ALEXANDER & BALDWIN, INC. 1999 ANNUAL REPORT
TABLE OF CONTENTS
CORPORATE PROFILE 1
LETTER TO SHAREHOLDERS 4
REVIEW OF OPERATIONS 10
FINANCIAL REPORT 21
INDUSTRY SEGMENT INFORMATION 23
QUARTERLY RESULTS 48
GENERAL INFORMATION 49
DIRECTORS AND OFFICERS 50
Alexander & Baldwin, Inc. is a diversified corporation with most of its
operations centered in Hawaii. Its principal businesses are: PROPERTY
DEVELOPMENT & MANAGEMENT - Developing real property, primarily in Hawaii .
Selling residential and commercial property . Managing a portfolio of
commercial/industrial properties OCEAN TRANSPORTATION - Carrying freight,
primarily between Pacific Coast ports, Hawaii ports and Guam . Conducting
related shoreside operations . Arranging domestic intermodal transportation
FOOD PRODUCTS - Growing sugar cane and producing raw sugar . Growing,
marketing and distributing coffee.
A&B was founded in 1870 and incorporated in 1900. Alexander & Baldwin's
corporate headquarters are located in Honolulu, Hawaii. Its common stock is
traded on the NASDAQ Stock MarketSM under the symbol ALEX.
[Photo Caption: A successful real estate investment in Hawaii, Ocean View
Center is one of two prime downtown Honolulu Office buildings purchased by
A&B during 1999.]
FINANCIAL HIGHLIGHTS
1999 1998 CHANGE
REVENUE $ 959,272,000 $ 1,311,620,000 -27%
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"CORE" EARNINGS* $ 72,150,000 $ 59,735,000 21%
PER SHARE $ 1.67 $ 1.33 26%
NET INCOME $ 62,579,000 $ 25,142,000 149%
PER SHARE $ 1.45 $ 0.56 159%
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CASH DIVIDENDS $ 38,899,000 $ 40,323,000 -4%
PER SHARE $ 0.90 $ 0.90 --
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AVERAGE SHARES
OUTSTANDING 43,206,000 44,760,000 -3%
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TOTAL ASSETS $ 1,561,460,000 $ 1,605,640,000 -3%
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SHAREHOLDERS'
EQUITY $ 670,963,000 $ 694,642,000 -3%
PER SHARE $ 15.78 $ 15.78 --
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RETURN ON BEGINNING
SHAREHOLDERS' EQUITY 9.0% 3.5% --
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DEBT/DEBT + EQUITY 0.31 0.33 --
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EMPLOYEES 2,050 2,331 -12%
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* "Core" Earnings exclude all one-time charges.
OPERATING PROFIT BY SEGMENT
(In Thousands)
94 95 96 97 98 99
$141,729 $100,125 $150,883 $147,928 $134,618 $142,931
[Photo Caption: For Matson, Honolulu's Sand Island terminal is the hub.
With nearly 400,000 annual handlings, it is the key transfer point between
Matson's vessels and its customers, and between Matson's long-haul vessels and
its Neighbor Island barges.]
[Q1: "The past few years have been tough ones for investors holding "value"
stocks. What is A&B doing to get its stock price up?"]
[A1: "Core earnings per share increased 26 percent. Opportunistic investments
in Hawaii real estate increased significantly. A more aggressive share
repurchase program was initiated."]
[Photo Caption: Charles M. Stockholm, Chairman of the Board (left) and W.
Allen Doane, President and Chief Executive Officer (right)]
1998 Annual Report "...The first and foremost priority is to increase Matson's
profit."
FELLOW SHAREHOLDERS
1999 PERFORMANCE - 1999 was a year of considerable progress. Before one-time
items, earnings per share increased 26 percent. This performance exceeded our
targets for the year and was accomplished with little appreciable improvement
in Hawaii's economy. Matson, our shipping business, led the way, increasing its
operating profit also by 26 percent over the prior year. The real estate
business had another solid year in 1999, slightly improving its profit over
strong performance in 1998. Food products results were lower, as expected, with
the divestiture at year-end 1998 of the Company's majority interest in C&H, a
sugarcane refiner.
1999 was not without challenges. Matson's fuel prices doubled from the
beginning of the year to the end, while dramatic declines in longshore labor
productivity, first on the West Coast and then in Hawaii, accompanied contract
negotiations. These declines disrupted vessel schedules and greatly
inconvenienced many loyal customers. As 1999 ended, labor negotiations with the
longshore unions were completed, resulting in three-year contracts. The
Company's small coffee business continued to lose money and a decision was made
in the year to write off most of the business' assets. Sugar prices plummeted
as 1999 ended, reaching lows not seen in more than twenty years.
OF NOTE - Other noteworthy items in 1999 included:
- - $86 million in new real estate investment commitments, more than two-thirds
in Hawaii,
- - The formation of a joint venture with Stevedoring Services of America (SSA),
the largest stevedoring management company in the U.S. The contribution of
Matson's West Coast terminal business to this venture will result in improved
economies of scale, and
- - HC&S' highest production of sugar cane in the decade.
FINANCIAL POSITION - A&B's financial position remains strong, with a debt-to-
capital ratio of 31 percent and consistently positive free cash flow. The
Company has the wherewithal to maintain and grow its current businesses, to
invest in attractive opportunities, and to sustain healthy dividends and its
active share repurchase program.
SHAREHOLDER DISTRIBUTIONS - In 1999, A&B returned to shareholders nearly $74
million, roughly half as dividends and half in share repurchases. In all, A&B
bought nearly 1.6 million shares during 1999, 3.6 percent of the stock
outstanding. The Board also raised the share repurchase authorization twice,
most recently in December. The outstanding authorization now stands at 2.4
million shares.
[Q2: "What are the opportunities you see at the present time in Hawaii's
real estate market?"]
[A2: "Hawaii's real estate market is near a low point in its cycle. A&B will
capitalize on this through acquisitions or through development of Company
land holdings. The upside potential is sizable."]
1998 Annual Report "The key will be finding investment opportunities,
especially in real estate, that provide...returns above A&B's cost of capital."
BUSINESS DIRECTION
OCEAN TRANSPORTATION - Matson has a strong market position in Hawaii because of
its long history of excellent service. Matson carries more than two-thirds of
Hawaii's freight and its shipping network remains almost irreplaceable. But, it
is in a mature and competitive business where cost control is an unrelenting
priority. Major restructuring actions, such as reducing (in 1998) the number of
ships serving Hawaii and combining West Coast stevedoring operations with SSA
(in 1999) take significant amounts of cost out of the system. Other actions are
under evaluation.
Matson continues to build upon its strong domestic U. S. operations by
participating in related expansions of shipping and intermodal services.
REAL ESTATE - The Company's real estate business has been a reliable and
growing source of income, despite Hawaii's economic problems during the past
nine years. The good news is that Hawaii continues to be a sound real estate
investment for those who are able to make opportunistic property purchases. In
addition, the Company owns over 90,000 acres in Hawaii, principally on Maui,
Hawaii's most attractive sub-economy. Approximately 3,000 acres are fully
entitled or proceeding through the entitlement process. With its historical
landholdings recorded at a cost of $150 per acre on the balance sheet, future
value-creation opportunities are evident.
Through either acquisitions or development of Company owned lands, A&B is
committed to grow its real estate business. There also may be an opportunity at
some point for a sizable acquisition to materially increase the profitability
and scale of the business.
FOOD PRODUCTS - Representing just 12 percent of the Company's assets, the food
products segment comprises A&B's sugar and coffee-growing businesses, as well
as a 36-percent ownership interest in C&H. Here, the challenges are
substantial.
HC&S has been able to increase its sugarcane yields and to lower its unit
production costs successfully in the last two years. However, an unexpected and
unprecedented drop in U.S. sugar prices began in the third quarter of 1999.
Current sugar prices are almost 20-percent lower than a year ago. The U.S. farm
program mechanism to regulate pricing has failed totally, as excess sugar
supplies have depressed sugar prices. No solution is readily apparent. In the
meantime, the Company is actively assessing various operating alternatives.
[Photo Caption: A&B's sugar operations virtually "carpet" the central plain
of Maui. In 1999, the harvest was the highest in the decade and unit costs
were lower.]
[Q3: "Assuming that moderate economic growth is in the future for Hawaii,
where do you see A&B in ten years?"]
[A3: "A&B always will be recognized as financially strong, but it will have
better balance in earnings contributions than we have today from transporta-
tion and real estate. Matson will be the preeminent U.S. domestic intermodal
carrier and A&B Properties the most successful real estate company in Hawaii."]
[Photo Caption: On the leeward coast of Kauai, A&B's Kukui'Ula development is
under way. In 1999, important land use approvals were granted and its first
residential lot sales closed.]
1998 Annual Report "...management recognizes that improvement in performance
must be demonstrated in the short term. 1999 will be a start."
HAWAII - An encouraging development has been the gradual strengthening of the
Hawaii economy during the second half of 1999 and into the first few months of
2000. A sustained improvement in the local economy will benefit both the
shipping and real estate businesses, which have suffered from Hawaii's lengthy
economic malaise.
2000 OUTLOOK - Other than the previously described problems in food products,
the Company expects to show improved results in the two core businesses -
shipping and real estate. It is worth repeating from last year's letter to
shareholders - we are committed to taking the necessary operating and strategic
actions to realize the Company's potential. We will continue to keep you
informed of our progress.
To complete our report to you, our shareholders, we should note that R. J.
Pfeiffer, who returned to A&B's service in July 1998 due to the medical leave
of absence of John C. Couch, again became Chairman Emeritus after distinguished
service to A&B as Chairman, President and Chief Executive Officer from July to
October 1998 and as Chairman from October 1998 to August 1999. His contri-
butions to the Company were immeasurable.
John C. Couch, the former A&B Chairman, President and Chief Executive Officer
retired in September 1999. His dedicated service to the Company for over 20
years is most appreciated. He is in good health and fully recovered from major
surgery. Our best wishes go to him for the years ahead.
We take great satisfaction in the dedication and energy of our employees. Their
commitment makes us confident that the Company's goals will be achieved. To our
directors, we express appreciation for your individual and collective wisdom in
guiding Alexander & Baldwin.
We thank you, our shareholders, for your support.
/s/ Charles M. Stockholm /s/ W. Allen Doane
Chairman of the Board President and Chief Executive Officer
February 18, 2000
[Photo Caption: A&B President and CEO, Allen Doane (right) and Mayor James
Apana of Maui (center) share a relaxed moment with a volunteer at the annual
A&B Community Fair.]
1998 Annual Report "The challenge here (talking about real estate) is to take a
strong business and brow it more aggressively."
REAL ESTATE
At year-end 1999, the Company owned a total of about 91,000 acres. Of these,
1,420 acres were fully zoned for urban use. At least one step in the value-
adding entitlement process has been completed for an additional 1,800 acres,
and about 8,700 acres have long-term urban-use potential. Most of the remaining
acreage will be in agricultural or conservation use for the foreseeable future.
The Company creates value through an integrated program of entitlement,
development and asset management. It realizes value through sales and invests
for growth, with a priority on investments in Hawaii real estate.
ENTITLEMENTS - A&B strives to put its land to the highest and best use that is
consistent with community needs. In October 1999, the Kauai County Council
granted final land use approvals for the 77-acre resort component of A&B's
Kukui'Ula development. In addition to 220 acres already zoned for golf course
development, the uses approved on this new acreage include 200 hotel units, 700
timeshare units and resort commercial activity on four acres.
On Maui, the update of the Wailuku-Kahului Community Plan continued. County
Council hearings covered future phases of A&B's Maui Business Park, as well as
a proposed 400-lot single-family residential development in Spreckelsville. The
latter project had received State Land Use "Urban" designation in July 1999.
In November 1999, the Maui County Planning Commission recommended approval of a
200-lot single-family residential subdivision on 67 acres at Haliimaile, Maui.
Final Council action is anticipated in mid-2000.
DEVELOPMENT - Construction of 23 lots in the first phase of Mill Town Center, a
40-acre, industrial property on Oahu, was completed in May 1999. Seven lots
were sold in 1999, at an average price of $24 per square foot. Based on the
project's strong reception, an application was submitted to the County for
subdivision of Mill Town's 23-acre second phase into 41 lots. Construction is
expected to start by mid-2000.
On Kauai, construction was completed in July 1999 at Koloa Estates, A&B's
32-lot initial residential project at Kukui'Ula. Five houselots were sold in
1999, for an average of $157,000. Sales and commitments to date have been
primarily from Mainland residents.
Additional developments planned or under way include residential and commercial
projects in Kahului and Kaanapali, Maui and Port Allen, Kauai.
A&B'S LANDHOLDINGS, BY CATEGORY
HAWAII MAINLAND TOTAL
-------------------------------- -------- -----
(In acres, rounded) MAUI KAUAI OAHU TOTAL
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Fully Entitled Urban 350 810 40 1,200 220 1,420
Agric./Pasture/Misc. 52,700 8,100 - 60,800 100 60,900
Conservation 16,000 13,000 - 29,000 - 29,000
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TOTAL 69,050 21,910 40 91,000 320 91,320
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Designated Urban 1,500 300 - 1,800 - 1,800
Urban Potential 5,200 3,500 - 8,700 - 8,700
[Photo Caption: A&B recently bought two parcels at Kaanapali, Maui, for
immediate development of single-family homes. Strong activity in this market
segment was propelled by Mainland visitors seeking vacation properties.]
OPERATING PROFIT (PROPERTY SALES/PROPERTY LEASING)
94 95 96 97 98 99
$41,685 $37,560 $39,182 $37,821 $44,297 $44,899
[Photo Caption: Another "departure" for A&B is the Mill Town Center, a
successful new industrial park being developed on Oahu. Key A&B real estate
officers are, from right to left, Stanley M. Kuriyama, A&B Vice President,
Properties Group; Norbert L. Buelsing, Executive Vice President, A&B
Properties, Inc.; and Robert K. Sasaki, President, A&B Properties, Inc.]
[Photo Caption: The eight story Haseko Building, in downtown Honolulu,
is the second prime office property bought by A&B during 1999.]
[Photo Caption: In the left center, A&B's first residential development at
Kukui'Ula is Koloa Estates. With 32 lots, construction was completed and
the first sales closed as 1999 ended.]
A&B's HAWAII COMMERCIAL INDUSTRIAL PROJECT STATUS
TOTAL AVAILABLE SOLD AVAILABLE SOLD AVAILABLE
PROJECT UNITS IN 1998 IN 1998 IN 1999 IN 1999 IN 2000
Maui Business Park IA 32 22 3 19 1 18
Mill Town Center IA 23 - - 23 7 16
A&B's HAWAII RESIDENTIAL PROJECT STATUS
TOTAL AVAILABLE SOLD AVAILABLE SOLD AVAILABLE
PROJECT UNITS IN 1998 IN 1998 IN 1999 IN 1999 IN 2000
Ku'au Bayview 92 27 19 8 8 Sold Out
Haiku Makai 28 28 25 3 3 Sold Out
Kauhikoa Hill Ranch 9 8 6 2 2 Sold Out
Kahului Ikena 102 33 13 20 13 7
Koloa Estates 32 - - 32 5 27
The Vintage at
Kaanapali 73 - - - - 73
1998 Annual Report "...will continue to pursue entitlements of landholdings,
as well as investment opportunities in income and development properties."
ASSET AND PROPERTY MANAGEMENT -
Mainland Portfolio - At year-end 1999, A&B's portfolio of 20 properties in six
Western states consisted of 3.1 million square feet of leasable space.
Occupancies averaged a high 94 percent throughout 1999.
