UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005
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_ OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission file number 0-565
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ALEXANDER & BALDWIN, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Hawaii 99-0032630
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 3440, Honolulu, Hawaii 9680l
822 Bishop Street, Honolulu, Hawaii 96813
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(Address of principal executive offices) (Zip Code)
(808) 525-6611
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address, and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing _
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as _
defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_|
Number of shares of common stock outstanding as of 43,769,798
March 31, 2005:
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
The condensed consolidated financial statements and notes for the first quarter
of 2005 are presented below, with comparative figures for the first quarter of
2004.
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In millions, except per-share amounts)
Three Months Ended
March 31,
2005 2004
---- ----
Revenue:
Operating revenue $ 365.8 $ 342.3
--------- ---------
Costs and Expenses:
Costs of goods sold, services and rentals 278.7 266.9
Selling, general and administrative 32.1 31.1
--------- ---------
Operating costs and expenses 310.8 298.0
--------- ---------
Operating Income 55.0 44.3
Other Income and (Expense)
Equity in income of real estate affiliates 1.0 0.8
Interest income 0.9 0.7
Interest expense (2.8) (3.3)
--------- ---------
Income Before Taxes 54.1 42.5
Income taxes 20.5 15.9
--------- ---------
Income From Continuing Operations 33.6 26.6
Discontinued Operations (net of income taxes) 4.1 0.5
--------- ---------
Net Income $ 37.7 $ 27.1
========= =========
Basic Earnings Per Share:
Continuing operations $ 0.77 $ 0.63
Discontinued operations 0.10 0.01
---------- ----------
Net income $ 0.87 $ 0.64
========== ==========
Diluted Earnings Per Share:
Continuing operations $ 0.76 $ 0.62
Discontinued operations 0.10 0.01
---------- ----------
Net income $ 0.86 $ 0.63
========== ==========
Dividends Per Share $ 0.225 $ 0.225
Average Number of Shares Outstanding 43.4 42.3
Average Number of Dilutive Shares Outstanding 44.0 42.9
See Notes to Condensed Consolidated Financial Statements
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Industry Segment Data, Net Income
(In millions)
Three Months Ended
March 31,
2005 2004
---- ----
Revenue:
Transportation:
Ocean transportation $ 206.2 $ 196.5
Logistics services 96.1 74.1
Real Estate:
Leasing 21.9 20.8
Sales 45.9 40.1
Less amounts reported in discontinued
operations (25.2) (1.1)
Food Products 22.4 13.4
Reconciling Items (1.5) (1.5)
---------- ----------
Total revenue $ 365.8 $ 342.3
========== ==========
Operating Profit, Net Income:
Transportation:
Ocean transportation $ 29.7 $ 18.6
Logistics services 3.0 1.0
Real Estate:
Leasing 10.7 9.5
Sales 16.5 19.0
Less amounts reported in discontinued
operations (6.7) (0.8)
Food Products 9.0 2.6
---------- ----------
Total operating profit 62.2 49.9
Interest Expense (2.8) (3.3)
General Corporate Expenses (5.3) (4.1)
---------- ----------
Income From Continuing Operations Before
Income Taxes 54.1 42.5
Income Taxes (20.5) (15.9)
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Income From Continuing Operations 33.6 26.6
Discontinued Operations (net of income taxes) 4.1 0.5
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Net Income $ 37.7 $ 27.1
========== ==========
See Notes to Condensed Consolidated Financial Statements.
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In millions)
March 31, December 31,
2005 2004
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $ 69 $ 42
Accounts and notes receivable, net 171 181
Inventories 29 15
Real estate held for sale 9 35
Deferred income taxes 10 10
Prepaid expenses and other assets 23 20
Accrued deposits, net, to Capital Construction Fund -- (15)
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Total current assets 311 288
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Investments 123 111
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Real Estate Developments 89 82
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Property, at cost 2,021 1,996
Less accumulated depreciation and amortization 882 863
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Property - net 1,139 1,133
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Capital Construction Fund 23 40
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Other Assets 134 124
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Total $ 1,819 $ 1,778
========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of long-term debt $ 25 $ 31
Accounts payable 105 115
Other 76 89
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Total current liabilities 206 235
--------- ---------
Long-term Liabilities:
Long-term debt 212 214
Deferred income taxes 371 339
Post-retirement benefit obligations 45 45
Other 42 41
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Total long-term liabilities 670 639
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Commitments and Contingencies
Shareholders' Equity:
Capital stock 35 35
Additional capital 167 150
Deferred compensation (7) (2)
Accumulated other comprehensive loss (9) (9)
Retained earnings 768 741
Cost of treasury stock (11) (11)
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Total shareholders' equity 943 904
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Total $ 1,819 $ 1,778
========= =========
See Notes to Condensed Consolidated Financial Statements.
