SEC Info - Castle & Cooke Inc/HI - ‘10-K405’ for 12/31/97

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Castle & Cooke Inc/HI – ‘10-K405’ for 12/31/97

As of: Monday, 3/30/98 · For: 12/31/97 · Accession #: 1047469-98-12381 · File #: 1-14020

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/30/98  Castle & Cooke Inc/HI             10-K405    12/31/97    4:234K                                   Merrill Corp/New/FA

Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Annual Report -- [x] Reg. S-K Item 405                66    379K 
 2: EX-21       Subsidiaries of the Registrant                         1      6K 
 3: EX-23       Consent of Experts or Counsel                          1      5K 
 4: EX-27       Financial Data Schedule (Pre-XBRL)                     2      6K

10-K405 — Annual Report — [x] Reg. S-K Item 405
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) (a) 1. Financial Statements Bakersfield Economy and Housing Market, The (b) Reports on Form 8-K Business Certain Relationships and Related Transactions Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Directors and Executive Officers of the Registrant Executive Compensation Executive Officers of the Registrant Exhibits, Financial Statement Schedules and Reports on Form 8-K Financial Statements and Supplementary Data Hawaii Economy and Housing Market, The Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Market for the Registrant's Common Equity and Related Stockholder Matters Properties Security Ownership of Certain Beneficial Owners and Management Selected Financial Data Signatures Submission of Matters to A Vote of Security Holders The Bakersfield Economy and Housing Market The Hawaii Economy and Housing Market 2. Financial Statement Schedules 3. Exhibits
1	1st Page - Filing Submission
3	Item 1. Business
7	The Hawaii Economy and Housing Market
9	The Bakersfield Economy and Housing Market
21	Item 2. Properties
25	Item 3. Legal Proceedings
"	Item 4. Submission of Matters to A Vote of Security Holders
"	Executive Officers of the Registrant
27	Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
"	Item 6. Selected Financial Data
29	Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
38	Item 8. Financial Statements and Supplementary Data
59	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
"	Item 10. Directors and Executive Officers of the Registrant
"	Item 11. Executive Compensation
"	Item 12. Security Ownership of Certain Beneficial Owners and Management
"	Item 13. Certain Relationships and Related Transactions
"	Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
"	(a) 1. Financial Statements
"	2. Financial Statement Schedules
60	3. Exhibits
61	(b) Reports on Form 8-K
62	Signatures

10-K405 1st Page of 66 TOC ↑Top Previous Next ↓Bottom Just 1st
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K

/X/ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

/ /TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-14020

CASTLE & COOKE, INC.

(Exact Name of Registrant as Specified in Its Charter)

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HAWAII 77-0412800
(State or Other Jurisdiction (I.R.S. Employer Identification
of Number)
Incorporation or
Organization)

10900 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024

(Address of Principal Executive Offices)

Registrant's telephone number, including area code: (310) 208-3636
------------------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, No Par Value New York Stock Exchange

------------------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None

Indicate by check mark whether 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 amendments to
this Form 10-K. /X/

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 1998 was approximately $240,847,016.

The number of shares of Common Stock outstanding as of February 28, 1998 was
19,996,288.

DOCUMENTS INCORPORATED BY REFERENCE

Applicable portions of the registrant's definitive Proxy Statement for its
1998 Annual Meeting of Stockholders are incorporated by reference into Part III
of this form.

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10-K405 2nd Page of 66 TOC 1st Previous Next ↓Bottom Just 2nd
CASTLE & COOKE, INC.
FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 1997

TABLE OF CONTENTS

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ITEM NUMBER
IN FORM 10-K PAGE
----------------------------------------------------------------------------------------------------------------- ---------

PART I

1. Business.............................................................................................. 1
2. Properties............................................................................................ 19
3. Legal Proceedings..................................................................................... 23
4. Submission of Matters to a Vote of Security Holders; Executive Officers of the Registrant............. 23

PART II

5. Market for the Registrant's Common Equity and Related Stockholder Matters............................. 25
6. Selected Financial Data............................................................................... 25
7. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 27
8. Financial Statements and Supplementary Data........................................................... 36
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................. 57

PART III

10. Directors and Executive Officers of the Registrant.................................................... 57
11. Executive Compensation................................................................................ 57
12. Security Ownership of Certain Beneficial Owners and Management........................................ 57
13. Certain Relationships and Related Transactions........................................................ 57

PART IV

14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................... 57
(a) 1. Financial Statements.......................................................................... 57
2. Financial Statement Schedules...................................................................... 57
3. Exhibits........................................................................................... 58
(b) Reports on Form 8-K............................................................................... 59

SIGNATURES....................................................................................................... 60

FINANCIAL STATEMENT SCHEDULES.................................................................................... 61

10-K405 3rd Page of 66 TOC 1st Previous Next ↓Bottom Just 3rd
PART I

ITEM 1. BUSINESS

GENERAL

Castle & Cooke, Inc. (the "Company" or "Castle") was incorporated in Hawaii
on October 10, 1995, to be the successor to the real estate and resort business
of Dole Food Company, Inc. ("Dole"). Effective December 28, 1995 (the
"Distribution Date"), Dole transferred its real estate and resorts business to
Castle and distributed to Dole shareholders one share of Castle common stock for
every three shares of Dole common stock. This transaction is referred to herein
as the "Distribution". As used herein, the terms "Company" or "Castle" refer to
the real estate and resorts business of Dole when used with reference to time
periods prior to the Distribution Date, and to Castle and its consolidated
subsidiaries and controlled joint ventures when used with respect to time
periods on or after the Distribution Date.

The Company is engaged in three principal businesses: residential real
estate, resorts and commercial real estate. Castle conducts residential real
estate development operations on the island of Oahu in the State of Hawaii, and
in Bakersfield, California, Sierra Vista, Arizona and Orlando, Florida. Castle's
resort operations are located in Hawaii on the island of Lana'i and include two
luxury resort hotels, The Lodge at Koele and The Manele Bay Hotel, two golf
courses, and luxury vacation home developments associated with the resort
hotels. It is developing commercial properties in Bakersfield and San Jose,
California; Raleigh, North Carolina; Atlanta, Georgia; Phoenix and Sierra Vista,
Arizona; Orlando, Florida and on Oahu. Castle also owns and manages office
buildings, shopping centers and other commercial properties in California,
Hawaii, Arizona, North Carolina and Georgia. The Company occasionally disposes
of property which either does not meet its business needs or can be sold at an
advantageous price due to market conditions.

The Company's residential real estate, resorts and commercial real estate
businesses are described in more detail below. In 1997 and Castle's two
preceding fiscal years, Castle had no foreign operations or export sales. For
detailed financial information with respect to the Company's business and
operations including amounts of revenue, operating profit or loss and
identifiable assets attributable to each of the Company's industry segments and
to domestic operations, see the Company's Consolidated Financial Statements and
the related Notes to Consolidated Financial Statements in Part II herein.

Statements herein that are not historical facts are "forward-looking
statements." Forward-looking statements can be identified by the use of words
such as "may", "will", "should", "expect", "anticipate", "estimate", "continue",
"proposes", "plans", "intends", or other similar terminology. Forward-looking
statements are based largely on the Company's current expectations and are
subject to a number of risks and uncertainties. These risks and uncertainties
include, but are not limited to, such things as product demand, the Company's
lack of experience in operating in markets outside of its current markets, the
effect of economic conditions and geographic concentration, the impact of
competitive products and pricing, materials prices and labor costs, and
governmental regulations and the need for governmental approvals. These and
other factors can affect the Company's financial results and operations, and can
cause them to differ from current expectations and plans.

RESIDENTIAL REAL ESTATE

Castle is one of the largest developers and builders of single-family and
multi-family homes on the island of Oahu in the State of Hawaii, and one of the
largest developers of residential real estate in Bakersfield, California and
Sierra Vista, Arizona. It began development of a master planned community in
Orlando, Florida in December 1997, which is planned to include single-family
homes and a golf course and clubhouse. Castle's residential real estate
operations on Oahu include the development, construction and marketing of
single-family and multi-family detached and attached homes within master-planned
residential communities and on other parcels of land, which have been acquired
and developed by Castle. In Bakersfield, which is located approximately 100
miles north of Los Angeles, Castle primarily subdivides and develops residential
communities and sells finished homesites to national and local homebuilders.

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While Castle has focused on the sale of homesites to national and local
homebuilders, it also engages in limited homebuilding on its properties in
Bakersfield, including building single-family homes for the active adult market.
In addition, Castle is developing and selling homesites in Sierra Vista, Arizona
located approximately 70 miles southwest of Tucson. In Orlando, Florida, Castle
is developing a residential community and selling finished homesites to
homebuilders.

Castle owns large parcels of entitled and unentitled residential land in the
Oahu, Bakersfield and Sierra Vista markets. Castle's land in Orlando is
entitled. "Entitled" land is land that has received all necessary land use and
zoning approvals for development from the appropriate state, county and local
governments, except for any required plat maps, subdivision approvals, grading
and building permits and other secondary approvals. "Unentitled" land is land
that has not received all such approvals.

HAWAII

GENERAL

In Hawaii, Castle develops land and designs, builds and sells single-family
and multi-family homes for "entry-level" and "move-up" buyers. Castle's Hawaii
communities emphasize the development of planned neighborhoods with a range of
lot and home sizes. Home designs within a particular product line are generally
standardized and limited in number. This standardization helps permit on-site
mass production and bulk purchasing of material and components by contractors
and subcontractors engaged by Castle. Homes built by Castle in Hawaii are
generally designed by consulting architects whose designs are geared to the
local market. Designs are also constrained by zoning requirements, building
codes, energy efficiency laws and local architectural guidelines, among other
factors. Castle normally builds, decorates, furnishes and landscapes several
model homes for each subdivision or project. Major changes in design from the
model homes are not generally permitted, but homebuyers may select various
optional amenities.

HAWAII'S "AFFORDABLE" HOUSING PROGRAM

Governmental agencies in Hawaii have implemented various formal and informal
policies at both the state and local levels in an effort to increase the supply
of low-income and moderate-income housing. As a condition to classifying land
for urban development, the State Land Use Commission ("LUC") and the County
Councils for each county in Hawaii determine, most often at the time of
entitlement proceedings before those bodies, requirements, on a
project-by-project basis, for the provision by residential developers of
"affordable" housing. Generally, the State of Hawaii has required developers of
residential projects to offer for sale to eligible buyers a portion (recently
50% to 60%) of the total number of units in the project at prices that are
affordable to buyers whose incomes are between 80% and 140% of median local
income as determined by the United States Department of Housing and Urban
Development ("HUD"). Counties have supported this policy and normally require
that a portion of the "affordable" units (recently 10-30% of the total number of
units) be affordable to families whose incomes are between 80% and 120% of the
HUD median local income.

The State LUC had required that 50% of the homes sold in Mililani Mauka be
affordable to families with incomes between 80% and 140% of the median local
income (as determined by HUD). Within this 50% requirement, the City and County
of Honolulu requires that at least 10% of the homes be affordable to families
whose income is not more than 80% of the HUD median local income. In 1996, the
State of Hawaii, through the Governor's Office, initiated a change in its
affordable housing policies by assigning the implementation and enforcement of
such policies to the Counties. Based on this new policy, the Company sought and
was granted an amendment to the affordable housing requirements that were
imposed by the State LUC on its Mililani Mauka Phase I and Phase II projects.
The earlier LUC requirement that 30% of the homes be affordable to buyers
earning between 80% and 120% of HUD median local income, and the requirement
that 20% of the homes be affordable to buyers earning between 120% and 140% of
the HUD median local income were replaced with a requirement that the Company
satisfy the affordable housing requirements imposed by the City and County of
Honolulu. Accordingly, the Company expects to be required to sell units in
Mililani Mauka as follows. For Mililani Mauka Phase I and Phase II-B, 10% of the

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units would be affordable to families with incomes of not more than 80% of the
HUD median local income and 20% of the units would be affordable to families
with incomes between 80% and 120% of HUD median local income. For Mililani Mauka
Phase II-A, 10% of the units would be affordable to families with incomes of not
more than 80% of the HUD median local income and 40% of the units would be
affordable to families with incomes between 80% and 140% of HUD median local
income.

The determination of whether a home is "affordable" is based on an
assessment of whether a purchaser is able to satisfy certain specified mortgage
criteria. For example, the 1997 HUD median local income for a family of four in
the City and County of Honolulu (Oahu) was $57,900. Therefore, in an affordable
project in Mililani Mauka, allocating one-third of monthly income for housing,
and assuming a customer trust fund amount for insurance, real property tax and
maintenance of $195 per month, a 10% down payment, a 30-year loan and an annual
interest rate of 7.45%, a home priced at approximately $172,000 would be
"affordable" for a family earning 80% of HUD median local income and a home
priced at approximately $325,000 would be "affordable" for a family earning 140%
of HUD median local income.

To ensure that homes sold pursuant to "affordable" housing requirements
remain "affordable" to other eligible buyers and to prevent speculation, state
and local governments typically impose transfer restrictions on purchasers of
"affordable" homes. These restrictions generally provide that if the home is to
be sold or transferred within a one to ten year period following its original
sale, the government has the option to purchase the home on a formula price
basis. The formula is intended to discourage speculation by preventing the owner
from disposing of the home at the market price while allowing the owner to
recover the owner's investment. Additionally, the state or local government may
require the purchaser of an "affordable" unit to pay to the government a portion
of any profits derived from resale of that unit after the ten-year period.

Castle's revenues and operating income may fluctuate significantly depending
upon the mix of "affordable" and market-priced homes sold during any given
period. Therefore, Castle's historical revenues and operating income may not be
indicative of future performance. In addition, because the formula for
calculating the price of "affordable" homes takes into account mortgage interest
payments, increases in mortgage interest rates may decrease the price of
Castle's "affordable" homes, which could result in lower revenues and operating
income.

DEVELOPMENTS

MILILANI TOWN, Castle's largest development, is an approximately 3,500-acre
master-planned community located on the central plain of Oahu, approximately 18
miles northwest of downtown Honolulu. Mililani Town, which was founded 30 years
ago, has a population of approximately 37,000 and offers a full range of
residential, commercial, educational and recreational services. It is
anticipated that Mililani Town will eventually house approximately 50,000
residents in approximately 16,000 single-family and multi-family units.

In Mililani Makai, the first section of the community to be developed,
Castle sold approximately 9,300 units on approximately 2,300 acres of land. In
Mililani Mauka, the section of Mililani Town currently undergoing development,
Castle currently plans to develop approximately 6,213 units on approximately
1,200 acres. The necessary land use and zoning approvals for these units have
been received, roadways are being built and utilities are being installed in
each subdivision, and sales of approximately 3,075 (including 360 units built
and sold by a third party) of the 6,213 units currently planned have closed
through December 31, 1997. Castle's market-priced homes in the first phase of
Mililani Mauka range in size from approximately 800 to 2,700 square feet of
living area and in price from approximately $250,000 to over $500,000. Castle
has designed Mililani Mauka to allow it to build to suit market conditions by
developing moderately priced and higher-priced homes. Based upon 1997 HUD median
local income, "affordable" homes in Mililani Mauka are currently priced from
approximately $115,000 to $250,000.

ROYAL KUNIA is an approximately 270-acre master-planned community being
built in central Oahu, approximately 19 miles west of downtown Honolulu. The
undeveloped residential areas of Royal Kunia were purchased in August 1992 as
entitled but unimproved land by a limited partnership in which a wholly

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owned subsidiary of Castle is the sole general partner and holds a 50% interest.
The development, when completed in accordance with the master plan, will offer
single-family and multi-family housing adjacent to commercial properties, parks
and recreational facilities. The master plan provides for 1,748 units at Royal
Kunia, including 974 market-priced units and 774 "affordable" units. The price
of the market-priced single-family homes (between approximately 800 and 2,000
square feet of living area) ranges from approximately $225,000 to $325,000.
Based upon 1997 HUD median local income, "affordable" housing is currently
priced from approximately $200,000 to $235,000. Sales of 630 units had closed
through December 31, 1997.

LALEA AT HAWAII KAI is a low-rise condominium development proposed to
contain approximately 290 units in the community of Hawaii Kai in East Oahu.
Located on approximately 22 acres of land, all units are market priced and range
in price from approximately $220,000 to $320,000. Closings commenced in the
third quarter of 1996, and 141 units had closed through December 31, 1997.

NA PU'U NANI AT WAIKOLOA is a proposed residential development on the island
of Hawaii which forms a part of Waikoloa Village. Na Pu'u Nani is held by a
joint venture in which a wholly-owned subsidiary of Castle is the managing
general partner and holds a 30% interest. The joint venture acquired the
property in 1990. In September 1993, the joint venture filed suit against the
party from whom the property was purchased. The parties settled this litigation
in January 1996, prior to trial, under terms that the Company believes will be
beneficial should it proceed with the project. The property remains undeveloped
and this project is currently inactive, pending improvement of market
conditions.

SALES AND MARKETING

In Hawaii, Castle promotes its residential developments through general
public awareness of Castle using public relations activities and advertising in
the local media. Castle employs in-house commissioned sales personnel and
generally maintains on-site sales offices for each subdivision or project.
Castle also retains outside brokers, sales and marketing firms and consultants
in the marketing of its homes. Castle sells its homes in its Royal Kunia
development on Oahu through an affiliate of its limited partner in the project.
Sales contracts are usually subject to certain contingencies such as the buyer's
ability to qualify for financing. Castle has from time to time utilized various
sales incentives in marketing its homes and has facilitated the financing
process by providing closing credits and by purchasing commitments from local
financial institutions to provide fixed-rate mortgage loans to eligible buyers.
Homebuyers must comply with the credit criteria required by these institutions.

ORDER INVENTORY AND BACKLOG

Castle's inventory of completed homes on Oahu varies according to the stage
of development of each of Castle's communities. It is currently Castle's
practice to include a home in backlog at the contract price upon execution of a
sales contract and receipt of money on deposit (usually $1,000 to $5,000), and
to remove it from backlog upon transfer of title. Backlog may vary substantially
over time because Castle's communities are long-term projects that are
frequently at different stages of development. In the past, the Company has
generally allowed prospective purchasers who are unable to obtain financing to
cancel their contracts and has refunded their deposit. During the past five
years, the Company experienced an average contract cancellation rate of
approximately 25%.

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The following table sets forth the dollar amount of backlog orders for
Castle's residential projects on Oahu in Hawaii as of December 31, 1997 and as
of December 31, 1996.

OAHU
BACKLOG--HOMES
(DOLLARS ARE IN THOUSANDS)

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1997 1996
----------- -----------

Backlog at beginning of year........................................ $ 15,053 $ 32,853
New orders.......................................................... 107,348 140,446
Deliveries.......................................................... (110,481) (158,246)
----------- -----------
Backlog at end of year.............................................. $ 11,920 $ 15,053
----------- -----------
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THE HAWAII ECONOMY AND HOUSING MARKET

The Hawaii economy weakened and continued to worsen throughout 1997. The
Hawaii economy is strongly influenced by tourism. Comparing 1993 to 1990,
tourism declined (as measured by total visitor count) by approximately 12.1%.
Comparing 1996 to 1993, tourism increased by approximately 11.4%. However, in
late 1996 tourism again declined to below levels for the same period in 1995. In
1997, total visitor count to Hawaii increased by 0.7% over 1996, attributable to
an increase in westbound travel. Visitor days, however, declined by 2%.
Honolulu's rate of inflation for 1997 was 0.7% compared to a national average of
2.3%. In terms of job growth, Hawaii experienced a loss of jobs in 1997, and
Hawaii's 1997 average monthly unemployment rate of 6% exceeded the national
average by approximately 1%. Overall, the Hawaii economy is experiencing a
significant downturn. Furthermore, the dramatic weakening of a number of
economies and markets of countries in Asia and the Far East is expected to have
an adverse effect on the Hawaii economy, including tourism, and may prolong
Hawaii's recession. No assurance can be given that Hawaii will experience
economic growth in the future. A prolonged economic downturn would have a
material adverse effect on Castle's financial condition and results of
operations. The Hawaii economy is also subject to risks associated with its
weather. Heavy rainfall, hurricanes and other natural disasters could impact the
local economy and Castle's operations.

The median resale price of a single-family home on Oahu increased by
approximately 3% in 1993, was unchanged in 1994, decreased by approximately 3%
in 1995, decreased by approximately 4% in 1996 and decreased by approximately 8%
in 1997. The number of re-sales of single-family homes on Oahu during 1996, as
compared to 1995, decreased by approximately 6%; during 1997, as compared to
1996, the number of such re-sales increased by approximately 16%.

MAINLAND COMMUNITIES

GENERAL

Castle's U.S. Mainland communities are located in California, Arizona and
Florida. Castle's active developments in California are in Bakersfield, the
county seat of Kern County, located in the southern part of California's central
(San Joaquin) valley. Castle's Bakersfield developments are located in the
southwest part of the city in the vicinity of the California State University at
Bakersfield. In Bakersfield, Castle subdivides and develops its landholdings
into developable parcels and planned residential communities designed to meet
demand for housing in each market segment. This includes homesites for single
family homes in price ranges from entry level to luxury homes, including
pre-designed as well as custom plans. Castle intends to continue the development
of certain of its existing landholdings in California. In 1996 Castle sold
approximately 3,000 acres of agriculturally zoned land in Bakersfield, and may
sell additional such land in the future.

Castle's active development in Arizona is in the town of Sierra Vista, where
it subdivides and develops its land holdings into developable parcels and
homesites to provide housing primarily for the military-based population and
retirement market.

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In 1996, Castle formed a partnership with Golden Bear International, Inc. (a
company wholly owned by professional golfer Jack Nicklaus) to develop
master-planned communities featuring high-end, daily fee Jack Nicklaus signature
courses as the central amenity. The partnership will explore and may make land
acquisitions in major metropolitan markets with strong growth trends and an
under supply of high-end daily fee golf courses. Castle will act as
master-developer and general partner, with Golden Bear International, Inc. as
limited partner, providing golf design, construction, and course management
services. In 1996, the venture entered into a contract to acquire property for
its first new community, Keene's Pointe in Orlando, Florida. This property
comprises approximately 866 developable acres and in the town of Windermere
adjacent to the Disney Preserve. Under the 1996 contract, the property is being
purchased on a parcel by parcel basis over a 10-year period. The first parcel
that was purchased in December 1997, comprises approximately 240 acres for a
proposed 18-hole golf course and clubhouse and an additional 206 acres which is
proposed for approximately 361 lots. An additional 80 acres, located adjacent to
the Keene's Pointe project and proposed to be developed as an additional 158
lots, were purchased by the partnership in January 1998.