Hawaii Portfolio - The Hawaii commercial-property portfolio consisted of 1.2
million square feet of leasable space in 20 properties, plus ground leases of
293 acres for commercial uses and 10,700 acres for agricultural uses. Occupancy
of the commercial properties averaged 81 percent throughout 1999.
SALES - In June 1999, the Company sold a 109,000-square-foot office and
research facility in Seattle, for $26 million. This four-story office building,
near the University of Washington, was part of A&B's original Mainland
investment program in 1989. In July, an 1,800-acre undeveloped land parcel in
California was sold for about $4 million.
Sales activity was slow at phase IA of A&B's Maui Business Park during much of
1999, but it picked up at the end of the year. One lot closed in 1999 and five
others were under contract or lease commitments by year-end. With over 75
percent of the acreage in phase IA now sold, the Company is proceeding with
development of the Park's 32-acre phase IB, construction of which is expected
to commence at midyear.
On Maui and Kauai, a total of 33 residential units or houselots were sold
during 1999. Sales were completed at three Maui projects.
INVESTMENTS - Proceeds from several 1999 sales were combined and, in 1999 and
early this year, reinvested on a tax-deferred basis in a total of six income-
producing properties, comprising 796,200 square feet of leasable space and two
resort residential development parcels of 34 acres.
The two development parcels are at Kaanapali, Maui, where the Company will
develop single-family units for the burgeoning residential resort market. The
first, called "The Vintage at Kaanapali," will feature 73 detached single-
family homes under a condominium regime. Considerable buyer interest is
evident. Construction is to begin in March.
PROPERTY DEVELOPMENT & MANAGEMENT OUTLOOK - Operating profit from property
leasing is forecast to step up again in 2000, primarily due to the strength of
leased properties added during 1999. Residential and commercial developments
likely will continue to sell steadily, but slowly, through the year. Sales of
fully valued developed properties will continue throughout the year. The
Company also will continue to pursue entitlements of its landholdings as well
as investment opportunities in both income and development properties.
1998 Annual Report "Matson's cargo volume declined in 1998 because of this
economic weakness and...increased competition."
OCEAN TRANSPORTATION
HAWAII SERVICE - The historical core business of Matson Navigation Company,
Inc. (Matson) is its Hawaii service. Matson marked the Millennium by noting
that it has now served Hawaii through the start of two centuries - with sailing
vessels in 1900 and now with information technology and state-of-the-art marine
assets.
The year 1999 was marked by success in increasing Hawaii cargo volume.
Container volume rose five percent and automobile volume 37 percent. Both
increases largely resulted from competitive gains and reflect strong customer
support. Multi-year contracts to carry new automobiles represent a substantial
portion of the increase.
Matson's operations during the year were hampered by work slowdowns related to
the shipping industry's contract negotiations with the International Longshore
and Warehouse Union. These slowdowns made it virtually impossible to maintain
schedule integrity, and resulted in higher operating costs. Negotiations on the
West Coast took place early in the third quarter, and Hawaii negotiations early
in the fourth. However disruptive the process, three-year contracts are now in
place.
Throughout 1999, Matson operated a base of six ships in the Hawaii trade. The
capacity offered by these vessels was supplemented by a seventh vessel whenever
cargo demand warranted. Additional voyages also were added prior to the
longshore labor negotiations.
Operating costs were affected adversely by rapid, steady increases in bunker
fuel costs during 1999. Those costs more than doubled in the course of the year
- - from as low as $10 per barrel to more than $22. Matson implemented a 1.75
percent bunker surcharge in October 1999, and adjusted it higher, to 2.25
percent, early this year.
Separately, the Company also announced that it would increase rates by 3.9
percent, effective February 14, 2000, in order to offset ongoing cost increases
and to support necessary capital investments, especially in container equipment
and information technology.
[Photo Caption: Matson's services are not limited to moving containers.
During 1999, Matson Logistics Solutions worked with one of Matson's most valued
customers, Safeway, to ensure optimal use of containers and to streamline
inventory management.]
HAWAII SERVICE FREIGHT (UNITS)
94 95 96 97 98 99
173,309 157,208 152,109 149,734 143,431 151,215
HAWAII SERVICE AUTOMOBILES
94 95 96 97 98 99
116,560 107,136 83,097 78,641 73,717 101,095
[Photo Caption: The Matson executive team is, from right to left, C. Bradley
Mulholland, President and Chief Executive Officer; Paul E. Stevens, Senior
Vice President, Marketing; and Gary J. North, Senior Vice President,
Operations.]
[Photo Caption: Matson is a participant in a joint venture called Sea Star
Line, LLC, serving Puerto Rico from ports in Florida. Operations of a new
terminal in the port of San Juan began during 1999.]
OPERATING PROFIT OCEAN TRANSPORTATION
94 95 96 97 98 99
$97,319 $87,769 $81,618 $80,385 $66,298 $83,788
[Photo Caption: Container equipment, like dry containers, refrigerated units
and "flatracks" for construction materials, are vital elements in Matson's
operations. Matson employs more than 23,000 units of container equipment,
valued at nearly $90 million.]
1998 Annual Report "other actions (to cut cost), large and small, either are
under way or are under consideration."
GUAM SERVICE - Matson and American President Lines, Ltd. serve Guam through a
transpacific operating alliance. During 1999, Guam's economy remained weak, and
that factor was reflected in modestly lower cargo volume. The sooner-than-
expected recovery of several key Asian markets is a positive sign.
MATSON TERMINALS, INC. (MTI) - For many years, MTI has been the stevedore for
Matson and outside customers at Matson-operated container terminals. In July
1999, a new alliance, between MTI and Stevedoring Services of America,
commenced operations at Matson's three West Coast container terminals. The new,
jointly owned SSA Terminals, LLC (SSAT) allows both companies to combine their
assets and expertise, and to focus on building terminals of the future. The
near-term objective is to consolidate both companies' current facilities in the
ports of Seattle, Oakland and Los Angeles. Over the longer term, SSAT should
benefit from economies of scale associated with the bigger, newer terminals and
from new revenues generated by providing stevedoring services to outside
customers.
MTI will continue to manage Matson's Sand Island terminal in Honolulu. During
2000, Sand Island operations will receive special scrutiny, commensurate with
their key role in the delivery of cargo to Oahu customers, as well as for that
terminal's role as the cargo-transfer "hub" for Neighbor Islands-bound cargo.
Special consideration will be given to land use and the capability to
accommodate cargo growth.
MATSON INTERMODAL SYSTEM, INC. (MIS) - Matson's overland transportation
subsidiary, MIS, started 1999 by completing a new centralized customer service
center in Oakbrook Terrace, Illinois. The new facility handles the customer
service and financial functions associated with intermodal cargo moves
throughout North America.
TRANSPORTATION OUTLOOK - The performance of this segment is expected to improve
again in 2000, as slow, steady economic growth is projected for Hawaii. This
expectation assumes that bunker fuel costs moderate, or are fully covered by
adjustments to the bunker surcharge. It also assumes good performances by
Matson's various subsidiary units and alliance investments.
[Photo Caption: Matson's communications center for customer support is
located in Phoenix, Arizona. The ISO-9002 certified center handles all
facets of shipments, including sales, quality assurance, freight billing and
e-commerce.]
1998 Annual Report "HC&S made significant progress during 1998, increasing raw
sugar yields and lowering unit costs."
FOOD PRODUCTS
RAW SUGAR PRODUCTION - Hawaiian Commercial & Sugar Company (HC&S), located on
Maui, is Hawaii's largest producer of raw cane sugar, with 62 percent of the
state's 1999 crop. HC&S again made noteworthy progress during 1999, increasing
sugar yields and lowering unit costs. Total production - 228,000 tons of raw
sugar - was the highest this decade. Dry conditions that prevailed for most of
1999 increased harvest productivity, but also delayed replanting and adversely
affected the growth of sugar cane to be harvested in 2000 and 2001.
Excess supplies of both raw and refined sugar drove U. S. sugar prices to
unusually low levels beginning in the fall of 1999. Under present conditions,
it is unclear when and how these prices will recover.
COFFEE PRODUCTION AND MARKETING - Low and volatile coffee prices during 1999
further accentuated an ongoing difficulty in sustaining a necessary pricing
level for the products of Kauai Coffee Company, Inc. At year-end 1999, the
productive assets of Kauai Coffee were written down substantially.
POWER, TRUCKING - The Company's hydroelectric plants on Maui and Kauai, as well
as cogeneration units at its sugar mills on Maui, generate surplus electricity,
which is sold to the local public utilities. During 1999, a total of 95,000
megawatt-hours (MWH) were sold, about the same level as in 1998. The Company
also has trucking operations on both Maui and Kauai that support its
agricultural operations and serve independent customers in each community.
SUGAR REFINING AND MARKETING - In December 1998, the Company recapitalized its
ownership investment in California and Hawaiian Sugar Company, Inc. (C&H) and
sold approximately 60 percent of its common equity to an investor group. The
pretax income of A&B's remaining equity investment in C&H is reported under the
heading "Food Products."
FOOD PRODUCTS OUTLOOK - Even with a favorable sugar harvest forecast, and
further cost improvement, the present unreasonably low level of raw sugar
prices jeopardizes the profitability of the food products segment.
[Photo Caption: Sugar harvesters such as this are used for seed cane. They
also are being utilized in a new effort to evaluate a one-year cycle for sugar
cane, half of the customary growth period for cane grown in Hawaii.]
AGRIBUSINESS STATISTICS
1999 1998 1997
- ------------------------------------------------------------------
Raw sugar produced (tons) 228,000 216,000 198,000
Green coffee produced (pounds) 4,600,000 4,100,000 4,575,000
Cultivated Acreage
Sugar 36,700 36,700 36,700
Coffee 3,400 3,800 3,800
OPERATING PROFIT FOOD PRODUCTS
94 95 96 97 98 99
-$418 -$27,797 $26,863 $27,083 $21,327 $11,310
[Photo Caption: G. Stephen Holaday, A&B Vice President and Plantation
General Manager, is repsonsible for sugar, coffee and trucking operations.]
[Photo Caption: A&B's Board of Directors, from left to right: Charles G.
King, C. Bradley Mulholland, Maryanna G. Shaw, R. J. Pfeiffer, Carson R.
McKissick, Lynn M. Sedway, Michael J. Chun, W. Allen Doane, Charles M.
Stockholm, Leo E. Denlea, Jr. and Walter A. Dods, Jr.]
FINANCIAL REPORT
Management's Report 22
Independent Auditors' Report 22
Industry Segment Information 23
Eleven-Year Summary of Selected Financial 24
Data
Management's Discussion and Analysis 26
Statements of Income 30
Statements of Cash Flows 31
Balance Sheets 32
Statements of Shareholders' Equity 34
Notes to Financial Statements 35
Quarterly Results 48
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
Management has prepared and is responsible for the Company's consolidated
financial statements and related notes. They have been prepared in accordance
with generally accepted accounting principles and necessarily include amounts
based on judgments and estimates made by management. All financial information
in this Annual Report is consistent with these financial statements.
The Company maintains internal control systems, and related policies and
procedures designed to provide reasonable assurance that assets are safe-
guarded, that transactions are properly executed and recorded in accordance
with management's authorization, and that underlying accounting records may be
relied upon for the accurate preparation of financial statements and other
financial information. The design, monitoring and revision of internal control
systems involve, among other things, management's judgment with respect to the
relative cost and expected benefits of specific control measures. The Company
maintains an internal auditing function that evaluates and formally reports on
the adequacy and effectiveness of internal controls, policies and procedures.
The Company's financial statements have been audited by independent auditors
who have expressed their opinion with respect to the fairness, in all material
aspects, of the presentation of financial position, results of operations and
cash flows under generally accepted accounting principles.
The Board of Directors, through its Audit Committee (composed of non-employee
directors), oversees management's responsibilities in the preparation of the
financial statements and nominates the independent auditors, subject to
shareholder election. The Audit Committee meets regularly with the external
and internal auditors to evaluate the effectiveness of their work in
discharging their respective responsibilities and to assure their independent
and free access to the Committee.
/s/ Charles M. Stockholm /s/ W. Allen Doane
Charles M. Stockholm W. Allen Doane
Chairman of the Board President and Chief Executive Officer
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF ALEXANDER & BALDWIN, INC.:
We have audited the accompanying balance sheets of Alexander & Baldwin, Inc.
and its subsidiaries as of December 31, 1999 and 1998, and the related
statements of income, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999 (pages 23 and 30 to 47).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, such financial statements present fairly, in all material
respects, the financial position of Alexander & Baldwin, Inc. and its
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with generally accepted accounting principles.
As discussed in Note 3 to the financial statements, in 1998 the Company changed
its method of accounting for assessments from a second injury workers'
compensation fund.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Honolulu, Hawaii
January 27, 2000
(CAPTION>
INDUSTRY SEGMENT INFORMATION (In thousands)
For the Year 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------
REVENUE:
Ocean transportation $ 746,661 $ 722,744 $ 692,689 $ 661,586 $ 593,807
Property development and
management:
Leasing 45,058 37,955 37,148 35,916 34,073
Sales 48,036 82,382 35,916 31,909 25,835
Food products 116,362 465,661 486,912 506,909 377,082
Other 3,155 2,878 2,815 3,490 2,796
- -------------------------------------------------------------------------------------------------
Total revenue $ 959,272 $1,311,620 $1,255,480 $1,239,810 $1,033,593
=================================================================================================
OPERATING PROFIT:
Ocean transportation $ 83,778 $ 66,298 $ 80,385 $ 81,618 $ 87,769
Property development and
management:
Leasing 27,497 22,634 24,559 23,875 23,063
Sales 17,402 21,663 13,262 15,307 14,497
Food products 11,310 21,327 27,083 26,863 (27,797)
Other 2,944 2,696 2,639 3,220 2,593
- -------------------------------------------------------------------------------------------------
Total operating profit 142,931 134,618 147,928 150,883 100,125
Write-down of long-lived assets (15,410) (20,216) -- -- --
Loss on partial sale of
subsidiary -- (19,756) -- -- --
Insurance settlement -- -- 19,965 -- --
Interest expense, net (17,774) (24,799) (28,936) (34,081) (33,429)
General corporate expenses (14,207) (14,552) (11,745) (12,769) (14,742)
- -------------------------------------------------------------------------------------------------
Income from continuing
operations before
income taxes and
accounting change $ 95,540 $ 55,295 $ 127,212 $ 104,033 $ 51,954
=================================================================================================
IDENTIFIABLE ASSETS:
Ocean transportation $ 894,607 $ 898,277 $ 930,636 $1,005,741 $ 997,230
Property development and
management 384,515 338,090 317,622 312,829 297,927
Food products 182,479 261,712 382,109 386,986 413,675
Other 99,859 107,561 74,431 90,559 92,405
- -------------------------------------------------------------------------------------------------
Total assets $1,561,460 $1,605,640 $1,704,798 $1,796,115 $1,801,237
=================================================================================================
CAPITAL EXPENDITURES:
Ocean transportation $ 19,232 $ 60,403 $ 20,828 $ 171,110 $ 46,872
Property development and
management* 76,618 118,552 30,790 7,275 48,890
Food products 17,271 18,237 18,806 12,058 13,650
Other 258 441 242 412 355
- -------------------------------------------------------------------------------------------------
Total capital $ 113,379 $ 197,633 $ 70,666 $ 190,855 $ 109,767
expenditures
=================================================================================================
DEPRECIATION AND AMORTIZATION:
Ocean transportation $ 56,174 $ 61,543 $ 62,192 $ 62,055 $ 57,619
Property development and
management 7,299 6,357 6,281 6,214 5,561
Food products 9,962 20,086 19,538 20,144 20,390
Other 466 514 547 538 1,557
- -------------------------------------------------------------------------------------------------
Total depreciation and
amortization $ 73,901 $ 88,500 $ 88,558 $ 88,951 $ 85,127
=================================================================================================
*Including tax-deferred property purchases.