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In millions)
Three Months Ended
March 31,
2005 2004
---- ----
Cash Flows from Operating Activities $ 46 $ 50
-------- --------
Cash Flows from Investing Activities:
Capital expenditures (9) (9)
Proceeds from disposal of property and other assets 5 --
Capital Construction Fund, net 2 (1)
Investments, net (6) (11)
-------- --------
Net cash used in investing activities (8) (21)
-------- --------
Cash Flows from Financing Activities:
Proceeds from issuances of long-term debt -- 3
Payments of long-term debt (2) (13)
Payments of short-term debt, net (5) --
Proceeds from issuances of capital stock 6 5
Dividends paid (10) (9)
-------- --------
Net cash used in financing activities (11) (14)
-------- --------
Net Increase in Cash and Cash Equivalents $ 27 $ 15
======== ========
Other Cash Flow Information:
Interest paid, net of amounts capitalized $ (5) $ (4)
Income taxes paid, net of refunds -- (1)
Other Non-cash Information:
Accrued deposit to Capital Construction Fund, net (15) 1
Depreciation expense (20) (19)
Tax-deferred property sales 28 --
Tax-deferred property purchases (19) --
See Notes to Condensed Consolidated Financial Statements.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) The Condensed Consolidated Financial Statements are unaudited. Because
of the nature of the Company's operations, the results for interim
periods are not necessarily indicative of results to be expected for
the year. In the opinion of management, all material adjustments
necessary for the fair presentation of interim period results have been
included in the interim financial statements.
(2) The 2005 estimated effective income tax rate of 38 percent is
substantially the same as the statutory rate.
(3) Commitments and Contingencies: Commitments and financial arrangements
that are not recorded on the Company's balance sheet at March 31, 2005,
other than operating lease obligations, included the following (in
millions):
Vessel purchases (a) $ 289
Guarantee of Hokua debt (b) $ 15
Guarantee of HS&TC debt (c) $ 15
Standby letters of credit (d) $ 18
Bonds (e) $ 14
Benefit plan withdrawal obligations (f) $ 65
These amounts are not recorded on the Company's balance sheet and, with
the exception of item (a), it is not expected that the Company or its
subsidiaries will be called upon to advance funds under these
commitments.
(a) In February 2005, Matson Navigation Company, Inc.
("Matson") entered into an agreement with Kvaerner
Philadelphia Shipyard Inc. to purchase two
containerships for $144.4 million each. The first of
these two ships is expected to be delivered in May 2005,
and the second ship is expected to be delivered in the
second quarter of 2006. The purchase of these two ships
is expected to be funded with the Capital Construction
Fund, operating cash flows and new external borrowings.
Payment in full is required upon the delivery of each
ship. No obligation is recorded on the financial
statements because conditions necessary to record either
a liability or an asset have not been met. Information
related to the use of the ships in the Guam trade and
in the recently announced China service is included in
Part II Item 8 of the Company's most recently filed
Form 10-K.
(b) A&B Properties, Inc. ("Properties") has a limited loan
guarantee equal to the lesser of $15 million or 15.5
percent of the outstanding balance of the construction
loan for the Hokua condominium project, in which
Properties is an investor. The guarantee could be
triggered if the purchasers of condominium apartments
become entitled to rescind their purchase obligations.
This could occur if, for example, the seller breaches
covenants contained in its sales contracts or violates
the Interstate Land Sales Practices Act, the Hawaii
Condominium Act, the Securities Act of 1933 or the
Securities Exchange Act of 1934.
(c) The Company guarantees up to $15 million of HS&TC's $30
million revolving credit line. This agreement expires
on May 10, 2005, but is expected to be renewed. The
HS&TC credit line is used primarily to fund purchases
of raw sugar from the Hawaii growers and is fully
secured by the inventory, receivables and transportation
assets of the cooperative. The amount that may be drawn
by HS&TC under the facility is limited to 95 percent of
its inventory value plus up to $15 million of HS&TC's
current receivables. The Company's guarantee is limited
to the lesser of $15 million or the actual amounts
drawn. Although the amount drawn by HS&TC on its credit
line varies, as of March 31, 2005, the amount drawn was
$10 million.
(d) The Company has arranged for standby letters of credit
totaling $18 million. This includes letters of credit,
totaling approximately $12 million, which enable the
Company to qualify as a self-insurer for state and
federal workers' compensation liabilities. The amount
also includes a $3 million letter of credit for workers'
compensation claims incurred by C&H employees prior to
December 24, 1998. The letter of credit is for the
benefit of the State of California Department of
Industrial Relations ("CDIR"). The Company only would
be called upon by the CDIR to honor this letter of
credit in the event of C&H's non-payment of workers'
compensation claims or insolvency. The remaining
letters of credit, totaling $3 million, are for routine
insurance-related operating matters, principally in the
real estate businesses.
(e) Of the $14 million in bonds, $7 million relate to real
estate construction projects in Hawaii. These bonds are
required by either state or county governments to ensure
that certain infrastructure work required as part of
real-estate development is completed as required. The
Company has the financial ability and intention to
complete these improvements. Also included in the total
bond amount are $6 million of customs bonds. The
remaining $1 million of bonds are for
transportation-related matters.
(f) The withdrawal liabilities for multiemployer pension
plans, in which Matson is a participant, aggregated
approximately $65 million as of the most recent
valuation dates. Management has no present intention of
withdrawing from and does not anticipate termination of
any of the aforementioned plans.
Contingencies: During the first quarter of 2005, there have been no
substantive changes to the two environmental matters, the petition
filed with the State of Hawaii Board of Land and Natural Resources or
the Citizen Complaint and Petition for a Declaratory Order filed with
the State of Hawaii Commission on Water Resource Management. These
items are described in Part II, Items 7 and 8, of the Company's 2004
Form 10-K.
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.
(4) Accounting Method for Stock-Based Compensation and Diluted Earnings per
Share: As allowed by Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," and by
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure," the Company has elected to continue to apply the
provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." Accordingly, no compensation cost is
recognized in the Company's net income for options granted with
exercise prices that are equal to the market values of the underlying
common stock on the dates of grant.