DEVELOPMENTS

SEVEN OAKS is a master-planned community on approximately 1,000 acres that
is designed to be the premier residential development in Bakersfield. Seven Oaks
surrounds the Seven Oaks Country Club and Golf Course, which was developed by
Castle and eventually will be contributed to a nonprofit mutual benefit
corporation. Castle has the exclusive right to sell memberships in the Seven
Oaks Country Club and is obligated to fund the net operating losses of the
country club through the earlier of the time at which the club has 450 active
golf memberships or October 31, 2002. As of December 31, 1997, 218 such
memberships had been sold. Development of the community is being completed in
phases, based on market demand. Castle has developed neighborhoods offering
homesites for "move-up" to luxury homes in eight price ranges. Homesite prices
in Seven Oaks range from approximately $25,000 to $250,000. Approximately 1,066
homesites remain to be developed on approximately 378 acres. Castle also plans
to engage in limited homebuilding in this community, including single-family
homes for the active adult market and single-family homes for the semi-custom
market.

SILVER CREEK is a master-planned community encompassing approximately 600
acres in Bakersfield. Castle offers homesites and homes at three price levels.
Castle's homes are currently priced between approximately $80,000 and $100,000
and its homesites are priced between approximately $19,000 and $21,000.
Approximately 560 homesites remain to be developed on approximately 182 acres.

BRIMHALL, a residential community in Bakersfield comprised of approximately
1,232 acres, was originally planned to attract entry-level and move-up
homebuyers. The prices of single-family homesites in the current phases in
Brimhall range from approximately $18,500 to $64,000. Approximately 483
homesites remain to be developed on approximately 226 acres currently entitled.
In addition, approximately 458 acres are currently being planned to complete the
Brimhall community.

FAIRWAYS, comprising approximately 225 acres, has the necessary zoning for
an active adult community of approximately 700 units. Other Bakersfield
residential projects include the HAGGIN OAKS, CAMPUS PARK, THE OAKS and RENFRO
single-family developments (comprising approximately 566 single-family lots in
total), and the MING & GOSFORD multi-family development.

SIERRA VISTA consists of approximately 393 entitled acres and 4,644
unentitled acres near the City of Sierra Vista, located in Cochise County in the
southeast portion of Arizona about 70 miles from Tucson. Sierra Vista contains
single-family and multi-family homesites developed by Castle for sale to
builders and individuals. The homesites in Sierra Vista are currently priced
from approximately $13,000 to $55,000. Approximately 1,339 homesites remain to
be developed on the approximately 393 entitled acres.

KEENE'S POINTE in Orlando consists of approximately 896 acres, including the
approximately 240 acre Jack Nicklaus designed golf course that is under
construction. Purchase of the property and development of this project is
planned to occur in phases, based on market demand. Castle will develop and sell

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homesites for "semi-custom" to luxury homes to homebuilders. Homesites are
priced between approximately $48,000 and $455,000. Approximately 1,058 homesites
are planned to be developed on approximately 656 acres.

SALES AND MARKETING

In California and Florida, Castle markets its developments through local
newspaper, magazine, radio and outdoor advertising, promotional literature, and
sales meetings conducted for both individual homebuyers and residential brokers
and builders. Castle also maintains a sales center in Bakersfield, a sales
center in Sierra Vista and a sales center in Windermere (Keene's Pointe) to
display available homesites to prospective builders and individual buyers. In
Arizona, Castle advertises Sierra Vista as a national retirement community and
has been actively marketing the area through national magazines. In California,
Florida and Arizona, Castle occasionally uses outside brokers in marketing its
properties. Castle sells its finished homesites in Bakersfield, Arizona and
Florida to homebuilders. Castle also sells options in Bakersfield and at Keene's
Pointe to homebuilders to acquire a number of available homesites, and it has
been Castle's experience in Bakersfield that nearly all of the options granted
pursuant to the agreements have been exercised in full. The down payment on
these options in Bakersfield typically equals 10% of the aggregate purchase
price of the homesites. Sales of homesites in Bakersfield include options to
repurchase. Contracts for homesites sold by Castle in Bakersfield provide for
Castle's approval of home design and construction and the lots are subject to
architectural control covenants.

From time to time, Castle provides financing to buyers of its California,
Arizona and Florida homesites by taking promissory notes instead of cash for a
portion of the sales price of the properties it sells. Down payments on these
transactions have averaged between 20% to 25%.

ORDER INVENTORY AND BACKLOG

Castle's inventory of developed homesites in California, Arizona and Florida
varies according to the stage of development of each of Castle's communities. It
is currently the policy of Castle to limit its inventory of completed but unsold
homesites in Bakersfield and Sierra Vista to less than one year of anticipated
demand. It has been Castle's experience that nearly all of the options granted
to homebuilders in Bakersfield have been exercised in full.

The following table sets forth the dollar amount of backlog orders for
Castle's homesite development in California, Arizona and Florida as of December
31, 1997 and as of December 31, 1996.

MAINLAND COMMUNITIES
BACKLOG--HOMESITES
(DOLLARS ARE IN THOUSANDS)

[Enlarge/Download Table]

1997 1996
---------- ----------

Backlog at beginning of year.......................................... $ 7,959 $ 9,901
New orders............................................................ 30,393 12,498
Deliveries............................................................ (18,388) (14,440)
---------- ----------
Backlog at end of year................................................ $ 19,964 $ 7,959
---------- ----------
---------- ----------

THE BAKERSFIELD ECONOMY AND HOUSING MARKET

A substantial majority of Castle's residential developments in the
continental United States are located in Bakersfield, the county seat of Kern
County. Kern County's population was approximately 628,000 persons, comprising
approximately 225,000 households in 1997. Bakersfield is one of the most
affordable cities in California (based on a November, 1996 survey by the
National Association of Homebuilders). The population of metropolitan
Bakersfield increased from approximately 329,000 in 1990 to approximately
377,000 in 1997, an average annual growth rate of 2.1% versus 1.3% for
California as a

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whole. The median resale price of a single-family home in Bakersfield decreased
by approximately 3.5% in 1997, compared to a national average increase of
approximately 4.9%.

Kern County is the leading oil-producing county in the lower 48 states and
the third leading agricultural county (based on crop value) in the United
States. The Bakersfield economy is sensitive to economic, political and weather
conditions affecting oil and agriculture, and the California economy has
suffered considerably in recent years. In the first quarter of 1998, the price
for locally produced crude oil (known as Kern River crude) was at a 12-year low,
down more than 50 percent from October 1997. This price decrease is expected to
lead to cutbacks in spending by area oil producers. The climate and geology of
California present certain risks for natural disasters and other sudden events.
The Bakersfield area, like much of California, is at risk for seismic activity.
Storms, floods, drought and earthquakes may have a material adverse effect on
the local economy and on the properties or operations of Castle.

THE ORLANDO AND SIERRA VISTA ECONOMIES AND HOUSING MARKET

The Keene's Pointe project is located in Orange County, Florida, in the town
of Windermere adjacent to the Disney Preserve. In 1997 the median price of a
single-family home in Windermere was approximately $96,000, the city's job
growth rate was approximately 4.3% and its unemployment rate approximately 3.2%.
Keene's Pointe is located approximately 30 miles from Orlando. Metropolitan
Orlando is one of the fastest growing regions in the nation, adding
approximately 40,000 jobs in 1997. Tourism is Florida's largest industry, and
the Orlando area includes such major theme parks as Disney World, Universal
Studios and Sea World.

For Sierra Vista, Arizona, the 1997 median price of a single-family home was
approximately $94,000, the city's job growth rate was approximately (0.9%) and
its unemployment rate was approximately 8.1%.

DEVELOPMENT OF MASTER-PLANNED COMMUNITIES

Master-planned communities are long-term projects requiring substantial
investments of time and capital resources. In Castle's experience,
master-planned communities have generally required approximately eight to ten
years from initial planning and entitlement proceedings to the closing of the
first sale of a completed home on the island of Oahu and up to three years from
initial planning and entitlement proceedings to the closing of the first sale of
a finished homesite or a completed home in California.

THE ENTITLEMENT PROCESS. Castle prepares the plans for each master-planned
community providing for infrastructure, neighborhoods, commercial and industrial
areas, educational and other public facilities as well as open space. Once
preliminary plans have been prepared, Castle must obtain numerous governmental
approvals, licenses, permits and agreements, referred to as "entitlements,"
before it can commence development and construction. In Hawaii and California,
obtaining the necessary entitlements for large residential developments and
master-planned communities is an extended process, which can involve a number of
different governmental jurisdictions and agencies, considerable risk and
expense, and substantial delays. Unless and until the requisite entitlements are
received and substantial work has been commenced in reliance upon such
entitlements, a developer generally does not have any "vested rights" to develop
a project.

Before developing its Hawaii properties, Castle must obtain a variety of
regulatory approvals from state and local governmental authorities relating to
such matters as permitted land uses and levels of density, the installation of
utilities and waste disposal services, and the dedication of acreage for open
space, parks, schools and other community purposes. For example, if the current
land classification is "Agricultural", the Hawaii State Land Use Commission must
issue a final decision and order approving urban land uses and amending district
boundaries. The city and/or county councils must enact ordinances or issue
resolutions approving amendments to the relevant general plan and development
plan and approving zoning changes and variances, and issue permits for shoreline
management, if applicable. After these entitlements are granted, subdivision
approvals and building permits must be obtained. Changes in circumstances or in
applicable law may require amended or additional approvals. Castle may incur
substantial direct costs in connection with the land use approval process in
Hawaii. In addition to the costs

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and fees required in connection with various applications, counties may impose
conditions having economic costs and consequences and assess "impact fees" based
on anticipated effects of Castle's projects on existing communities, including
such things as infrastructure, transportation, waste disposal, education and air
quality.

Castle's unentitled land in California is located in Kern County, Los
Angeles County, and Santa Clara County. Castle also owns unentitled land at its
Sierra Vista development in Arizona. While the requirements vary in each
location, and while the amount of time it takes to obtain entitlements is
generally shorter in Arizona than in California, the entitlement process for
transforming such land into a developable parcel or a master-planned community
includes such things as annexation proceedings involving the local
municipalities, regulatory approvals relating to such matters as permitted land
uses and levels of density, the installation of utilities and waste disposal
services, and the dedication of acreage for open space, parks, schools, and
other community purposes. In addition, upon receipt of a building permit for a
finished homesite, homebuilders are required in California to pay impact fees
based on governmental assessment of the effects of their projects on existing
communities, including such things as infrastructure, transportation, waste
disposal, education and air quality of the communities.

DEVELOPMENT. The land development process for a master-planned community
entails a range of activities, including design engineering, grading raw land,
constructing public infrastructure such as streets, utilities and public
facilities, and finishing individual lots. Castle arranges for the design and
the construction and installation by contractors and subcontractors of the
infrastructure in its master-planned communities. The development process
results in finished and graded construction sites for homes or other facilities.
In its master-planned communities, Castle generally coordinates home
construction with commercial development and installation of parks and
recreational facilities. In this process, Castle may contract with third parties
to develop commercial zones, public areas and recreational amenities, which may
include shopping centers, schools, libraries, community centers, parks, golf
courses and other essential facilities. It is the policy of Castle to retain
control over the location and character of non-residential properties, such as
shopping centers and recreational facilities, within its master-planned
communities. Castle develops its communities in phases to allow Castle
flexibility to build to suit market conditions and to create stable and
attractive neighborhoods. Consequently, at any particular time, the various
phases of a project generally are in different stages of land development and
construction.

HOME CONSTRUCTION AND WARRANTIES

For most of its projects, Castle contracts or subcontracts virtually all
construction work. Independent contractors and subcontractors that are familiar
with local requirements perform engineering, landscaping, master-planning and
environmental impact analysis work. Castle engages consulting firms to assist in
project planning and hires independent contractors and subcontractors to perform
site development and construction work on individual projects. At all stages of
production, Castle monitors and coordinates the activities of builders,
contractors, subcontractors, consultants and suppliers.

Castle provides customary warranties to purchasers of its homes. Castle
evaluates its contractors and subcontractors and its builders with respect to
their ability to meet potential warranty obligations. In addition to customary
warranties provided by Castle to its homebuyers, Castle is subject in California
to a state law, which establishes a ten-year period during which consumers can
seek redress for latent defects in new homes.

RESORTS

The island of Lana'i consists of approximately 90,500 acres and is the sixth
largest of the Hawaiian Islands. The Company owns approximately 88,181 acres or
97% of the island. On Lana'i, Castle owns and operates two luxury resorts, with
two championship golf courses. Castle is also developing two luxury vacation
home projects on Lana'i. For the purposes of this discussion, the activities of
Castle on Lana'i will be divided into three areas: Resorts, Resort Developments
and Other Businesses on Lana'i.

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RESORTS

The Company owns and operates two luxury resorts, the Lodge at Koele and the
Manele Bay Hotel, on Lana'i. The Company is responsible for all phases of
lodging operations, including the hiring, training and supervision of all of the
managers and employees necessary for the operation of the facilities, and the
marketing and maintenance of the properties.

THE LODGE AT KOELE, a 102-room luxury hotel situated in the wooded highlands
of the island, opened in mid-1990. This resort hotel includes tennis facilities,
stables and a riding facility, an executive putting course, a fitness center,
two restaurants, a retail shop and award-winning gardens. There is also a
championship 18-hole golf course, the Experience at Koele, designed by Greg
Norman and course architect Ted Robinson, with a clubhouse, a retail shop and
restaurant. In 1996, the Lana'i Pines Sporting Clays facility was opened
featuring skeet, trap, compact sporting and a 14 station clays course catering
to upscale shooters in one of the fastest growing sports in the United States.
The resort, golf course, and restaurants have received numerous awards. In 1997,
the Koele resort made Conde' Nast Traveler's Gold List with the highest score in
Hawaii and was voted by its readers the World's Best Golf Resort as well as the
best Pacific Rim Resort.

THE MANELE BAY HOTEL, a 249-room luxury oceanfront resort, was opened in
1991. The Manele Bay complex includes a 12,000 square foot conference center, a
spa facility, tennis center and pro shop, three restaurants, a retail shop and a
salon. The resort also features an 18-hole championship golf course, the
Challenge at Manele, designed by Jack Nicklaus, and a clubhouse with a pro shop
and restaurant. The Manele Bay Hotel, restaurants and golf course have been
recognized with numerous awards. In the 1997 Conde Nast Readers' Choice Poll,
the Manele Bay Hotel was voted number three among the top 20 Pacific Rim Resorts
and number four among the 50 best golf resorts. The resort was also rated by
readers of Travel & Leisure as number 5 among the 25 Best Hotels in Hawaii.

The following table sets forth combined operating statistics for the two
hotels for fiscal years 1994 through 1997:

[Enlarge/Download Table]

1997 1996 1995 1994
--------- --------- --------- ---------

Average daily room rate...................................... $ 280 $ 266 $ 251 $ 239
Occupancy rate............................................... 67% 62% 58% 55%
Room revenue per available room (daily)...................... $ 187 $ 166 $ 143 $ 130

"Average daily room rate," for any period, is the aggregate room revenue
from the two Lana'i resorts during such period, divided by the aggregate number
of days during which guests occupied rooms at the two Lana'i resorts during such
period. "Room revenue per available room," for any period, is the aggregate room
revenue from the two Lana'i resorts during such period, divided by the number of
rooms available at the two Lana'i resorts during such period.

The Lana'i resorts cater to upscale leisure travelers. Castle operates its
own computerized reservations service headquartered on Lana'i, and directs an
international sales and marketing program, including national advertising,
publicity efforts, satellite sales offices in Honolulu, Los Angeles, Chicago and
New York, and international representation. While the majority of the guests of
the Lana'i resorts originate from the mainland United States, Asia and Europe,
there is also a local market in Hawaii.

Approximately 40% of tourists traveling to Hawaii originate in California
and Japan. During the 1990's, weak economic conditions in California and Japan
have generally resulted in reduced room rates and reduced hotel occupancies
throughout Hawaii. Tourism to Hawaii is affected by a number of variables,
including general economic conditions, exchange rates, competition from other
destinations, the cost and availability of airline transportation and the
general popularity of the State. Lana'i is particularly vulnerable to changes in
air service, which can be affected by adverse weather conditions. Many of these
factors have had a negative effect on Hawaii tourism over the last several
years, causing a decline in tourist arrivals from 1991 to 1994. Tourism improved
in 1995, although the benefit of such improvement was felt primarily in Oahu and
not on the neighbor islands, including Lana'i. In 1996 tourism was essentially
flat, with the decline in mainland visitors offset by an increase in visitors
from Japan. In 1997 tourism declined slightly

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overall with a decrease in Japanese business, due to a weak economy and an
unfavorable exchange rate, only partially offset by an increase in arrivals from
the mainland United States.

RESORT DEVELOPMENTS

GENERAL

Castle is a developer and builder of single-family and multi-family homes on
the island of Lana'i. Castle develops land and designs, builds and sells high
quality homes for the resort and local housing markets. Projects being developed
or proposed include townhomes and detached single family homes for the luxury
vacation homebuyer.

LUXURY VACATION HOME PROJECTS

THE KOELE PROJECT. Koele, located at the edge of Lana'i City at an elevation
of 1,800 feet, includes 632 acres zoned for hotels, golf, residential and park
uses. The Lodge at Koele and The Experience at Koele golf course form the focus
of the development. The first phase of the Koele luxury residential project
includes the Villas at Koele, consisting of 88 proposed multi-family units on
18.5 acres, and 255 proposed single family units on 138 acres. The first phase
of infrastructure, including all roads, utility and drainage improvements for
the Villas at Koele and the 19 single family homesites in a project known as
Puulani Ridge, was completed in August, 1995. The development and sale of the
residential property in the Koele Project is expected to occur over a
twenty-year period.

The Villas at Koele are multi-family units, overlooking the Experience at
Koele golf course. There are six floor plans ranging in size from approximately
1,360 square feet to approximately 2,660 square feet, with sales prices ranging
from approximately $500,000 to $1,000,000. A sales center with six furnished
model homes and sales office opened in December 1994, and construction on the
first phase of 20 units commenced in March 1995. Pre-sales for the Villas at the
Koele Project commenced in December 1994. As of December 31, 1997, there were
six closings of sales of Villas townhomes (four in 1996 and two in 1995), and
six unsold completed units.

Luxury single-family homes at Koele are sold as a custom house and lot
package, where the buyer selects a lot and house design and the Company
constructs the house. Completed house and lot packages range in price from
approximately $800,000 to $2,500,000. Three model homes were completed at
Puulani Ridge in 1996. As of December 31, 1997, there were two closings and one
contract of sale for single-family homes at Puulani Ridge.

The vacation homes at Koele are marketed primarily to affluent individuals
from the mainland United States and, to a lesser degree, Japan and Hawaii.
Marketing efforts include local and national advertising and publicity, as well
as those of an on-site sales team of licensed professionals. The majority of
buyers are anticipated to be repeat guests of the Lodge at Koele or the Manele
Bay Hotel. The development and construction of new luxury hotels in Hawaii and
elsewhere, and continued economic weakness in Hawaii and Asia, could negatively
impact occupancy levels at the resort hotels on Lana'i, resulting in a reduced
number of vacation home sales.

THE MANELE BAY PROJECT. The Manele Bay Project is located on approximately
868 acres on the southern coast of Lana'i. The property is currently zoned for
hotel, golf course, commercial, residential, park and open space uses. The
Manele Bay Hotel and The Challenge at Manele golf course will form the
centerpiece of the development.

The first increment of the Manele Bay Project will include 94 multi-family
units on 33.4 acres and 166 single-family homesites on approximately 145 acres.
The development of this increment will proceed in phases. The first phase of
this increment has Concept Master Plan approval and Special Management Area
("SMA") approval from the County of Maui. Final subdivision approval, which must
be obtained from the County prior to closing sales, is expected to be obtained
by the third quarter of 1998. The Company does not currently have all required
governmental approvals for the development of the second or any

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subsequent increments of the Manele Bay Project. There can be no assurance that
Castle will obtain all such approvals and permits.

The Company began accepting contracts and/or reservations for the Manele Bay
Project in December of 1996. At December 31, 1997, four model homes had been
completed at the Terraces, which is a multi-family project with five floor plans
ranging in size from approximately 1,560 square feet to approximately 3,200
square feet. They are currently priced from approximately $800,000 to
approximately $2.1 million. The single-family lots at Manele are currently
priced from approximately $650,000 to approximately $2,450,000. The development
and sale of the residential property at the Manele Bay Project is expected to
occur over a twenty-year period. Currently, there are contracts for one
single-family lot and ten multi-family units. Closings are expected to occur
throughout 1998.

OTHER BUSINESSES ON LANA'I

The Company is involved in a number of other businesses on Lana'i, including
a residential redevelopment project and the operation of commercial properties
and various support services.

LANA'I CITY RESIDENTIAL REAL ESTATE PROJECT. The Company has embarked on a
residential redevelopment project within Lana'i City that includes up to
approximately 250 single family homes that are planned to be sold. This project
involves the demolition of old plantation homes and rebuilding on the lots new
single family homes mirroring the plantation style architecture. The single
family plantation style homes are proposed to range in size from approximately
780 square feet to 1,344 square feet with prices ranging from approximately
$115,000 to $260,000. In order to facilitate the construction of this project,
Castle submitted an application to Maui County under HRS 201E-43, and has agreed
to an affordable housing program to include 195 affordable housing and/or rental
units. The County approved the application in April 1996. As of December 31,
1997, twenty-six plantation style homes have been completed, twelve sales have
closed and nine are under contract for sale.

Castle also plans to develop, build and manage approximately 164
multi-family units for rental to employees of Castle and other residents of
Lana'i. Of these, currently 40 quad units are under construction and scheduled
to be completed around the middle of 1998. Another 24 elderly housing units are
under construction and expected to be completed in late 1998. Hale Mahaolu,
Inc., a non-profit agency unaffiliated with the Company, will manage the elderly
housing.

COMMERCIAL PROPERTIES AND SUPPORT SERVICES. The Company owns and manages
approximately 51,000 square feet of improved commercial lease space within
Lana'i City. The Company is also engaged in a number of support businesses or
activities on the island of Lana'i. These support operations include the
management of approximately 542 residential rental units in Lana'i City, and
prior to 1997, the management of a diversified agricultural program. Castle's
agricultural operation on Lana'i included cattle grazing, forage production, a
limited number of small crops and raising beef cattle and hogs. In 1997, Castle
sold the cattle operation and has discontinued substantially all of its
remaining agricultural operations. In addition, Castle owns and operates a water
company, which is regulated by the Hawaii Public Utilities Commission and
provides water service to the resorts, commercial customers, government entities
and the residents of Lana'i City.

COMMERCIAL REAL ESTATE

HAWAII PROPERTIES

On the island of Oahu, Castle is the developer and manager of the Mililani
Technology Park, the Cannery Development, the Town Center of Mililani and the
Dole Plantation. The following paragraphs describe each of the properties in
more detail.