See Notes 2 and 4 for discussion of the partial sale of California and Hawaiian
Sugar Company, Inc. and the write-down of long-lived assets in 1999 and 1998.
Eleven-Year Summary of Selected Financial Data
(Dollars and shares in thousands, except per-share amounts)
Alexander & Baldwin Inc. and Subsidiaries
1999 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
Annual Operations:
Net sales and other operating revenue $ 959,272 $1,311,620 $1,275,445 $1,239,810 $1,033,593 $1,144,033
Deduct:
Cost of goods sold and operating expenses 772,057 1,143,026 1,030,739 1,012,745 863,083 935,663
Depreciation and amortization 73,901 88,500 88,558 88,951 85,127 84,037
Interest expense 17,774 24,799 28,936 34,081 33,429 27,702
Income taxes 32,961 24,352 45,825 38,748 19,535 32,652
---------- ---------- ---------- ---------- ---------- ----------
Income from continuing operations 62,579 30,943 81,387 65,285 32,419 63,979
Income (loss) from discontinued operations - - - - 23,336 10,629
Cumulative effect of change
in accounting method - (5,801) - - - -
---------- ---------- ---------- ---------- ---------- ----------
Net income $ 62,579 $ 25,142 $ 81,387 $ 65,285 $ 55,755 $ 74,608
========== ========== ========== ========== ========== ==========
Comprehensive income $ 48,711 $ 33,327 $ 88,326 $ 73,660 $ 66,512 $ 70,031
========== ========== ========== ========== ========== ==========
Basic and diluted Earnings per Share from
continuing operations $1.45 $0.69 $1.80 $1.44 $0.72 $1.39
Return on beginning equity 9.0% 3.5% 11.9% 10.0% 8.8% 12.7%
Cash dividends per share $ 0.90 $ 0.90 $ 0.88 $ 0.88 $ 0.88 $ 0.88
Average number of shares outstanding 43,206 44,760 45,182 45,303 45,492 46,059
Gross profit percentage 23.0% 17.4% 20.6% 20.0% 20.2% 21.2%
Effective income tax rate 34.5% 45.4% 36.0% 37.3% 37.6% 33.8%
Market price range per share:
High $ 27.125 $ 31.125 $ 29.375 $ 29.250 $ 25.500 $ 28.250
Low 18.625 18.813 24.375 22.500 20.500 21.250
Close 22.813 23.250 27.313 25.000 23.000 22.250
At Year End:
Shareholders of record 4,761 5,125 5,481 5,881 6,357 6,729
Shares outstanding 42,526 44,028 44,881 45,339 45,280 45,691
Shareholders' equity $ 670,963 $ 694,642 $ 719,588 $ 684,328 $ 649,678 $ 632,614
Per-share 15.78 15.78 16.03 15.09 14.35 13.85
Total assets 1,561,460 1,605,640 1,704,798 1,796,115 1,801,237 1,925,775
Working capital 59,805 67,113 114,806 95,579 84,399 58,392
Cash and cash equivalents 3,333 86,818 21,623 23,824 32,150 8,987
Real estate developments-noncurrent 60,810 57,690 68,056 70,144 56,104 66,371
Investments 158,726 159,068 102,813 91,602 82,246 64,913
Capital Construction Fund 145,391 143,303 148,610 178,616 317,212 176,044
Long-term debt and capital lease obligations-
noncurrent 277,570 255,766 292,885 357,657 404,575 554,879
Current ratio 1.4 to 1 1.4 to 1 1.7 to 1 1.4 to 1 1.4 to 1 1.3 to 1
Capital stock price/earnings
ratio at December 31 15.7 to 1 41.5 to 1 15.2 to 1 17.4 to 1 18.7 to 1 13.7 to 1
Eleven-Year Summary of Selected Financial Data, Continued
(Dollars and shares in thousands, except per-share amounts)
Alexander & Baldwin Inc. and Subsidiaries
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
Annual Operations:
Net sales and other operating revenue $ 923,804 $ 703,948 $ 715,984 $ 747,550 $ 845,936
Deduct:
Cost of goods sold and operating expenses 716,562 538,627 497,106 491,241 458,677
Depreciation and amortization 78,318 69,769 67,999 60,995 53,822
Interest expense 28,802 23,881 24,575 29,602 26,965
Income taxes 41,386 19,044 42,359 58,820 107,461
---------- ---------- ---------- ---------- ----------
Income from continuing operations 58,736 52,627 83,945 106,892 199,011
Income (loss) from discontinued operations 8,253 7,878 4,861 1,075 (310)
Cumulative effect of change
in accounting method - (41,551) - - -
---------- ---------- ---------- ---------- ----------
Net income $ 66,989 $ 18,954 $ 88,806 $ 107,967 $ 198,701
========== ========== ========== ========== ==========
Comprehensive income - - - - -
========== ========== ========== ========== ==========
Basic and diluted Earnings per Share from
continuing operations $1.27 $1.14 $1.82 $2.32 $4.30
Return on beginning equity 12.0% 3.3% 16.7% 23.5% 45.2%
Cash dividends per share $ 0.88 $ 0.88 $ 0.88 $ 0.86 $ 0.80
Average number of shares outstanding 46,338 46,294 46,213 46,133 46,326
Gross profit percentage 24.9% 29.1% 31.9% 36.0% 48.5%
Effective income tax rate 41.3% 26.6% 33.5% 35.5% 35.1%
Market price range per share:
High $ 28.000 $ 30.500 $ 29.500 $ 38.000 $ 39.500
Low 22.500 21.500 21.000 19.000 31.250
Close 26.750 24.750 28.250 22.250 37.500
At Year End:
Shareholders of record 7,056 7,507 7,749 7,860 7,650
Shares outstanding 46,404 46,333 46,229 46,201 46,096
Shareholders' equity $ 587,006 $ 559,099 $ 578,669 $ 530,298 $ 459,712
Per-share 12.65 12.07 12.52 11.48 9.97
Total assets 1,904,742 1,676,635 1,547,648 1,364,165 1,141,671
Working capital 64,884 40,013 23,195 55,340 33,906
Cash and cash equivalents 32,295 20,827 18,675 47,351 23,389
Real estate developments-noncurrent 54,919 50,977 36,362 14,156 -
Investments 17,449 28,733 24,535 23,679 10,558
Capital Construction Fund 175,194 264,435 271,874 266,256 285,515
Long-term debt and capital lease obligations-
noncurrent 620,885 609,776 521,996 402,243 292,195
Current ratio 1.3 to 1 1.4 to 1 1.2 to 1 1.5 to 1 1.4 to 1
Capital stock price/earnings
ratio at December 31 18.5 to 1 60.4 to 1 14.7 to 1 9.5 to 1 8.7 to 1
MANAGEMENT'S DISCUSSION AND ANALYSIS
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
CONSOLIDATED EARNINGS AND REVENUE
Net income in 1999 was $62,579,000 or $1.45 per share, versus $25,142,000, or
$0.56 per share, in 1998. Revenue in 1999 was $959,272,000, compared with
revenue of $1,311,620,000 in 1998. The significant decrease in revenue
resulted from the December 1998 sale of the Company's majority interest in
California and Hawaiian Sugar Company, Inc. (C&H).
Net income in both 1999 and 1998 was reduced by one-time items. Continuous
operating losses and negative cash flows at the Company's subsidiary, Kauai
Coffee Company, Inc. (Kauai Coffee), led to a $9,571,000, or $0.22 per share,
after-tax charge in 1999 to write-down certain assets to their fair value.
Prior year's net income was reduced by three one-time items. First, the
previously mentioned sale of the Company's majority interest in C&H resulted in
a $15,955,000, or $0.36 per share, after-tax loss in 1998. Second, changes in
development plans for a real estate project on Kauai, resulting from extended
weak real estate market conditions, led to a $12,837,000, or $0.29 per share,
after-tax charge in 1998, to reduce the carrying value of certain assets
associated with that project to fair value. Third, the cumulative effect of a
required accounting change, related to federal workers' compensation
assessments, resulted in an after-tax charge of $5,801,000, or $0.13 per share,
in 1998. Before these one-time factors, the Company's earnings per share in
1999 were $1.67, versus $1.33 in 1998, an increase of 26 percent.
1999 COMPARED WITH 1998
OCEAN TRANSPORTATION revenue of $746,661,000 increased three percent and
operating profit of $83,778,000 increased 26 percent in 1999, compared with
1998. Both increases were due primarily to higher freight volume in the Hawaii
Service. Matson Navigation Company, Inc.'s (Matson's) Hawaii Service revenue
was about $34,124,000 more in 1999 than in 1998, due primarily to additional
container and automobile volumes. The increase in Hawaii Service revenue was
partially offset by handling costs associated with the higher volume and by the
adverse impact of longshore labor disruptions on the West Coast and in Hawaii.
For the year, Matson's total Hawaii Service container volume, at 151,215 units
in 1999, was five-percent higher than 1998 container volume of 143,431 units.
Matson's total Hawaii Service automobile volume, at 101,095 units, was 37-
percent higher than 1998 automobile volume of 73,717 units. Both of these
increases resulted from competitive gains.
Operating expenses rose in 1999, primarily reflecting higher freight volume,
fuel and labor costs and lower productivity, due to labor disruptions. The
longshore labor agreements on the West Coast and in Hawaii were renegotiated in
1999. The negotiation process involved work slowdowns, and in some instances
work stoppages, that resulted in significant increases in operating expenses.
New agreements were reached without any strikes; however, the new contracts
contain significant wage and pension benefit increases over the next three
years.
Fuel costs escalated in 1999 as the average price paid for fuel increased to
$15.40 per barrel from $11.98 per barrel in 1998. Current pricing is around
$22.50 per barrel. A 1.75-percent fuel surcharge was implemented in October
1999 to help alleviate rising fuel costs. An additional 0.5-percent fuel
surcharge will take effect in February 2000.
Commencing in July 1999, Matson combined its West Coast terminals with those of
Stevedoring Services of America (SSA) to form a new company, SSA Terminals,
LLC, which is owned jointly by SSA and Matson (see Note 2 to the Company's
financial statements). This joint venture will utilize assets better, reduce
costs, improve operating efficiencies and provide enhanced customer service.
In November 1999, Matson announced a 3.9-percent increase in Hawaii Service
rates, effective in February 2000. A 2.5-percent increase in Hawaii Service
rates took effect in February 1999.
PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue of $45,058,000 for 1999
rose 19 percent compared with 1998 and operating profit of $27,497,000 for 1999
increased 21 percent compared with 1998. The increase was due primarily to the
contributions from newly acquired properties, as well as higher occupancy
rates. The full-year results in 1999 also benefited from a one-time buyout of
a long-term ground lease. Occupancy rates for the Mainland properties averaged
94 percent in 1999, versus 91 percent in 1998. The Company's leased properties
on the Mainland totaled 3.1 million square feet at year-end 1999, versus 2.3
million square feet at year-end 1998. Occupancy levels for the Hawaii
properties averaged 81 percent in 1999, versus 68 percent in 1998. This
improvement resulted from higher occupancy of existing properties and from
acquisition of higher-occupancy properties during 1999. The Company owned 1.2
million square feet of leased properties in Hawaii at year-end 1999, versus 0.7
million square feet at year-end 1998.
PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue of $48,036,000 for 1999 was
considerably lower than the $82,382,000 in sales recorded in 1998. Operating
profit from property sales in 1999 of $17,402,000 was 20-percent lower than the
$21,663,000 achieved in 1998. In context, however, 1998 represented the
Company's highest level of property sales since 1989. Significant sales in
1999 included an office/research building in Seattle with net proceeds of
$25,130,000, two developed business parcels, three undeveloped parcels and 41
residential properties. Sales in 1998 included a large R&D and office complex
in Cupertino, California, a remaining interest in a 14-acre parcel at Maui
Business Park, five developed business parcels and 64 residential properties.
Sales totaling $34,883,000 in 1999 were completed on a tax-deferred basis,
compared with 1998 tax-deferred sales of $67,258,000. Purchases, utilizing
proceeds from tax-deferred sales, totaled $34,907,000 and $85,896,000 for 1999
and 1998, respectively.
The mix of property sales in any year can be diverse. Sales can include
property sold under threat of condemnation, developed residential real estate,
commercial properties, developable subdivision lots and undeveloped land. The
sale of undeveloped land and subdivision lots generally provides a greater
contribution margin than does the sale of developed and commercial property,
due to the low historical-cost basis of the Company's Hawaii land.
Consequently, property sales revenue trends and the amount of real estate held
for sale on the balance sheets do not necessarily indicate future profitability
for this segment.
FOOD PRODUCTS revenue of $116,362,000 in 1999 compared with revenue of
$465,661,000 in 1998. Operating profit of $11,310,000 in 1999 was 47-percent
lower than the $21,327,000 earned in 1998. Both reductions were due primarily
to the previously mentioned December 1998 sale of the Company's majority
interest in C&H and operating losses at Kauai Coffee, partially offset by
better performance at Hawaiian Commercial & Sugar Company (HC&S), the
Company's raw-sugar producing unit on Maui.
HC&S' results showed sustained improvement in 1999. Sugar yields of 227,832
tons were five-percent higher than the 216,188 tons in 1998 and were at the
highest level this decade. The higher sugar yields, combined with cost
reduction efforts at HC&S, partially offset operating losses at Kauai Coffee.
The outlook for raw sugar in 2000, however, is not favorable as raw sugar
prices continue to decline. The weighted-average #14 domestic raw sugar
price for the 2000 crop is currently $18.00/cwt., which is $4.18/cwt. below
1999's price of $22.18/cwt., the lowest level in 20 years. This drop could
result in a significant decrease in pre-tax earnings in 2000 compared to 1999.
HC&S' labor contract with the ILWU expired January 31, 2000. HC&S is operating
under a contract extension, with a 24-hour cancellation notice. Negotiations
are continuing at this time.
Results from Kauai Coffee, the Company's coffee plantation, showed increased
operating losses in 1999, due primarily to lower coffee prices and a high cost
structure. Sales volumes were slow, due to roasters' high inventory levels, as
a result of the low coffee prices during most of 1999. During the second half
of 1999, Kauai Coffee significantly reduced its workforce and changed its
marketing and selling plans. In December 1999, the Company wrote down a
portion of Kauai Coffee's assets because estimated future cash flows of the
business are not expected to recover the carrying value of its assets. (See
Note 4 to the Company's financial statements.)
1998 COMPARED WITH 1997
OCEAN TRANSPORTATION revenue of $722,744,000 for 1998 increased four percent
compared with 1997; however, operating profit of $66,298,000 decreased 18
percent. For the year, Matson's total Hawaii container volume was four-percent
lower and its total automobile volume was six-percent lower. The decline in
cargo volume resulted primarily from the continued weakness in the Hawaii cargo
market and competitive pressures, especially a barge competitor that operated
temporarily during the seasonal peak period of household goods movements.
PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue of $37,955,000 for 1998
rose two percent compared with 1997; however, operating profit of $22,634,000
for 1998 decreased eight percent compared with 1997. The decrease was due
primarily to lower occupancy rates, especially in the Hawaii market. Occupancy
rates for the Mainland properties averaged 91 percent in 1998, versus 98
percent in 1997. The lower Mainland average rate primarily reflected a shift
in the composition of the portfolio toward more multi-tenant properties,
following the sale of a large, single-tenant property in 1998. Occupancy
levels for the Hawaii properties averaged 68 percent in 1998, versus 78 percent
in 1997. The lower Hawaii average rate reflected ongoing weak economic
conditions in Hawaii as well as low occupancy rates for properties acquired
during 1997.
PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue of $82,382,000 for 1998
considerably exceeded the $35,916,000 in sales recorded in 1997. Operating
profit from property sales in 1998 of $21,663,000 was 63-percent higher than
the $13,262,000 achieved in 1997. The increases resulted from the sale of a
large single-tenant research and office complex in Cupertino, California for
$51,500,000 and of the Company's remaining interest in a 14-acre parcel at Maui
Business Park. Other significant sales in 1998 included five developed
business parcels and 64 residential properties. Sales in 1997 included four
leased parcels in Maui Business Park, an undeveloped 24-acre residential
parcel, several developed and undeveloped business parcels, an industrial
warehouse in California and 59 residential units.
FOOD PRODUCTS revenue of $465,661,000 in 1998 was four-percent lower than the
1997 revenue of $486,912,000. Operating profit of $21,327,000 in 1998 was 21-
percent lower than the $27,083,000 earned in 1997. Several factors contributed
to these lower results. Refined sugar prices declined in 1998 as a result of a
large beet sugar crop. The average per-ton cost to purchase raw sugar was
about the same in 1998 as it was in 1997, but refining and direct operating
expenses increased. While the volume of refined sugar sales increased slightly
in 1998, the mix of sales resulted in a lower margin than the previous year.
The low cane sugar import quota made it difficult for C&H to purchase raw sugar
at attractive prices. A majority interest in C&H was sold on December 24,
1998, resulting in one less week of operations as a consolidated business than
in 1997. The combined impact of these items reduced 1998 operating profit by
approximately $13,000,000.
FINANCIAL CONDITION AND LIQUIDITY
The Company's principal liquid resources, comprising cash and cash equivalents,
receivables, inventories and unused lines of credit, less accrued deposits to
the Capital Construction Fund (CCF), totaled $253,361,000 at December 31, 1999,
a decrease of $112,032,000 from December 31, 1998. This net reduction was due
primarily to a decrease in cash and cash equivalents, lower amounts available
under lines of credit, and lower sugar and coffee inventories, partially offset
by an increase in receivables and lower accrued deposits to the CCF. Cash and
cash equivalents decreased by $83,485,000, due primarily to the use of proceeds
from the 1998 sale of C&H to repay debt in 1999. Amounts available under lines
of credit decreased $39,501,000, due primarily to the expiration of certain
credit facilities. Receivables increased $6,829,000, as a result of higher
revenue at Matson. Accrued deposits to the CCF increased $5,918,000.
Working capital was $59,805,000 at December 31, 1999, a decrease of $7,308,000
from the amount at the end of 1998. This net reduction was due primarily to a
decrease in cash and cash equivalents and an increase in accounts payable,
partially offset by a decrease in notes payable and the current portion of debt
and an increase in other current assets. The decrease in cash and cash
equivalents, and notes payable and the current portion of debt were due
primarily to the use of proceeds from the 1998 sale of C&H to repay debt in
1999. Accounts payable increased due to normal operating activities. The
increase in other current assets was due primarily to refundable income taxes
in 1999 and an increase in the current portion of deferred taxes.
Net cash provided by operations, before capital expenditures for real estate
developments held for sale, was $121,781,000 and $137,244,000 for 1999 and
1998, respectively. Net operating cash flows were used principally for capital
expenditures, payments of debt, dividends, repurchases of capital stock and
deposits into the CCF. Withdrawals from the CCF in 1999 were used to increase
an investment in a joint venture shipping operation (see Note 2 to the
Company's financial statements) and to purchase refrigerated shipping
containers.
In 1999, capital additions were $113,379,000, compared with $197,633,000 in
1998. Ocean transportation capital additions in 1999 of $19,232,000 were
primarily for the acquisition of container and terminal equipment and for
information systems. Property development and management capital additions in
1999 of $76,618,000, which included the reinvestment of tax-deferred sales
proceeds, were for real estate developments held for investment purposes and
for improvements to leased properties. Food products capital additions in 1999
of $17,271,000 were primarily for sugar factory modifications, and power
generation and harvesting equipment for sugar plantation operations.
Capital expenditures approved, but not yet spent, were $81,610,000 at December
31, 1999. These expenditures are primarily for container equipment, real
estate developments held for investment purposes, improvements to leased
properties, and irrigation, factory and power generation equipment for the
Company's sugar-growing operations. For 2000, internal cash flows and short-
term borrowing facilities are expected to be sufficient to finance working
capital needs, dividends, capital expenditures and debt service.
OTHER MATTERS
NEW ACCOUNTING STANDARD: In 1998, the Company adopted the American Institute
of Certified Public Accountants Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments." This
standard required that the Company record a liability for the present value of
future assessments from the U.S. Department of Labor, related to a federal
workers' compensation fund. Previously, the annual assessments were charged to
expense in the year paid. The after-tax, cumulative effect of the change in
accounting method was a reduction in 1998 net income of $5,801,000, or $0.13
per share. (See Note 3 to the Company's financial statements.)
C&H RECAPITALIZATION AND PARTIAL SALE: On December 24, 1998, the Company
recapitalized and sold a majority of its equity interest in C&H, recognizing a
loss of $19,756,000 (pre-tax). The after-tax impact of the loss on 1998 net
income was $15,955,000, or $0.36 per share. C&H is included in the
consolidated results of the Company up to the date of sale. Effective December
24, 1998, the Company began accounting for its investment in C&H under the
equity method. (See Note 2 of the Company's financial statements.)
WRITE-DOWN OF LONG-LIVED ASSETS: In 1999, the Company evaluated the ongoing
viability of its coffee operation. As a result, the Company determined that
the estimated future cash flows of the coffee operation were less than the
carrying value of its productive assets, consisting mainly of orchards and
field and processing equipment. Accordingly, a $15,410,000 (pre-tax) charge
was recorded to write-down these productive assets to their fair value. The
after-tax impact to 1999 net income of this write-down was $9,571,000, or $0.22
per share. (See Note 4 to the Company's financial statements.)
In 1998, the Company changed the strategic direction of its Kukui'Ula real
estate development project on Kauai. As a result, the Company determined that
the total present capitalized investment could not be recovered through future
cash flows and, accordingly, reduced the carrying value by $20,216,000. The
after-tax impact to 1998 net income of this write-down was $12,837,000, or
$0.29 per share. (See Note 4 to the Company's financial statements.)
TAX-DEFERRED REAL ESTATE EXCHANGES: In 1999, the Company sold five parcels of
land for $34,883,000. The proceeds from these sales are reflected in the
Statements of Cash Flows under the caption "Non-cash Activities." In 1999, the
Company reinvested proceeds of $34,907,000 on a tax-deferred basis. The
reinvested proceeds are also reported under Non-cash Activities in the
Statements of Cash Flows. The purchases of real estate using tax-deferred
monies are included in Capital Expenditures in the Industry Segment Information
(page 23).
SHARE REPURCHASES: In 1999, the Company repurchased 1,564,500 shares of its
common stock for an aggregate of about $34,824,000 (average of $22.26 per
share). On December 10, 1999, the Board of Directors authorized the repurchase
of up to 1,000,000 additional shares of the Company's stock. Between January
1, 2000 and February 18, 2000, 436,870 shares were repurchased for an aggregate
amount of $8,690,000 (average of $19.89 per share). The remaining number of
shares authorized for repurchase is approximately 2,400,000.
ENVIRONMENTAL MATTERS: As with most industrial and land-development companies
of its size, the Company's operations have certain risks which could result in
expenditures for environmental remediation. The Company believes that it is in
compliance, in all material respects, with applicable environmental laws and
regulations, and works proactively to identify potential environmental
concerns. Management believes that appropriate liabilities have been accrued
for environmental matters.
OUTLOOK: Information about the Company's outlook for 2000 and its plans to
address issues affecting primary business units is included in the Letter to
Shareholders on pages 4 through 9 and in the business unit discussions included
on pages 10 through 19 of the Annual Report to Shareholders, which sections are
incorporated herein by reference.
YEAR 2000
Five years ago, the Company and its subsidiaries (collectively, the "Company")
commenced an evaluation of their computer systems and applications to prepare
for the year 2000 ("Y2K"). Following this evaluation, implementation plans for
all business segments were prepared and executed. The Y2K initiative proceeded
with the direction of the Board of Directors, which received regular progress
reports.
The Company's Y2K readiness project addressed risks in the following three
primary areas:
1. the Company's information systems, including hardware and software;
2. the Company's embedded systems, including computers and software that
control machinery, telephone systems, and environmental systems; and
3. third parties with whom the Company does business or otherwise has an
association.
Costs
- -----
Through 1999, the Company had expended approximately $6,156,000 for this
project. The internal and external costs of the Y2K work were expensed as
incurred, unless a computer system was replaced for operating reasons as well
as Y2K compliance, in which case the costs were capitalized. Cash generated
from operations funded the Y2K costs. No major internal systems projects were
delayed because of the Y2K work. The remaining costs related to Y2K work are
not significant.
Risks
- -----
Company Information and Embedded Systems: The Company believed that the Y2K
risks associated with the failure of its information and embedded systems was
low, due to its Y2K readiness. The Company has not experienced Y2K problems
with any of its information or embedded systems.
Third Parties: The most serious impact on the Company's operations from third
parties would have resulted if basic services, such as telecommunications,
electric power, and other basic infrastructure services, were disrupted. The
Company has not experienced Y2K problems with any of its customers, suppliers
or other third parties.
Contingency Plans
- -----------------
The Company's approach to Y2K contingency planning was to complement disaster
plans that already were in effect for the Company. The disaster plans provided
operating procedures for unanticipated outages of electricity, communications
or other essential services, such as those disruptions which might occur due
to a hurricane or tsunami. The Y2K contingency plans addressed Y2K-specific
issues that were not covered in the existing disaster plans. The contingency
plans detailed the procedures and strategies for each business unit for dealing
with problems before, on and after December 31, 1999.
Summary
- -------
The Company has not experienced Y2K problems with any of its information or
embedded systems, or with any of its customers, suppliers or other third
parties. Business is continuing as usual, and the Company will continue to
monitor its information and embedded systems and third parties for any possible
disruption.
The Company does not anticipate any problems, although there can be no absolute
assurance that the Company will continue to be successful in avoiding all
possible problems. In particular, there can be no assurance that the Company
will not be affected adversely by the failure of a vendor, customer, or other
third party that is affected by Y2K issues arising later. However, in the
context of the uncertainties inherent in dealing with the remaining Y2K issues,
the Company believes, based on available information and the absence of any Y2K
problems to date, that the impact of the Y2K issue and its associated costs
will not have a material impact on the Company's results of operations,
liquidity and financial condition. This disclosure is a Year 2000 Readiness
Disclosure, pursuant to the Year 2000 Information and Readiness Disclosure Act.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company, from time to time, may make or may have made certain forward-
looking statements, whether orally or in writing, such as forecasts and
projections of the Company's future performance or statements of management's
plans and objectives. Such forward-looking statements may be contained in,
among other things, Securities and Exchange Commission (SEC) filings, such as
the Forms 10-K, press releases made by the Company and oral statements made by
the officers of the Company. Except for historical information contained in
these written or oral communications, such communications contain forward-
looking statements. These forward-looking statements involve a number of risks
and uncertainties that could cause actual results to differ materially from
those projected in the statements, including, but not limited to: (1) economic
conditions in Hawaii and elsewhere; (2) market demand; (3) competitive factors
and pricing pressures in the Company's primary markets; (4) legislative and
regulatory environments at the federal, state and local levels, such as
government rate regulations, land-use regulations, government administration of
the U.S. sugar program, and modifications to or retention of cabotage laws; (5)
dependence on third-party suppliers; (6) fuel prices; (7) raw sugar prices; (8)
labor relations; (9) risks associated with current or future litigation; and
(10) other risk factors described elsewhere in these communications and from
time to time in the Company's filings with the SEC.
STATEMENTS OF INCOME (In thousands, except per-share amounts)
Year Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------
REVENUE:
Ocean transportation $ 733,488 $ 708,735 $ 678,319
Property development and management 92,342 119,304 72,226
Food products 111,815 464,625 482,799
Interest 11,219 11,278 23,131
Gain on sale of property and other 5,033 4,800 16,119
Dividends 5,375 2,878 2,851
- ------------------------------------------------------------------------------------
Total revenue 959,272 1,311,620 1,275,445
- ------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of goods and services 738,249 1,083,836 1,011,718
Selling, general and administrative 92,299 107,718 107,579
Write-down of long-lived assets 15,410 20,216 --
Loss on partial sale of subsidiary -- 19,756 --
Interest 17,774 24,799 28,936
- ------------------------------------------------------------------------------------
Total costs and expenses 863,732 1,256,325 1,148,233
- ------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING METHOD 95,540 55,295 127,212
Income taxes 32,961 24,352 45,825
- ------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING METHOD 62,579 30,943 81,387
Cumulative effect of change in accounting
method for insurance-related assessments
(net of income taxes of $3,481) -- (5,801) --
- ------------------------------------------------------------------------------------
NET INCOME 62,579 25,142 81,387
Unrealized holding gains (losses) on
securities (net of income taxes of
$8,088 in 1999, $5,337 in 1998, and
$3,977 in 1997) (13,868) 8,185 6,939
- ------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 48,711 $ 33,327 $ 88,326
====================================================================================
BASIC AND DILUTED EARNINGS PER SHARE OF
COMMON STOCK:
Before cumulative effect of accounting
change $ 1.45 $ 0.69 $ 1.80
Accounting change -- (0.13) --
- ------------------------------------------------------------------------------------
Net income $ 1.45 $ 0.56 $ 1.80
====================================================================================
AVERAGE COMMON SHARES OUTSTANDING 43,206 44,760 45,182
See notes to financial statements.
STATEMENTS OF CASH FLOWS (In thousands)
Year Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATIONS:
Net Income $ 62,579 $ 25,142 $ 81,387
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation and amortization 73,901 88,500 88,558
Gain on disposal of assets (10,661) (10,259) (872)
Equity in (income) loss of affilliates (582) 276 --
Write-down of long-lived assets 15,410 20,216 --
Loss on partial sale of subsidiary -- 19,756 --
Accounting change for insurance-
related assessments -- 5,801 --
Partial reversal of plantation closure
reserve -- -- (990)
Changes in assets and liabilities:
Accounts and notes receivable (6,007) 7,859 (5,532)
Inventories (1,326) 4,605 24,276
Pension assets or obligations (16,775) (10,663) (4,843)
Prepaid expenses and other assets (8,852) (9,213) 1,973
Accounts and income taxes payable 10,436 5,345 (672)
Deferred income taxes payable 8,465 (8,248) 13,168
Other liabilities (4,807) (1,873) (8,948)
Capital expenditures for real estate
developments held for sale (116) (1,972) (5,636)
- ------------------------------------------------------------------------------------
Net cash provided by operations 121,665 135,272 181,869
- ------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property (61,638) (98,510) (45,598)
Capital expenditures for real estate
developments held for investment (16,834) (13,227) (2,898)
Receipts from disposal of income
producing property, investments and other
assets 3,688 4,818 728
Proceeds from recapitalization of
subsidiary -- 83,841 --
Proceeds from partial sale of subsidiary -- 14,940 --
Deposits into Capital Construction Fund (19,464) (10,000) (11,656)
Withdrawals from Capital Construction Fund 11,458 14,377 50,000
Increase in investments - net (5,705) (7,745) (822)
- ------------------------------------------------------------------------------------
Net cash used in investing
activities (88,495) (11,506) (10,246)
- ------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 39,500 30,000 34,500
Payments of long-term debt (30,533) (68,985) (109,082)
Proceeds (payments) from short-term
borrowings - net (52,000) 40,000 (45,000)
Repurchases of capital stock (34,824) (20,838) (16,585)
Proceeds from issuance of capital stock 101 1,575 2,132
Dividends paid (38,899) (40,323) (39,789)
- ------------------------------------------------------------------------------------
Net cash used in financing
activities (116,655) (58,571) (173,824)
- ------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) for the year (83,485) 65,195 (2,201)
Balance, beginning of year 86,818 21,623 23,824
- ------------------------------------------------------------------------------------
Balance, end of year $ 3,333 $ 86,818 $ 21,623
====================================================================================
OTHER CASH FLOW INFORMATION:
Interest paid, net of amounts
capitalized $ 17,772 $ 26,890 $ 30,956
Income taxes paid, net of refunds 34,213 34,672 29,775
NON-CASH ACTIVITIES:
Tax-deferred property sales 34,883 67,258 17,388
Tax-deferred property purchases 34,907 85,896 22,170
Transfer of assets to joint venture 16,438 -- --
Securities retained in connection
with partial sale of subsidiary -- 34,960 --
See notes to financial statements.
