By: Gary Nickele Director Date: February 26, 1996 By: Gary Smith Vice President and Principal Accounting Officer Date: February 26, 1996 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: Gary Smith Vice President Date: February 26, 1996 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: Robert B. Heiserman, Jr. President Date: February 26, 1996 By: Gary Grottke Vice President and Director Date: February 26, 1996 By: Gary Nickele Director Date: February 26, 1996 By: Gary Smith Vice President and Principal Accounting Officer Date: February 26, 1996 EXHIBIT INDEX Document Sequentially incorporated numbered Exhibit No. Exhibit by reference page 3.1 to 3.30* Articles of Incorporation and Amended and Restated By-Laws Yes -- 4.1** Indenture, including the forms of COLAS, among Amfac/JMB Hawaii, Inc., its subsidiaries and Continental Illinois Bank National Association, as Trustees (dated March 14, 1989) Yes -- 4.2*** Amendment dated as of January 17, 1990 to the Indenture relating to the COLAS. Yes -- 4.3*** $28,097,832 Promissory Note from Amfac, Inc. to Amfac/JMB Hawaii, Inc. Extended and Reissued Effective December 31, 1990. Yes -- 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. Yes -- 4.5***** $15,000,000 Credit Agreement dated March 31, 1993 among AMFAC/JMB Hawaii, Inc. and Continental Bank N.A. Yes -- 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. Yes -- 10.1 to 10.22* Material Contracts Yes -- 10.3* Grove Farm Haiku Lease, dated January 25, 1974 by and between Grove Farm Company, Incorporated and The Lihue Plantation Company Limited. Yes -- 10.4* General Lease S-4412, dated October 31, 1974 by and between the State of Hawaii and the Lihue Plantation Company Limited. Yes -- 10.5* General Lease S-4576, dated March 15, 1978, by and between the State of Hawaii and The Lihue Plantation Company, Limited. Yes -- 10.6* General Lease S-3827, dated July 8, 1964 by and between the State of Hawaii and East Kauai Water Company, Ltd. Yes -- 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. Yes -- 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. Yes -- 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. Yes -- 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. Yes -- 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. Yes -- 10.13* Honokohau Water License, dated December 22, 1980, between Maui Pineapple Company Ltd. and Pioneer Mill Company, Limited. Yes -- 10.14* Water Licensing Agreement, dated September 22, 1980, by and between Maui Land & Pineapple Company, Inc. and Amfac, Inc. Yes -- 10.15* Joint Venture Agreement, dated as of March 19, 1986, by and between Amfac Property Development Corp. and Tobishima Properties of Hawaii, Inc. Yes -- 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. Yes -- 10.19** Keep-Well Agreement between Northbrook Corporation and Amfac/JMB Finance, Inc., dated March 14, 1989. Yes -- 10.20** Repurchase Agreement, dated March 14, 1989, by and between Amfac/JMB Hawaii, Inc. and Amfac/JMB Finance, Inc. Yes -- 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.; Kehaha 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. Yes -- 10.22** Amfac-Amfac Hawaii Tax Agreement, dated February 27, 1989 between Amfac, Inc. and Amfac/JMB Hawaii, Inc. Yes -- 10.23** Services Agreement, dated November 18, 1988, between Amfac/JMB Hawaii, Inc., and Amfac Property Develop- ment Corp.; Amfac Property Invest- ment Corp.; Amfac Sugar and Agri- business, Inc.; Kaanapali Water Corporation; Amfac Agribusiness, Inc.; Kehaha Sugar Company, Limited; The Lihue Plantation Company, Limited; Oahu Sugar Company, Limited; Pioneer Mill Company, Limited; Puna Sugar Company, Limited; H. Hackfeld & Co., Ltd.; Waiahole Irriga- tion Company, Limited and JMB Realty Corporation Yes -- 19.0******* $35,700,000 agreement for sale of C&H and certain other C&H assets, to A&B Hawaii, Inc. in June of 1993 Yes -- 22.1 Subsidiaries of Amfac/JMB Hawaii Inc. Yes -- 28.1** A copy of pages 19, 41-45 and 51 of the Company's Prospectus dated December 5, 1988 filed pursuant to Rules 424(b) and 424(c) (relating to SEC Registration Statement on Form S-1 (as amended) File No. 33-24180) Yes -- * Previously filed as exhibits to the Company's Registration Statement on Form S-1 (as amended) under the Securities Act of 1933 (File No. 33-24180) and hereby incorporated by reference. ** 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. *** 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. **** 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. ***** 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. ****** 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. ******* Previously filed as exhibit 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. EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANTS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT. 0000839437 AMFAC/JMB HAWAII, INC. 12-MOS DEC-31-1995 DEC-31-1995 $ 11,745 0 9,081 361 49,641 73,208 394,379 27,762 527,598 123,324 247,457 1 0 1 (114,188) 527,598 100,319 101,607 84,283 102,672 1,288 0 25,233 (27,855) (8,019) (19,836) 0 (32,544) 0 12,708 12.71 12.71
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