MILILANI TECHNOLOGY PARK is a high technology/business park approximately
two miles from Mililani Town and is comprised of approximately 230 acres. The
park is planned to be an employment center for Central Oahu and Oahu's North
Shore. The zoning for Mililani Technology Park requires that no less than 45% of
the initial acreage be sold or ground leased to high technology companies. Phase
One of the

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Mililani Technology Park, consisting of approximately 100 acres, has received
all necessary entitlements. Subdivision improvements for all but approximately
27 acres of Phase One are in place. Of the 100 acres in Phase One, 50 acres have
been sold and four acres are leased with an option to buy. As of December 31,
1997, four developed lots in Phase One, totaling approximately 19 acres were
being marketed for sale, with an additional 27 undeveloped acres remaining in
this Phase. Phase Two, consisting of approximately 130 acres, has received
Hawaii State Land Use Commission approval. The City approved the Development
Plan application for Phase Two in December 1995. The zoning application will be
submitted for approval by the City when market conditions warrant. Major
development work is required in Phase Two, including subdivision improvements, a
one million-gallon off-site water reservoir and adding capacity to off-site
sewer lines. There are two buildings owned by Castle in the park: the 31,000
square foot Verifone Building, and the 21,000 square foot multi-tenant office
building known as the Leilehua Building. Castle leases the Leilehua Building
land from a third party. As of December 31, 1997, the Verifone Building was
fully leased to a single tenant and the Leilehua Building was 99% leased; the
two buildings, combined, had a monthly weighted average rent of $1.39 per square
foot.

CANNERY DEVELOPMENT. This property, previously used by Dole for its Hawaii
pineapple cannery operations, consists of approximately 45 acres and is located
approximately 10 minutes driving time to downtown Honolulu or to the Honolulu
International Airport and 15-20 minutes driving time to Waikiki. The Iwilei
property is in various stages of development. Approximately 20 acres are
developed, including streets, parking lots and building pads. There is a plan
for 23 acres to be developed as an urban business/ industrial park over the next
five to seven years. The current operating properties within the Iwilei
development include a single-tenant building (925 Dillingham), a multi-tenant
building (801 Dillingham), and a multi-tenant office and retail center (the Dole
Center). The 925 and 801 Dillingham buildings include 55,000 square feet and
54,000 square feet, respectively, of rentable office space. The Dole Center
consists of multi-tenant office space (Dole Office Building and Castle & Cooke
Building), a retail center (the Dole Cannery Square), and a 1,200-stall parking
structure, which, along with the 748-stall Cannery parking lot, serves the
entire Dole Center. The Dole Cannery Square, which consists of approximately
250,000 rentable square feet, includes a retail outlet center (Dole Cannery
Outlets) and banquet facilities (Dole Visitor Center). Excluding the
approximately 41,000 square feet of the Dole Center occupied by Castle's Hawaii
headquarters and the Dole Cannery Square, the Cannery development currently has
approximately 314,000 rentable square feet which, at December 31, 1997, was 74%
leased to third parties with a monthly weighted average base rent of $1.27 per
square foot.

In February, 1998, Castle entered into an agreement to form a venture with
Horizon/Glen Outlet Centers Limited Partnership ("Horizon"), a large developer
of outlet centers in the United States, and the lessee of the Dole Cannery
Square under a long-term master space lease that expires in 2044 (the "Cannery
Lease"). Under this agreement, Horizon will contribute to the venture (i) its
rights and obligations under the Cannery Lease, and (ii) substantially all of
its economic interest in an approximately 368,000 square foot factory outlet
center in Lake Elsinore, California, subject to existing mortgage financing,
together with certain undeveloped property comprising approximately 200 acres
and located adjacent to the Lake Elsinore outlet center. As of December 31,
1997, the Dole Cannery Square and the Lake Elsinore Outlet Center were
approximately 33% and 91% leased, respectively. In exchange for its
contributions to the venture, Horizon will be released from all continuing
obligations under the Cannery Lease. Under the agreement with Horizon, which is
expected to close in the second quarter of 1998, the Company will own a
substantial majority of the venture and control its operations.

Home Depot, the largest home improvement retailer in the United States, is
currently conducting due diligence for a long-term ground lease of a nine-acre
parcel at the Cannery development. Assuming satisfactory completion of due
diligence, Home Depot is planning to build a 136,000 square foot store on the
parcel which will be its first store in Hawaii. Home Depot has projected that
the store will be open in late 1999.

TOWN CENTER OF MILILANI is the fifth largest community shopping center on
Oahu. The Town Center, which sits on approximately 45 acres (41 acres of which
are owned by Castle), was built in phases with the first phase completed in
1987. In 1993, Wal-Mart entered into a ground lease for 11 acres and built a

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137,000 square foot store (their first store in Hawaii) which opened in 1994.
The Town Center contains approximately 441,000 rentable square feet, of which
Castle owns approximately 394,000 rentable square feet. At December 31, 1997,
approximately 97% of Castle's property was leased with a monthly weighted
average base rent of $1.18 per square foot. Approximately 50,000 square feet of
additional retail space or office space can be added to the Town Center.

DOLE PLANTATION, located just north of the town of Wahiawa on a major road
leading to the North Shore of Oahu, is a retail visitor operation, occupying two
buildings totaling approximately 11,000 square feet on approximately 250 acres
(approximately 243 acres of which is a proposed expansion area). The property is
zoned for agricultural use, but has a special use permit to operate a retail
store restricted to selling agricultural and related products. The main products
sold are clothing and other items with the Dole logo; products made in Hawaii,
and food and beverages generally made with pineapples. The Dole Plantation is
one of the busiest tourist attractions on Oahu and had approximately 952,000
visitors during 1997 and revenues of $6.4 million. A hedge maze, with the center
in the shape of a pineapple, is under construction. It is expected to be in
operation by April 1998 and has been designated by the 1998 Guinness Book of
World Records as the world's largest permanent maze.

The Leilehua, Verifone, Cannery Development, Town Center of Mililani and
Dole Plantation properties are pledged as collateral for Castle's credit
agreement with a group of banks. In connection with this agreement, an
independent third party engaged by the banks performed an appraisal for each
property in the first quarter of 1997. The total appraised value for the income
producing assets relating to these properties was $152.2 million. The
undeveloped land was not valued in connection with this process.

THE HAWAII COMMERCIAL REAL ESTATE MARKET

The Oahu downtown commercial office market has declined in the last few
years with a vacancy rate of 3.5% in 1990 climbing to a high of approximately
19% in 1996, and decreasing to approximately 15% at the end of 1997. This is the
result of a slowing economy and an increase in the development of office space
since 1991. Vacancy rates are projected to stay in double digits through the
remainder of the decade. Since 1990, the Oahu retail industry has experienced a
slow economy and the entry into the Hawaii market of large discount retailers,
which has had an adverse effect on smaller local retailers. See "The Hawaii
Economy and Housing Market" for a discussion of the Hawaii economy.

BAKERSFIELD PROPERTIES

In Bakersfield, California, Castle owns two industrial parks comprising 121
acres (Stockdale Industrial Park and Gateway Industrial Park), an industrial
warehouse (7021 Schirra Court), one office building (10000 Ming Avenue), a
shopping center (The Marketplace), and a 50% interest in a general partnership
that owns a shopping center (Town & Country). Castle owns 42 acres of
undeveloped highway commercial land at Highway 99 and Bear Mountain Boulevard
(Highway 99 @ Bear Mountain). In addition, Castle owns an undeveloped industrial
park (Stockdale Industrial Park Phase VI) which includes 285 acres of land
currently being used for agricultural purposes. The 42 acres at Highway 99 @
Bear Mountain, the two industrial parks (Stockdale Industrial Park and Gateway
Industrial Park) and the undeveloped industrial park (Stockdale Industrial Park
Phase VI) are currently being marketed for sale. The following paragraphs
describe each of the income producing properties in more detail.

7021 SCHIRRA COURT is an industrial warehouse of tilt-up construction
containing approximately 150,000 square feet. At December 31, 1997, the building
was fully leased with a monthly weighted average base rent of $0.29 per square
foot.

10000 MING AVENUE is a Class A, suburban office building constructed in 1984
containing approximately 214,000 square feet. At December 31, 1997,
approximately 62,000 square feet were leased to AERA Energy, LLC; Dole Food
Company occupied approximately 46,000 square feet and Castle's mainland
communities operations headquarters occupied approximately 13,675 square feet.
The total site consists of approximately 18.5 acres and is located in southwest
Bakersfield. At December 31, 1997, 189,000 square feet were rentable and the
building was 85% leased with a monthly weighted average base rent of $1.13 per

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square foot, excluding the space occupied by Castle. In November 1997, Castle
signed a 10-year lease with AERA Energy, LLC. On July 1, 1999, when the lease
term commences, AERA will occupy 184,000 square feet with the remaining 30,000
square feet occupied by an existing tenant with a monthly weighted average base
rent of $1.63 per square foot.

THE MARKETPLACE is a 32-acre, 300,000 square foot shopping center in
Bakersfield. The center has an "upscale" Georgian theme with a large fountain as
an amenity. Phase I (208,000 square feet) is 99% leased. Vons (a major southern
California grocery store chain) and Edwards Cinema are the anchor tenants
leasing 57,000 and 58,000 square feet, respectively. Vons opened in November of
1996 and Edwards opened in March of 1997. As of December 31, 1997, Phase I was
99% leased with a weighted average monthly rent of $1.17 per square foot.
Construction on Phase II (6,000 square feet) was completed in the first quarter
of 1998 and is 100% leased. Construction on Phase III (86,000 square feet) is
expected to be completed in the fourth quarter of 1998.

TOWN & COUNTRY is a 173,000 square foot shopping center held by a
partnership in which Castle has a 50% ownership interest. The center was built
in 1986 and includes Albertsons Grocery Store and Longs Drug Stores as the major
tenants. As of December 31, 1997, the center was 100% leased with an average
monthly rent of $1.03 per square foot.

THE BAKERSFIELD COMMERCIAL REAL ESTATE MARKET

Vacancies in southwest Bakersfield, where Castle's properties are located,
have averaged between a high of 19%, in 1991, and a current low of 8%. The
vacancy rates are projected to remain fairly constant and stay in double digits
through the remainder of the decade. See "The Bakersfield Economy and Housing
Market" for a discussion of the Bakersfield economy.

OTHER PROPERTIES

Castle owns and operates office buildings in Georgia (Premier Plaza), North
Carolina (Landmark Center and Horizons at Six Forks) and Arizona (Regents
Center) and an apartment complex in North Carolina (One Norman Square). Castle
also owns one golf course and is constructing another in San Jose, California
(Coyote Creek) and a golf course in Sierra Vista, Arizona (Pueblo Del Sol), and
a landfill in San Jose, California (Kirby Canyon) that is leased to and operated
by a third party. Except as otherwise noted below, all office leases are full
service, with excess operating expenses passed through to the tenants. The
following paragraphs describe each of the properties in more detail.

PREMIER PLAZA includes One Premier Plaza and Two Premier Plaza. One Premier
Plaza is a Class A, suburban multi-tenant office building constructed in 1988
located in the North Central sub-market of Atlanta, Georgia consisting of
approximately 188,000 square feet. At December 31, 1997, this building had an
occupancy rate of 98% with a monthly weighted average base rent of $1.51 per
square foot. Two Premier Plaza, a sister Class A building at the same location,
consists of approximately 129,000 square feet and was completed in December
1997. At February 28, 1998, it was approximately 78% leased with a monthly
weighted average base rent of $1.89 per square foot, and lease negotiations were
in process with other prospective tenants.

LANDMARK CENTER consists of two Class A office buildings constructed in 1984
and 1986, respectively, located in northeastern Raleigh, North Carolina.
Building One consists of approximately 82,000 square feet and Building Two
consists of approximately 84,000 square feet. Total site area is 7.02 acres. At
December 31, 1997, Landmark Center had an occupancy rate of 96% with a monthly
weighted average base rent of $1.44 per square foot.

HORIZON AT SIX FORKS consists of two multi-tenant office buildings and two
single-tenant buildings located in Raleigh, North Carolina. The buildings are
Class A and were constructed in 1989, 1990, and 1996. The two multi-tenant
office buildings consist of approximately 32,000 and 27,850 square feet,
respectively. The two single-tenant buildings consist of approximately 20,500
and 46,700 square feet, respectively. The total site area is 12.31 acres. At
December 31, 1997, the properties were 99% leased with

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a monthly weighted average base rent of $1.09 per square foot. Some of the
leases are full service and some are net of electric and/or janitorial expenses.

REGENTS CENTER consists of two office buildings located in Tempe, Arizona.
Regents Center I was constructed in 1989 and consists of approximately 62,000
square feet with a total site area of 4.27 acres. At December 31, 1997, it was
100% occupied by DHL Worldwide Express at a monthly base rent of $1.90 per
square foot. Regents Center II, an approximately 43,000 square foot building was
under construction at December 31, with the building shell expected to be
completed in the first quarter of 1998. The building is 100% leased to IKON
Office Solutions with rent commencing in February 1998.

ONE NORMAN SQUARE APARTMENTS located in Cornelius, North Carolina, a suburb
of Charlotte, is a 192-unit apartment complex constructed in 1993. At December
31, 1997, the property was 91% leased with an average monthly lease rent of $800
per unit.

COYOTE CREEK GOLF COURSE, located approximately 2.5 miles south of San Jose,
California, and formerly known as Riverside Golf Course, is an 18-hole daily-fee
course. In 1997 approximately 77,500 rounds were played at an average fee of $23
per round. Castle is building another 18-hole daily-fee golf course adjacent to
the existing course. This course was designed by Jack Nicklaus and is expected
to be open for play in late 1998. It is expected to average 50,000 rounds per
year at a starting green fee of $60 per round. In conjunction with the
construction of the new golf course, the existing clubhouse is being replaced
with a new approximately 12,000 square foot clubhouse that will serve both the
new Jack Nicklaus course and the existing course.

PUEBLO DEL SOL GOLF COURSE, located in Sierra Vista, Arizona, is an 18-hole
daily-fee course surrounded by Castle's residential development. In 1997,
approximately 43,000 rounds were played at an average fee of $12.50 per round.
In 1996, the Company completed a 7,000 square foot clubhouse at the Pueblo Del
Sol Golf Course and made certain improvements to the golf course.

KIRBY CANYON, located approximately 2.5 miles south of San Jose, California,
is an operating landfill leased to a large waste management company. The lease
currently expires in 2002. A dispute over the tenant's obligations under the
lease was submitted to arbitration and the arbitrator recently issued a
tentative award generally in favor of the Company. This award is expected to
become final before the end of 1998.

The Schirra Court, 10000 Ming, The Marketplace, One Premier Plaza, Landmark
Center, Horizon at Six Forks, Regents Center I, and One Norman Square properties
are pledged as collateral for Castle's credit agreement with a group of banks.
In connection with this agreement, an independent third party engaged by the
banks performed an appraisal for each property in the first quarter of 1997. The
total appraised value of these properties was approximately $108.7 million.

COMPETITION AND OTHER INDUSTRY FACTORS

Castle's real estate operations are cyclical and highly sensitive to changes
in general and local economic conditions. Such conditions are levels of consumer
confidence, employment, income, interest rates, demand for housing and office
space and the availability of financing for mortgages, acquisitions and
construction. Other factors include shifts in population, fluctuations in the
real estate market, changes in the desirability and preferences for residential,
commercial and industrial areas, increased competition in the luxury resort
market, and the effects of changes in tax laws. Land use planning, management
and development are also subject to local zoning, economic and political
constraints. The State of Hawaii's regulatory process is lengthy and
time-consuming. The process of securing proper approvals and permits can be
costly, and no assurances can be given that requested approvals will be
obtained.

The real estate industry is highly competitive, with developers and
homebuilders competing for desirable properties, financing, raw materials and
skilled labor. Castle generally competes against a number of large,
well-capitalized real estate developers for residential, commercial and
industrial projects. Castle competes for residential sales with other
developers, homebuilders and the re-sale housing market, and for commercial and
industrial sales and leases with other developers with the same or similar
products. Castle competes primarily on the basis of location, price, quality,
design, service, and reputation.

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Hawaii is home to a number of the top resort hotels in the world, therefore,
Castle's Lana'i resort hotels are in competition with these resorts for both
individual travelers and high level groups. Moreover, because Lana'i is
considered a world-class destination, it competes with resort hotels around the
world with a similar guest profile. Furthermore, increased competition in the
market can be expected as additional luxury resort hotels are opened around the
world.

In addition to the general risks of real estate development and resort
operation and development, Castle is subject to some special or more pronounced
risks with respect to its Hawaii properties. These include the availability of
construction materials and labor and the costs thereof (including transportation
costs); adverse changes in the market for real estate due to the adverse changes
in international economic conditions which lessen travel, tourism and investment
in Hawaii; costs associated with environmental matters; and delays in obtaining
permits or approvals for development. Competition for the acquisition of
developable land is particularly intense in Hawaii, largely due to the
concentration of land ownership and the limited supply of available land that is
entitled for development.

In 1995, the Hawaii Supreme Court issued a decision (commonly known in
Hawaii as the "PASH Decision") which held that native Hawaiians possess rights
to engage in traditional and customary practices on undeveloped land in Hawaii.
The PASH Decision has created some uncertainty as to what these rights are and
how they may be exercised in light of other legally recognized rights of private
property owners. The Company is sensitive to the recognition of legitimate
native Hawaiian rights and supports establishing a process whereby these rights
can be fairly determined while preserving the rights of property owners. To
date, the Company has not experienced any adverse impact on its operations as a
result of the PASH Decision. At this time, however, there can be no assurance
that a process will be established to balance these rights of native Hawaiians
with those of property owners, and that the exercise of such native Hawaiian
rights will not adversely affect the Company's development and other operations.

ENVIRONMENTAL AND REGULATORY MATTERS

Castle is subject to local, state and federal statutes, ordinances, rules
and regulations, including those protecting health and safety, archeological
preservation laws, cultural and environmental laws, including without limitation
the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act
and the Endangered Species Act. The particular environmental requirements that
apply to any given community vary greatly according to the condition and the
present and former uses of the site. Environmental laws may cause Castle to
incur substantial compliance, mitigation and other costs, may restrict or
prohibit development in certain environmentally sensitive areas, and may delay
or prevent completion of Castle's projects and adversely impact the
profitability of such projects.

Portions of Castle's properties in California, Keene's Pointe and on Lana'i
contain habitat for endangered or potentially endangered species. Some of the
properties held for development by Castle in California, Florida and Hawaii were
formerly sites of large agricultural operations, which necessarily involved the
use of pesticides and other agricultural chemicals. In addition, petroleum
operations conducted by third parties are or have been located on or adjacent to
land owned by Castle in Bakersfield and Hawaii.

Although environmental laws have not had a material adverse effect on
Castle's capital expenditures, earnings or competitive position to date, and
management is not currently aware of any environmental compliance issues that
are expected to have a material adverse effect on Castle, no assurance can be
given that such laws will not have a material adverse effect on Castle in the
future. In connection with the Distribution, Castle assumed and indemnified Dole
against any environmental liabilities associated with properties obtained from
Dole and certain other real estate projects completed by Dole prior to the
Distribution Date.

California has experienced drought conditions from time to time, resulting
in certain water conservation measures and, in some cases, rationing by local
municipalities with which Castle does business. Although Castle has not suffered
any curtailment of construction activity as a result of drought, restrictions

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on future construction activity resulting from water rationing could have an
adverse effect upon Castle's operations in California.

Changes in federal income tax laws and state and local property tax laws may
affect demand for new homes and therefore the value of developable real
property. In addition, Hawaii imposes "roll-back" taxes on agricultural land
which is reclassified for other purposes. Three years after reclassification of
agricultural land for higher urban or rural use, or earlier if the land is put
to such higher use, the owner is assessed the difference between the normal tax
rate and the preferential agricultural tax rate which was paid during the
preceding ten years, plus interest at the statutory rate.

Castle's real estate operations are subject to approval and regulation by
various federal, state and county agencies. Approval may be required with
respect to the layout, design and extent of improvements, as well as
construction, land use, water use, zoning, health, environmental and numerous
other matters. Approvals may also be required for sales and marketing
activities, sales literature, contract forms and the like. Castle is subject to
a number of laws imposing registration, filing and disclosure requirements with
respect to its residential developments, including the Lana'i resort residential
development. For example, the Federal Consumer Credit Protection Act requires,
among other things, that certain disclosures be made to purchasers about finance
charges in credit transactions. Various federal, state and local authorities
regulate the manner in which Castle conducts its sales activities and other
dealings with its customers.

LICENSES

Castle is licensed as a general building contractor by the states of Hawaii
and California and as a real estate broker in Hawaii and Florida. These licenses
must be renewed periodically. Castle holds liquor licenses for its Lana'i resort
development and the Dole Plantation in Hawaii, and for the Seven Oaks Country
Club in Bakersfield, the Coyote Creek Golf Course in San Jose, and the Pueblo
Del Sol Golf Course in Sierra Vista. Castle also holds a motor carrier
certificate for its Lana'i operations.

SOURCES AND AVAILABILITY OF RAW MATERIALS

The major raw materials and operating supplies used by the Company are
lumber, concrete, roofing material, steel frames, and plumbing and electrical
fixtures. Materials used in the construction of Castle's homes are generally
available from a number of sources. However, material prices may fluctuate due
to various factors, including demand or supply shortages.

Castle is subject to certain risks associated with the availability and cost
of materials and labor, delays in construction schedules and cost overruns.
Environmental regulations can also have an adverse impact on the availability
and price of certain materials such as lumber. Additionally, Castle's operations
are susceptible to delays caused by strikes or other events involving trade
unions, weather disturbances, and international events affecting the shipping
industry and the transportation of building materials.

Independent contractors, subcontractors and suppliers from customary trade
sources generally secure the materials and supplies used in the construction
work conducted by Castle. Construction time for Castle's homes depends on the
time of the year, the local labor situation, the availability of materials and
supplies and other factors. Castle is not presently experiencing any serious
labor or material shortages; however, the residential construction industry has
in the past experienced serious labor and material shortages, including lumber,
insulation, drywall and cement. Delays in construction of homes due to these
shortages or to inclement weather conditions could have an adverse effect upon
Castle's homebuilding operations.

EMPLOYEES

At December 31, 1997 the Company had approximately 1,557 full time
employees, including corporate staff, supervisory personnel of construction
projects, maintenance crews to service completed projects, resort and hotel
staff, as well as persons engaged in administrative, legal, finance and
accounting, engineering, land acquisition and development, and sales and
marketing activities. At December 31, 1997, certain of Castle's Hawaii employees
were affiliated with the Carpenters' Union (69 employees), the

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Laborers' Union (1 employee) and the International Longshoremen's and
Warehousemen's Union (751 employees). The Company's California and other
Mainland employees are not unionized. In addition, Castle hires contractors and
subcontractors for many of its development and homebuilding operations. The
Company believes that its relations with its employees have been satisfactory.

ITEM 2. PROPERTIES

The Company owns and maintains executive offices in Los Angeles, California
and auxiliary executive offices in Honolulu and Lana'i City, Hawaii,
Bakersfield, California and Kannapolis, North Carolina. In late 1998, Castle
plans to move its Oahu operations from their current offices located at the
Cannery Development to the Mililani Sales Center in Mililani Town. The existing
Mililani Sales Center, located in Mililani Mauka, will be renovated and expanded
with the construction of an additional 3,000 square foot of office space. The
Company and each of its subsidiaries believe that their property and equipment
are generally well maintained, in good operating condition and adequate for
their present needs.