BALANCE SHEETS
(In thousands, except per-share amounts)
December 31, 1999 1998
- ------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,333 $ 86,818
Accounts and notes receivable:
Trade, less allowances of $7,734 and
$6,272 122,604 114,885
Other 14,033 14,923
Inventories:
Sugar and coffee 4,543 6,336
Materials and supplies 11,384 13,436
Real estate held for sale 12,706 8,535
Deferred income taxes 16,260 9,524
Prepaid expenses and other assets 20,739 9,407
Accrued deposits to Capital Construction (3,152) (9,070)
Fund
- ------------------------------------------------------------------------------
Total current assets 202,450 254,794
- ------------------------------------------------------------------------------
INVESTMENTS 158,726 159,068
- ------------------------------------------------------------------------------
REAL ESTATE DEVELOPMENTS 60,810 57,690
- ------------------------------------------------------------------------------
PROPERTY:
Land 86,421 77,272
Buildings 241,009 213,713
Vessels 766,525 757,730
Machinery and equipment 510,407 565,577
Water, power and sewer systems 83,980 80,601
Other property improvements 60,244 92,531
- ------------------------------------------------------------------------------
Total 1,748,586 1,787,424
Less accumulated depreciation and
amortization 819,959 837,704
- ------------------------------------------------------------------------------
Property - net 928,627 949,720
- ------------------------------------------------------------------------------
CAPITAL CONSTRUCTION FUND 145,391 143,303
- ------------------------------------------------------------------------------
PENSION ASSETS 40,987 24,212
- ------------------------------------------------------------------------------
OTHER ASSETS - NET 24,469 16,853
- ------------------------------------------------------------------------------
Total $ 1,561,460 $ 1,605,640
==============================================================================
See notes to financial statements.
1999 1998
- ------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of
long-term debt $ 22,500 $ 45,533
Short-term commercial paper borrowings -- 42,000
Accounts payable 55,655 37,781
Payrolls and vacation pay 16,699 14,935
Uninsured claims 12,742 13,398
Post-retirement benefit obligations--
current portion 2,878 3,115
Taxes other than income 4,414 4,096
Accrued and other liabilities 27,757 26,823
- ------------------------------------------------------------------------------
Total current liabilities 142,645 187,681
- ------------------------------------------------------------------------------
LONG-TERM LIABILITIES:
Long-term debt 277,570 255,766
Post-retirement benefit obligations 60,767 61,929
Uninsured claims 16,780 18,180
Other 34,381 34,413
- ------------------------------------------------------------------------------
Total long-term liabilities 389,498 370,288
- ------------------------------------------------------------------------------
DEFERRED INCOME TAXES 358,354 353,029
- ------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Capital stock -- common stock without
par value; authorized, 150,000 shares
($.75 stated value per share);
outstanding, 42,526 shares in 1999
and 44,028 shares in 1998 34,933 36,098
Additional capital 53,124 51,946
Unrealized holding gains on securities 49,461 63,329
Retained earnings 545,849 555,820
Cost of treasury stock (12,404) (12,551)
- ------------------------------------------------------------------------------
Total shareholders' equity 670,963 694,642
- ------------------------------------------------------------------------------
Total $ 1,561,460 $ 1,605,640
==============================================================================
STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per-share amounts)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Three Years Ended December 31, 1999
- --------------------------------------------------------------------------------------------------------------------
Capital Stock
------------------------------------------
Issued In Treasury
--------------------- ------------------
Unrealized
Additional Holding Retained
Shares Stated Value Shares Cost Capital Gains Earnings
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 49,533 $ 37,150 4,194 $(13,373) $ 43,377 $ 48,205 $568,969
Changes in 1997:
Shares repurchased and retired (624) (468) (16,117)
Stock options exercised 234 175 5,098
Acquired in payment of options (123) (92) (3,315)
Issued--incentive plans 6 4 (49) 476 962
Unrealized holding gains on
securities 6,939
Net income 81,387
Cash dividends -- $.88 per share (39,789)
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 49,026 36,769 4,145 (12,897) 49,437 55,144 591,135
Changes in 1998:
Shares repurchased and retired (969) (727) (20,111)
Stock options exercised 68 51 1,558
Acquired in payment of options (1) (1) (23)
Issued--incentive plans 8 6 (41) 346 951
Unrealized holding gains on
securities 8,185
Net income 25,142
Cash dividends -- $.90 per share (40,323)
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 48,132 36,098 4,104 (12,551) 51,946 63,329 555,820
CHANGES IN 1999:
Shares repurchased and retired (1,565) (1,173) (33,651)
Stock options exercised 5 4 97
Issued--incentive plans 7 4 (51) 147 1,081
Unrealized holding loss on
securities (13,868)
Net income 62,579
Cash dividends -- $.90 per share (38,899)
- --------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 46,579 $ 34,933 4,053 $(12,404) $ 53,124 $ 49,461 $545,849
====================================================================================================================
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
ALEXANDER & BALDWIN, INC.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of Alexander & Baldwin, Inc. and all wholly-owned subsidiaries, after
elimination of significant intercompany amounts. Investments in 20 to 50
percent owned companies are accounted for using the equity method.
COMPREHENSIVE INCOME: Comprehensive Income includes changes from either
recognized transactions or other economic events, excluding capital stock
transactions, which impact Shareholders' Equity. For the Company, the only
difference between Net Income and Comprehensive Income is the unrealized
holding gains on securities available for sale. Comprehensive Income is not
used in the calculation of Earnings per Share.
BASIC AND DILUTED EARNINGS PER SHARE OF COMMON STOCK: Basic Earnings per Share
is determined by dividing Net Income by the weighted-average common shares
outstanding during the year. The impact on earnings per share of the Company's
stock options is immaterial; consequently, Diluted Earnings per Share is the
same amount as Basic Earnings per Share.
OCEAN TRANSPORTATION: Voyage revenue and variable costs and expenses are
included in income at the time each voyage leg commences. This method of
accounting does not differ materially from other acceptable accounting methods.
Vessel depreciation, charter hire, terminal operating overhead and general and
administrative expenses are charged to expense as incurred. Expected costs of
regularly-scheduled dry docking of vessels and planned major vessel repairs
performed during dry docking are accrued.
PROPERTY DEVELOPMENT AND MANAGEMENT: Sales are recorded when the risks and
benefits of ownership have passed to the buyers (generally on closing dates),
adequate down payments have been received and collection of remaining balances
is reasonably assured.
Expenditures for real estate developments are capitalized during construction
and are classified as Real Estate Developments on the Balance Sheets. When
construction is complete, the costs are reclassified as either Real Estate Held
for Sale or Property, based upon the Company's intent to sell the completed
asset or to hold it as an investment. Cash flows related to real estate
developments are classified as either operating or investing activities, based
upon the Company's intention to sell the property or to retain ownership of the
property as an investment following completion of construction.
FOOD PRODUCTS: Revenue from bulk raw sugar sales is recorded when delivered to
the cooperative of Hawaiian producers based on the estimated net return to
producers. Revenue from coffee is recorded when sold to third parties.
Costs of growing and harvesting sugar cane are charged to the cost of
production in the year incurred and to cost of sales as raw sugar is delivered
to the cooperative of Hawaiian producers.
Costs of developing coffee orchards are capitalized during the development
period and depreciated over the estimated productive lives. Costs of growing
coffee are charged to inventory in the year incurred and to cost of sales as
coffee is sold.
CASH AND CASH EQUIVALENTS: The Company considers highly liquid investments
purchased with original maturities of three months or less, which have no
significant risk of change in value, to be cash equivalents.
INVENTORIES: Raw sugar and coffee inventories are stated at the lower of cost
(first-in, first-out basis) or market. Other inventories, composed principally
of materials and supplies, are stated at the lower of cost (principally average
cost) or market.
PROPERTY: Property is stated at cost. Major renewals and betterments are
capitalized. Replacements, maintenance and repairs, which do not improve or
extend asset lives, are charged to expense as incurred. Gains or losses from
property disposals are included in income.
CAPITALIZED INTEREST: Interest costs incurred in connection with significant
expenditures for real estate developments or the construction of assets are
capitalized. Interest expense is shown net of capitalized interest on the
Statements of Income, because the amounts are not significant.
DEPRECIATION: Depreciation is computed using the straight-line method.
Estimated useful lives of property are as follows:
Buildings 10 to 50 years
Vessels 10 to 40 years
Marine containers 15 years
Machinery and equipment 3 to 35 years
Utility systems and other depreciable property 5 to 60 years
PENSION PLANS: Certain ocean transportation subsidiaries are members of the
Pacific Maritime Association (PMA) and the Hawaii Stevedoring Industry
Committee, which negotiate multi-employer pension plans covering certain
shoreside bargaining unit personnel. The subsidiaries directly negotiate
multi-employer pension plans covering other bargaining unit personnel. Pension
costs are accrued in accordance with contribution rates established by the PMA,
the parties to a plan or the trustees of a plan. Several trusteed, non-
contributory, single-employer defined benefit plans cover substantially all
other employees.
INCOME TAXES: Income tax expense is based on revenue and expenses in the
Statements of Income. Deferred income tax liabilities and assets are computed
at current tax rates for temporary differences between the financial statement
and income tax bases of assets and liabilities.
FAIR VALUES: The carrying values of current assets (other than inventories,
real estate held for sale, deferred income taxes and prepaid and other certain
assets) and of debt instruments, are reasonable estimates of their fair values.
Real estate is carried at the lower of cost or fair value. Fair values are
generally determined using the expected market value for the property, less
sales costs. For residential units and lots held for sale, market value is
determined by reference to the sales of similar property, market studies, tax
assessments and cash flows. For commercial property, market value is
determined using recent comparable sales, tax assessments and cash flows. A
large portion of the Company's real estate is undeveloped land located in
Hawaii. This land has a cost basis which averages approximately $150 per acre,
a value which is much lower than fair value.
ENVIRONMENTAL COSTS: Environmental expenditures that relate to current
operations are expensed or capitalized, as appropriate. Expenditures that
relate to an existing condition caused by past operations or events, and which
do not contribute to current or future revenue generation, are charged to
expense. Liabilities are recorded when environmental assessments or remedial
efforts are probable and the costs can be estimated reasonably.
YEAR-2000 COSTS: Computer and related costs necessary to prepare for the Year-
2000 date change were treated as an operating expense in the year incurred,
unless a computer system was being replaced for operating reasons as well as
for Year-2000 compliance, in which case the costs were capitalized. The annual
amounts charged to expense were not significant. (See Management's Discussion
and Analysis, unaudited, for additional information.)
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Future actual amounts could differ from those
estimates.
RECLASSIFICATIONS: Certain amounts in the 1998 and 1997 financial statements
have been reclassified to conform with the 1999 presentation.
2. INVESTMENTS AND PARTIAL SALE OF SUBSIDIARY
At December 31, 1999 and 1998, investments consisted principally of marketable
equity securities, equity in affiliated companies, limited partnership
interests and purchase-money mortgages, as follows (in thousands):
1999 1998
- ---------------------------------------------------------------------------
Marketable equity securities $ 88,485 $ 110,119
Equity in affiliated companies:
California and Hawaiian Sugar Company,
Inc. (C&H) 37,591 34,960
SSA Terminals, LLC (SSAT) 18,278 --
Sea Star Line, LLC (Sea Star) 8,429 7,008
Other 300 600
Limited partnership interests, purchase-money
mortgages and other 5,643 6,381
- ---------------------------------------------------------------------------
Total Investments $ 158,726 $ 159,068
===========================================================================
MARKETABLE EQUITY SECURITIES: The marketable equity securities are classified
as "available for sale" and are stated at quoted market values. The unrealized
holding gains on these securities, net of deferred income taxes, have been
recorded as a separate component of Shareholders' Equity.
The components of the net unrealized holding gains at December 31, 1999 and
1998 were as follows (in thousands):
1999 1998
- ---------------------------------------------------------------------------
Market value $ 88,485 $ 110,119
Less historical cost 10,173 9,851
- ---------------------------------------------------------------------------
Unrealized holding gains 78,312 100,268
Less deferred income taxes 28,851 36,939
- ---------------------------------------------------------------------------
Net unrealized holding gains $ 49,461 $ 63,329
===========================================================================
EQUITY IN AFFILIATED COMPANIES: On December 24, 1998, the Company recognized a
loss of $19,756,000 on the sale of a majority of its equity interest in its
sugar refining and marketing unit, C&H. The Company received approximately
$45,000,000 in cash, after the repayment of certain C&H indebtedness,
$25,000,000 in senior preferred stock, and $9,600,000 in junior preferred
stock. The Company retained an approximately 36 percent common stock interest
in the recapitalized C&H. The Company holds all of C&H's senior preferred
stock and 40 percent of C&H's junior preferred stock. Dividends on the senior
and junior preferred stocks are cumulative. Through December 2003, dividends
on the senior preferred stock may be paid either in cash or by issuance of
additional shares of senior preferred stock. Shares of senior preferred stock
received as dividends are valued at their estimated realizable values. C&H
must redeem from the Company, at one thousand dollars per share, the
outstanding senior preferred stock in December 2009 and outstanding junior
preferred stock in December 2010. C&H is included in the consolidated results
of the Company up to the date of the sale. Effective December 24, 1998, the
Company began accounting for its investment in C&H under the equity method.
Financial information for C&H as of December 31, 1999 and 1998 and for the year
ended December 31, 1999 follows (in thousands):
CONDENSED BALANCE SHEETS 1999 1998
- ----------------------------------------------------------------------
ASSETS:
Current $ 82,707 $ 77,109
Property and other 136,941 139,191
- ----------------------------------------------------------------------
Total $ 219,648 $ 216,300
======================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current $ 39,044 $ 36,092
Long-term debt and other 117,064 123,845
Shareholders' equity, including
preferred stock 63,540 56,363
- ----------------------------------------------------------------------
Total $ 219,648 $ 216,300
======================================================================
CONDENSED STATEMENT OF INCOME 1999
- -----------------------------------------------------
Revenue $ 470,838
Cost and Expenses 463,454
- -----------------------------------------------------
Net Income $ 7,384
=====================================================
In September 1998, the Company invested in a joint venture with Saltchuk
Resources, Inc. and International Shipping Agency, Inc. to form Sea Star, which
operates an ocean transportation service between Florida and Puerto Rico. The
Company charters two vessels to Sea Star. This investment represents a
minority interest and is accounted for under the equity method.