Pro forma information regarding net income and earnings per share,
using the fair value method and reported below, has been estimated
using a Black-Scholes option-pricing model. This model was developed
for use in estimating the fair value of traded options which do not
have vesting requirements and which are fully transferable. The
Company's options have characteristics significantly different from
those of traded options. Had compensation cost for the stock options
been based on the estimated fair values at grant dates, the Company's
pro forma net income and net income per share for the first quarter of
2005 and 2004 would have been as follows (in millions, except per share
amounts):
Quarter Ended
March 31
--------
2005 2004
Net Income:
As reported $ 37.7 $ 27.1
Stock-based compensation expense determined under
fair value based method for all awards, net of related
tax effects (0.4) (0.3)
-------- --------
Pro forma $ 37.3 $ 26.8
======== ========
Net Income Per Share:
Basic, as reported $ 0.87 $ 0.64
Basic, pro forma $ 0.86 $ 0.63
Diluted, as reported $ 0.86 $ 0.63
Diluted, pro forma $ 0.85 $ 0.62
Effect on average shares outstanding of assumed exercise
of stock options (in millions of shares):
Average number of shares outstanding 43.4 42.3
Effect of assumed exercise of outstanding stock options 0.6 0.6
-------- --------
Average number of shares outstanding after assumed
exercise of outstanding stock options 44.0 42.9
======== ========
The pro forma effects are not necessarily representative of the pro
forma effects on future net income or earnings per share, because the
number of future shares that may be issued is not known; shares vest
over several years, and assumptions used to determine the fair value
can vary significantly. Additional information about stock-based
compensation is included in Notes 1 and 12 of Item 8 in the Company's
most recently filed Form 10-K.
(5) Accounting for and Classification of Discontinued Operations: As
required by Statement of Financial Accounting Standards ("SFAS") No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
the sales of certain income-producing assets are classified as
discontinued operations if (i) the operations and cash flows of the
assets can be clearly distinguished from the remaining assets of the
Company, (ii) the cash flows that are specific to the assets sold have
been, or will be, eliminated from the ongoing operations of the
Company, (iii) the Company will not have a significant continuing
involvement in the operations of the assets sold, and (iv) the amount
is considered material. Certain assets that are "held for sale," based
on the likelihood and intention of selling the property within 12
months, are also treated as discontinued operations. Depreciation on
these assets is discontinued upon reclassification. Sales of land,
residential houses, and office condominium units are generally
considered inventory and are not included in discontinued operations.
Discontinued operations were as follows (in millions):
Quarter Ended
March 31
--------
2005 2004
Discontinued Operations (net of tax)
Sales of Assets $ 3.9 $ 0.3
Leasing Operations 0.2 0.2
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Total $ 4.1 $ 0.5
======= =======
(6) Other Comprehensive Income for the first quarter of 2005 and 2004 was
as follows (in millions):
Quarter Ended
March 31
--------
2005 2004
Net Income $ 37.7 $ 27.1
Change in Valuation of Derivative -- (0.9)
-------- --------
Other Comprehensive Income $ 37.7 $ 26.2
======== ========
The change in valuation of derivative amount reflects the valuation of
an interest rate lock agreement related to a containership purchase by
Matson during 2004.
(7) Pension and Post-retirement Plans: The Company has defined benefit
pension plans that cover substantially all non-bargaining unit and
certain bargaining unit employees. The Company also has unfunded
non-qualified plans that provide benefits in excess of the amounts
permitted to be paid under the provisions of the tax law to
participants in qualified plans. The assumptions related to discount
rates, expected long-term rates of return on invested plan assets,
salary increases, age, mortality and health care cost trend rates,
along with other factors, are used in determining the assets,
liabilities and expenses associated with pension benefits. Management
reviews the assumptions annually with its independent actuaries, taking
into consideration existing and future economic conditions and the
Company's intentions with respect to these plans. Management believes
that its assumptions and estimates for 2005 are reasonable. Different
assumptions, however, could result in material changes to the assets,
obligations and costs associated with benefit plans.
The Components of Net Periodic Benefit Cost for the first quarters of
2005 and 2004 were as follows (in millions):
Pension Benefits Post-retirement Benefits
---------------- ------------------------
2005 2004 2005 2004
---- ---- ---- ----
Service Cost $ 1.6 $ 1.0 $ 0.2 $ 0.1
Interest Cost 4.0 2.5 0.8 0.5
Expected Return on Plan Assets (6.1) (3.6) -- --
Amortization of Prior Service Cost 0.1 0.1 -- --
Amortization of Net (Gain) Loss 0.4 0.3 0.3 0.1
-------- -------- -------- --------
Net Periodic Benefit Cost $ -- $ 0.3 $ 1.3 $ 0.7
======== ======== ======== ========
The 2005 return on plan assets is expected to be nearly the same as the
cost and amortization components resulting in no material pension
expense. No contributions to the Company's pension plans are expected
to be required during 2005.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------
The following analysis of the consolidated financial condition and results of
operations of Alexander & Baldwin, Inc. and its subsidiaries (collectively, the
"Company") should be read in conjunction with the condensed consolidated
financial statements and related notes thereto included in Item 1 of this Form
10-Q.