The following is a description of the Company's significant properties.

HAWAII--RESIDENTIAL

Castle's residential landholdings and unentitled agricultural and
conservation landholdings on Oahu, as of December 31, 1997, are described in the
following table.

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STATE LAND
NUMBER OF NUMBER OF ENTITLED USE
UNITS(1) ACRES ACRES COMMISSION
PROPERTY (APPROXIMATE) (APPROXIMATE) (APPROXIMATE) CLASSIFICATION
--------------------------------------------------- --------------- ------------- --------------- ---------------

Mililani Mauka Phase I............................. 488 157 157 Urban
Mililani Mauka Phase II-A.......................... 980 177 177 Urban
Mililani Mauka Phase II-B.......................... 1,670 280 280 Urban
Royal Kunia(2)..................................... 1,118 213 213 Urban
Lalea.............................................. 149 11 11 Urban
Na Pu'u Nani(3).................................... 640 255 255 Urban
Mililani Mauka 110 Acre Site....................... -- 110 -- Urban
Kipapa Gulch(5).................................... -- 1,600 -- Agricultural(4)
Koa Ridge Mauka.................................... -- 640 -- Agricultural(4)
Koa Ridge Makai.................................... -- 570 -- Agricultural(4)
Waiawa............................................. -- 380 -- Agricultural(4)
Waipio West........................................ -- 270 -- Agricultural(4)(6)
Mililani South..................................... -- 610 -- Agricultural(4)
Whitmore........................................... -- 295 -- Agricultural(4)
Waipio Forest/Other................................ -- 5,520 -- Conservation(4)
----- ------ -----
TOTAL HAWAII....................................... 5,045 11,088 1,093

------------------------

(1) Number of units refers to the remaining (unsold and, in certain cases,
undeveloped) approved units and units on entitled land as of December 31,
1997.

(2) A wholly-owned subsidiary of Castle is the managing general partner and owns
50% of the limited partnership that owns Royal Kunia. The partnership is
controlled by Castle and included in the Company's consolidated financial
statements.

(3) Na Pu'u Nani, located on the island of Hawaii, is held by a joint venture in
which a wholly-owned subsidiary of Castle owns a 30% interest and is the
managing general partner.

(4) Property has no approvals for development. In Hawaii, obtaining the many
necessary approvals for residential and commercial developments is an
extended process, which can involve a number of different governmental
jurisdictions and agencies, considerable risk and expense, and substantial
delays. Unless and until the requisite entitlements are received and
substantial work has been commenced in reliance upon such entitlements, a
developer generally does not have any "vested rights" to develop a project.
No assurance can be given that Castle will be able to obtain any such
approvals.

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(5) Includes approximately 125 acres of non-developable open space associated
with the Mililani Mauka Phase I and Phase II-A properties.

(6) The City and County of Honolulu announced plans for a large regional park
and sports complex in Central Oahu on this property. The City and County has
commenced an appraisal of this property and announced its intention to
proceed to acquire the property through eminent domain proceedings in 1998.

MAINLAND--RESIDENTIAL

Castle's residential, open space and agricultural landholdings in
California, Florida and Arizona as of December 31, 1997 are described in the
following table.

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NUMBER OF NUMBER OF ENTITLED
LOTS(1) ACRES ACRES CURRENT
PROPERTY (APPROXIMATE) (APPROXIMATE) (APPROXIMATE) ZONING
---------------------------------------------------- --------------- ------------- --------------- --------------

BAKERSFIELD:
Seven Oaks.......................................... 1,066 378 378 Residential
Silver Creek........................................ 560 182 182 Residential
Brimhall............................................ 483 226 226 Residential
Fairways (Single Family)............................ 700 225 225 Residential
Haggin Oaks (Single Family)......................... 14 1 1 Residential
Campus Park (Single Family)......................... 195 34 34 Residential
The Oaks (Single Family)............................ 30 20 20 Residential
Renfro (Single Family).............................. 327 81 81 Residential
Ming & Gosford (Multi Family)....................... -- 31 31 Residential
Brimhall bulk land.................................. -- 458 458 Residential
West of Buena Vista................................. -- 836 -- Agricultural(2)
Brimhall freeway alignment.......................... -- 100 -- Agricultural(2)
Unentitled Open Space............................... -- 25 -- Open Space
----- ------ -----
3,375 2,597 1,636
----- ------ -----
OTHER CALIFORNIA:
San Jose............................................ -- 2,210 -- Open Space
Atascadero.......................................... 3 11 11 Residential
Mountaingate........................................ -- 282 -- Open Space
----- ------ -----
3 2,503 11
----- ------ -----
FLORIDA:
Keene's Pointe...................................... 361 206 206 Residential

ARIZONA:
Sierra Vista Country Club Community................. 1,158 286 286 Residential
Sierra Vista Other Entitled......................... 181 107 107 Residential
40 Acre Parcels--Cochise County..................... 30 1,860 -- Open Space
Unentitled--Greater Sierra Vista Area............... -- 2,784 -- Open Space
----- ------ -----
1,369 5,037 393
----- ------ -----
TOTAL MAINLAND...................................... 5,108 10,343 2,246

------------------------

(1) Number of lots refers to the remaining (unsold and, in certain cases,
undeveloped) lots that either have entitlements or are planned for future
development as of December 31, 1997.

(2) Property is not entitled. Unless and until the requisite entitlements are
received and substantial work has been commenced in reliance upon such
entitlements, a developer generally does not have any "vested rights" to
develop a project. No assurance can be given that Castle will be able to
obtain any such approvals.

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COMMERCIAL

The total land owned by Castle on the island of Oahu and designated by
Castle for commercial or industrial development is approximately 754 acres.
Approximately 542 acres are not fully entitled commercial or industrial lands
and may not all be developed for commercial or industrial uses.

In California, Castle owns approximately 672 acres of land, which are
intended for commercial use, including approximately 561 entitled acres in
Bakersfield. Castle owns approximately 164 acres in Sierra Vista, Arizona, which
are used to operate the 18-hole Pueblo Del Sol Golf Course. In addition, Castle
owns approximately 240 acres in Orlando, Florida that are planned to be used for
an 18-hole golf course.

Castle's commercial land in San Jose, California consists of 149 acres that
are used for the operation of the 18-hole Coyote Creek Golf Course, an
additional 149 acres planned to be used for a new 18-hole golf course that is
under construction, and 760 acres that have been leased to a third party for the
Kirby Canyon landfill site.

Castle's Lindero Canyon property is currently undeveloped and consists of
approximately 30,000 acres located in Westlake Village, California.

Castle's Mountaingate commercial property is located in Los Angeles County.
This consists of an approximately 67-acre closed landfill site that is being
mined for methane gas by a third party for sale to UCLA.

Castle's commercial landholdings as of December 31, 1997, are described in
the following table.

PROPERTY

HAWAII

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NUMBER
OPERATING PROPERTY LOCATION OF ACRES TYPE
-------------------------------------------------------------------- ------------------ ----------- --------------

Verifone Office Building............................................ Mililani, HI 4 Office
Leilehua Building................................................... Mililani, HI 0 Office
925 Dillingham Office Building...................................... Honolulu, HI 2 Office
801 Dillingham Office Building...................................... Honolulu, HI 2 Office
Dole Center......................................................... Honolulu, HI 10 Office
Dole Plantation Retail Visitor Center............................... Wahiawa, HI 7 Agricultural(1)
Town Center of Mililani............................................. Mililani, HI 41 Retail
-----
66
-----
-----

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CURRENT LAND
NUMBER USE
UNDEVELOPED LANDHOLDINGS LOCATION OF ACRES DESIGNATION
-------------------------------------------------------------------- ------------------ ----------- --------------

Mililani Mauka Commercial........................................... Mililani, HI 24 Urban
Mililani Technology Park............................................ Mililani, HI 226 Urban
Pine Spur........................................................... Wahiawa, HI 163 Agricultural
Dole Plantation..................................................... Wahiawa, HI 243 Agricultural
Other Iwilei........................................................ Honolulu, HI 32 Urban
-----
688
-----
-----

------------------------

(1) The property is zoned for agricultural use, but has a special use permit to
operate a retail store restricted to selling agricultural and related
products.

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MAINLAND

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NUMBER
OPERATING PROPERTY LOCATION OF ACRES TYPE
------------------------------------------------------------------- ------------------- ----------- --------------

10000 Ming Office Building......................................... Bakersfield, CA 19 Office
The Marketplace Shopping Center.................................... Bakersfield, CA 33 Commercial
Schirra Court Industrial Warehouse................................. Bakersfield, CA 8 Industrial
Premier Plaza Office Buildings..................................... Atlanta, GA 8 Office
Landmark Center Office Buildings................................... Raleigh, NC 7 Office
Horizon at Six Forks Office Buildings.............................. Raleigh, NC 12 Office
Regents Center Office Buildings.................................... Tempe, AZ 9 Office
One Norman Square Apartments....................................... Cornelius, NC 22 Multi Family
Coyote Creek Golf Courses (1 completed, 1 under construction)...... San Jose, CA 298 Golf Course
Pueblo del Sol Golf Course......................................... Sierra Vista, AZ 164 Golf Course
Keene's Pointe Golf Course (under construction).................... Orlando, FL 240 Golf Course
Kirby Canyon....................................................... San Jose, CA 760 Landfill
-----
1,580
-----
-----

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CURRENT LAND
NUMBER USE
UNDEVELOPED LANDHOLDINGS LOCATION OF ACRES DESIGNATION
-------------------------------------------------------------- ------------------------ ----------- --------------

Stockdale Industrial Park..................................... Bakersfield, CA 335 Industrial
Gateway Industrial Park....................................... Bakersfield, CA 71 Industrial
Silver Creek Commercial....................................... Bakersfield, CA 34 Commercial
Stockdale Highway............................................. Bakersfield, CA 79 Commercial
Highway 99 @ Bear Mountain.................................... Bakersfield, CA 42 Commercial
Camarillo..................................................... Camarillo, CA 5 Commercial
Paso Robles................................................... Paso Robles, CA 9 Commercial
Lindero Canyon................................................ Westlake Village, CA 30 Commercial
Mountaingate.................................................. Los Angeles, CA 67 Landfill
-----
672
-----
-----

Certain operating properties of Castle are under a mortgage in favor of the
lenders named in the Credit Agreement. Castle intends to repay the revolving
loans obtained under the Credit Agreement with cash from operations and the
proceeds of selective sales of commercial and other properties from time to
time.

RESORTS

The island of Lana'i is the sixth largest of the islands of Hawaii. Castle
owns approximately 88,181 acres or 97% of the island. Of the total acreage on
the island (approximately 90,500 acres), approximately 3,228 acres are
classified by the Hawaii State Land Use Commission as Urban, 38,197 acres are
classified as Conservation, 46,678 acres are classified as Agricultural and
2,397 acres are classified as Rural.

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ITEM 3. LEGAL PROCEEDINGS

The Company is involved from time to time in various claims and legal
actions incident to its operations. In the opinion of management, after
consultation with legal counsel, none of such claims is expected to have a
material adverse effect on the financial condition or other operating results of
the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1997.

EXECUTIVE OFFICERS OF THE REGISTRANT

Below is a list of the names and ages of all executive officers of the
Company as of March 20, 1998 indicating their positions with the Company and
their principal occupations during at least the past five years. Each of such
executive officers serves at the discretion of the Board of Directors.

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NAME AND AGE POSITIONS WITH THE COMPANY AND SUBSIDIARIES AND FIVE-YEAR EMPLOYMENT HISTORY
-------------------------------- --------------------------------------------------------------------------------

David H. Murdock (74)........... Chairman of the Board, Chief Executive Officer and Director of Castle since
October 1995. Chairman of the Board, Chief Executive Officer and Director of
Castle & Cooke Homes, Inc. (formerly a publicly traded company that was 82%
owned by Dole) from September 1992 until January 1995. Chairman of the Board,
Chief Executive Officer and Director of Dole since July 1985. Since June 1982,
Chairman of the Board and Chief Executive Officer of Flexi-Van Corporation, a
Delaware corporation wholly-owned by Mr. Murdock. Sole owner and developer of
the Sherwood Country Club in Ventura County, California, and numerous other real
estate developments; also sole stockholder of numerous corporations engaged in a
variety of business ventures and in the manufacture of textile-related products,
and industrial and building products.

Wallace S. Miyahira (65)........ President--Hawaii Residential and Commercial Operations of Castle and a Director
since December 1996. Senior Vice President of Castle from October 1995 to
December 1996. Senior Vice President of Castle & Cooke Homes, Inc. from June
1993 to January 1995. Senior Vice President of Castle & Cooke Properties, Inc.
(a subsidiary of Castle conducting real estate business in Hawaii) from 1983 to
December 1996, and President since December 1996. President of Castle & Cooke
Homes Hawaii, Inc. (a subsidiary of Castle conducting the residential real
estate business in Hawaii) from 1984 to March 1995 and from December 1995 to
present.

Lynne Scott Safrit (39)......... President--North American Commercial Operations of Castle since October 1995 and
Director since December 1995. President of Mega Management Company, Inc. since
December 1993, and President of Atlantic American Properties, Inc. since August
1989, both of which are real estate management companies wholly-owned, directly
or indirectly, by David H. Murdock.

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Bruce M. Freeman (48)........... Senior Vice President of Castle since October 1995. President of Castle & Cooke
California, Inc., a California corporation (a subsidiary of Castle conducting
the mainland communities real estate business) or its predecessor company since
September 1993. President Bakersfield/ Arizona of Castle & Cooke Homes, Inc.
from September 1993 to January 1995. President and Chief Operating Officer of
Griffin Homes, a real estate development company unaffiliated with Castle, from
1987 until 1993. In 1993, Griffin Homes was operating under a bankruptcy plan of
reorganization.

Patrick Birmingham (60)......... Senior Vice President of Castle since February 1998. President and Chief
Operating Officer of Lana'i Company, Inc. (a subsidiary of Castle conducting the
resorts business on Lana'i) since February 1998. Senior Vice President and
Director of International Development, ITT Sheraton Corporation, 1995; and
Senior Vice President and President of Europe, Africa and Middle East Division,
ITT Sheraton Corporation, 1993 to 1994.

Edward C. Roohan (34)........... Vice President and Chief Financial Officer of Castle since April 1996 and Vice
President and Corporate Controller of Castle from October 1995 to April 1996.
Vice President and Corporate Controller of Castle & Cooke Homes, Inc. from
August 1993 to January 1995. Audit Manager with Arthur Andersen LLP in Los
Angeles, California from 1990 to 1993 and employed in the Audit Division of
Arthur Andersen LLP from 1985 to 1990.

Roberta Wieman (53)............. Vice President and Corporate Secretary of Castle since April 1996. Vice
President of Dole since February 1995. Secretary of Pacific Holding Company, a
sole proprietorship of David H. Murdock, since 1992. Executive Assistant to the
Chairman of the Board and Chief Executive Officer of Dole from November 1991 to
February 1995.

Kevin R. Shaney (47) Vice President, General Counsel and Assistant Secretary of Castle since April
1996. President of Castle & Cooke Land Company (a division of Castle responsible
for land management in Hawaii) from January 1994 to October 1997. Senior Vice
President and General Counsel of Castle & Cooke Properties, Inc. and Castle &
Cooke Homes Hawaii, Inc. from March 1997 to present, and Vice President and
General Counsel from December 1990 to March 1997.

Scott Blechman (33)............. Vice President and Corporate Controller of Castle since July 1997 and Assistant
Controller of Castle from April 1996 to June 1997. Senior Auditor for Price
Waterhouse in Los Angeles, California from January 1992 to March 1996.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

As of February 28, 1998, there were approximately 10,935 holders of record
of the Company's Common Stock. The Company's Common Stock is traded on the New
York Stock Exchange ("NYSE"). The following table shows the market price range
of the Company's Common Stock for each quarterly period in 1997 and 1996:

[Enlarge/Download Table]

HIGH LOW
--------- ---------

1997
First Quarter.............................................................. $ 16.50 $ 14.88
Second Quarter............................................................. 16.56 13.13
Third Quarter.............................................................. 20.50 15.88
Fourth Quarter............................................................. 20.38 15.88
Year....................................................................... $ 20.50 $ 13.13

1996
First Quarter.............................................................. $ 16.75 $ 11.88
Second Quarter............................................................. 17.75 16.13
Third Quarter.............................................................. 17.13 14.50
Fourth Quarter............................................................. 17.13 14.88
Year....................................................................... $ 17.75 $ 11.88

The payment and amount of cash dividends on Castle Common Stock will be
subject to the discretion of Castle's Board of Directors. Castle anticipates
that it will retain all earnings for use in its business and will not pay cash
dividends on shares of Castle Common Stock in the foreseeable future.
Furthermore, the terms of the Credit Agreement restrict the payment of dividends
on the Castle Common Stock. Castle's dividend policy will be reviewed by
Castle's Board of Directors from time to time as may be appropriate and payment
of dividends will depend upon Castle's financial position, capital requirements
and Credit Agreement restrictions and such other factors as Castle's Board of
Directors deems relevant.

No equity securities of Castle were sold by Castle since the Distribution
that were not registered under the Securities Act of 1933, as amended.

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data of the Company should be read in
conjunction with the historical consolidated financial statements and notes
thereto. Consolidated historical financial information prior to December 28,
1995 relates to the business of the Company as it was operated by Dole. At
December 28, 1995, Dole transferred its real estate and resorts business to the
Company and distributed to Dole shareholders one share of the Company for every
three shares of Dole common stock ("Distribution"). Accordingly, the balance
sheet data as of December 28, 1995 reflects the Company's capitalization after
the Distribution and certain related adjustments connected with the
Distribution. The following selected consolidated historical financial data are
derived from the consolidated financial statements of the Company. The
historical consolidated financial statements of the Company prior to January 1,
1996 may not reflect the results of operations or financial position that would
have been obtained had the Company been a separate, publicly held company.

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CASTLE & COOKE, INC.
(IN THOUSANDS, EXCEPT EARNINGS (LOSS) PER COMMON SHARE AMOUNTS)

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1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------

STATEMENT OF OPERATIONS INFORMATION
Residential property sales................. $ 133,715 $ 193,660 $ 241,720 $ 246,384 $ 223,566
Resort operations.......................... 56,304 52,529 46,106 43,826 34,570
Commercial & other operations.............. 51,144 57,928 53,325 51,827 61,006
Gain on sale of income producing
properties............................... -- 4,207 400 -- --
------------ ------------ ------------ ------------ ------------
Total revenues............................. 241,163 308,324 341,551 342,037 319,142
------------ ------------ ------------ ------------ ------------
Cost of residential property sales......... 121,812 169,612 191,700 172,120 159,509
Cost of resort operations.................. 71,194 69,836 72,857 76,780 70,747
Cost of commercial & other operations...... 30,148 39,619 36,013 39,567 55,929
General & administrative expenses.......... 14,079 13,900 12,393 17,526 14,676
Write-down of certain properties to fair
value.................................... -- -- 176,000 -- --
------------ ------------ ------------ ------------ ------------
Total cost of operations................... 237,233 292,967 488,963 305,993 300,861
------------ ------------ ------------ ------------ ------------
Operating income (loss).................... 3,930 15,357 (147,412) 36,044 18,281
Net income (loss).......................... 3,873 9,213 (85,800) 22,005 10,717
Net (loss) income available to common
shareholders............................. $ (104) $ 5,013 $ (86,024) $ 22,005 $ 10,717
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Basic (loss) earnings per common
share(1)................................. $ (0.01) $ .25 $ (4.31) $ 1.10 $ .54
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Weighted average shares
outstanding(1)........................... 19,975 19,955 19,952 19,952 19,952
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
BALANCE SHEETS
Real estate developments................... $ 511,542 $ 511,358 $ 571,828 $ 528,670 $ 412,435
Property and equipment, net................ 460,919 444,435 442,162 634,656 586,880
Total assets............................... 1,024,018 1,019,822 1,071,733 1,229,765 1,050,639
Total debt................................. 186,101 152,130 195,000 -- 47,752
Preferred stock............................ -- 35,700 35,000 -- --
Total common shareholders' equity.......... 583,744 583,307 578,172 1,078,352 883,945

------------------------

(1) Prior to 1996, the earnings per common share is based on an assumed weighted
average outstanding number of shares of 19,951,578 which was the number of
common shares outstanding immediately after the December 28, 1995
distribution date.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INTRODUCTION

Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's consolidated
financial statements and related notes, included elsewhere in this report. The
Company was formed on October 10, 1995 to be the successor of the assets and
related liabilities of the real estate and resorts business of Dole Food
Company, Inc. and its subsidiaries ("Dole"). On December 28, 1995, Dole
completed the separation of its real estate and resorts business from its food
business through a pro rata distribution of the stock of the Company to its
shareholders. The consolidated statements of operations, balance sheets and cash
flows for periods prior to December 28, 1995 are those of Dole and have been
prepared on the basis that the assets and liabilities of the real estate and
resorts business were transferred using historical carrying values as recorded
by Dole and present the Company's results of operations and cash flows as
derived from Dole's historical financial statements. Historical results set
forth in the Company's consolidated financial statements should not be taken as
indicative of future operations.

OVERVIEW AND OUTLOOK

The Company's revenues are derived primarily from three sources: residential
development primarily on Oahu, Hawaii, Bakersfield, California and Sierra Vista,
Arizona; luxury resort operations on the Island of Lana'i, Hawaii; and
commercial real estate activities, including office, industrial and retail
operations, and commercial land development in Hawaii and Bakersfield, office
rentals in North Carolina, Georgia and Arizona, apartment rentals in North
Carolina, and golf courses in California and Arizona. In 1997, the Company began
development on its new community, Keene's Pointe in Orlando, Florida. Sales are
expected to commence in 1998. Historically, a significant portion of the
Company's earnings have been generated by the residential real estate operations
on Oahu, particularly from the Mililani Town master planned community. The rate
of new home sales, however, at the Company's communities on Oahu has declined
each year since 1994. As a result, the 1997 Oahu residential earnings were not a
significant portion of the consolidated earnings and the Company expects this
trend to continue in the near future. The Company believes that the slowdown was
primarily the result of the general uncertainty of prospective homebuyers as to,
and to their lack of confidence in, Hawaii's economy. The Company has responded
to the soft residential market on Oahu by increasing advertising and offering
selective price discounts and other sales incentives to attract more
home-buyers. These incentive programs have negatively impacted margins and
earnings. It is expected that Oahu sales rates will persist at their current
levels for both new homes and resales, or decline further.