In July 1999, the Company entered into a joint venture with Stevedoring
Services of America to form SSAT, which provides stevedoring and terminal
services at six terminals in three West Coast ports to the Company and other
shipping lines. Each company contributed the assets of their California and
Seattle, Washington terminals. This investment represents a minority interest
and is accounted for under the equity method.
The carrying amounts of investments in affiliated companies approximated their
fair values at December 31, 1999 and 1998.
LIMITED PARTNERSHIP INTERESTS AND PURCHASE-MONEY MORTGAGES: The investments in
limited partnerships are recorded at the lower of cost or fair value and
purchase-money mortgages are recorded at cost. The purchase-money mortgages
are intended to be held to maturity. The values of the investments in limited
partnerships are assessed annually.
See Note 5 for a discussion of market values of investments in the Capital
Construction Fund.
3. CHANGE IN ACCOUNTING METHOD FOR INSURANCE-RELATED ASSESSMENTS
The Company self-insured a portion of its federal workers' compensation
liability through October 1, 1999. As such, the Company utilized the U.S.
Department of Labor (DOL) second injury fund, as authorized by Section 8(f) of
the U.S. Longshore and Harborworkers' Compensation Act. Under this Act, the
DOL annually assesses self-insurers for their share of the related cost.
Through 1997, these assessments were recorded as expense in the year the
amounts were assessed and paid. Effective January 1, 1998, the Company adopted
the provisions of the American Institute of Certified Public Accountants
Statement of Position 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments." This statement requires that the Company
record, as a liability, the expected cost of future assessments relating to
existing compensation claims made prior to the end of the fiscal year. In
adopting this statement, the Company recorded a one-time, non-cash charge to
1998 earnings of $9,282,000 ($5,801,000 net of income tax, $0.13 per share),
representing the cumulative effect of the accounting change as of January 1,
1998. The discount rate used in estimating the liability was 5.43%. On an
undiscounted basis, the pre-tax liability was approximately $13,869,000 as of
December 31, 1998. As of December 31, 1999, the undiscounted liability was
$15,364,000 and the pre-tax discounted liability was $9,862,000, using a
discount rate of 6.76%. The effect of the change on operating costs was not
significant for the current or prior years.
4. WRITE-DOWN OF LONG-LIVED ASSETS
The Company began growing coffee in Hawaii in 1987 as an alternative crop to
sugar cane. Since inception, the Company's coffee operation has continually
generated operating losses and negative cash flows. During the second half of
1999, the Company significantly reduced the workforce and changed its marketing
and selling plans. To exacerbate the problem further, in 1999, coffee
commodity prices dropped significantly, due to an oversupply of coffee in the
marketplace. Because of continuing cash-flow losses, the ongoing viability of
the coffee operation was evaluated again. As a result, the Company determined
that the estimated future cash flows of the coffee operation were less than the
carrying value of its productive assets, consisting mainly of orchards and
field and processing equipment. Accordingly, a $15,410,000 (pre-tax) charge
was recorded to write-down these productive assets to their fair value (i.e.,
present value of estimated future cash flows).
During 1998, the Company changed the strategic direction of its 1,045 acre
Kukui'Ula real estate development, from a single master-planned residential
community to a series of individual subdivisions with fewer units, as a result
of continued weaknesses in the State's and Kauai's economy and real estate
markets. As a result, the Company determined that its investment in a waste
water treatment plant (WWTP) could not be recovered through the WWTP's future
cash flows; accordingly, the costs of the WWTP were reduced by $15,900,000, to
the plant's fair value, which was based on the present value of estimated
future cash flows. Under the original higher-density Kukui'Ula development
plan, the cost of the WWTP would have been recoverable from its future cash
flows. The changes in the development plan also resulted in the write-off of
$4,316,000 for design and study costs, which were determined to have no future
economic benefit. The remaining carrying cost of the Kukui'Ula project is
approximately $29,650,000 and, based on current development plans, the Company
has determined that this amount is recoverable from the project's future cash
flows.
5. CAPITAL CONSTRUCTION FUND
A subsidiary is party to an agreement with the United States Government which
established a Capital Construction Fund (CCF) under provisions of the Merchant
Marine Act, 1936, as amended. The agreement has program objectives for the
acquisition, construction or reconstruction of vessels and for repayment of
existing vessel indebtedness. Deposits to the CCF are limited by certain
applicable earnings. Such deposits are Federal income tax deductions in the
year made; however, they are taxable, with interest payable from the year of
deposit, if withdrawn for general corporate purposes or other non-qualified
purposes, or upon termination of the agreement. Qualified withdrawals for
investment in vessels having adequate tax bases do not give rise to a current
tax liability, but reduce the depreciable bases of the vessels or other assets
for income tax purposes.
Amounts deposited into the CCF are a preference item for calculating Federal
alternative minimum taxable income. Deposits not committed for qualified
purposes within 25 years from the date of deposit, will be treated as non-
qualified withdrawals over the subsequent five years. As of December 31, 1999,
the oldest CCF deposits date from 1994. Management believes that all amounts
on deposit in the CCF at the end of 1999 will be used or committed for
qualified purposes prior to the expiration of the applicable 25-year periods.
Under the terms of the CCF agreement, the subsidiary may designate certain
qualified earnings as "accrued deposits" or may designate, as obligations of
the CCF, qualified withdrawals to reimburse qualified expenditures initially
made with operating funds. Such accrued deposits to and withdrawals from the
CCF are reflected on the Balance Sheets either as obligations of the Company's
current assets or as receivables from the CCF.
The Company has classified its investments in the CCF as "held-to-maturity"
and, accordingly, has not reflected temporary unrealized market gains and
losses on the Balance Sheets or Statements of Income. The long-term nature
of the CCF program supports the Company's intention to hold these investments
to maturity.
At December 31, 1999 and 1998, the balances on deposit in the CCF are
summarized in Table 1.
TABLE 1 (In thousands)
- ------------------------------------------------------------------- ----------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------
Amortized Fair Unrealized Amortized Fair Unrealized
Cost Value Loss Cost Value Gain
- ---------------------------------------------------------------------------------------------------------
Mortgage-backed securities $ 37,086 $ 35,843 $ (1,243) $ 52,606 $ 53,108 $ 502
Cash and cash equivalents 105,153 104,958 (195) 81,627 81,627 --
Accrued deposits 3,152 3,152 9,070 9,070 --
- ---------------------------------------------------------------------------------------------------------
Total $145,391 $143,953 $ (1,438) $143,303 $143,805 $ 502
=========================================================================================================
Fair value of the mortgage-backed securities was determined by an outside
investment management company, based on experience trading identical or
substantially similar securities. No central exchange exists for these
securities; they are traded over-the-counter. The Company earned $3,152,000 in
1999, $4,514,000 in 1998 and $5,897,000 in 1997 on its investments in
mortgage-backed securities. The fair values of other CCF investments are based
on quoted market prices. These other investments mature no later than May,
2001. There were no sales of securities classified as "held-to-maturity"
during 1999 or 1998.
6. EMPLOYEE BENEFIT PLANS
The Company has funded single-employer defined benefit pension plans which
cover substantially all non-bargaining unit employees.
In addition, the Company has plans that provide certain retiree health care and
life insurance benefits to substantially all salaried and to certain hourly
employees. Employees are generally eligible for such benefits upon retirement
and completion of a specified number of years of credited service. The Company
does not pre-fund these benefits and has the right to modify or terminate
certain of these plans in the future. Certain groups of retirees pay a portion
of the benefit costs.
The status of the funded defined benefit pension plans and the unfunded
accumulated post-retirement benefit plans, at December 31, 1999, 1998 and 1997,
is shown in Table 2 (page 41).
The net periodic benefit cost for the defined benefit pension plans and the
post-retirement health care and life insurance benefit plans during 1999, 1998
and 1997 is summarized in Table 3 (page 42).
As described in Note 2, the Company sold a majority of its interest in C&H
during 1998. The impact of this transaction on the benefit obligation and the
plan assets is noted in Table 2. At the time of the transaction, C&H had
recorded in its financial statements net obligations of $12,300,000 and
$46,500,000 for its pension and post-retirement benefit plans, respectively.
The assumptions used to determine the benefit information were as follows:
Pension Benefits Other Post-retirement Benefits
---------------------- ------------------------------
1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------
Discount rate 7.75% 6.75% 7.25% 7.75% 6.75% 7.25%
Expected return on plan assets 9.00% 9.00% 9.00% -- -- --
Rate of compensation increase 4.25% 4.25% 4.25% 4.25% 4.25% 4.25%
For post-retirement benefit measurement purposes, a 10-percent annual rate of
increase in the per capita cost of covered health care benefits was assumed
through 2001. The rate was assumed to decrease to 5-percent for 2002 and
remain at that level thereafter. Unrecognized gains and losses of the
post-retirement benefit plans are amortized over five years.
If the assumed health care cost trend rate were increased or decreased by one
percentage point, the accumulated post-retirement benefit obligation, as of
December 31, 1999, 1998 and 1997, and the net periodic post-retirement
benefit cost for 1999, 1998 and 1997, would have increased or decreased as
follows (in thousands):
Other Post-retirement Benefits
One Percentage Point
---------------------------------------------------------------
Increase Decrease
--------------------------- -----------------------------
1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------
Effect on total of service and
interest cost components $ 416 $ 689 $ 1,172 $ (347) $ (583) $(1,016)
Effect on post-retirement
benefit obligation $ 4,062 $ 5,157 $11,113 $(3,388) $(4,387) $(9,786)
The assets of the defined benefit pension plans consist principally of listed
stocks and bonds. Contributions are determined annually for each plan by the
Company's pension administrative committee, based upon the actuarially
determined minimum required contribution under the Employee Retirement Income
Security Act of 1974, as amended, (ERISA) and the maximum deductible
contribution allowed for tax purposes. For the plans covering employees who
are members of collective bargaining units, the benefit formulas are determined
according to the collective bargaining agreements, either using career average
pay as the base or a flat dollar amount per year of service. The benefit
formulas for the remaining defined benefit plans are based on final average
pay.
The Company has non-qualified supplemental pension plans covering certain
employees and retirees, which provide for incremental pension payments from the
Company's general funds, so that total pension benefits would be substantially
equal to amounts that would have been payable from the Company's qualified
pension plans if it were not for limitations imposed by income tax regulations.
The obligation, included with other non-current liabilities, relating to these
unfunded plans, totaled $10,801,000 and $11,860,000 at December 31, 1999 and
1998, respectively. The annual expense associated with the non-qualified plans
was not significant.
Total contributions to the multi-employer pension plans covering personnel in
shoreside and seagoing bargaining units were $4,367,000 in 1999, $5,633,000 in
1998 and $5,828,000 in 1997. Union collective bargaining agreements provide
that total employer contributions during the terms of the agreements must be
sufficient to meet the normal costs and amortization payments required to be
funded during those periods. Contributions are generally based on union labor
paid or cargo volume. A portion of such contributions is for unfunded accrued
actuarial liabilities of the plans being funded over periods of 25 to 40 years,
which began between 1967 and 1976.
The multi-employer plans are subject to the plan termination insurance
provisions of ERISA and are paying premiums to the Pension Benefit Guarantee
Corporation (PBGC). The statutes provide that an employer who withdraws from,
or significantly reduces its contribution obligation to, a multi-employer plan
generally will be required to continue funding its proportional share of the
plan's unfunded vested benefits.
Under special rules approved by the PBGC and adopted by the Pacific Coast
longshore plan in 1984, the Company could cease Pacific Coast cargo-handling
operations permanently and stop contributing to the plan without any withdrawal
liability, provided that the plan meets certain funding obligations as defined
in the plan. The estimated withdrawal liabilities under the Hawaii longshore
plan and the seagoing plans aggregated approximately $158,000 as of December
31, 1999, based on estimates by plan actuaries. Management has no present
intention of withdrawing from and does not anticipate termination of any of the
aforementioned plans.
Table 2 (In thousands)
Pension Benefits Other Post-retirement Benefits
----------------------------------- -----------------------------------
1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at
beginning of year $ 229,573 $ 354,883 $ 326,095 $ 55,298 $ 91,112 $ 93,596
Service cost 5,705 7,182 6,692 892 1,154 1,310
Interest cost 15,013 25,024 23,807 3,460 5,474 6,250
Plan participants' contributions -- -- -- 1,423 1,615 1,635
Actuarial (gain) loss (25,177) 20,682 16,567 (8,198) (8,482) (4,198)
Sale of subsidiary -- (158,758) -- -- (29,615) --
Benefits paid (12,109) (22,631) (21,687) (4,320) (6,326) (6,933)
Amendments 10,129 3,191 2,997 -- 366 (548)
Settlements (1,304) -- -- -- -- --
Curtailments (3,823) -- -- (719) -- --
Special or contractual
termination benefits 182 -- 412 -- -- --
- -------------------------------------------------------------------------------------------------------------
Benefit obligation at
end of year 218,189 229,573 354,883 47,836 55,298 91,112
- -------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of year 338,267 443,249 380,909 -- -- --
Actual return on plan assets 56,236 72,646 84,027 -- -- --
Settlements (1,304) -- -- -- -- --
Sale of subsidiary -- (154,997) -- -- -- --
Benefits paid (12,109) (22,631) (21,687) -- -- --
- -------------------------------------------------------------------------------------------------------------
Fair value of plan assets
at end of year 381,090 338,267 443,249 -- -- --
- -------------------------------------------------------------------------------------------------------------
Plan assets less benefit
obligation 162,901 108,694 88,366 (47,836) (55,298) (91,112)
Unrecognized net actuarial gain (135,670) (88,373) (91,012) (15,841) (10,104) (22,353)
Unrecognized transition asset (183) (876) (1,869) -- -- --
Unrecognized prior
service cost (benefit) 13,939 4,767 5,707 32 358 (3,824)
- -------------------------------------------------------------------------------------------------------------
Accrued asset (obligation) $ 40,987 $ 24,212 $ 1,192 $ (63,645) $ (65,044) $(117,289)
=============================================================================================================
Table 3 (In thousands)
Pension Benefits Other Post-retirement Benefits
----------------------------------- -----------------------------------
1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost $ 5,705 $ 7,182 $ 6,692 $ 892 $ 1,154 $ 1,310
Interest cost 15,013 25,024 23,807 3,460 5,474 6,250
Expected return on plan
assets (29,922) (38,862) (33,309) -- -- --
Recognition of net gain (4,251) (4,128) (2,258) (2,644) (7,221) (6,315)
Amortization of prior
service cost 905 1,105 808 8 (359) (368)
Amortization of unrecognized
transition asset (713) (992) (996) -- -- --
Recognition of settlement gain (53) -- -- -- -- --
Recognition of curtailment gain (3,641) -- -- (292) -- --
- -------------------------------------------------------------------------------------------------------------
Net periodic benefit
cost/(income) $ (16,957) $ (10,671) $ (5,256) $ 1,424 $ (952) $ 877
=============================================================================================================
Cost of termination benefits
recognized $ 182 $ -- $ 412 $ -- $ -- $ --
=============================================================================================================
7. NOTES PAYABLE AND LONG-TERM DEBT
At December 31, 1999 and 1998, long-term debt consisted of the following (in
thousands):
1999 1998
- -------------------------------------------------------------------
Commercial paper, 1999 high 6.6%, low 4.9% $ 99,570 $ 141,766
Bank variable rate loans, due after 1999,
1999 high 6.9%, low 5.1% 78,000 78,500
Term loans:
7.16%, payable through 2007 60,000 67,500
7.43%, payable through 2007 15,000 15,000
7.57%, payable through 2009 15,000 --
7.55%, payable through 2009 15,000 --
7.65%, payable through 2001 10,000 10,000
8%, payable through 2000 7,500 17,500
9.05%, payable through 1999 -- 7,739
9%, payable through 1999 -- 5,294
- -------------------------------------------------------------------
Total 300,070 343,299
Less current portion 22,500 45,533
Commercial paper classified as current -- 42,000
- -------------------------------------------------------------------
Long-term debt $ 277,570 $ 255,766
===================================================================
COMMERCIAL PAPER: At December 31, 1999, $99,570,000 of commercial paper notes
was outstanding under a commercial paper program used by a subsidiary to
finance the construction of a vessel. Maturities ranged from 10 to 42 days.