FORWARD-LOOKING STATEMENTS
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. These statements are "forward-looking" statements as that
term is defined in the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements may be contained in, among other things, Securities
and Exchange Commission ("SEC") filings, such as the Forms 10-K, 10-Q and 8-K,
press releases made by the Company, the Company's Internet Web sites (including
Web sites of its subsidiaries), 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 are not guarantees of future performance, and 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
the following factors:
1) economic conditions in Hawaii and elsewhere;
2) market demand;
3) competitive factors, such as the entrance of new competitor
capacity in the Hawaii shipping trade, and pricing
pressures, principally in the Company's transportation
businesses;
4) renewal or replacement of significant operating and
financial agreements;
5) significant fluctuations in fuel prices;
6) legislative and regulatory environments at the federal,
state and local levels, including, among others, government
rate regulations, land use regulations, government
administration of the U.S. sugar program, and modifications
to or retention of cabotage laws;
7) availability of water for irrigation and to support real
estate development;
8) performance of unconsolidated affiliates and ventures;
9) significant fluctuations in raw sugar prices and the ability
to sell raw sugar to C&H Sugar Company, Inc. ("C&H");
10) vendor and labor relations in Hawaii, the U.S. Pacific
Coast, Guam and other locations where the Company has
operations;
11) risks associated with construction and development
activities, including, among others, construction costs,
construction defects, labor issues, ability to secure
insurance, and land use regulations;
12) performance of pension assets;
13) acts of nature, including but not limited to, drought,
greater than normal rainfall, hurricanes and typhoons;
14) resolution of tax issues with the IRS or state tax
authorities;
15) acts of war and terrorism;
16) risks associated with current or future litigation; and
17) other risk factors described elsewhere in these
communications and from time to time in the Company's
filings with the SEC.
CONSOLIDATED REVENUE & NET INCOME
- -------------------------------------------------------------------------------------------
Quarter Ended March 31,
- -------------------------------------------------------------------------------------------
(dollars in millions) 2005 2004 Change
- -------------------------------------------------------------------------------------------
Revenue $ 365.8 $ 342.3 7%
Cost of goods sold, services and rentals $ 278.7 $ 266.9 4%
Selling, general and administrative $ 32.1 $ 31.1 3%
Income taxes $ 20.5 $ 15.9 29%
- -------------------------------------------------------------------------------------------
Net income $ 37.7 $ 27.1 39%
- -------------------------------------------------------------------------------------------
Consolidated revenue of $365.8 million for the first quarter of 2005 increased
$23.5 million, or 7 percent, compared with the first quarter of 2004. This
increase was due principally to $22 million growth in Matson Integrated
Logistics revenue, $9.7 million higher revenue for ocean transportation, $9
million higher revenue in food products, and $1.6 million from real estate
leasing, partially offset by $18.8 million in lower revenue from real estate
sales (excluding property sales and leasing revenue classified as discontinued
operations). The reasons for the revenue growth are described below, by business
segment, in the Analysis of Operating Revenue and Profit.
Costs of goods sold, services and rentals of $278.7 million for the first
quarter of 2005 increased $11.8 million, or 4 percent, compared with the first
quarter of 2004 due to higher purchased transportation services of approximately
$18.9 million at the Matson Integrated Logistics business and $3 million for
higher cost of sugar sold due to increased sales tonnage, partially offset by
$9.4 million lower cost of property sales (excluding property sales classified
as discontinued operations).
Selling, general and administrative costs for the first quarter of 2005 were $1
million, or 3 percent, higher than the first quarter of 2004 due to higher
professional service fees, incentive and non-qualified plan costs, and salaries
and wages.
Income taxes were higher than the first quarter of 2004 due to higher
pre-tax income and a higher effective tax rate. The 2005 income tax rate is
expected to approximate the Company's statutory rate.
Additional information about the revenue and profits of the Company are provided
in the Analysis of Operating Revenue and Profit, below. Because the Company
operates in five different segments and three industries, the review of
operations, on a segment basis, provides an important perspective on the
financial results for the Company.
ANALYSIS OF OPERATING REVENUE AND PROFIT
Transportation - Ocean Transportation
- --------------------------------------------------------------------------------
Quarter Ended March 31,
- --------------------------------------------------------------------------------
(dollars in millions) 2005 2004 Change
- --------------------------------------------------------------------------------
Revenue $ 206.2 $ 196.5 5%
Operating profit $ 29.7 $ 18.6 60%
- --------------------------------------------------------------------------------
Volume (Units)
Hawaii containers 41,300 39,700 4%
Automobiles 35,600 36,300 -2%
Guam containers 4,000 4,500 -11%
- --------------------------------------------------------------------------------
Ocean Transportation revenue of $206.2 million for the first quarter of 2005 was
$9.7 million, or 5 percent, higher than the first quarter of 2004. Of this
increase, approximately $5.8 million was due to improved Hawaii service yields
and cargo mix, $3.9 million was due to higher container volume net of lower auto
volume, $3.3 million was due to increases in the bunker fuel surcharge, $1.5
million was due to government services and $1.2 million was due to Guam and
Mid-pacific service yield and mix. These increases were partially offset by $4.9
million of lower vessel charter revenue. Total Hawaii container volume was 4
percent higher than the first quarter of 2004. This reflects the strong and
continuing growth in the Hawaii economy.
Operating profit of $29.7 million was $11.1 million, or 60 percent, better than
the first quarter of 2004. This was primarily the result of $6.1 million higher
equity in earnings of SSA Terminals, LLC ("SSAT"), in which Matson is a minority
owner, $5.8 million from favorable Hawaii service yields and mix, $1.7 million
from higher container volume, $1.2 million from favorable Guam and Mid-pacific
service yield and mix, and $1.1 million from lower operating overhead expenses.