At its current pace of residential development, the Company believes that
its entitled landholdings would allow it to develop homesites and build new
homes for over 8 years on Oahu and over 9 years in Bakersfield. In Bakersfield,
the Company continues to be the leading provider of homesites to both local and
national homebuilders. This strategy has increased the activity in the Company's
master-planned communities in Bakersfield, and management believes this strategy
will accelerate the realization by the Company of the value of its landholdings
in Bakersfield. Future residential expansion will come from entitling and
developing the Company's existing unentitled landholdings, and acquiring and
developing new residential projects. Management intends to diversify its
residential development over the long term by carefully expanding its operations
outside of its existing principal markets on Oahu and in Bakersfield. This
strategy will help reduce the significant reliance the Company currently has on
the economic conditions of these two markets. In connection with that strategy,
the Company formed a partnership with Golden Bear International, Inc. for the
purposes of making land acquisitions in major metropolitan markets with strong
growth trends and an under supply of high-end daily fee golf courses. In 1997,
this partnership began development on its first community, Keene's Pointe in
Orlando, Florida. The project, which is expected to commence lot sales in 1998,
will comprise over 896 acres and 1,058 homesites on land in the town of
Windermere adjacent to the Disney Preserve.

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The resort operations on the Island of Lana'i were initiated with the
opening of The Lodge at Koele in April 1990, followed by the opening of The
Manele Bay Hotel in May 1991. The Lana'i resort operations have suffered
significant operating losses since the resorts opened. The Company's management
is decreasing operating losses of the resorts segment by attempting to increase
occupancy through focused advertising and reducing annual costs through the
reduction of non-core operations and services. More importantly, the Company's
ability to earn a favorable return on its investment in Lana'i depends primarily
on the sale of luxury residential homes and lots. The sales program for the
single-family homes and the luxury townhomes at Koele, known as the Villas at
Koele, commenced in December 1994. However, the results to date have been
disappointing as only two single-family homes and six townhomes have been sold.
Certain adverse developments in 1995, including the slow pace of sales at the
Koele development, delays in obtaining permits and approvals for the Manele Bay
development in the second quarter of 1995, and disappointing occupancy results
at The Manele Bay Hotel caused management to substantially lower its estimates
of future cash flow from, and the carrying value of, the Lana'i resort
properties. The Company expects to fund any future operating and capital
requirements of Lana'i out of cash flow from the commercial and residential real
estate businesses and borrowings.

The Company continues to expand its commercial operations by developing
property in selected markets. Castle currently has over 2.4 million square feet
of rentable commercial space and expects to add an additional 1.3 million square
feet over the next year as selected properties are developed. The completed and
under construction projects include 1.6 million feet of office space, 1.4
million feet of retail space, 524,000 feet of commercial ground leases and
250,000 feet of industrial space. Castle expects to continue to grow the
commercial portfolio to provide the Company with more predictable earnings and
cash flows. The Company's commercial real estate operations are impacted by the
local markets in which it owns office, retail, industrial, apartments and
commercial parcel properties.

Residential and commercial real estate businesses in general are cyclical.
The Company's operating results have historically varied significantly from
period to period as a result of, among other things, the timing of sales in
developed projects, the availability of units for sale in new projects and the
mix of homes and homesites developed with different locations, sizes and prices.
In addition, the timing of large commercial parcel sales can contribute to large
variances in revenues and earnings.

RESULTS OF OPERATIONS

1997 COMPARED WITH 1996

REVENUE

Consolidated revenues decreased 22% to $241 million in 1997 from $308
million in 1996. Excluding the sale of approximately 3,000 acres of agricultural
land in Bakersfield for $11 million in 1996, residential property sales
decreased 27% to $134 million in 1997 from $182 million in 1996. This decrease
is primarily due to the soft Oahu market where 168 fewer units were delivered in
1997 than in 1996. Management believes this decrease in unit sales is the result
of the continuation of the prior year's general uncertainty of prospective
homebuyers as to, and to their lack of confidence in, Hawaii's economy, together
with increased competition. The difficult Oahu residential market has continued
into 1998, and the Company's management expects the Oahu closings and operating
profits for 1998 to be less than those recorded in 1997. Excluding resort
residential home and lot sales, the resort revenues increased 8% to $52 million
from $48 million in 1996 primarily due to increased occupancy rates and average
daily room rates. The occupancy rates increased 7% to 66.8% in 1997 from 62.2%
in 1996 and the average daily room rate increased 5% to $280 in 1997 from $266
in 1996. Resort residential revenues were $5 million for 1997 and 1996.
Commercial and other revenues decreased 12% to $51 million in 1997 from $58
million in 1996. The decrease is primarily due to a $7.7 million decrease in
commercial land sales in Bakersfield. In addition, the 1996 revenue attributable
to three apartment complexes in Mississippi and a Bakersfield office building
prior to their sale was $3.6 million. These decreases are partially offset by a
$2.1 million increase in The Marketplace shopping center, which opened in
Bakersfield in late 1996. The gain on sale of income producing properties in
1996 is due to the sale of three Mississippi apartment complexes and a
Bakersfield

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office building, which generated an aggregate of $37.5 million in revenues,
offset by $33.3 million in capitalized and selling cost.

COST OF OPERATIONS

Consolidated costs of operations decreased 19% to $237 million from $293
million in 1996. Excluding the agricultural land sale in 1996, the cost of
residential property sales as a percentage of residential sales increased to 91%
in 1997 from 88% in 1996. The increase is primarily due to aggressive marketing
programs and sales incentives used in the Oahu operations which have been
necessary to stimulate activity in the soft market. The 1996 agricultural land
sale generated approximately $2 million in operating income.

Excluding resort residential home sales and depreciation, the cost of resort
operations as a percentage of resort revenues improved to 111% in 1997 from 118%
in 1996. The improvement is primarily due to improved occupancy and average
daily room rates. Since a significant portion of the resort operation's costs is
fixed, these costs will not increase proportionately as occupancy and resort
revenues increase. Resort depreciation was $9 million in 1997 and in 1996.

The cost of commercial and other operations as a percentage of commercial
and other revenues decreased to 59% in 1997 from 68% in 1996. This decrease was
primarily due to Bakersfield commercial land sales in 1996. These sales had a
combined profit margin of 8%. Bakersfield commercial land sales in 1997 were not
significant.

Total interest incurred decreased to $11.8 million in 1997 from $12.6
million in 1996. Total interest capitalized into real estate developments and
property and equipment was $10.7 million in 1997 and in 1996. Total borrowings
were $186.1 million at December 31, 1997 compared to $152.1 million at December
31, 1996. The increase is primarily due to the redemption of the Company's
preferred stock totaling $36.4 million on December 8, 1997. Amortization in cost
of sales of previously capitalized interest totaled approximately $4 million and
$3 million for 1997 and 1996, respectively.

NET INCOME AND EARNINGS PER SHARE

Interest and other income increased to $3.3 million in 1997 from $1.8
million in 1996. The increase is primarily due to a gain of $1.1 million related
to the sale of an option on certain property on Oahu.

The Company's effective income tax rate decreased to 36% in 1997 from 39.5%
in 1996. The decrease is primarily due to low-income housing credits, which have
a larger impact on the effective income tax rate as earnings before taxes
decrease.

Net loss available to common shareholders was $104,000 in 1997 compared to
net income available to common shareholders of $5 million in 1996. This decrease
is primarily due to the lower operating results described above.

NEW ACCOUNTING PRONOUNCEMENT

In 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128"). This
statement revises and simplifies the computation for earnings per share and
requires certain additional disclosures. The adoption of SFAS No. 128 had no
effect on the financial position or results of operations of the Company.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information", ("SFAS No. 131"). The Company will adopt
SFAS No. 131, as required, in 1998. Since SFAS No. 131 requires additional
disclosure only, it will have no effect on the financial condition or results of
operations of the Company.

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RESULTS OF OPERATIONS

1996 COMPARED WITH 1995

REVENUE

Consolidated revenues decreased 10% to $308 million in 1996 from $342
million in 1995. Excluding the sale of approximately 3,000 acres of agricultural
land in Bakersfield for $11 million in 1996, residential property sales
decreased 25% to $182 million in 1996 from $242 million in 1995. This decrease
was primarily due to the soft Oahu market where 217 fewer units were delivered
in 1996 than in 1995. Management believes this decrease in unit sales was the
result of the continuation of the prior year's general uncertainty of
prospective homebuyers as to, and to their lack of confidence in, Hawaii's
economy, together with increased competition. Excluding resort residential home
sales, the resort revenues increased 12% to $48 million in 1996 from $43 million
in 1995 primarily due to increased occupancy rates and average daily room rates.
The occupancy rates increased to 62.2% in 1996 from 57.5% in 1995 and the
average daily room rate increased to $266 in 1996 from $251 in 1995. Resort
residential revenues increased to $5 million in 1996 from $3 million in 1995
primarily due to increased unit sales in the Koele project. Five units closed in
1996 compared to two units in 1995. The gain on sale of income producing
properties increased to $4.2 million in 1996 from $400,000 in 1995. The 1996
gain on sale of income producing properties was due to the sale of three
Mississippi apartment complexes and a Bakersfield office building which
generated an aggregate of $37.5 million in revenues, partially offset by $33.3
million in capitalized and selling cost. The 1995 gain on sale of income
producing properties was due to the sale of a Bakersfield apartment complex for
$15 million, partially offset by $14.6 million in cost.

COST OF OPERATIONS

Consolidated costs of operations, before the $176 million write-down of
certain properties to fair value, decreased 6% to $293 million in 1996 from $313
million in 1995. Excluding the agricultural land sale in 1996, the cost of
residential property sales as a percentage of residential sales increased to 88%
in 1996 from 79% in 1995. The increase was primarily due to aggressive marketing
programs and sales incentives used in the Oahu operations which were necessary
to stimulate activity in the soft market. The agricultural land sale generated
approximately $2 million in operating income.

Excluding resort residential home sales and depreciation, the cost of resort
operations as a percentage of resort revenues decreased to 118% in 1996 from
126% in 1995. The improvement is primarily due to improved occupancy and resort
revenues. Since a significant portion of the resort operation's costs are fixed
costs, these costs do not increase proportionately as occupancy and resort
revenues increase. Resort residential margins improved approximately $0.7
million, primarily due to increased sales activity, which improved the
absorption of certain residential fixed costs, which do not increase
proportionately to revenue increases. Resort depreciation decreased to $9
million in 1996 from $15 million in 1995 primarily due to the $168 million
write-down of resort assets in the third quarter of 1995 as explained below.

1996 general and administrative costs increased 10% over 1995 primarily due
to increased expenditures in 1996 for corporate expenses that were absorbed by
Dole in 1995 and to additional corporate costs of operating as a separate,
publicly held company in 1996. These increased costs were partially offset by
decreased incentive compensation related to the Oahu operations.

During the third quarter of 1995, the Company reviewed certain of its real
estate and resort properties to determine, in accordance with generally accepted
accounting principles, whether expected future cash flows (undiscounted and
without interest charges) from each property would result in the recovery by the
Company of the carrying amount of such property. The review focused on the
Lana'i resort properties due to various adverse developments affecting such
properties that occurred subsequent to the Company's 1994 fiscal year end. These
developments included the slower than expected pace of home sales at the Koele
project during 1995, delays encountered in June 1995 in obtaining permits for
the Manele Bay project, and disappointing occupancy results at The Manele Bay
Hotel during the first three quarters of 1995. Sales of resort homes on Lana'i
had progressed much more slowly than expected, due in part to a

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25% decline in the Oahu home resale market which limited the number of potential
purchasers of new homes on Lana'i. Management's 1995 budget anticipated 20
closings of Villas and nine closings of custom homes at Koele (at an aggregate
sales price of approximately $27 million). As of March 31, 1995, the Company had
entered into seven sales contracts for Villas. As of September 30, 1995,
however, the Company had not entered into any additional sales contracts and no
sales under the existing contracts had closed. Two of the Villas closed in 1995
and four closed in 1996. No additional Villas have been sold. In March 1995, the
Company received certain land use approvals relating to the Manele Bay project.
In response to a legal challenge by an opposition group, however, in June 1995 a
Hawaii court reversed the approvals on procedural grounds. This reversal forced
the Company to apply for development of multi-family and single-family
residences at Manele Bay based on earlier land use approvals. For the three
quarters ended September 30, 1995, the occupancy rate at The Manele Bay Hotel,
which had increased substantially during the prior two years, was 56%,
approximately the same as the occupancy rate for the same period during 1994 and
approximately 14% below management's plan. In management's opinion, these events
were not of a short-term or temporary nature, but were expected to adversely
affect both the amount and timing of cash flows from the Lana'i resort
properties over an extended period. These adverse developments, combined with
the recent sale at distressed prices of several luxury hotels in Hawaii, caused
management to substantially lower its estimates of future cash flow from the
Lana'i resort properties.

The decrease in estimated future cash flows from the Lana'i properties was
attributable primarily to a reduction in estimated proceeds from the sale of
homes and homesites and, to a lesser extent, from a reduction in estimated
revenues from the resort hotels and related amenities. The decrease in estimated
future cash flows led to a determination that the Lana'i resort properties were
impaired in accordance with generally accepted accounting principles. In
accordance with Statement of Financial Accounting Standards No. 67--"Accounting
for Costs and Initial Rental Operations of Real Estate Projects (SFAS 67)," each
of the Company's real estate projects was carried at the lower of cost or net
realizable value, with net realizable value deemed to be the undiscounted
estimated future cash flows from the project. Under SFAS 67, the Lana'i resort
properties would have been written down by approximately $91 million (pre-tax)
to their net realizable value at September 30, 1995. However, in the third
quarter of fiscal 1995, the Company elected to adopt Statement of Financial
Accounting Standards No. 121--"Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed of (SFAS 121)," which requires an
impaired property to be written down to fair value. The fair value of a property
for purposes of SFAS 121 is deemed to be the amount a willing buyer would pay a
willing seller for such property in a current transaction. In accordance with
SFAS 121, an impairment loss of $168 million (pre-tax) was recorded in the
quarter ended September 30, 1995 for the difference between the carrying value
and the fair value of the Lana'i resort properties. The fair value of the resort
properties was based on a combination of discounted cash flow projections and
comparable independent sales for similar assets. In addition, an impairment loss
of $8 million (pre-tax) was recorded in the residential real estate segment in
the third quarter for certain other properties that were also determined to be
impaired.

Total interest cost incurred in 1996 was $12.6 million of which $10.7
million was capitalized into real estate developments and fixed assets. Total
interest cost incurred and capitalized into real estate developments and fixed
assets was $1.7 million in 1995. The increased interest cost in 1996 as compared
to 1995 is due to debt incurred in connection with the Company's separation from
Dole in December of 1995.

NET INCOME AND EARNINGS PER SHARE

The Company's effective income tax rate decreased to 39.5% in 1996 from 41%
in 1995 due to a lower effective tax rate subsequent to the Company's separation
from Dole in December of 1995.

Excluding the write-down of certain properties to fair value in 1995, net
income available to common shareholders decreased to $5.0 million in 1996 from
$17.8 million in 1995. This decrease is primarily due to the lower operating
results described above and the $4.2 million preferred stock dividend and
accretion recognized in 1996. The preferred stock dividend and accretion relates
to the $35 million preferred stock issued in connection with the Company's
separation from Dole in December of 1995.

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NEW ACCOUNTING PRONOUNCEMENT

On January 1, 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123 "Accounting For Stock-Based Compensation"
(SFAS No. 123). This statement defines, among other things, a fair value based
method of accounting for options under an employee stock option plan. However,
it allows an entity to continue to account for such items using Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees",
under which no compensation expense is recognized. The Company elected this
option, which alternatively requires pro forma disclosure of net income and
earnings per share, as if compensation expense had been recognized. As a result,
the adoption of SFAS No. 123 in 1996 had no effect on the financial condition or
results of operations of the Company. The provisions of SFAS No. 123 are more
fully described in the Notes to Consolidated Financial Statements.

FINANCIAL CONDITION AND LIQUIDITY

LIQUIDITY AND CAPITAL RESOURCES

The Company requires capital to operate its resorts, purchase and develop
land, construct homes and homesites and to acquire, to develop and to operate
commercial property. Prior to the Company's separation from Dole in December of
1995, the Company financed its operations, acquisitions and developments
primarily from capital contributions by Dole and, to a lesser extent, borrowings
from a group of banks. In May 1997, the Company's existing credit agreement with
a syndicate of banks was amended and restated (the "Credit Agreement"). Pursuant
to this agreement, the banks agreed to provide a three-year revolving credit
facility of up to $250 million, based upon a percentage of value of certain
commercial properties and home building inventory (the "Borrowing Base"). At
December 31, 1997 the Borrowing Base allowed the Company to borrow up to $250
million. The Credit Agreement bears interest at a variable rate based on the
London Interbank Offered Rate ("LIBOR") or at an alternative rate based upon a
designated bank's prime rate or the federal funds rate. At December 31, 1997,
total borrowings under the Credit Agreement were $176 million with an interest
rate of 7.35%. At December 31, 1997, the Company was in compliance with the
various financial covenants of the Credit Agreement.

The Company's financial market risk exposures relate primarily to interest
rates. Therefore, the Company utilizes interest rate agreements to manage
interest rate exposures. The principal objective of such contracts is to
minimize the risks and/or costs associated with financial activities. The
Company does not utilize financial instruments for trading or other speculative
purposes. In October of 1997, the Company entered into interest rate swaps on
issued variable-rate debt for notional amounts totaling $80 million. This
effectively converted variable-rate debt into fixed-rate debt, with interest
rates ranging from 7.07% to 7.45% at December 31, 1997. These agreements mature
on October 1, 2002. Notional amounts do not represent cash flow, and credit risk
exposure is limited to the net interest differentials. The swap rate difference
resulted in approximately $48,000 of additional interest expense in 1997,
compared to what interest expense would have been had the debt remained at
variable rates.

In Bakersfield, the Company periodically creates assessment districts with
the City of Bakersfield to issue bonds to finance infrastructure improvements.
The bonds are repaid by property owners over a 20-year period and have interest
rates averaging approximately 7%. As of December 31, 1997, the Company had $10.2
million in bond liability.

The cash flow from each of the Company's residential developments differs
substantially from their reported earnings, depending on the status of the
development cycle. The initial years of development require significant cash
outlays for, among other things, land acquisition costs, major roads,
interchanges, infrastructure, model homes, sales and administration facilities,
landscaping and certain utilities. Since these costs are capitalized, this can
result in income reported for financial statement purposes during those initial
years significantly exceeding cash flow. However, after the initial years of
development or expansion, when these expenditures are made, cash flow can
significantly exceed income reported for financial statement purposes, as cost
of operations includes charges for substantial amounts of previously expended
costs.

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The Company expects 1998 residential development expenditures to be
approximately $75 million for Hawaii residential projects and $22 million for
Bakersfield/Arizona residential projects. Approximately $61 million of the Oahu
residential development expenditures relate to house construction and onsite
improvements. These expenditures, however, are driven by market conditions and
will fluctuate based on new home orders. In addition, the Company expects to
spend approximately $11 million in 1998 for the new Keene's Pointe residential
development in Orlando, Florida. This project will be developed through the
Company's partnership with Golden Bear International, Inc. (a company wholly
owned by professional golfer Jack Nicklaus). The project, which is expected to
consist of approximately 1,058 homesites, will feature a high-end, daily fee
Jack Nicklaus signature course as the central amenity. The initial land purchase
closed escrow in December 1997, with lot sales expected to commence in 1998.

The Company expects 1998 capital expenditures for its commercial operations
to be approximately $37 million and $10 million for the U.S. mainland and for
Oahu, respectively. Significant planned expenditures on the mainland include the
completion of Phase III of the Marketplace shopping center in Bakersfield ($4
million), commencement of construction on phase I of a 167,000 square foot
office complex in Raleigh, North Carolina ($2 million), completion of Two
Premier Plaza office building in Atlanta, Georgia ($2 million), construction of
an R.V. Park in Sierra Vista ($3 million), construction of a 100,000 square foot
build-to-suit manufacturing facility in Bakersfield ($3 million), completion of
the Coyote Creek golf course and clubhouse adjacent to the Company's existing
course in San Jose, California ($11 million), and construction of the Keene's
Pointe Golf Course ($11 million). Significant expenditures on Oahu are planned
to include additional development and tenant improvement costs at the Dole
Cannery ($8 million) and Town Center of Mililani ($2 million).

The Company expects the resort developmental and capital expenditures in
1998 to be approximately $18 million and $7 million, respectively. The
developmental expenditures primarily relate to the Manele residential
development and will be driven by sales activity.

On February 1, 1998, the Company signed an agreement to form a venture with
Horizon/Glen Outlet Centers Limited Partnership, the lessee of the Dole Cannery
Outlet Center in Honolulu, Hawaii. The Company will own a substantial majority
of the venture and control its operations. Horizon will contribute to the
venture its rights and obligations under the lease of the Dole Cannery Outlet
Center. Horizon will also contribute to the venture substantially all of its
economic interest in an outlet center in Lake Elsinore, California, subject to
existing mortgage financing, together with certain vacant property adjacent to
such outlet center. In exchange for its contributions to the venture, Horizon
will be released from all continuing obligations under the Dole Cannery lease,
including any commitments with respect to the operation of the Dole Cannery. The
closing of this transaction will not result in a gain or loss to Castle.

In the fourth quarter of 1995, as partial consideration for Dole's real
estate and resort business, the Company issued to Dole 3,500 shares of preferred
stock, $10,000 par value, of the Company ("Preferred Stock"). In connection with
the separation, Dole sold the Preferred Stock to qualified institutional buyers.
The Preferred Stock was redeemable, in whole or in part, at the option of the
holder during the 90-day period commencing on December 8, 1997. The redemption
price, payable upon the exercise of the holder's option, was the sum of the
liquidation value, cumulative and unpaid dividends, and a redemption premium of
$400 per share or $1.4 million in the aggregate. On December 8, 1997, all
outstanding shares of Preferred Stock were redeemed for $36.4 million. Preferred
stock dividends declared and paid totaled $3.3 million in 1997.

The Company believes that the funds available under the Credit Agreement and
cash generated from operations combined with selective sales of commercial and
other properties from time to time will be adequate for its short-term and
long-term cash needs. There can be no assurance, however, that the amounts
available from such sources will be sufficient. The Company may be required to
seek additional capital in the form of public equity or debt offerings or from a
variety of potential sources, including additional bank financing or assessment
district financing.

During 1997, cash provided by operations was $34 million, compared to $47
million in 1996. This decrease is primarily due to a net decrease in real estate
development in 1996. In 1997, the real estate

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development balance did not significantly fluctuate from the prior year. In
addition, the Company's net tax refund during 1997 was $10 million compared to
net income tax payments of $21 million in 1996. As noted above, the cash flow
for each of the Company's residential projects can differ substantially from
reported earnings, depending on the status of the development cycle. As of
December 31, 1997 the Company will have expended approximately 73% of the
projected infrastructure costs at Mililani Mauka while it has delivered only 49%
of the total planned homes of 6,213. As of December 31, 1997, at the Company's
Royal Kunia community, the Company had expended approximately 83% of the
projected land and infrastructure costs while it had delivered only 36% of the
total planned homes of 1,748. As of December 31, 1997, at the Company's Seven
Oaks master planned community in Bakersfield, the Company had expended
approximately 70% of the projected costs for infrastructure, golf course and
clubhouse and had delivered 30% of the planned homes and homesites of 1,514. The
slow down in the Oahu market has required the Company to focus more closely on
inventory management, staffing and infrastructure development in order to
maximize cash flow from operations.