The borrowings outstanding under this program are classified as long-term,
because the subsidiary intends to continue the program and, eventually, to
repay the borrowings with qualified withdrawals from the Capital Construction
Fund.
At December 31, 1998, $42,000,000 of commercial paper notes was outstanding
under a separate commercial paper program used by C&H, before the partial sale
of that business (see Note 2), to fund the purchases of raw sugar inventory and
to provide working capital for sugar refining and marketing operations. This
program was terminated on January 19, 1999 as a result of the partial sale;
accordingly, the borrowings outstanding were classified as current at December
31, 1998. This program was supported by an $85,000,000 backup revolving credit
facility with four commercial banks, which also was terminated in January 1999.
VARIABLE RATE LOANS: The Company has a revolving credit and term loan
agreement with four commercial banks, whereby it may borrow up to $140,000,000,
under revolving loans to November 30, 2001, at varying rates of interest. Any
revolving loan outstanding on that date may be converted into a term loan,
which would be payable in 12 equal quarterly installments. The agreement
contains certain restrictive covenants, the most significant of which requires
the maintenance of an interest coverage ratio of 2:1. At December 31, 1999 and
1998, $60,000,000 and $50,000,000, respectively, were outstanding under this
agreement.
The Company has an uncommitted $45,000,000 short-term revolving credit
agreement with a commercial bank. The agreement extends to November 30, 2000,
but may be canceled by the bank or the Company at any time. At December 31,
1999 and 1998, $13,000,000 and $3,500,000, respectively, were outstanding under
this agreement.
The Company has a $50,000,000 one-year revolving credit agreement with a
commercial bank containing a two-year term option. At December 31, 1999 and
1998, $5,000,000 and $15,000,000, respectively, were outstanding under this
agreement.
The Company has a $25,000,000 one-year revolving credit agreement with a
commercial bank which serves as a commercial paper liquidity back-up line. At
December 31, 1999 and 1998, no amounts were outstanding under this agreement.
In 1999, the Company had an uncommitted $25,000,000 revolving credit agreement
with a commercial bank. This agreement expired December 31, 1999 and was
replaced in January 2000 with a comparable $25,000,000 revolving credit
agreement with another commercial bank. At December 31, 1999, no amount was
outstanding under either agreement. At December 31, 1998, $10,000,000 was
outstanding under the initial agreement.
LONG-TERM DEBT MATURITIES: At December 31, 1999, maturities and planned
prepayments of all long-term debt during the next five years totaled
$22,500,000 for 2000, $15,000,000 for 2001, $7,500,000 for 2002 and $9,643,000
for 2003 and 2004.
8. LEASES
THE COMPANY AS LESSEE: Principal operating leases include office and terminal
facilities, containers and equipment leased for periods which expire between
2000 and 2026. Management expects that, in the normal course of business, most
operating leases will be renewed or replaced by other similar leases.
Rental expense under operating leases totaled $28,343,000, $45,519,000 and
$45,560,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Future minimum payments under operating leases as of December 31, 1999 were as
follows (in thousands):
Operating
Leases
- ---------------------------------------------------------------
2000 $ 11,030
2001 10,842
2002 11,011
2003 11,006
2004 11,181
Thereafter 109,984
- ---------------------------------------------------------------
Total minimum lease payments $ 165,054
===============================================================
The Company is obligated to pay terminal facility rent equal to the principal
and interest on Special Facility Revenue Bonds issued by the Department of
Transportation of the State of Hawaii. Interest on the bonds is payable semi-
annually and principal, in the amount of $16,500,000, is due in 2013. An
accrued liability of $9,344,000 and $8,800,000 at December 31, 1999 and 1998,
respectively, included in other long-term liabilities, provides for a pro-rata
portion of the principal due on these bonds.
THE COMPANY AS LESSOR: The Company leases land, buildings, land improvements,
and vessels under operating leases. Five vessels were leased under new
agreements commencing in 1998. The historical cost of and accumulated
depreciation on leased property at December 31, 1999 and 1998 were as follows
(in thousands):
1999 1998
- ----------------------------------------------------------------------------
Leased property $ 571,640 $ 530,967
Less accumulated amortization 129,465 113,358
- ----------------------------------------------------------------------------
Property under operating leases--net $ 442,175 $ 417,609
============================================================================
Total rental income under these operating leases for the three years ended
December 31, 1999 was as follows (in thousands):
1999 1998 1997
- ----------------------------------------------------------------------------
Minimum rentals $ 93,275 $ 79,268 $ 35,535
Contingent rentals (based on sales
volume) 1,244 1,079 1,048
- ----------------------------------------------------------------------------
Total $ 94,519 $ 80,347 $ 36,583
============================================================================
Future minimum rental income on non-cancelable leases at December 31, 1999 was
as follows (in thousands):
Operating
Leases
- ---------------------------------------------------------------
2000 $ 92,192
2001 88,705
2002 84,772
2003 80,851
2004 75,547
Thereafter 190,935
- ---------------------------------------------------------------
Total $ 613,002
===============================================================
9. INCOME TAXES
The income tax expense for the three years ended December 31, 1999 consisted of
the following (in thousands):
1999 1998 1997
- ----------------------------------------------------------------------------
Current:
Federal $ 21,035 $ 28,877 $ 30,181
State 3,461 3,723 2,476
- ----------------------------------------------------------------------------
Total 24,496 32,600 32,657
Deferred 8,465 (8,248) 13,168
- ----------------------------------------------------------------------------
Income tax expense $ 32,961 $ 24,352 $ 45,825
============================================================================
Total income tax expense for the three years ended December 31, 1999 differs
from amounts computed by applying the statutory Federal rate to pre-tax income
for the following reasons (in thousands):
1999 1998 1997
- ----------------------------------------------------------------------------
Computed income tax expense $ 33,439 $ 19,353 $ 44,525
State tax on income, less
applicable Federal tax 3,790 1,824 3,732
Low-income housing credits (1,161) (1,204) (1,214)
Fair market value over cost of
donations -- -- (1,306)
Bases differences in net assets
acquired -- 3,114 --
Prior years' tax settlement (2,815) -- --
Other--net (292) 1,265 88
- ----------------------------------------------------------------------------
Income tax expense $ 32,961 $ 24,352 $ 45,825
============================================================================
The tax effects of temporary differences that give rise to significant portions
of the net deferred tax liability at December 31, 1999 and 1998 were as follows
(in thousands):
1999 1998
- ----------------------------------------------------------------------------
Property basis and depreciation $ 196,967 $ 199,523
Capital Construction Fund 52,374 51,072
Tax-deferred gains on real estate transactions 93,966 85,181
Unrealized holding gains on securities 28,851 36,939
Post-retirement benefits (24,662) (27,027)
Insurance reserves (12,172) (10,771)
Other--net 6,770 8,588
- ----------------------------------------------------------------------------
Total $ 342,094 $ 343,505
============================================================================
In 1999, the Company reached an agreement with the Internal Revenue Service
(IRS) settling certain valuation issues relating to the Company's tax returns
through 1995. This agreement resulted in a one-time reduction of income tax
expense of $2,815,000 due to the reversal of previously accrued income tax
liabilities. The IRS is currently auditing the Company's tax returns for 1996
and 1997. Management believes that the outcome of the current audit will not
have a material effect on the Company's financial position or results of
operations.
10. CAPITAL STOCK AND STOCK OPTIONS
EMPLOYEE STOCK OPTION PLANS: During 1999, the Company had two stock option
plans under which key employees were granted options to purchase shares of the
Company's common stock.
Under the 1998 Plan, approved at the 1998 Annual Meeting of Shareholders,
option prices may not be less than the fair market value of the Company's
common stock on the dates of grant, and the options become exercisable over
periods determined, at the dates of grant, by the committee that administers
the plan. Payments for options exercised may be made in cash or in shares of
the Company's stock. If an option to purchase shares is exercised within five
years of the date of grant and if payment is made in shares of the Company's
stock, the option holder may receive, under a reload feature, a new stock
option grant for such number of shares as is equal to the number surrendered,
with an option price not less than the greater of the fair market value of the
Company's stock on the date of exercise or one and one-half times the original
option price. During 1999, options to purchase 515,400 shares were granted, no
reload options to purchase shares were granted, no options to purchase shares
were exercised, and options to purchase 2,400 shares were canceled. At
December 31, 1999, options to purchase 613,000 shares were outstanding under
the 1998 Plan.
The 1989 Plan is substantially the same as the 1998 Plan, except that each
option generally becomes exercisable in-full one year after the date granted.
The 1989 Plan terminated in January 1999, but options granted through 1998
remain exercisable. During 1999, options to purchase 4,575 shares were
exercised and options to purchase 369,250 shares were canceled. At December
31, 1999, options to purchase 2,885,513 shares were outstanding under the 1989
Plan.
The 1998 and 1989 Plans also permit the issuance of shares of the Company's
common stock as a reward for past service rendered to the Company or one of its
subsidiaries or as an incentive for future service with such entities. The
recipients' interest in such shares may be fully vested upon issuance or may
vest in one or more installments, upon such terms and conditions as are
determined by the committee which administers the plans. The number of
incentive shares issued during 1999 or outstanding at the end of the year was
not material.
DIRECTOR STOCK OPTION PLANS: The Company also has two Directors' stock option
plans. Under the 1998 Directors' Plan, each non-employee Director of the
Company, elected at an Annual Meeting of Shareholders, is automatically
granted, on the date of each such Annual Meeting, an option to purchase 3,000
shares of the Company's common stock at the fair market value of the shares on
the date of grant. Each option to purchase shares becomes exercisable in three
successive annual installments of 1,000 shares beginning one year after the
date granted. During 1999, options to purchase 24,000 shares were granted and
no options to purchase shares were exercised or canceled. At December 31,
1999, options to purchase 24,000 shares were outstanding under the 1998 Plan.
The 1989 Directors' Plan is substantially the same as the 1998 Directors' Plan,
except that each option generally becomes exercisable in-full one year after
the date granted. This plan terminated in January 1999, but options granted
through termination remain exercisable. During 1999, no options to purchase
shares were exercised and options to purchase 15,000 shares were canceled. At
December 31, 1999, options to purchase 189,000 shares were outstanding under
the 1989 Plan.
Changes in shares under all option plans, for the three years ended December
31, 1999, were as follows:
Price Range
Shares Per Share
- ------------------------------------------------------------------------
1996: Outstanding, December 31 2,941,027 17.375-37.875
1997: Granted 586,212 25.100-34.875
Exercised (263,351) 17.375-24.750
Canceled (57,850) 24.750-37.875
Outstanding, December 31 3,206,038 21.750-37.875
1998: Granted 606,400 22.750-29.769
Exercised (65,850) 21.750-27.000
Canceled (17,950) 26.250-34.000
Outstanding, December 31 3,728,638 21.750-37.875
1999: Granted 539,400 20.656-20.875
Exercised (4,575) 21.750-23.250
Canceled (551,950) 20.875-37.875
- ------------------------------------------------------------------------
OUTSTANDING, DECEMBER 31 3,711,513 20.656-34.000
========================================================================
EXERCISABLE, DECEMBER 31 3,196,513 20.875-34.000
========================================================================
ACCOUNTING METHOD FOR STOCK-BASED COMPENSATION: The Company applies Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related Interpretations, in accounting for its stock-based compensation
plans. Accordingly, no compensation cost is recognized in the Company's income
statement for stock option plans at the time grants are awarded. If the
compensation costs for the stock option grants had been determined consistent
with SFAS No. 123, "Accounting for Stock-based Compensation," the after-tax
cost for grants made in 1999, 1998, and 1997 would have been approximately
$1,471,000, $2,015,000 and $1,800,000, respectively. Earnings per share for
1999, 1998 and 1997 would have declined by $0.03, $0.05 and $0.04,
respectively.
SHAREHOLDER RIGHTS PLAN: The Company has a Shareholder Rights Plan, designed
to protect the interests of shareholders in the event an attempt is made to
acquire the Company. The rights initially will trade with the Company's out-
standing common stock and will not be exercisable absent certain acquisitions
or attempted acquisitions of specified percentages of such stock. If
exercisable, the rights generally entitle shareholders to purchase additional
shares of the Company's stock or shares of an acquiring company's stock at
prices below market value.
SHARE REPURCHASES: During 1999, the Company purchased and retired 1,564,500
shares of its stock, at an average per-share price of $22.26. During 1998, the
Company purchased and retired 969,200 shares, at an average per-share price of
$21.50.
11. RELATED PARTY TRANSACTIONS, COMMITMENTS AND CONTINGENCIES
At December 31, 1999, the Company and its subsidiaries had an unspent balance
of total appropriations for capital expenditures of approximately $81,610,000.
However, there is no contractual obligation to spend this entire amount.
The Company has arranged for standby letters of credit of approximately
$14,500,000, necessary to qualify as a self-insurer for state and federal
workers' compensation liabilities, other insurance-related matters and a
guarantee on a terminal facility lease. In addition, the Company maintains a
letter of credit of $5,024,000 for workers' compensation claims incurred by C&H
employees, under a now-closed self insurance plan, prior to December 24, 1998
(see Note 2). The Company only would be called upon to honor this letter of
credit in the event of C&H's insolvency. The Company also has approximately
$7,954,000 of letters of credit outstanding for normal operating matters.
C&H, in which A&B has a 36-percent common stock interest, is party to a long-
term sugar supply contract with Hawaiian Sugar & Transportation Cooperative
(HSTC), a raw sugar marketing and transportation cooperative owned by the
Company and by two other Hawaii sugar growers. Under the terms of this
contract, C&H is obligated to purchase, and HSTC is obligated to sell, all of
the raw sugar delivered to HSTC by the Hawaii sugar growers, at prices
determined by the quoted domestic sugar market. The Company delivered to HSTC
raw sugar totaling $83,412,000, $79,422,000 and $71,468,000, during 1999, 1998
and 1997, respectively.
Operating expenses in 1999 include approximately $46,856,000 paid to an
unconsolidated affiliate.
A subsidiary has guaranteed obligations of $17,550,000 of an unconsolidated
affiliate in which it has a minority interest.
A subsidiary transferred assets with a value of $16,438,000 to a joint venture
in 1999.
The Company and certain subsidiaries are parties to various legal actions and
are contingently liable in connection with claims and contracts arising in the
normal course of business, the outcome of which, in the opinion of management
after consultation with legal counsel, will not have a material adverse effect
on the Company's financial position or results of operations.
12. INDUSTRY SEGMENTS
Industry segment information for 1999, 1998 and 1997, on page 23, is
incorporated herein by reference.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision-making group, in deciding how to
allocate resources and in assessing performance. The Company's chief operating
decision-making group is made up of the president and lead executives of each
of the Company's segments. The lead executive for each operating segment
manages the profitability and cash flow of each respective segment's various
product or service lines and businesses. The operating segments are managed
separately because each operating segment represents a strategic business unit
that offers different products or services and serves different markets.