These increases in operating profit were partially offset by higher costs,
including: $1.8 million of purchased transportation services, $1.6 million in
higher vessel operating expenses, and depreciation and $1.5 million from lower
vessel charters. Of the higher SSAT earnings, about half of the amount related
to higher volume of containers handled in West Coast terminals and the remainder
related to SSAT's January fiscal year-end closing adjustments.
Transportation - Logistics Services
- --------------------------------------------------------------------------------
Quarter Ended March 31,
- --------------------------------------------------------------------------------
(dollars in millions) 2005 2004 Change
- --------------------------------------------------------------------------------
Revenue $ 96.1 $ 74.1 30%
Operating profit $ 3.0 $ 1.0 3.0x
- --------------------------------------------------------------------------------
Revenue and operating profit growth for the first quarter of 2005 for the
integrated logistics services business was mainly the result of increased
customer volume in all business lines. Highway volume increased 30 percent and
Intermodal volume increased 7 percent. The increase in highway volume was due to
both an acquisition in late 2004 and organic operating growth. This acquisition
is discussed in Item 8 (Note 2) of the Company's 2004 Form 10-K. The operating
margin for the integrated logistics service business was 3.1 percent for the
first quarter of 2005 compared with 1.3 percent for the first quarter of 2004.
The revenue for integrated logistics services includes the total amount billed
to customers for transportation services. The primary costs include purchased
transportation services. As a result, the operating profit margins for this
business are narrower than other A&B businesses. The primary operating profit
and investment risk for this business is the quality of receivables, which is
monitored closely.
Real Estate - Leasing
- --------------------------------------------------------------------------------
Quarter Ended March 31,
- --------------------------------------------------------------------------------
(dollars in millions) 2005 2004 Change
- --------------------------------------------------------------------------------
Revenue $ 21.9 $ 20.8 5%
Operating profit $ 10.7 $ 9.5 13%
- --------------------------------------------------------------------------------
Occupancy Rates:
Mainland 96% 94% 2%
Hawaii 90% 90% --
- --------------------------------------------------------------------------------
Leasable Space (million sq. ft.):
Mainland 3.4 3.7 -8%
Hawaii 1.7 1.7 --
- --------------------------------------------------------------------------------
Property leasing revenue for the first quarter of 2005 was 5 percent higher than
the amounts reported for the first quarter of 2004. Higher revenue and operating
profit were due principally to property acquisitions subsequent to the first
quarter of 2004, new leases and lease termination payments received in 2005. The
higher occupancy rate for the mainland commercial leasing portfolio was due
primarily to a 2004 vacancy at one large warehouse property.
Real Estate - Sales
- ------------------------------------------------------------------------
Quarter Ended March 31,
- ------------------------------------------------------------------------
(dollars in millions) 2005 2004 Change
- ------------------------------------------------------------------------
Revenue $ 45.9 $ 40.1 14%
Operating profit $ 16.5 $ 19.0 -13%
- ------------------------------------------------------------------------
Sales during the first quarter of 2005 included principally one
warehouse/distribution complex in Ontario, California, for $17.8 million, one
service center/warehouse complex, consisting of three buildings in San Antonio,
Texas, for $6.3 million, 5.5 office condominium floors for $5.5 million and
seven Maui and Oahu commercial properties for $7.6 million, one residential
development parcel for $4.5 million and three residential properties for $3
million.
By comparison, sales during the first quarter of 2004 included the sales of 17
Maui and Oahu commercial inventory properties for $12.2 million, 7.5 office
condominium floors for $8.8 million, and 23 residential properties for $18.9
million. Operating profit in 2004 also included $1 million for the Company's
share of earnings in two real estate joint ventures that, combined, reflected
the sales of 12 residential units.
The mix of property sales in any year or quarter can be diverse. Sales can
include developed residential real estate, commercial properties, developable
subdivision lots, undeveloped land, and property sold under threat of
condemnation. The sale of undeveloped land and vacant parcels in Hawaii
generally provides a greater contribution to earnings 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, cash flows
from the sales of real estate and the amount of real estate held for sale on the
balance sheets do not necessarily indicate future profitability trends for this
segment. Additionally, the operating profit reported in each quarter does not
necessarily follow a percentage of sales trends because the cost basis of
property sold can differ significantly between transactions. The reporting of
property sales is also affected by the classification of certain property sales
as discontinued operations.
Real Estate - Discontinued Operations
- ----------------------------------------------------------------------
Quarter Ended March 31,
- ----------------------------------------------------------------------
(dollars in millions, before tax) 2005 2004
- ----------------------------------------------------------------------
Sales revenue $ 24.6 --
Leasing revenue $ 0.6 $ 1.1
Sales operating profit $ 6.3 $ 0.4
Leasing operating profit $ 0.4 $ 0.4
- ----------------------------------------------------------------------
Discontinued operations for the first quarter of 2005 included the sales of one
warehouse/distribution complex in Ontario, California, for $17.8 million, one
service center/warehouse complex, consisting of three buildings in San Antonio,
Texas, for $6.3 million, and the fee interest in a parcel in Maui. There were no
sales of property during the first quarter of 2004 that resulted in discontinued
operations.
The leasing revenue and operating profit noted above includes the results for
properties that were sold through the first quarter of 2005 and the operating
results of a Maui office building that the Company intends to sell within the
next 12 months. Because the Company regularly sells commercial properties, the
amounts reported as continuing and discontinued operations in prior quarters are
restated each time a property is designated as discontinued.