During 1996, cash provided by operations was $47 million, compared to $44
million in 1995. This increase is primarily due to a net decrease in real estate
developments partially offset by 217 fewer residential unit sales on Oahu in
1996 as compared to 1995.

Cash used in investing activities was $33 million in 1997, which is
attributable to capital expenditures. Significant capital expenditures in 1997
include the construction of the Premier II office building ($11 million),
construction of the Marketplace shopping center second phase ($7 million),
partial construction of the Coyote Creek golf course ($6 million), construction
of a new office building adjacent to the Regents Center ($2 million), partial
construction of additional employee housing on Lanai ($1 million), and
completion of a waste water treatment facility on Lanai to primarily service the
Manele residential project ($1 million).

Cash provided from investing activities of $547,000 in 1996 includes the
sale of three Mississippi apartment complexes and one Bakersfield office
building for an aggregate amount of approximately $36 million largely offset by
capital expenditures of approximately $36 million. Significant capital
expenditures in 1996 include the Dole Cannery redevelopment (approximately $5
million), construction of the Marketplace shopping center (approximately $11.2
million), construction of the fourth office building at Horizon (approximately
$2.9 million), the cost of land and construction relating to the second office
building at Premier Plaza (approximately $2 million), construction of a waste
water treatment facility to primarily service the Manele residential project
(approximately $3.2 million) and general maintenance and/or improvements to the
resorts on Lanai (approximately $4.5 million).

The Company currently carries insurance that protects it against a variety
of potential losses, including losses from building and construction-risks,
property damage and general liabilities. The Company's insurance is subject to
various coverage limits, exclusions and deductibles. The Company believes it has
a cost-effective level of insurance coverage that is adequate in light of the
risks associated with its various businesses.

The Company uses software and related technologies that will be affected by
the date change in the Year 2000. The Company continues to assess the impact of
the Year 2000 issue on its operations, including the development of cost
estimates for, and the extent of changes required to address this issue.
Maintenance or modification costs will be expensed as incurred, while the costs
of new software will be capitalized and amortized over the software's useful
life. These costs are not expected to have a significant impact on the Company's
ongoing results of operations. Similarly, while it is not possible to quantify
the cost to the Company that may result from year 2000 problems that may be
experienced by its suppliers, the Company does not anticipate that they will
have a material adverse impact on its business.

BACKLOG

At December 31, 1997, the Company's residential operations had a backlog of
new orders of 46 homes and 405 homesites. The value of the homes and homesites
backlog at December 31, 1997 was $12 million and $20 million, respectively. The
Company anticipates delivering the majority of these homes and

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homesites during the balance of 1998. It is currently the Company's practice to
include a home or homesites in backlog at the contract price upon execution of a
sales contract and receipt of money on deposit, and to remove it from backlog
upon closing of escrow. In the past, the Company has generally allowed
prospective home purchasers who are unable to obtain financing to cancel their
contracts and has refunded their deposits. During the past five years, the
Company experienced an average home contract cancellation rate of approximately
25%. Since primarily all homesite sales are to local homebuilders, the Company
has experienced insignificant cancellations after executing a homesite sales
contract. No assurance can be given that the Company will be able to enter into
or close pre-construction sales contracts for its homes or homesites in the
future. In addition, the backlog may vary substantially because the Company's
projects are long-term and are frequently at different development stages. At
December 31, 1997, the backlog of new orders on the island of Lana'i included 10
luxury townhomes, one home and one homesite. The total value of this backlog at
December 31, 1997 was $16.4 million.

INTEREST RATES AND CHANGING PRICES

The Company's business is significantly affected by general economic
conditions in Hawaii and California and, particularly, by fluctuations in
interest rates. Higher interest rates may decrease the potential market for new
homes by making it more difficult for homebuyers to qualify for mortgages or to
obtain mortgages at interest rates acceptable to them. In Hawaii, because
pricing on "affordable" homes is based primarily on mortgage payments,
increasing mortgage interest rates will lower the prices of "affordable" homes.
Inflation also has a detrimental effect on operating costs, but can lead to
higher values for the Company's existing landholdings.

RISK FACTORS

The statements contained herein, which are not historical facts, are
forward-looking statements based on economic forecasts, strategic plans and
other factors, which, by their nature, involve risk and uncertainties. In
particular, among the factors that could cause actual results to differ
materially are the following: business conditions and general economy;
competitive factors; political decisions affecting land use permits, capital
resources, interest rates and other risks inherent in the real estate business.
For further information on factors, which could impact the Company and the
statements, see "Item 1. Business" in Part I of this document.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of Castle & Cooke, Inc.:

We have audited the accompanying consolidated balance sheets of Castle &
Cooke, Inc. (a Hawaii corporation, formerly the real estate and resorts business
of Dole Food Company, Inc.) and subsidiaries as of December 31, 1997 and
December 31, 1996 and the related consolidated statements of operations and cash
flows for the years ended December 31, 1997, December 31, 1996 and December 31,
1995. These financial statements and the schedule referred to below 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 financial statements referred to above present fairly,
in all material respects, the financial position of Castle & Cooke, Inc. and
subsidiaries as of December 31, 1997 and December 31, 1996 and the results of
their operations and their cash flows for the years ended December 31, 1997,
December 31, 1996 and December 31, 1995 in conformity with generally accepted
accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement Schedule III
-Real Estate and Accumulated Depreciation is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the basic
financial statements. The information included in the schedule for the year
ended December 31, 1997 has been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion, presents
fairly, in all material respects, the information required to be set forth
therein in relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Los Angeles, California
February 6, 1998

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CASTLE & COOKE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT EARNINGS (LOSS) PER COMMON SHARE AMOUNTS)

[Enlarge/Download Table]

PREDECESSOR
(DOLE)
1997 1996 1995
---------- ---------- -----------

REVENUES
Residential property sales................................................ $ 133,715 $ 193,660 $ 241,720
Resort operations......................................................... 56,304 52,529 46,106
Commercial and other operations........................................... 51,144 57,928 53,325
Gain on sale of income producing properties............................... -- 4,207 400
---------- ---------- -----------
Total revenues.......................................................... 241,163 308,324 341,551
---------- ---------- -----------

COST OF OPERATIONS
Cost of residential property sales........................................ 121,812 169,612 191,700
Cost of resort operations................................................. 71,194 69,836 72,857
Cost of commercial and other operations................................... 30,148 39,619 36,013
General and administrative expenses....................................... 14,079 13,900 12,393
Write-down of certain properties to fair value............................ -- -- 176,000
---------- ---------- -----------
Total costs of operations............................................... 237,233 292,967 488,963
---------- ---------- -----------
Operating income (loss)..................................................... 3,930 15,357 (147,412)
Interest and other income, net.............................................. 3,253 1,795 1,987
Interest expense, net....................................................... 1,103 1,923 --
---------- ---------- -----------
Income (loss) before income taxes........................................... 6,080 15,229 (145,425)
Income tax (provision) benefit.............................................. (2,207) (6,016) 59,625
---------- ---------- -----------
Net income (loss)........................................................... 3,873 9,213 (85,800)
Preferred stock dividend and accretion...................................... (3,977) (4,200) (224)
---------- ---------- -----------
Net (loss) income available to common shareholders.......................... $ (104) $ 5,013 $ (86,024)
---------- ---------- -----------
---------- ---------- -----------
Basic (loss) earnings per common share...................................... $ (.01) $ 0.25 $ (4.31)
---------- ---------- -----------
---------- ---------- -----------
Diluted (loss) earnings per common share.................................... $ (.01) $ 0.25 $ (4.31)
---------- ---------- -----------
---------- ---------- -----------

The accompanying notes are an integral part of these consolidated financial
statements.

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CASTLE & COOKE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

[Enlarge/Download Table]

1997 1996
------------ ------------

ASSETS

Cash and cash equivalents............................................................. $ 1,612 $ 5,663
Receivables, net...................................................................... 30,530 32,567
Real estate developments.............................................................. 511,542 511,358
Property and equipment, net........................................................... 460,919 444,435
Income tax receivable................................................................. -- 9,209
Other assets.......................................................................... 19,415 16,590
------------ ------------
Total assets...................................................................... $ 1,024,018 $ 1,019,822
------------ ------------
------------ ------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Notes payable......................................................................... $ 176,101 $ 142,130
Note payable to Dole.................................................................. 10,000 10,000
Accounts payable...................................................................... 18,162 16,630
Accrued liabilities................................................................... 28,263 30,150
Deferred taxes........................................................................ 176,357 172,819
Deferred income and other liabilities................................................. 31,391 29,086
------------ ------------
Total liabilities................................................................. 440,274 400,815
------------ ------------
Commitments and contingencies

Redeemable preferred stock, $10,000 par value; 0 and 3,500 shares issued and
outstanding at December 31, 1997 and 1996, respectively............................. -- 35,700

Common shareholders' equity:
Common stock, no par value; 19,996,288 and 19,954,725 shares issued and outstanding
at December 31, 1997 and 1996, respectively....................................... 511,616 511,075
Retained earnings................................................................... 72,128 72,232
------------ ------------
Total common shareholders' equity................................................. 583,744 583,307
------------ ------------
Total liabilities and shareholders' equity........................................ $ 1,024,018 $ 1,019,822
------------ ------------
------------ ------------

The accompanying notes are an integral part of these consolidated balance
sheets.

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CASTLE & COOKE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

[Enlarge/Download Table]

PREDECESSOR
(DOLE)
1997 1996 1995
---------- ---------- ------------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................................... $ 3,873 $ 9,213 $ (85,800)
Adjustments to reconcile net income (loss) to cash provided by operating
activities:
Write-down of certain properties to fair value.......................... -- -- 176,000
Gain on sale of income producing properties............................. -- (4,207) (400)
Depreciation............................................................ 17,594 17,420 24,713
Other................................................................... 287 472 --

Changes in operating assets and liabilities:
Decrease (increase) in receivables, net................................. 870 2,498 (5,290)
Decrease (increase) in real estate developments, net.................... 717 45,105 (51,681)
Decrease in income tax receivable....................................... 9,209 -- --
Increase (decrease) in accounts payable................................. 1,532 (10,067) (12,699)
(Decrease) increase in accrued liabilities.............................. (852) 1,138 10,729
Increase (decrease) in income taxes..................................... 3,538 (15,267) (73,890)
Net change in other assets and liabilities.............................. (2,500) 577 62,656
---------- ---------- ------------
Net cash provided by operating activities................................. 34,268 46,882 44,338
---------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of income producing properties......................... -- 36,231 15,000
Acquisition of property and equipment..................................... (33,114) (35,684) (14,625)
---------- ---------- ------------
Net cash (used in) provided by investing activities....................... (33,114) 547 375
---------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (reductions) under revolving loan agreement................ 33,971 (42,870) 185,000
Redemption of redeemable preferred stock.................................. (36,400) -- --
Preferred stock dividends paid............................................ (3,277) (3,724) --
Proceeds from exercise of stock options................................... 501 47 --
Distributions to Dole, net................................................ -- -- (226,336)
---------- ---------- ------------
Net cash used in financing activities..................................... (5,205) (46,547) (41,336)
---------- ---------- ------------
(Decrease) increase in cash and cash equivalents.......................... (4,051) 882 3,377
Cash and cash equivalents at beginning of year............................ 5,663 4,781 1,404
---------- ---------- ------------
Cash and cash equivalents at end of year.................................. $ 1,612 $ 5,663 $ 4,781
---------- ---------- ------------
---------- ---------- ------------

The accompanying notes are an integral part of these consolidated financial
statements

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CASTLE & COOKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--BASIS OF PRESENTATION

Castle & Cooke, Inc. (the "Company" or "Castle"), a Hawaii corporation, was
formed on October 10, 1995 to be the successor of the assets and related
liabilities of the real estate and resorts business of Dole Food Company, Inc.
and its subsidiaries ("Dole"). Dole transferred the assets and related
liabilities to Castle & Cooke, Inc. in December 1995. On December 28, 1995, Dole
distributed (the "Distribution") all the common shares of Castle to the
shareholders of Dole. The Dole shareholders received one share of common stock
in Castle for every three shares of Dole common stock. As consideration for the
transfer of Dole's real estate and resorts business to the Company, the Company
issued to Dole (i) all of the outstanding shares of Castle Common Stock, (ii) a
promissory note in the principal amount of $200 million, a promissory note in
the principal amount of $10 million, and (iii) 3,500 shares of redeemable
preferred stock of Castle with an aggregate liquidation value of $35 million.

The consolidated financial statements of the Company contained herein prior
to December 28, 1995 are those of Castle's predecessor (Dole) and have been
prepared on the basis that the assets and liabilities of the real estate and
resorts business were transferred using historical carrying values as recorded
by Dole and present the Company's financial position, results of operations and
cash flows as derived from Dole's historical financial statements.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and all wholly owned subsidiaries and controlled joint ventures. All significant
inter-company accounts and transactions have been eliminated. The Company's
investments in unconsolidated joint ventures in which it has less than a
controlling interest are accounted for under the equity method.

ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

GAIN ON SALE OF INCOME PRODUCING PROPERTIES

Gain on the sale of income producing properties reflects revenues generated
through the sale of income producing properties, net of capitalized costs and
selling costs associated with those properties.

REAL ESTATE DEVELOPMENTS

Construction and development costs are comprised of direct and allocated
costs, including estimated future costs for warranties and amenities. Land
acquisition, land development and other common costs are allocated to individual
units in a real estate development based on specific identification, relative
value or area method. Interest and real estate taxes incurred during the
development period are capitalized.

CARRYING VALUE OF REAL ESTATE ASSETS

The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS No. 121") in the

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CASTLE & COOKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
third quarter of 1995. Under SFAS No. 121, real estate assets are to be reviewed
for possible impairment whenever events or circumstances indicate the carrying
amount of an asset may not be recoverable such as a significant decrease in
market value, a significant adverse change in legal factors or business climate,
a significant change in intended use, an accumulation of costs significantly in
excess of the amount originally expected, or current period losses combined with
a history of losses or a forecast of continuing losses. If indications are that
the carrying amount of an asset may not be recoverable, SFAS No. 121 requires an
estimate of the future undiscounted cash flows expected to result from the use
of the asset and its eventual disposition. If these cash flows are less than the
carrying amount of the asset, an impairment loss must be recognized to write
down the asset to an amount a willing buyer would pay for such property in a
current transaction, that is, other than in a forced or liquidation sale.

REVENUE RECOGNITION

Revenue from the sale of land and residential units is generally recognized
when closings have occurred, required down payments are received and other
criteria for sale and profit recognition are satisfied in accordance with
generally accepted accounting principles governing profit recognition for real
estate transactions. In situations where the Company has continuing involvement
with the property sold, revenues are recognized by the percentage-of-completion
method as development and construction proceed, provided that cost and profit
can be reasonably estimated. The cost of residential property sales includes
selling and marketing expenses.

Rent revenue from commercial and retail properties is generally recognized
on the straight-line basis over the terms of leases. Revenue from the resort
hotels is generally recognized when due from the guests.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
estimated useful life as follows:

[Download Table]

9-40
Land improvements, buildings and improvements.................... years
Equipment........................................................ 3-5 years

The costs and accumulated depreciation of property retired or otherwise
disposed of in the normal course of business are removed from the accounts, and
any gain or loss is recognized in the year of the disposition. Property and
equipment includes, among other things, the resort hotels on Lana'i, commercial
office complexes, apartment buildings and other rental properties.

INCOME TAXES

Deferred income taxes are recognized for the tax consequences of temporary
differences between financial statement carrying amounts and the tax bases of
assets and liabilities by applying enacted statutory tax rates to these
differences.

EARNINGS PER COMMON SHARE

In 1997, the Company adopted SFAS No. 128, "Earnings Per Share," which
established standards for computing and presenting earnings per share. The
adoption of SFAS No. 128 had no effect on earnings per share amounts previously
reported for the years ended 1996 and 1995. Basic earnings per share was
computed by dividing net income (loss), after reduction for preferred stock
dividends and accretion, by the sum of (1) the weighted average number of shares
of common stock outstanding during the year and

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CASTLE & COOKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(2) the weighted average number of non-employee director grants outstanding
during the year. The computation of diluted earnings per share further assumes
the dilutive effect of stock options. The weighted average number of shares of
common stock outstanding were 19,971,381 and 19,953,938 for 1997 and 1996,
respectively. The weighted average number of shares of common stock outstanding
is assumed to be 19,951,578 for 1995 which was the number of common shares
outstanding immediately after the December 28, 1995 distribution date. The
weighted average number of non-employee director grants outstanding was 3,841
and 1,331 for 1997 and 1996, respectively. There were no non-employee director
grants outstanding in 1995.

The 1996 computation of dilutive earnings per share includes the assumed
exercise of 66,207 options outstanding. The 1997 and 1995 computation of
dilutive earnings per share does not include the assumed exercise of 62,971 and
18,055 options outstanding, respectively, because their effect was
anti-dilutive.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and time deposits which have
original maturities of three months or less at the time of purchase.

FINANCIAL INSTRUMENTS

The Company utilizes interest rate agreements to manage interest rate
exposures. The principal objective of such contracts is to minimize the risks
and/or costs associated with financial activities. The Company does not utilize
financial instruments for trading or other speculative purposes. The
counterparties to these contractual arrangements are major financial
institutions with which the Company also has other financial relationships.

FAIR VALUE OF FINANCIAL INSTRUMENTS

For short-term financial instruments, the historical carrying amount is a
reasonable estimate of fair value. For long-term financial instruments not
readily marketable (primarily receivables and notes payable), fair values were
estimated based upon discounted future cash flows at prevailing interest rates.
For interest rate swaps, the fair value of the interest rate swaps is the
settlement amount, based on estimates obtained from dealers. Based on these
estimates, the Company would be required to pay approximately $698,000 to
terminate its swap agreements as of December 31, 1997.

It is estimated that the carrying value of the Company's other financial
instruments are not materially different from their recorded amounts as of
December 31, 1997 and December 31, 1996.

ENVIRONMENTAL COSTS

The Company incurs on-going environmental costs, including consulting fees
for environmental studies and investigations. Costs incurred in connection with
operating properties and properties previously sold are expensed. Expenditures
that relate to undeveloped land are capitalized as part of development costs.
Reserves for estimated costs are recorded when environmental remediation efforts
are probable and the costs can be reasonably estimated. In determining the
reserves, the Company uses the most current information available, including
similar past experiences, available technology, regulations in effect, the
timing of remediation and cost sharing arrangements, if any. The environmental
reserves are based on management's estimate of the most likely cost to be
incurred and are reviewed periodically and adjusted as additional or new
information becomes available. Environmental reserves and environmental
remediation costs charged to operations for 1997, 1996 and 1995 were not
significant.

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CASTLE & COOKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS

In 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS" No. 128"). This
statement revises and simplifies the computation for earnings per share and
requires certain additional disclosures. The adoption of SFAS No. 128 had no
effect on the financial position or results of operations of the Company.

RECLASSIFICATIONS

Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 presentation.

NOTE 3--SUBSEQUENT EVENT

NOTE 4--RECEIVABLES

The following is a summary of receivables (in thousands):

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1997 1996
---------- ---------

Notes receivable bearing interest of 7% to 11%, secured by real
property and improvements............................................ $ 12,337 $ 14,147
Receivable from joint venture partner.................................. 8,010 6,319
Escrow holdbacks....................................................... 1,520 3,163
Other receivables...................................................... 10,153 10,181
Less allowance for doubtful accounts................................. (1,490) (1,243)
---------- ---------
$ 30,530 $ 32,567
---------- ---------
---------- ---------

The weighted average interest rates of all notes receivable were
approximately 9.0% at December 31, 1997 and 9.2% at December 31, 1996.

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CASTLE & COOKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--REAL ESTATE DEVELOPMENTS

Real estate developments consist of the following (in thousands):

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1997 1996
---------- ----------

Finished inventory.................................................... $ 84,339 $ 71,027
Development projects in progress...................................... 233,479 242,994
Unimproved lands held for future development.......................... 193,724 197,337
---------- ----------
$ 511,542 $ 511,358
---------- ----------
---------- ----------

Finished inventory included $13.6 million and $8.3 million of homes reserved
by deposit or sales contract as of December 31, 1997 and December 31, 1996,
respectively. Additionally, finished inventory included $4.1 million and $5.5
million of homesites reserved by option contract as of December 31, 1997 and
December 31, 1996, respectively. Development projects in progress consist
principally of land, land improvement costs and, if applicable, construction
costs for houses and condominiums, which are in various stages of development
but not ready for sale.

The Company constructed a country club and golf course in its Seven Oaks
master planned community in Bakersfield, California. These and other related
assets will be contributed by the Company to the Seven Oaks Country Club, a
nonprofit organization, at the earlier of the time at which the club has 450
active golf memberships or October 31, 2002. The Company has the right to sell
memberships in the club and is obligated to fund operating shortfalls until the
club is transferred. The operating cash shortfalls totaled approximately $1.8
million, $1.6 million and $1.6 million for 1997, 1996 and 1995, respectively,
and were capitalized. The Company's net investment in these amenities included
in real estate developments was $30 million and $31.6 million at December 31,
1997 and December 31, 1996, respectively. Over the life of the project, the
Company expects to invest approximately $44 million, which includes an estimate
of the future funding requirements for the golf course and country club. Over
the life of the project, $13 million of this investment is expected to be
recovered from the sale of country club memberships. The balance of the costs of
approximately $31 million is being amortized through cost of residential
property sales as homesites and homes are sold. Management believes such costs
will be recovered through the sale of the residential lots surrounding the
country club.

NOTE 6--PROPERTY AND EQUIPMENT

Major classes of property and equipment were as follows (in thousands):

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1997 1996
----------- -----------

Land and land improvements.......................................... $ 244,567 $ 233,341
Buildings and improvements.......................................... 252,057 235,916
Equipment........................................................... 95,453 95,299
Construction in progress............................................ 26,989 20,708
----------- -----------
619,066 585,264
Accumulated depreciation............................................ (158,147) (140,829)
----------- -----------
$ 460,919 $ 444,435
----------- -----------
----------- -----------

Depreciation expense for 1997, 1996 and 1995 totaled $18 million, $17
million and $25 million, respectively.

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CASTLE & COOKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--PROPERTY AND EQUIPMENT (CONTINUED)
During 1995, Castle reviewed certain of its real estate and resort holdings
to determine whether expected future cash flows (undiscounted and without
interest charges) from each property would result in the recovery of the
carrying amount of such property. The review focused on the Lana'i resort
properties due to certain adverse developments affecting such properties that
occurred subsequent to Castle's 1994 fiscal year end. These developments
included the slower than expected pace of home sales at the Koele project during
1995, delays encountered in June 1995 in obtaining necessary permits for the
Manele Bay project, and disappointing occupancy results at the Manele Bay Hotel
during the third quarter of 1995. Under Statement of Financial Accounting
Standards No. 67--"Accounting for Costs and Initial Rental Operations of Real
Estate Projects" ("SFAS No. 67"), the Lana'i resort properties would have been
written down by approximately $91 million to their net realizable value as of
September 30, 1995. However, in the third quarter of 1995, Castle elected to
adopt SFAS No. 121 , which requires impaired property to be written down to fair
value. In accordance with SFAS No. 121, an impairment loss of $168 million
(pre-tax) was recorded in the accompanying statements of operations. The fair
value of the resort properties was based on a combination of discounted cash
flow projections and comparable independent sales for similar assets. In
addition, an impairment loss of $8 million (pre-tax) was recorded in the third
quarter of 1995 for certain other residential properties that were also
determined to be impaired.