The Company's reportable operating segments include Ocean Transportation,
Property Development and Management and Food Products. The Ocean Transporta-
tion segment carries freight between various United States and Canadian West
Coast, Hawaii and other Pacific ports, and provides terminal and cargo
logistics services. The Property Development and Management segment develops,
manages and sells residential, commercial and industrial properties. The Food
Products segment grows and processes raw sugar and molasses; invests in a sugar
refining and marketing business (see Note 2); grows, mills and markets coffee;
and generates and sells electricity.
The accounting policies of the operating segments are the same as those
described in the summary of significant policies. Reportable segments are
measured based on operating profit, exclusive of non-operating or unusual
transactions, interest expense, general corporate expenses and income taxes.
PARENT COMPANY, PRINCIPAL SUBSIDIARIES AND AFFILIATES1
ALEXANDER & BALDWIN, INC. HONOLULU, HAWAII
Division:
Hawaiian Commercial & Sugar Company Puunene, Maui
Subsidiaries:
A&B Development Company (California) San Francisco
A&B Properties, Inc. Honolulu
East Maui Irrigation Company, Limited Puunene, Maui
Kukui'Ula Development Company, Inc. Poipu, Kauai
Matson Navigation Company, Inc. San Francisco
Subsidiaries:
Matson Intermodal System, Inc. San Francisco
Matson Services Company, Inc. San Francisco
Matson Terminals, Inc. San Francisco
Matson Logistics Solution, Inc. San Francisco
McBryde Sugar Company, Limited Eleele, Kauai
Subsidiary:
Kauai Coffee Company, Inc. Eleele, Kauai
Kahului Trucking & Storage, Inc. Kahului, Maui
Kauai Commercial Company, Incorporated Puhi, Kauai
HAWAIIAN SUGAR & TRANSPORTATION CO0PERATIVE2 PUUNENE, MAUI
C&H SUGAR COMPANY, INC.3 CROCKETT, CALIFORNIA
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1 Wholly owned unless otherwise indicated
2 A cooperative owned with other Hawaii sugar companies
3 An affiliated company, approximately 40% owned by A&B
Quarterly Results (Unaudited)
Segment results by quarter for 1999 and 1998 are listed below (in thousands, except per-share amounts):
1999 1998
----------------------------------------- -----------------------------------------
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
- ------------------------------------------------------------------------------------------------------------------------
Revenue:
Ocean Transportation $204,101 $185,529 $187,836 $169,195 $181,618 $180,202 $182,124 $178,800
Property Development
and Management:
Leasing 11,786 10,852 10,833 11,587 9,946 9,576 9,198 9,235
Sales 4,940 7,985 27,179 7,932 7,563 6,246 60,792 7,781
Food Products 31,279 39,812 37,269 8,002 128,173 129,620 112,994 94,874
Other 977 726 726 726 726 718 717 717
- ---------------------------------------------------------------------------------------------------------------------------
Total Revenue $253,083 $244,904 $263,843 $197,442 $328,026 $326,362 $365,825 $291,407
===========================================================================================================================
Operating Profit:
Ocean Transportation $ 18,299 $ 21,896 $ 25,318 $ 18,265 $ 15,941 $ 16,200 $ 16,787 $ 17,370
Property Development
and Management:
Leasing 6,919 6,562 6,394 7,622 5,360 5,786 5,589 5,899
Sales 323 1,590 9,949 5,540 1,394 1,633 13,994 4,642
Food Products 2,992 4,828 2,019 1,471 7,725 7,557 3,047 2,998
Other 911 693 690 650 691 642 685 678
- ---------------------------------------------------------------------------------------------------------------------------
Total Operating Profit 29,444 35,569 44,370 33,548 31,111 31,818 40,102 31,587
Write-down of Kauai Coffee1 (15,410) -- -- -- -- -- -- --
Write-down of Kukui'Ula2 -- -- -- -- (20,216) -- -- --
Loss on Partial Sale of C&H2 -- -- -- -- (19,756) -- -- --
Interest Expense (4,669) (4,209) (4,369) (4,527) (6,197) (6,229) (6,293) (6,080)
General Corporate Expenses (3,286) (3,941) (3,100) (3,880) (4,085) (3,539) (3,459) (3,469)
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income
Taxes and Accounting Change 6,079 27,419 36,901 25,141 (19,143) 22,050 30,350 22,038
Income Taxes (1,063) (8,943) (13,652) (9,303) 3,562 (8,270) (11,380) (8,264)
Cumulative Effect of Change in
Accounting Method3 -- -- -- -- -- -- -- (5,801)
- ---------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 5,016 $ 18,476 $ 23,249 $ 15,838 $(15,581) $ 13,780 $ 18,970 $ 7,973
===========================================================================================================================
Basic and Diluted
Earnings (Loss) Per Share $ 0.12 $ 0.43 $ 0.54 $ 0.36 $ (0.35) $ 0.31 $ 0.42 $ 0.18
===========================================================================================================================
1 See Note 4 for discussion of the write-down of Kauai Coffee assets in 1999.
2 See Notes 2 and 4 for discussion of the partial sale of California and Hawaiian Sugar Company, Inc. and the write-down
of real estate assets in 1998.
3 See Note 3 regarding accounting change adopted in fourth quarter of 1998.
General Information
BOARD OF DIRECTORS
Members of the Board of Directors beneficially own approximately two percent of
A&B shares.
At the Annual Meeting of Shareholders on April 22, 1999, shareholders elected a
total of 12 directors, all of whom were nominated by the Board: Michael J.
Chun, John C. Couch, Leo E. Denlea, Jr., W. Allen Doane, Walter A. Dods, Jr.,
Charles G. King, Carson R. McKissick, C. Bradley Mulholland, R. J. Pfeiffer,
Lynn M. Sedway, Maryanna G. Shaw and Charles M. Stockholm.
On March 30, 1999, Alexander C. Waterhouse, Advisory Director and grandson of
A&B founder, Samuel T. Alexander, passed away.
On July 14, 1999, the Company announced that John C. Couch, a member of the
Board of Directors and former A&B Chairman, President and Chief Executive
Officer, had decided to retire from the Company, effective September 30, 1999.
Mr. Couch ceased to be a Director on August 10, 1999.
On August 26, 1999, the A&B Board of Directors named Charles M. Stockholm
Chairman of the Board. Mr. stockholm also was named Chairman of the Boards of
Matson and A&B-Hawaii, Inc. (ABHI).
On the same day, R. J. Pfeiffer, Chairman of the Board since July 27, 1998,
returned to the position of Chairman Emeritus, a position he had held
previously from 1995 until mid-1998. Mr. Pfeiffer had been A&B's Chairman
of the Board from 1980 to 1995 and a director from 1978 to 1995.
MANAGEMENT, ORGANIZATION
On April 9, 1999, the Company announced that Miles B. King, a Vice President
and the Chief Administrative Officer of A&B, would leave the Company on
May 10, 1999 to join another company.
On October 8, 1999, the Company announced that Glenn R. Rogers, Executive
Vice President, Chief Financial Officer and Treasurer of A&B, would retire
from the Company, effective December 31, 1999. Until a successor is named,
G. Stephen Holaday will act as Chief Financial Officer.
On December 15, 1999, A&B announced that, to streamline the corporate
structure, its subsidiary, ABHI, would be merged into the parent company
at the end of the year. Coincident with the merger, John F. Gasher and
G. Stephen Holaday were named vice presidents of A&B and Thomas A. Wellman
was named Treasurer.
CREDIT RATINGS
As discussed in Note 7 to the financial statements, Matson had outstanding
commercial paper notes totaling $99.6 million at December 31, 1999. The Matson
notes are rated A-1, P-1 and D-1 by Standard & Poor's, Moody's and Duff &
Phelps, respectively. Standard & Poor's rates Matson's long-term debt as A-.
STOCK INDEXES
A&B is included in the Dow Jones Transportation Index, the Dow
Jones Composite Index, the Dow Jones Marine Transportation Index and the
S&P MidCap 400 Index. As of September 1999, A&B was included in the new Dow
Jones Sustainability Group Index.
DIRECTORS AND OFFICERS
ALEXANDER & BALDWIN, INC.
DIRECTORS
MICHAEL J. CHUN (56)**
President, The Kamehameha Schools
(educational institution)
LEO E. DENLEA, JR. (68)**
Retired Chairman of the Board, President
and Chief Executive Officer,
Farmers Group, Inc. (insurance)
W. ALLEN DOANE (52)
President and Chief Executive Officer,
Alexander & Baldwin, Inc.
Vice Chairman,
Matson Navigation Company, Inc.
WALTER A. DODS, JR. (58)*
Chairman of the Board and
Chief Executive Officer,
BancWest Corporation
Chairman of the Board and
Chief Executive Officer,
First Hawaiian Bank (banking)
CHARLES G. KING (54)**
President, King Windward Nissan
President, King Auto Center
(automobile dealership)
CARSON R. MCKISSICK (67)*
Managing Director,
The Corporate Development Company
(financial advisory services)
C. BRADLEY MULHOLLAND (58)
Executive Vice President,
Alexander & Baldwin, Inc.
President and Chief Executive Officer,
Matson Navigation Company, Inc.
LYNN M. SEDWAY (58)*
President, Sedway Group,
a CB Richard Ellis company
(real estate consulting)
MARYANNA G. SHAW (61)*
Private investor
CHARLES M. STOCKHOLM (67)**
Chairman of the Board,
Alexander & Baldwin, Inc.
Chairman of the Board,
Matson Navigation Company, Inc.
Managing Director,
Trust Company of the West
(investment management services)
R. J. PFEIFFER (80)
Chairman Emeritus of the Board,
Alexander & Baldwin, Inc.
Chairman Emeritus of the Board,
Matson Navigation Company, Inc.
* Audit Committee Members
** Compensation and Stock Option Committee Members
ALEXANDER & BALDWIN, INC.
OFFICERS
CHARLES M. STOCKHOLM (67)
Chairman of the Board
W. ALLEN DOANE (52)
President and Chief Executive Officer
C. BRADLEY MULHOLLAND (58)
Executive Vice President
MEREDITH J. CHING (43)
Vice President (Government & Community Relations)
JOHN F. GASHER (66)
Vice President (Human Resources)
G. STEPHEN HOLADAY (55)
Vice President, Acting Chief Financial Officer
(Plantation General Manager, HC&S)
JOHN B. KELLEY (54)
Vice President (Corporate Planning & Investor Relations)
STANLEY M. KURIYAMA (46)
Vice President (Properties Group)
(Chief Executive Officer and Vice Chairman of the
Board, A&B Properties, Inc.)
MICHAEL J. MARKS (61)
Vice President, General Counsel and Assistant Secretary
THOMAS A. WELLMAN (41)
Controller and Treasurer
ALYSON J. NAKAMURA (34)
Secretary
MATSON NAVIGATION COMPANY, INC.
OFFICERS
CHARLES M. STOCKHOLM (67)
Chairman of the Board
W. ALLEN DOANE (52)
Vice Chairman of the Board
C. BRADLEY MULHOLLAND (58)
President and Chief Executive Officer
RAYMOND J. DONOHUE (63)
Senior Vice President and Chief Financial Officer
GARY J. NORTH (55)
Senior Vice President (Operations)
(President and Chief Operating Officer,
Matson Terminals, Inc.)
KEVIN C. O'ROURKE (53)
Senior Vice President and General Counsel
PAUL E. STEVENS (47)
Senior Vice President (Marketing)
RICHARD S. BLISS (61)
Vice President (Area Manager, Pacific Northwest)
ROBERT L. DAWDY (55)
Vice President (West Coast Operations)
BRANTON B. DREYFUS (46)
Vice President (Area Manager, Hawaii)
RONALD J. FOREST (44)
Vice President (Area Manager, Southern California)
PHILIP M. GRILL (52)
Vice President (Government Relations)
DALE B. HENDLER (46)
Vice President (Area Manager, Northern California)
MERLE A. K. KELAI (68)
Vice President (Community Relations and
Government Affairs)
JUDITH A. WILLIAMS (56)
Vice President (Corporate Planning & Development)
MICHAEL J. MARKS (61)
Secretary
TIMOTHY H. REID (53)
Treasurer
JOSEPH A. PALAZZOLO (51)
Controller
All positions as of December 31, 1999
All ages as of March 31, 2000
INVESTOR INFORMATION
ANNUAL MEETING
The Annual Meeting of Shareholders will be held in the Plaza Meeting Room on
the ground floor of Amfac Center, 745 Fort Street, Honolulu, Hawaii at 10 a.m.
on Thursday, April 27, 2000.
INVESTOR INFORMATION
Corporate news releases, the annual report, proxy statement and other informa-
tion about the Company are available at A&B's Web site on the Internet:
www.alexanderbaldwin.com.
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Shareholders having questions about A&B are encouraged to write to Allen
Doane, President and Chief Executive Officer; or Alyson J. Nakamura,
Secretary.
Inquiries from professional investors may be directed to John B. Kelley,
Vice President, Corporate Planning & Investor Relations. Phone (808) 525-8422
E-mail: invrel@alexanderbaldwin.com
FORM 10-K
Shareholders may obtain a copy of the Company's Annual Report on Form 10-K,
as filed with the Securities and Exchange Commission, without charge, by
writing to Alyson J. Nakamura, Secretary, Alexander & Baldwin, Inc., P.O. Box
3440, Honolulu, HI 96801-3440.
TRANSFER AGENT & REGISTRAR
CHASEMELLON SHAREHOLDER SERVICES
San Francisco, California and Ridgefield Park, New Jersey
For questions regarding stock certificates, dividends, or other transfer-
related matters, representatives of the Transfer Agent may be reached at
1-800-356-2017 between 9 a.m. and 7 p.m., Eastern Time or on the Internet at
www.chasemellon.com. Correspondence may be sent to: P.O. Box 3315, So.
- -------------------
Hackensack, NJ 07606.
AUDITORS
DELOITTE & TOUCHE LLP
Honolulu, Hawaii
COMMON STOCK
A&B common shares trade under the symbol ALEX on The NASDAQ Stock MarketSM.
A summary of daily stock transactions is listed in the NASDAQ National Market
Issues section of major newspapers. Trading volume averaged 105,841 shares a
day in 1999, compared with 109,380 shares a day in 1998 and 68,734 in 1997.
Currently, 18 firms make a market in ALEX.
High and low sales prices per share, by quarter, for 1999 and 1998 were:
Quarter 1999 1998
- ----------------------------------------------------------
First $ 23-1/8 - 18-5/8 $ 30-3/4 - 25
Second 24 - 19 31-1/8 - 25-7/8
Third 27-1/8 - 21-3/4 29-7/8 - 19-3/4
Fourth 25-3/8 - 21-3/8 23-1/4 - 18-13/16
DIVIDENDS
A&B strives to pay the highest possible dividends commensurate with operating
and capital needs. The Company has paid cash dividends in every quarter since
1903. The most recent increase in the quarterly dividend rate was effective
in the first quarter of 1998, from 22 cents a share to 22.5 cents. In 1999,
total dividend payments to shareholders were $38.9 million, 62 percent of
reported earnings for the year.
The following dividend schedule for 2000 has been set, subject to final
approval by the A&B Board of Directors:
Quarterly Declaration Record Payment
Dividend Date Date Date
- -----------------------------------------------------------
First Jan. 27 Feb. 14 March 2
Second April 27 May 8 June 1
Third June 22 Aug. 3 Sept. 7
Fourth Oct. 26 Nov. 9 Dec. 7
ALEXANDER & BALDWIN, INC.
822 BISHOP STREET HONOLULU, HI 96813-3924
P. O. BOX 3440 HONOLULU, HI 96801-3440
TELEPHONE: 808-525-6611 FAX: 808-525-6652
WEBSITE: www.alexanderbaldwin.com