Food Products
- ---------------------------------------------------------------------------
Quarter Ended March 31,
- ---------------------------------------------------------------------------
(dollars in millions) 2005 2004 Change
- ---------------------------------------------------------------------------
Revenue $ 22.4 $ 13.4 67%
Operating profit $ 9.0 $ 2.6 3.5x
- ---------------------------------------------------------------------------
Tons sugar produced 19,500 11,700 67%
- ---------------------------------------------------------------------------
Food products revenue increased for the first quarter of 2005 compared with 2004
due mainly to $5.5 million received as part of an agricultural disaster relief
program. Sugar sales of $6 million was $2.3 million higher than the first
quarter of 2004 and power revenue of $4.1 million was $1.4 million higher. Sugar
sales benefited from 67 percent higher production than in the first quarter of
2004.
Compared with the 2004 first quarter, operating profit benefited from the $5.5
million disaster relief payment and the $1.4 million of higher power sales. The
higher sugar sales did not contribute meaningfully to operating profit.
Quarterly fluctuations in sales and operating profit are normal for this
business due to commodity sugar prices, weather, production and other
seasonality factors. The Company's sugar business uses a standard cost system
for determining cost of sales. As total-year production and cost estimates
change, the standard cost per ton is adjusted to reflect those changes.
Periodically, the cost of crop is adjusted to reflect total-year production
estimates. Although both quarters were adversely affected by weather, the first
quarter of 2005 was less affected than the first quarter of 2004.
Outlook for 2005
For ocean transportation, the cargo demand remains good. The previously
announced general rate increase and periodic fuel surcharge adjustments are
expected to help offset increases in operating costs. Increased competition
may, however, put margins under pressure for the remainder of the year. As
noted earlier, approximately $6 million of the first quarter operating profit
resulted from the performance of the SSAT. While some of the factors that
contributed to this good performance are expected to continue, a majority of
the amount is related to year-end adjustments by the venture and is not
expected to be repeated.
For logistics services, demand for services remains strong in all business
lines. Income is expected to remain strong with improvement in year-over-year
comparisons.
Property sales are expected to be higher than 2004, but the timing of income
recognition will not be evenly distributed over the year. Residential sales
for the Company's Waikiki high-rise that had been expected to close in the
second quarter will likely shift to the third quarter. The development
pipeline, with expected realization of returns in 2005 and 2006, remains strong.
The Company's property leasing business is expected to produce relatively
stable revenue and margins. Property sales and purchases may have a modest
impact on operating results.
Continuing low sugar prices and modestly higher production are expected for
2005. Higher energy sales, however, are expected to mostly offset higher fuel
and other operating costs that have risen as a result of petroleum prices.
The $5.5 million disaster relief payment received in the first quarter was a
one-time benefit.
FINANCIAL CONDITION, LIQUIDITY, FINANCING ARRANGEMENTS AND CASH FLOWS
Liquid Resources: The Company's principal liquid resources, comprising cash and
cash equivalents, receivables, sugar and coffee inventories and unused lines of
credit, less accrued deposits to the Capital Construction Fund ("CCF"), totaled
$689 million at March 31, 2005, an increase of $56 million from December 31,
2004. The increase was due primarily to $27 million of higher cash balances, $14
million of higher sugar and coffee inventory balances, and $10 million of higher
balances available under variable rate debt facilities, partially offset by $10
million of lower receivable balances. Inventory balances were the result of
normal business seasonality. Cash balances were higher than 2004 year-end due to
receivable collections, business growth, timing of capital expenditures, and
lower short-term debt balances that could be paid down prior to quarter-end.
Balance Sheet: Working capital was $105 million at March 31, 2005, an increase
of $52 million from the balance carried at the end of 2004. The increase in
working capital was due primarily to higher cash balances, lower accrued
deposits to the CCF, lower accounts and taxes payable, lower net accrued
balances for executive benefits, and lower balances of short-term debt balances
and current portion of long-term debt. These factors were partially offset by
lower balances of accounts receivable and lower balances of real estate held for
sale. Most of the $69 million cash balance at the end of the first quarter is
expected to be used in connection with the purchase, in May 2005, of the first
of two containerships that Matson has contracted to acquire, deposits into the
CCF and other asset purchases.
Long-term Debt, including current portion, totaled $237 million at March 31,
2005 compared with a balance of $245 million at December 31, 2004. This $8
million decrease was due to normal debt repayments. The weighted average
interest rate for the Company's outstanding borrowings at March 31, 2005 was
approximately 5.8 percent.
Cash Flows and Capital Expenditures: Cash Flows from Operating Activities were
$46 million for the first quarter of 2005, compared with $50 million for the
first quarter of 2004. This decrease was the net result of lower gains on the
sale of property and real estate and higher income taxes, partially offset by
better operating results.
Capital expenditures for both the first quarter of 2005 and 2004 were $9
million. These expenditures were primarily for routine asset replacements.
Tax-deferred transactions are not considered cash transactions for purposes of
the Statement of Consolidated Cash Flows since the Company does not actually
take control of the cash during the exchange period.
Total-year 2005 capital expenditures are expected to be approximately $354
million. This includes both committed projects and uncommitted, but planned,
projects. Approximately $237 million of capital expenditures is expected for
the transportation businesses (including the purchase of a containership),
$103 million is expected for the real-estate business (excluding purchases of
property on a tax-deferred basis and investments in new joint ventures), and
$13 million for the food products business.