NOTE 7--NOTES PAYABLE

Notes payable consists of the following (in thousands):

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1997 1996
---------- ----------

Borrowings under revolving loan agreements, at an average interest
rate of 7.6% and 7.4% in 1997 and 1996, respectively................ $ 176,000 $ 142,000
Other................................................................. 101 130
---------- ----------
Total notes payable................................................... 176,101 $ 142,130
---------- ----------
---------- ----------

In May 1997, the Company's existing credit agreement with a syndicate of
banks was amended and restated (the "Credit Agreement"). Pursuant to this Credit
Agreement, the banks agreed to provide a three-year revolving line of credit of
up to $250 million, based upon a percentage of the value of certain commercial
properties and homebuilding inventory (the "Borrowing Base"). The Credit
Agreement bears interest at a variable rate based on the London Interbank
Offered Rate ("LIBOR") or at an alternative rate based upon a designated bank's
prime rate or the federal funds rate. The Credit Agreement contains customary
covenants including, but not limited to, negative pledges; limitations on
consolidations; sale of assets; limitations on other debt; financial covenants
relating to tangible net worth, interest coverage, cash flow and inventory
levels. At December 31, 1997, the Company was in compliance, and the Borrowing
Base was $250 million with a book value of $416 million.

In October of 1997, the Company entered into interest rate swaps on issued
variable-rate debt for notional amounts totaling $80 million. This effectively
converted variable-rate debt into fixed-rate debt, with interest rates ranging
from 7.07% to 7.45% at December 31, 1997. These agreements mature on October 1,
2002. Notional amounts do not represent cash flow, and credit risk exposure is
limited to the net interest differentials. The swap rate difference resulted in
approximately $48,000 of additional interest expense in 1997, compared to what
interest expense would have been had the debt remained at variable rates.

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CASTLE & COOKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--NOTES PAYABLE (CONTINUED)
In December 1995, the Company issued a $10 million term note to Dole in
connection with the Distribution. The unsecured note bears interest at 7% per
annum and matures on December 8, 2000.

The total interest paid, net of capitalized interest, was $822,000 and $1.5
million in 1997 and 1996, respectively. All interest paid in 1995 was
capitalized.

The following is a summary of interest costs incurred (in thousands):

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1997 1996 1995
--------- --------- ---------

Capitalized in real estate developments and property and
equipment................................................... $ 10,745 $ 10,696 $ 1,708
Expensed...................................................... 1,103 1,923 --
--------- --------- ---------
$ 11,848 $ 12,619 $ 1,708
--------- --------- ---------
--------- --------- ---------

NOTE 8--LEASES

The Company receives rental income from the leasing of retail, office and
industrial building space under operating leases. Future minimum rentals, under
non-cancelable operating leases over the next five years (excluding tenant
reimbursements of operating expenses) as of December 31, 1997, were as follows
(in thousands):

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COMBINED RETAIL
AND OFFICE LEASE WITH
BUILDING SPACE DOLE
--------------- -----------

1998............................................................. $ 25,544 $ 173
1999............................................................. 24,743 --
2000............................................................. 22,716 --
2001............................................................. 20,459 --
2002............................................................. 17,590
Thereafter....................................................... 112,679 --
--------------- -----
$ 223,731 $ 173
--------------- -----
--------------- -----

The leases also provide for additional rentals based on increases in
operating expenses. These increases are generally payable in equal installments
throughout the year, based on estimated increases, with any differences being
adjusted in the succeeding year.

NOTE 9--INCOME TAXES

The provision for income taxes and the related liability are reflected in
the consolidated financial statements presented herein as if the Company had
been operating on a stand-alone basis prior to the December 28, 1995
Distribution.

In connection with the Distribution, the assets were recorded by the Company
at a new tax basis equal to the aggregate fair market value of the stock and
notes issued to Dole and the liabilities that were assumed by the Company in
connection with the transaction. The difference in the new tax basis in
comparison to the historical book value of the real estate and resorts assets
recorded in the financial statements created a large deferred tax liability.
Dole has agreed to indemnify and hold the Company harmless for any federal,
state and local income taxes which may be imposed for all periods prior to the

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CASTLE & COOKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--INCOME TAXES (CONTINUED)
Distribution that have not been paid or provided for in the Company's
consolidated balance sheet. In 1997, the Company made income tax payments of
approximately $4.6 million and received income tax refunds of approximately
$15.1 million. In 1996, the Company made income tax payments of approximately
$21 million.

The components of the income tax expense (benefit) were as follows (in
thousands):

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1997 1996 1995
--------- --------- ----------

Current taxes:
Federal................................................... $ 4,629 $ 11,495 $ 12,177
State..................................................... 602 1,360 2,088
--------- --------- ----------
Total................................................... $ 5,231 $ 12,855 $ 14,265
--------- --------- ----------
Deferred taxes:
Federal................................................... $ (2,676) $ (6,116) $ (63,077)
State..................................................... (348) (723) (10,813)
--------- --------- ----------
Total................................................... $ (3,024) $ (6,839) $ (73,890)
--------- --------- ----------
Provision (benefit) for income taxes........................ $ 2,207 $ 6,016 $ (59,625)
--------- --------- ----------
--------- --------- ----------

The Company's reported income tax expense varied from the expense calculated
using the U.S. federal statutory income tax rate for the following reasons (in
thousands):

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1997 1996 1995
--------- --------- ----------

Expense (benefit) computed at U.S. federal statutory income tax
rate......................................................... $ 2,128 $ 5,330 $ (50,899)
State and local income tax, net of federal income tax
benefit...................................................... 244 630 (8,726)
Other.......................................................... (165) 56 --
--------- --------- ----------
Reported income tax (benefit) expense.......................... $ 2,207 $ 6,016 $ (59,625)
--------- --------- ----------
--------- --------- ----------

Deferred income taxes result from the temporary differences in the financial
and tax bases of assets and liabilities. The sources of deferred tax liabilities
(assets) and the tax effect of each were comprised of the following (in
thousands):

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1997 1996
---------- ----------

Differences between book values assigned in prior acquisitions and tax
values.............................................................. $ 174,148 $ 171,048
Other, net............................................................ 2,209 1,771
---------- ----------
$ 176,357 $ 172,819
---------- ----------
---------- ----------

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CASTLE & COOKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--INCOME TAXES (CONTINUED)
Total deferred tax liabilities and deferred tax (assets) were as follows (in
thousands):

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1997 1996
---------- ----------

Total deferred tax liabilities........................................ $ 177,612 $ 174,465
Total deferred tax assets............................................. (1,255) (1,646)
---------- ----------
$ 176,357 $ 172,819
---------- ----------
---------- ----------

NOTE 10--PENSION AND RETIREMENT PLANS

Certain full-time employees participate in qualified defined benefit pension
plans. Certain highly paid employees also receive a portion of their benefits
from a non-qualified defined benefit pension plan. Benefits under these plans
are generally based on each employee's eligible compensation and years of
service. The Company's funding policy is to fund the service costs of its plan,
preferably on a tax-deductible basis.

The net pension cost for the Company's pension plans includes the following
components (in thousands):

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1997 1996 1995
--------- --------- ---------

Service cost benefits earned during the year.................. $ 681 $ 781 $ 759
Interest cost on projected benefit obligation................. 1,330 1,258 1,180
Actual (return) loss on funded plan assets.................... (2,059) (1,480) (3,321)
Other, net.................................................... 658 211 2,202
--------- --------- ---------
Net pension cost.............................................. $ 610 $ 770 $ 820
--------- --------- ---------
--------- --------- ---------

The funded status of the Company's pension plans at December 31, 1997 and
December 31, 1996 is summarized as follows (in thousands):

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1997 1996
---------- ----------

Actuarial present value of accumulated benefit obligations:
Vested.............................................................. $ 18,179 $ 15,888
Non-vested.......................................................... 635 425
---------- ----------
Total............................................................. $ 18,814 $ 16,313
---------- ----------
---------- ----------

Actuarial present value of projected benefit obligations.............. $ 20,037 $ 18,040
Plan assets at fair value, primarily stocks and bonds................. (18,068) (16,628)
---------- ----------
Excess of projected benefit obligations over plan assets.............. 1,969 1,412
Unamortized prior service cost........................................ (26) (21)
Unrecognized net gain................................................. 448 876
Unrecognized net obligations.......................................... (52) (69)
---------- ----------
Accrued pension liability............................................. $ 2,339 $ 2,198
---------- ----------
---------- ----------

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CASTLE & COOKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--PENSION AND RETIREMENT PLANS (CONTINUED)
The projected benefit obligations for the plans were determined using
discount rates of 7.25% for 1997 and 7.5% for 1996. The assumed rate of increase
in future compensation levels is 4.0% for 1997 and 4.5% for 1996.

Effective January 1, 1993, post retirement medical and life insurance
benefits were eliminated; however, certain full time employees who met minimum
age and service requirements continue to be eligible for the post-retirement
medical and life insurance benefits. The Company pays the full cost of
participants' life insurance coverage and makes contributions based on years of
service to the cost of participants' medical insurance coverage, subject to a
maximum annual contribution.

The status of the Company's post-retirement benefit plan is summarized as
follows (in thousands):

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1997 1996
--------- ---------

Accumulated post-retirement benefit obligations ("APBO"):
Retirees................................................................... $ 2,069 $ 1,806
Other fully eligible participants.......................................... 235 208
Other active employees..................................................... 338 491
--------- ---------
2,642 2,505
Unrecognized gain.......................................................... 173 278
--------- ---------
Accrued post-retirement benefit cost included in accrued expenses.......... $ 2,815 $ 2,783
--------- ---------
--------- ---------

The post-retirement benefit cost includes the following components (in
thousands):

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1997 1996 1995
--------- --------- ---------

Service cost-benefits earned during the year.......................... $ 12 $ 18 $ 25
Interest cost on APBO................................................. 185 178 217
Other, net............................................................ -- (5) --
--------- --------- ---------
Net post-retirement benefit cost...................................... $ 197 $ 191 $ 242
--------- --------- ---------
--------- --------- ---------

The weighted average discount rates used to determine the accumulated
post-retirement benefit obligations were 7.25% and 7.5% at December 31, 1997 and
1996, respectively. An annual rate of increase in the per capita cost of covered
health care benefits of 9% in 1998 decreasing to 5% in 2006 and thereafter was
assumed in determining the APBO for 1997 and 9.50% in 1997, decreasing to 5% in
2006 was assumed in determining the APBO for 1996. Increasing the assumed health
care cost trend rate by one percentage point would not materially affect the
Company's APBO or the service and interest cost components of net
post-retirement benefit costs for 1997 or 1996. The plans are not funded.

Retirement benefits are provided to most salaried and hourly non-bargaining
Company employees under a 401(k) savings plan. The terms of this plan provide
for the Company to partially match tax deferred employee contributions.
Substantially all full-time salaried and hourly employees meeting age and length
of service requirements are eligible to participate in the plan. Total Company
contributions to these plans for 1997, 1996 and 1995 were $468,000, $467,000 and
$352,000, respectively.

The Company also participates in multi-employer pension plans provided under
certain of its collective bargaining agreements which also provide for pension
benefits. Total contributions to these plans were $232,000, $338,000 and
$530,000 for 1997, 1996 and 1995, respectively. Information from the plans'

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CASTLE & COOKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--PENSION AND RETIREMENT PLANS (CONTINUED)
administrators is not available to permit the Company to determine its share of
unfunded vested benefits, if any. The Company has no intention of withdrawing
from any of these plans, nor is there any intention to terminate such plans.

NOTE 11--REDEEMABLE PREFERRED STOCK

Authorized Redeemable 10% Preferred Stock consists of 5,000 shares of
$10,000 par value. The holders of the Preferred Stock are entitled to receive,
when declared, cash dividends at a rate of $1,000 per share per year. Such
dividends are cumulative, accrue without interest from the date of issuance and
are payable quarterly in arrears on the first day of each January, April, July,
and October.

During 1995, the Company issued 3,500 shares of the Preferred Stock, which
had a liquidation value of $10,000 per share plus accrued and unpaid dividends.
The stock was not convertible into any other class of stock and the Preferred
stockholders had limited voting rights. The Preferred Stock was redeemable, in
whole or in part, at the option of the holder during the 90-day period
commencing on December 8, 1997. The redemption price, payable upon the exercise
of the holder's option, was the sum of the liquidation value cumulative and
unpaid dividends, and a redemption premium of $400 per share. The excess of the
preference value over the carrying value was accreted by periodic charges to
retained earnings over the initial life of the issue. On December 8, 1997, the
outstanding shares were redeemed for $36.4 million.

Preferred stock dividends declared and paid totaled $3.3 million and $3.5
million for 1997 and 1996, respectively. The dividend declared for the period
from issuance (December 8, 1995) to December 31, 1995 was paid in 1996.

Changes in Preferred Stock are summarized as follows (in thousands):

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REDEEMABLE
PREFERRED
SHARES STOCK
--------- -----------

Balance at December 31,1994............................................ -- --
Issuance............................................................. 3,500 $ 35,000
--------- -----------
Balance at December 31, 1995........................................... 3,500 35,000
Accretion of redemption premium...................................... -- 700
--------- -----------
Balance at December 31, 1996........................................... 3,500 35,700
Accretion of redemption premium...................................... -- 700
Redemption........................................................... (3,500) (36,400)
--------- -----------
Balance at December 31, 1997........................................... -- --
--------- -----------
--------- -----------

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CASTLE & COOKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--COMMON SHAREHOLDERS' EQUITY

Authorized capital of Castle consists of 50,000,000 shares of no par value
common stock, 1,000,000 shares of no par value Preference Stock, and 1,000,000
shares of no par value Preferential Stock.

Changes in shareholders' equity are summarized as follows (in thousands,
except share data):

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TOTAL COMMON
COMMON RETAINED SHAREHOLDERS'
SHARES STOCK EARNINGS EQUITY
------------ ----------- ---------- -------------

Balance, December 31, 1994.................................. -- $ 925,109 $ 153,243 $ 1,078,352

Net loss.................................................. (85,800) (85,800)
Preferred stock dividend.................................. (224) (224)
Net effect of distribution................................ 19,951,578 (187,820) -- (187,820)
Distributions to Dole, net................................ -- (226,336) -- (226,336)
------------ ----------- ---------- -------------
Balance, December 31, 1995.................................. 19,951,578 510,953 67,219 578,172

Net income................................................ 9,213 9,213
Preferred stock dividend and accretion.................... (4,200) (4,200)
Issuance of common stock under incentive plans............ 3,147 122 -- 122
------------ ----------- ---------- -------------
Balance, December 31, 1996.................................. 19,954,725 511,075 72,232 583,307

Net income................................................ 3,873 3,873
Preferred stock dividend and accretion.................... (3,977) (3,977)
Issuance of common stock under incentive plans............ 41,563 541 -- 541
------------ ----------- ---------- -------------
Balance, December 31, 1997.................................. 19,996,288 $ 511,616 $ 72,128 $ 583,744
------------ ----------- ---------- -------------
------------ ----------- ---------- -------------

Prior to the Distribution, the Company was part of a centralized cash
management system controlled by Dole. Accordingly, cash receipts and
disbursements were made through Dole up until December 28, 1995. The Company
borrowed amounts under this centralized system. No interest was charged related
to these inter-company borrowings.

Detailed below is an analysis of the inter-company account activity
including average borrowings by year (in thousands):

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AVERAGE
INTER-COMPANY ACTIVITY--1995 AMOUNTS BALANCE
--------------------------------------------------------------------- ----------- ----------

Cost allocations..................................................... $ --
Cash advances........................................................ 584,369
Cash payments........................................................ (766,128)
Other................................................................ 1,647
Capitalized inter-company balance.................................... (46,224)
----------- ----------
Total for 1995..................................................... $ (226,336) $ 811,000
----------- ----------
----------- ----------

NOTE 13--STOCK OPTIONS AND AWARDS

The Castle & Cooke, Inc. 1995 Stock Option and Award Plan ("1995 Plan")
provides for the granting of incentive stock options, non-qualified stock
options, stock appreciation rights, restricted stock awards,

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CASTLE & COOKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13--STOCK OPTIONS AND AWARDS (CONTINUED)
performance share awards and stock bonuses to officers. In October 1995, the
Financial Accounting Standards Board issued SFAS No. 123--"Accounting for
Stock-Based Compensation" ("SFAS No. 123"). This statement defines, among other
things, a fair value based method of accounting for options under an employee
stock option plan. However, it also allows an entity to continue to account for
such items using APB Opinion No. 25--"Accounting for Stock Issued to Employees,"
under which no compensation expense is recognized. The Company elected this
option, which alternatively requires pro forma disclosure of net income and
earnings per share as if compensation expense had been recognized. The pro forma
results determined in accordance with SFAS No. 123 are as follows:

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1997 1996 1995
--------- --------- ----------

Net (loss) income available to common
shareholders: As reported............. $ (104) $ 5,013 $ (86,024)
Pro forma............... $ (547) $ 4,805 $ (86,075)
Basic earnings (loss) per share: As reported............. $ (0.01) $ 0.25 $ (4.31)
Pro forma............... $ (0.03) $ 0.24 $ (4.31)

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes Option Pricing Model. The assumptions used for the risk free
interest rate were 6.37%, 5.54% and 7.44% for 1997, 1996 and 1995, respectively.
The assumptions used for the dividend yield and expected life were zero percent
and seven years, respectively, for all years. The assumption used for expected
volatility rate was 28.23%, 29.56% and 29.56% for 1997, 1996 and 1995,
respectively.

Because SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.

The 1995 Plan is intended to provide an incentive to officers and key
employees to remain with the Company. Stock options may be exercised for up to
ten years from the date of grant, as determined by the Corporate Compensation
and Benefits Committee of the Board of Directors which administers the plan. The
committee has the authority to determine the officers and key employees to whom
awards will be made and other terms and conditions of the awards. In 1995, the
Company reserved 1,000,000 common shares for the 1995 Plan, which was reduced to
988,202 in 1996.

Stock options under Dole's 1982 and 1991 Stock Option and Award Plan, which
were not exercised prior to December 28, 1995, were adjusted in connection with
the separation of the real estate and resorts business from the food business.
Option holders who become employees of Castle after the Distribution received
options to purchase shares of Castle Common Stock shares in lieu of their Dole
options. The number of shares subject to, and the exercise price of, each option
were adjusted and as a result, options to purchase approximately 287,465 shares
of common stock of the Company at exercise prices ranging from $10.49 to $16.79
per share were issued upon conversion of preexisting Dole options. At December
31, 1997, a total of 459,478 common shares are available for future grants.

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CASTLE & COOKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13--STOCK OPTIONS AND AWARDS (CONTINUED)
Change in stock options during 1997, 1996 and 1995 for the Company was as
follows:

[Enlarge/Download Table]

1997 1996 1995
---------------------- ----------------------- ----------------------
WTD. AVG. WTD. AVG. WTD. AVG.
SHARES EX PRICE SHARES EX PRICE SHARES EX PRICE
--------- ----------- ---------- ----------- --------- -----------

Beginning of year--outstanding................ 385,743 $ 13.25 287,465 $ 14.56 297,561 $ 14.63
Granted....................................... 149,800 $ 16.38 226,000 $ 12.38 15,102 $ 11.50
Exercised..................................... (41,563) $ 12.12 (3,147) $ 14.96 (17,702) $ 12.94
Canceled...................................... (9,966) $ 14.10 (124,575) $ 14.64 (7,496) $ 15.24
--------- ----------- ---------- ----------- --------- -----------
End of year--outstanding...................... 484,014 $ 14.30 385,743 $ 13.25 287,465 $ 14.56
--------- ----------- ---------- ----------- --------- -----------
Exercisable at end of year.................... 223,051 $ 13.94 192,059 $ 14.13 237,969 $ 14.98
--------- ----------- ---------- ----------- --------- -----------
--------- ----------- ---------- ----------- --------- -----------

The options outstanding as of December 31, 1997 have exercise prices between
$12.08 and $16.79 and a weighted average remaining term of 7 years. The options
exercisable as of December 31, 1997 have exercise prices between $12.08 and
$16.78 and a weighted average remaining term of 6 years.

The historical stock option data for the Dole options has been adjusted and
restated to reflect the effect of the Distribution on the number of shares
covered by each option and the exercise price per share of each option. The Dole
options of the real estate and resort employees that have been converted have
been reflected as Castle options in the stock option table.

The Castle & Cooke, Inc. Deferred Stock Compensation Plan for Non-Employee
Directors (the "Plan") provides for $10,000 in eligible Directors' annual
compensation to be deferred and paid in shares of common stock, in lieu of cash.
The Plan is intended to attract, motivate and retain experienced directors of
the Company. Each director is entitled to receive a distribution of a number of
shares of stock equal to the number of shares in his or her account upon his or
her termination from service on the Board. The Company has reserved 50,000
common shares for the Plan. In 1996, 2,281 shares were granted and $40,000 was
recognized as compensation expense. In 1997, 2,673 shares were granted and
$40,000 was recognized as compensation expense. As of December 31, 1997, a total
of 4,954 shares under the Plan had been granted and 45,046 shares remain for
future grants.

NOTE 14--COMMITMENTS AND CONTINGENCIES

The Company is constructing office buildings and golf courses in various
locations on the mainland. As of December 31, 1997 the estimated cost of future
construction under contracts totaled approximately $30 million.

The Company and its subsidiaries are continentally liable as joint
indemnitors to surety companies for subdivision, off-site improvement and
construction bonds issued on their behalf. Outstanding bond commitments
approximated $186 million and $154 million at December 31, 1997 and December 31,
1996, respectively.

The Company is a defendant in several lawsuits arising in the normal course
of business. In the opinion of management, the final resolution of these
lawsuits will not have a material adverse effect on its financial position or
results of operations.

10-K405 56th Page of 66 TOC 1st Previous Next ↓Bottom Just 56th
CASTLE & COOKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15--RELATED-PARTY TRANSACTIONS

Related party transactions were substantially the same as those that could
have been obtained from unaffiliated third parties. In connection with the
Distribution in December 1995, the Company and Dole entered into various
agreements to define ongoing relationships including an Allocation Agreement, an
Aircraft Co-ownership Agreement and certain other operating agreements which
govern future relationships.

The Company received a general excise tax refund of $777,000 and $273,000
from the State of Hawaii in 1997 and 1996, respectively. Pursuant to the
allocation agreement, the 1997 and 1996 refunds were paid to Dole in the first
quarter of 1998 and 1997, respectively. In 1997 and 1996, the Company leased
Dole office space in Bakersfield, California and Honolulu, Hawaii and farm land
on Oahu and received $739,000 and $771,000, respectively, for such space. In
1997 and 1996, the Company purchased $260,000 and $277,000, respectively, of
products from Dole for its retail store and hotels in Hawaii.