Tax-Deferred Real Estate Exchanges: Sales - There were five sales and one
condemnation of property during the first quarter of 2005, totaling $28 million,
which qualified for potential tax-deferral treatment under the Internal Revenue
Code Sections 1031 and 1033. The sales included a warehouse/distribution complex
in Ontario, California, one service center/warehouse complex, consisting of
three buildings in San Antonio, Texas, one commercial parcel in Waikiki and the
fee interest in two parcels in Maui. The proceeds from these sales were
immediately available for reinvestment in replacement property. The proceeds
from 1031 tax-deferred sales are held in escrow pending future use to purchase
new real estate assets.
During the first quarter of 2004, the Company did not record any tax-deferred
real-estate sales.
Purchases - The fee simple interest in a leased property in Honolulu was
purchased during the first quarter of 2005 using $19.3 million of proceeds from
tax-deferred sales. There were no purchases of property during the first quarter
of 2004 that utilized proceeds from tax-deferred sales.
As of March 31, 2005, $8.6 million of proceeds from tax-deferred sales had not
been reinvested. This amount is included in non-current other assets on the
condensed balance sheet.
Commitments, Contingencies and Environmental Matters: A description of
commitments and contingencies in effect at the end of the first quarter is
described in Note (3) to the financial statements of Item 1.
OTHER MATTERS
Investments: The Company's joint ventures are described in Item 8 of the
Company's most recently filed Form 10-K.
Kukui'ula - During the first quarter of 2005 the Company conveyed the remaining
165 acres of land to the Kukui'ula joint venture. This brings the total land
conveyed by the Company, as part of its equity contribution, to 1,000 acres.
In April, Kukui'ula introduced its Founders Program, in which 300 non-binding
reservations were received for 123 units, comprising three product types.
The products comprise 35 half-acre home sites priced between $1 and $3.5
million, 17 quarter-acre home sites priced between $1 and $2 million and 71
residential units of 1,500 to 3,000 square feet priced between $1.5 and $4
million. These property sales are expected to close in late 2006.
Significant Accounting Policies: The Company's significant accounting policies
are described in Note 1 of the consolidated financial statements included in
Item 8 of the Company's most recently filed Form 10-K.
Critical Accounting Policies and Estimates: The Company's accounting policies
are described in Note 1 of the Consolidated Financial Statements included in
Item 8 of the Company's most recently filed Form 10-K. The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America, upon which the Management's Discussion and
Analysis is based, requires that Management exercise judgment when making
estimates and assumptions about future events that affect the amounts reported
in the financial statements and accompanying notes. Future events and their
effects cannot be determined with absolute certainty and actual results will,
inevitably, differ from those estimates. These differences could be material.
The most significant accounting estimates inherent in the preparation of A&B's
financial statements were described in Item 7 of the Company's 2004 Form 10-K.
New and Proposed Accounting Standards: In April 2005, the Securities and
Exchange Commission ("SEC") deferred the application date of Statement of
Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment."
The standard requires that the cost of awards that are granted, modified or
settled should be charged to compensation expense in the Statement of Income. As
permitted by the SEC's deferred application of the standard, the Company plans
to adopt this standard on January 1, 2006.
Additional information about the impacts of newly issued accounting standards
are discussed in Item 8 of the Company's most recently filed Form 10-K.
Economic Conditions: Hawaii's economy continues to grow steadily and at a pace
that is sustainable. From the viewpoints of scale and performance, the principal
"drivers" of economic growth for the State remain the visitor industry and real
estate/construction.
Through February, total visitor days are up 9.9 percent, on the strength of a
9.7 percent increase in visitors arriving on domestic flights and a 14.8%
increase on international flights. Supporting the growth of visitors, 13 percent
more air seats will be available in the April to June 2005 period than in the
same time a year ago.
On a combined basis, total commitments to build (private permits plus government
contracts awarded) grew nearly 38 percent in 2004. Though not expected to grow
again until 2006 because of the unusually large increase in 2004 government
contracts, this represents a sizable level of upcoming activity.
Two primary sources of periodic economic forecasts for the state are the
University of Hawaii Economic Research Organization (UHERO) and the state's
Department of Business, Economic Development & Tourism (DBEDT). As shown in the
following table, these independently prepared projections substantially agree
that the economic outlook is favorable for the next few years.
Indicator (%) Source `03A `04A `05F `06F `07F `08F
- ------------- ------ ---- ---- ---- ---- ---- ----
Visitor Arrivals UHERO -0.2 8.5 3.4 2.8 2.5 2.3
DBEDT -0.1 8.0 4.9 1.6 1.6 NA
Wage & Salary Jobs UHERO 1.9 2.6 1.8 1.3 1.3 1.2
DBEDT 1.9 2.6 2.0 1.5 1.3 NA
Real Personal Income UHERO 2.3 2.6 2.7 2.6 2.4 2.4
DBEDT 2.3 2.8 2.7 2.6 2.3 NA
Management Changes: The following management changes occurred during 2005.
o Richard S. Bliss, Matson vice president and Hawaii area manager,
retired effective April 1, 2005.
o Peter W. Burns was promoted to vice president at Matson Terminals
Inc. effective April 4, 2005.
o John F. Gasher, A&B vice president, retired effective January 1,
2005.
o David I. Haverly was promoted to vice president, asset management at
A&B Properties, Inc. effective January 1, 2005.
o Merle A. K. Kelai, Matson vice president, retired effective
February 1, 2005.
o Richard B. Stack, Jr. was promoted to vice president, development at
A&B Properties, Inc. effective January 1, 2005.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
Information concerning market risk is incorporated herein by reference to Item
7A of the Company's Form 10-K for the fiscal year ended December 31, 2004. There
has been no material change in the quantitative and qualitative disclosure about
market risk since December 31, 2004.