In connection with the Distribution, and as partial consideration for Dole's
real estate and resort business, the Company issued a promissory note to Dole in
the principal amount of $10 million (the "Term Note"). The Term Note is
unsecured, payable in December 2000, and bears interest at the rate of 7% per
annum, payable quarterly. Interest incurred on the Term Note was $700,000 in
1997 and in 1996.

In connection with the Distribution, the Company received a fifty percent
undivided interest in a corporate aircraft that was owned by Dole. Dole retained
the other fifty percent undivided interest in the aircraft. Under the Aircraft
Co-ownership Agreement, the Company and Dole agreed that each party would be
responsible for the direct costs associated with its use of the aircraft, and
that all indirect costs would be equally shared. Pursuant to the Aircraft
Co-ownership Agreement, the Company's and Dole's proportionate share of the
operating costs for the aircraft during 1997 were $561,000 and $813,000,
respectively. The Company's and Dole's proportionate share of the operating
costs for the aircraft during 1996 were $548,000 and $577,000, respectively.

The Company is completing negotiations to enter into transactions with an
unrelated third party for the lease, sale or exchange of approximately 11 acres
of undeveloped land which the Company owns in Westlake Village, California (the
"Westlake Land"). The purchaser of the Westlake Land is expected to lease the
property to Dole for use as Dole's corporate headquarters. Subject to approval
of the purchase price by the Company's Audit Committee and execution of
definitive agreements, the transaction is expected to close in the second
quarter of 1998.

The Company had an accrued liability due to Dole of $880,000 and $460,000 at
December 31, 1997 and December 31, 1996, respectively.

NOTE 16--INDUSTRY SEGMENT INFORMATION

Residential real estate activities consist primarily of holding and
developing land and developing and selling homes and finished homesites on Oahu
Hawaii, Bakersfield California, Sierra Vista Arizona and Orlando Florida.
Resorts include the operation of two luxury hotels, with resort amenities,
including two championship golf courses on the Island of Lana'i in Hawaii. In
addition, it includes the development and sale of luxury vacation homes,
property management and other support operations. Commercial real estate
operations include development and management of office, industrial, retail golf
course and apartment properties. Corporate general and administrative expenses
are not allocated to industry segments and are included in commercial and other
operating income. Inter-segment general and administrative expense allocations
are not material.

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CASTLE & COOKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16--INDUSTRY SEGMENT INFORMATION (CONTINUED)
Revenues, operating income, identifiable assets, capital expenditures and
depreciation and amortization pertaining to the segments in which the Company
operates are presented below (in thousands):

[Enlarge/Download Table]

1997 1996 1995
------------ ------------ ------------

REVENUES
Residential real estate............................. $ 133,715 $ 193,660 $ 241,720
Resorts............................................. 56,304 52,529 46,106
Commercial and other................................ 51,144 62,135 53,725
------------ ------------ ------------
$ 241,163 $ 308,324 $ 341,551
------------ ------------ ------------
------------ ------------ ------------
OPERATING INCOME (LOSS)
Residential real estate............................. $ 6,197 $ 18,579 $ 36,839
Resorts............................................. (17,528) (20,044) (198,054)
Commercial and other................................ 15,261 16,822 13,803
------------ ------------ ------------
$ 3,930 $ 15,357 $ (147,412)
------------ ------------ ------------
------------ ------------ ------------
IDENTIFIABLE ASSETS
Residential real estate............................. $ 403,930 $ 418,938 $ 466,117
Resorts............................................. 240,907 238,435 233,217
Commercial and other................................ 379,181 362,449 372,399
------------ ------------ ------------
$ 1,024,018 $ 1,019,822 $ 1,071,733
------------ ------------ ------------
------------ ------------ ------------
CAPITAL EXPENDITURES
Residential real estate............................. $ 363 $ 1,274 $ 548
Resorts............................................. 3,684 7,642 5,017
Commercial and other................................ 29,067 26,768 9,060
------------ ------------ ------------
$ 33,114 $ 35,684 $ 14,625
------------ ------------ ------------
------------ ------------ ------------
DEPRECIATION AND AMORTIZATION
Residential real estate............................. $ 874 $ 825 $ 1,084
Resorts............................................. 9,171 8,800 15,266
Commercial and other................................ 7,549 7,795 8,363
------------ ------------ ------------
$ 17,594 $ 17,420 $ 24,713
------------ ------------ ------------
------------ ------------ ------------

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CASTLE & COOKE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 17--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following table presents summarized quarterly results (in thousands,
except per share data):

[Enlarge/Download Table]

INCOME BASIC
(LOSS) EARNINGS
OPERATING AVAILABLE (LOSS) PER
REVENUES INCOME LOSS TO COMMON SHARE
---------- ----------- ----------- -----------

1997
First Quarter................................ $ 54,178 $ 864 $ (532) $ (.03)
Second Quarter............................... 55,057 1,638 236 .01
Third Quarter................................ 54,461 431 (574) (.03)
Fourth Quarter............................... 77,467 997 766 .04
---------- ----------- ----------- -----
Year......................................... $ 241,163 $ 3,930 $ (104) $ (.01)
---------- ----------- ----------- -----
---------- ----------- ----------- -----

1996
First Quarter................................ $ 77,058 $ 4,992 $ 1,628 $ .08
Second Quarter............................... 80,635 5,408 2,066 .10
Third Quarter................................ 58,885 3,297 1,070 .05
Fourth Quarter............................... 91,746 1,660 249 .01
---------- ----------- ----------- -----
Year......................................... $ 308,324 $ 15,357 $ 5,013 $ .25
---------- ----------- ----------- -----
---------- ----------- ----------- -----

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There have been no changes in the Company's independent public accountants
for 1997, 1996 and 1995 nor have there been any disagreements with the Company's
independent public accountants on accounting principles or practices for
financial statement disclosures.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

There is hereby incorporated by reference the information regarding the
Company's directors to appear under the caption "Election of Directors" in the
Company's definitive proxy statement for its 1998 Annual Meeting of Stockholders
(the "1998 Proxy Statement"). There is hereby incorporated by reference the
Company's executive officers and related information under "Executive Officers
of the Registrant", which is set forth in Part I hereof.

ITEM 11. EXECUTIVE COMPENSATION

There is hereby incorporated by referenced the information to appear under
the captions "Compensation of Directors" and "Compensation of Executive
Officers" in the 1998 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

There is hereby incorporated by referenced the information with respect to
security ownership to appear under the captions "Beneficial Ownership of Certain
Stockholders" and "Security Ownership of Directors and Executive Officers" in
the 1998 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There is hereby incorporated by reference the information to appear under
the caption "Certain Transactions" in the 1998 Proxy Statement.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

[Enlarge/Download Table]

PAGE
-----

(A) 1. FINANCIAL STATEMENTS:

Report of Independent Public Accountants.......................................................... 36
Audited Consolidated Financial Statements
Consolidated Statements of Operations for the years ended December 31, 1997, December 31, 1996 and
December 31, 1995............................................................................... 37
Consolidated Balance Sheets at December 31, 1997 and December 31, 1996............................ 38
Consolidated Statements of Cash Flows for the years ended December 31, 1997, December 31, 1996 and
December 31, 1995............................................................................... 39
Notes to Consolidated Financial Statements........................................................ 40

2. FINANCIAL STATEMENT SCHEDULES:

Schedule III--Real Estate and Accumulated Depreciation............................................ 61

All other schedules have been omitted because they are not applicable or because the required
information is shown in the financial statements or notes thereto

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3. EXHIBITS

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EXHIBIT NO
-----------

2.1 Allocation Agreement between the Company and Dole Food Company, Inc. (incorporated herein by reference to
Exhibit 2.1 to the Company's Registration Statement on Form 10/A, as amended, File No. 1-14020).

3.1 Amended Articles of Incorporation (incorporated herein by reference to Exhibit 3.2 to the Company's
Registration Statement on Form 10/A, as amended, File No. 1-14020).

3.2 Resolution of the Board of Directors of Castle authorizing and fixing the terms and conditions of the
Series A 10% Cumulative Preferred Stock (incorporated herein by reference to Exhibit 3.3 to the
Company's Registration Statement on Form 10/A, as amended, File No. 1-14020).

3.3 Bylaws (incorporated herein by reference to Exhibit 3.3 to the Company's Form 10-Q for the quarterly
period ended June 30, 1996, File No. 1-14020).

4.1 Term Note (incorporated herein by reference to Exhibit 4.1 to the Company's Registration Statement on
Form 10/A, as amended, File No. 1-14020).

4.2 Amended and Restated Credit Agreement dated as of May 16, 1997, among Castle & Cooke, Inc., as Borrower,
and the Lenders named therein, and the Chase Manhattan Bank, as Administrative Agent and Collateral
Agent (incorporated herein by reference to Exhibit 4.2 to the Company's Form 10-Q for the quarterly
period ended June 30, 1997, File No. 1-14020).

10.1 Trademark License Agreement between the Company and Dole Food Company, Inc. (incorporated herein by
reference to Exhibit 10.3 to the Company's Registration Statement on Form 10/A, as amended, File No.
1-14020).

The Company agrees to furnish to the Securities and Exchange Commission upon request a copy of each
instrument with respect to issues of long-term debt of the Company and its subsidiaries, the authorized
principal amount of which does not exceed 10% of the consolidated assets of the Company and its
subsidiaries.

Executive Compensation Plans and Arrangements--Exhibits 10.1, 10.2, 10.3, 10.4, 10.5 and 10.6:

10.1 Employee Benefits and Compensation Allocation Agreement between the Company and Dole Food Company, Inc.
(incorporated herein by reference to Exhibit 10.2 to the Company's Registration Statement on Form 10/A,
as amended, File No. 1-14020).

10.2 The Company's 1995 Stock Option and Award Plan (the "1995 Plan") (incorporated herein by reference to
Exhibit 10.6 to the Company's Registration Statement on Form 10/A, as amended, File No. 1-14020).

10.3 Form of Non-Qualified Stock Option Agreement for Initial Converted Options under the 1995 Plan
(incorporated herein by reference to Executive Compensation Plans and Arrangements--Exhibit 10.3 to the
Company's Annual Report on Form 10K for the year ended December 31, 1995, File No. 1-14020).

10.4 Form of Non-Qualified Stock Option Agreement for Initial Converted Options under the 1995 Plan
(incorporated herein by reference to Executive Compensation Plans and Arrangements--Exhibit 10.4 to the
Company's Annual Report on Form 10K for the year ended December 31, 1995, File No. 1-14020).

10.5 Form of Nonqualified Stock Option under the 1995 Plan. (incorporated herein by reference to Executive
Compensation Plans and Arrangements--Exhibit 10.5 to the Company's Annual Report on Form 10K for the
year ended December 31, 1995, File No. 1-14020).

10-K405 61st Page of 66 TOC 1st Previous Next ↓Bottom Just 61st
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EXHIBIT NO
-----------

10.6 The Company's Deferred Stock Compensation Plan for Non-employer Directors (incorporated by reference to
the Executive Compensation Plans and Arrangements--Exhibit 10.6 to the Company's Form 10Q for the
quarterly period ended June 30, 1996, File No. 1-14020).

21 Subsidiaries of Castle & Cooke, Inc.

23 Consent of Arthur Andersen LLP.

27 Financial Data Schedule

(B) REPORTS ON FORM 8-K:

No current reports on Form 8-K were filed by the Company during the last
quarter of the year ended December 31, 1997.

10-K405 62nd Page of 66 TOC 1st Previous Next ↓Bottom Just 62nd
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

[Download Table]

CASTLE & COOKE, INC.

By: /s/ DAVID H. MURDOCK
-----------------------------------------
David H. Murdock
CHAIRMAN OF THE BOARD AND
March 25, 1998 CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

/s/ DAVID H. MURDOCK Chairman of the Board and
------------------------------ Chief Executive Officer March 25, 1998
David H. Murdock and Director

/s/ WALLACE S. MIYAHIRA President--Hawaii
------------------------------ Residential and Hawaii March 25, 1998
Wallace S. Miyahira Commercial Operations

/s/ LYNNE SCOTT SAFRIT President--North American
------------------------------ Commercial Operations and March 25, 1998
Lynne Scott Safrit Director

Vice President and Chief
/s/ EDWARD C. ROOHAN Financial Officer
------------------------------ (Principal Financial March 25, 1998
Edward C. Roohan Officer)

Vice President and
/s/ SCOTT J. BLECHMAN Corporate Controller
------------------------------ (Principal Accounting March 25, 1998
Scott J. Blechman Officer)

/s/ EDWARD M. CARSON
------------------------------ Director March 25, 1998
Edward M. Carson

/s/ LODWRICK M. COOK
------------------------------ Director March 25 1998
Lodwrick M. Cook

/s/ EDWARD J. HOGAN
------------------------------ Director March 25, 1998
Edward J. Hogan

/s/ DELL TRAILOR
------------------------------ Director March 25, 1998
Dell Trailor

10-K405 63rd Page of 66 TOC 1st Previous Next ↓Bottom Just 63rd
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
CASTLE & COOKE, INC.
AS OF DECEMBER 31, 1997
(000'S)

[Enlarge/Download Table]

COLUMN E
COLUMN D ---------
------------------------------
COLUMN C GROSS
------------------------ AMOUNT AT
COST CAPITALIZED SUBSEQUENT TO WHICH
CARRIED
INITIAL COST TO COMPANY AT CLOSE
ACQUISTION OF PERIOD
COLUMN A COLUMN B ------------------------ ------------------------------ ---------
-------------------------------- ------------------- BUILDINGS AND CARRYING
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COSTS LAND
-------------------------------- ------------------- --------- ------------- --------------- ------------- ---------

Verifone Office Building
Mililani, Hawaii.............. (1) $ 1,000 $ 4,188 $ 251 -- $ 1,000
Leilehua Office Building
Mililani, Hawaii.............. (1) -- 2,029 946 -- --
925 Dillingham Office Building
Honolulu, Hawaii.............. (1) 2,517 4,105 268 -- 2,517
801 Dillingham Office Building
Honolulu, Hawaii.............. (1) 500 5,049 402 -- 500
Dole Center
Office/Retail mixed use
Honolulu, Hawaii.............. (1) 15,636 49,896 8,352 -- 15,636
Town Center of Mililani
Shopping Center
Mililani, Hawaii.............. (1) 4,254 15,788 5,389 -- 4,254
Dole Plantation
Retail Store
Wahiawa, Hawaii............... (1) 222 3,446 670 -- 222
10000 Ming Office Building
Bakersfield, California....... (1) 1,135 16,812 777 -- 1,135
The Market Place
Bakersfield, California....... (1) 1,885 1,905 18,059 -- 1,885
Schirra Court
Industrial Warehouse
Bakersfield, California....... (1) 258 2,757 878 -- 258
Premier Plaza Office Buildings
Atlanta, Georgia.............. (1) 4,244 15,181 12,494 -- 4,244
Landmark Center Office Buildings
Raleigh, North Carolina....... (1) 1,401 14,997 956 -- 1,401
Horizon at Six Forks
Office Buildings
Raleigh, North Carolina....... (1) 2,859 4,588 4,135 -- 2,859
Regents center Office Buildings
Tempe, Arizona................ (1) 2,659 8,024 1,679 -- 2,659
One Norman Square
Apartments
Charlotte, North Carolina..... (1) 1,284 9,424 150 -- 1,284
--------- ------------- --------------- --- ---------
$ 39,854 $ 158,189 $ 55,406 -- $ 39,854
--------- ------------- --------------- --- ---------
--------- ------------- --------------- --- ---------

COLUMN I
------------
LIFE ON
WHICH
DEPRECIATION
COLUMN F COLUMN G COLUMN H IN LATEST
COLUMN A ------------- ------------ --------- INCOME
-------------------------------- BUILDING AND ACCUMULATED DATE OF DATE STATEMENTS
DESCRIPTION IMPROVEMENTS TOTAL(2) DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
-------------------------------- ------------- --------- ------------- ------------ --------- ------------

Verifone Office Building
Mililani, Hawaii.............. $ 4,439 $ 5,439 $ 948 1989 1989 40 years
Leilehua Office Building
Mililani, Hawaii.............. 2,975 2,975 985 1989 1989 40 years
925 Dillingham Office Building
Honolulu, Hawaii.............. 4,373 6,890 1,381 1984 1984 40 years
801 Dillingham Office Building
Honolulu, Hawaii.............. 5,451 5,951 1,460 1993 1993 20 years
Dole Center
Office/Retail mixed use
Honolulu, Hawaii.............. 58,248 73,884 13,218 1988-1996 1988-1996 20-40 years
Town Center of Mililani
Shopping Center
Mililani, Hawaii.............. 21,177 25,431 3,950 1988 1988 40 years
Dole Plantation
Retail Store
Wahiawa, Hawaii............... 4,116 4,338 1,194 1989 1989 40 years
10000 Ming Office Building
Bakersfield, California....... 17,589 18,724 6,927 1984 1987 40 years
The Market Place
Bakersfield, California....... 19,964 21,849 443 1996 1996 40 years
Schirra Court
Industrial Warehouse
Bakersfield, California....... 3,635 3,893 655 1992 1992 40 years
Premier Plaza Office Buildings 1993,
Atlanta, Georgia.............. 27,675 31,919 2,237 1988, 1997 1997 39 years
Landmark Center Office Buildings
Raleigh, North Carolina....... 15,953 17,354 2,287 1984, 1986 1993 39 years
Horizon at Six Forks
Office Buildings 1989, 1990, 1993,
Raleigh, North Carolina....... 8,723 11,582 930 1996 1996 39 years
Regents center Office Buildings 1993,
Tempe, Arizona................ 9,703 12,362 1,050 1989, 1997 1997 39 years
One Norman Square
Apartments
Charlotte, North Carolina..... 9,574 10,858 1,543 1993 1993 27.5 years
------------- --------- -------------
$ 213,595 $ 253,449 $ 39,208
------------- --------- -------------
------------- --------- -------------

----------------------------------
(1) This property is pledged as collateral in connection with the Company's
credit agreement.

(2) Aggregate cost for federal income tax purposes as of December 31, 1997 is
$207.8 million.

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SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
CASTLE & COOKE, INC.
AS OF DECEMBER 31, 1997
(000'S)

[Enlarge/Download Table]

1995 1996 1997
---------- ---------- ----------

Reconciliation of cost basis:
Balance at beginning of period............................................. $ 231,217 $ 244,570 $ 233,266
Additions during the period:
Acquisitions through foreclosure........................................... -- -- --
Other acquisitions/newly completed property.............................. 8,031 8,024 --
Improvements, etc........................................................ 5,322 17,576 20,407
Other.................................................................... -- -- --
Deductions during the period:
Cost of real estate sold................................................. -- (36,904) (161)
Other.................................................................... -- -- (63)
---------- ---------- ----------
Balance at close of period................................................. $ 244,570 $ 233,266 $ 253,449
---------- ---------- ----------
---------- ---------- ----------

1995 1996 1997
---------- ---------- ----------

Reconciliation of accumulated depreciation:
Balance at beginning of period............................................. $ 24,005 $ 31,850 $ 33,117
Additions during the period:
Depreciation expense..................................................... 7,845 6,551 6,168
Other.................................................................... -- -- --
Deductions during the period:
Cost of real estate sold................................................. -- (5,284) (77)
Other.................................................................... -- -- --
---------- ---------- ----------
Balance at close of period................................................. $ 31,850 $ 33,117 $ 39,208
---------- ---------- ----------
---------- ---------- ----------

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EXHIBIT INDEX

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EXHIBIT NO
-----------

3.1 Amended Articles of Incorporation (incorporated herein by reference to Exhibit 3.2 to the Company's
Registration Statement on Form 10/A, as amended, File No. 1-14020).

3.2 Resolution of the Board of Directors of Castle authorizing and fixing the terms and conditions of the
Series A 10% Cumulative Preferred Stock (incorporated herein by reference to Exhibit 3.3 to the Company's
Registration Statement on Form 10/A, as amended, File No. 1-14020).

3.3 Bylaws (incorporated herein by reference to Exhibit 3.3 to the Company's Form 10-Q for the quarterly
period ended June 30, 1996, File No. 1-14020).

4.1 Term Note (incorporated herein by reference to Exhibit 4.1 to the Company's Registration Statement on
Form 10/A, as amended, File No. 1-14020).

4.2 Amended and Restated Credit Agreement dated as of May 16, 1997, among Castle & Cooke, Inc., as Borrower,
and the Lenders named therein, and the Chase Manhattan Bank, as Administrative Agent and Collateral Agent
(incorporated herein by reference to Exhibit 4.2 to the Company's Form 10-Q for the quarterly period
ended June 30, 1997, File No. 1-14020).

Executive Compensation Plans and Arrangements--Exhibits 10.1, 10.2, 10.3, 10.4, 10.5 and 10.6:

10.3 Form of Non-Qualified Stock Option Agreement for Initial Converted Options under the 1995 Plan
(incorporated herein by reference to Executive Compensation Plans and Arrangements-- Exhibit 10.3 to the
Company's Annual Report on Form 10K for the year ended December 31, 1995, File No. 1-14020).

10.4 Form of Non-Qualified Stock Option Agreement for Initial Converted Options under the 1995 Plan
(incorporated herein by reference to Executive Compensation Plans and Arrangements-- Exhibit 10.4 to the
Company's Annual Report on Form 10K for the year ended December 31, 1995, File No. 1-14020).

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EXHIBIT NO
-----------

21 Subsidiaries of Castle & Cooke, Inc.

23 Consent of Arthur Andersen LLP.

27 Financial Data Schedule

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-K405’ Filing	Date	First	Last	Other Filings

	10/31/02	8	46
	10/1/02	34	47
	12/8/00	48
	7/1/99	17
Filed on:	3/30/98			DEF 14A
	3/25/98	62
	3/20/98	25
	2/28/98	1	27
	2/6/98	38
	2/1/98	35	45
For Period End:	12/31/97	1	64
	12/8/97	31	52
	6/30/97	60	65	10-Q
	5/16/97	60	65
	12/31/96	7	59	10-K
	6/30/96	60	66	10-Q
	1/1/96	27	34
	12/31/95	38	65
	12/28/95	3	54
	12/8/95	52
	10/10/95	3	42
	9/30/95	33	47
	3/31/95	33
	1/1/95	54
	12/31/94	53
	1/1/93	51
				List all Filings

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Filing Submission 0001047469-98-012381 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Castle & Cooke Inc/HI – ‘10-K405’ for 12/31/97

As of: Monday, 3/30/98 · For: 12/31/97 · Accession #: 1047469-98-12381 · File #: 1-14020

Annual Report — [x] Reg. S-K Item 405 — Form 10-KFiling Table of Contents

10-K405 — Annual Report — [x] Reg. S-K Item 405Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents

10-K405 — Annual Report — [x] Reg. S-K Item 405
Document Table of Contents