ITEM 4. CONTROLS AND PROCEDURES
- --------------------------------
(a) Disclosure Controls and Procedures. The Company's management, with
the participation of the Company's Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the Company's
disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by
this report. Based on such evaluation, the Company's Chief Executive
Officer and Chief Financial Officer have concluded that, as of the
end of such period, the Company's disclosure controls and procedures
are effective in recording, processing, summarizing and reporting, on
a timely basis, information required to be disclosed by the Company
in the reports that it files or submits under the Exchange Act.
(b) Internal Control Over Financial Reporting. There have not been any
changes in the Company's internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report relates
that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
- ------------------------------------------------------------------------------
SECURITIES
----------
Issuer Purchases of Equity Securities
Total Number of Maximum Number
Shares Purchased as of Shares that
Part of Publicly May Yet Be Purchased
Total Number of Average Price Announced Plans Under the Plans
Period Shares Purchased Paid per Share or Programs or Programs
------ ---------------- -------------- ------------------- --------------------
Jan 1 - 31, 2005 8,792 (1) $44.10 -- --
Feb 1 - 28, 2005 -- -- -- --
Mar 1 - 31, 2005 4,350 (1) $43.98 -- --
(1) Represents shares accepted in satisfaction of the exercise price of stock
options or tax withholding obligations upon option exercises.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
At the Annual Meeting of Shareholders of the Company held on April 28, 2005, the
Company's shareholders voted in favor of: (i) the election of ten directors to
the Company's Board of Directors, (ii) the ratification of the appointment of
Deloitte & Touche LLP as the Company's independent auditors, and (iii) the
approval of an amendment to the Alexander & Baldwin, Inc. 1998 Stock
Option/Stock Incentive Plan. The number of votes for, against or withheld, as
well as the number of abstentions, as to each matter voted upon at the Annual
Meeting of Shareholders, were as follows:
(i) Election of Directors For Withheld Broker Non-Votes
Michael J. Chun 40,095,183 1,160,348 0
W. Allen Doane 40,900,014 355,517 0
Walter A. Dods, Jr. 39,665,319 1,590,212 0
Charles G. King 39,859,539 1,395,992 0
Constance H. Lau 40,049,271 1,206,260 0
Carson R. McKissick 40,965,004 290,527 0
Douglas M. Pasquale 41,003,053 252,478 0
Maryanna G. Shaw 40,963,080 292,451 0
Charles M. Stockholm 40,077,504 1,178,027 0
Jeffrey N. Watanabe 40,139,289 1,116,242 0
(ii) Ratification of Appoint- For Against Abstain Broker Non-Votes
ment of Auditors 40,760,131 333,549 161,851 0
(iii) Proposal to Approve For Against Abstain Broker Non-Votes
an Amendment to the 31,884,620 2,344,108 1,100,933 5,925,870
1998 Stock Option/Stock
Incentive Plan
ITEM 5. OTHER INFORMATION
- ---------------------------
On April 28, 2005, at the 2005 Annual Meeting of Shareholders of Alexander &
Baldwin, Inc., the shareholders approved an amendment (the "Amendment") to the
Alexander & Baldwin, Inc. 1998 Stock Option/Stock Incentive Plan (the "1998
Plan"), which:
1. Increases the number of shares of A&B common stock reserved for
issuance under the 1998 Plan by an additional 700,000 shares;
2. Eliminates the 250,000-share limitation on the aggregate number of
shares available for issuance through the restricted stock
program. Accordingly, shares reserved for issuance under the 1998
Plan may be issued either in the form of option grants or
restricted stock grants;
3. Specifically prohibits the repricing of stock options;
4. Specifies minimum vesting periods for restricted stock to no
sooner than one-third in each of the first three years since the
grant date for time-based awards, and no sooner than one year
following the grant date for performance-based awards (certain
limited exceptions exist for retirement and change of control
situations); and
5. Specifically prohibits any material amendment to the 1998 Plan
without shareholder approval.
The foregoing summary of the Amendment is a general description only and is
subject to the detailed terms of the Amendment filed herewith as Exhibit
10.b.1.(xiii) and incorporated herein by reference.
ITEM 6. EXHIBITS
- -----------------
10.b.1.(xiii) Amendment No. 3 to the Alexander & Baldwin, Inc. 1998
Stock Option/Stock Incentive Plan.
31.1 Certification of Chief Executive Officer, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALEXANDER & BALDWIN, INC.
-------------------------------------
(Registrant)
Date: May 2, 2005 /s/ Christopher J. Benjamin
--------------------------------------
Christopher J. Benjamin
Vice President and Chief Financial Officer
Date: May 2, 2005 /s/ Thomas A. Wellman
---------------------------------------
Thomas A. Wellman
Vice President, Controller and Treasurer
EXHIBIT INDEX
10.b.1.(xiii) Amendment No. 3 to the Alexander & Baldwin, Inc. 1998
Stock Option/Stock Incentive Plan.
31.1 Certification of Chief Executive Officer, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.