1994 FORM 10-K EXHIBIT 13
ALEXANDER & BALDWIN, INC.
1994 ANNUAL REPORT TO SHAREHOLDERS
ELECTRONIC FILE FORMAT FOR SEC TRANSMISSION
NOTE:
Page numbers referenced in this report refer to the
published document.
Photo captions and descriptions of graphs which are
included in the published document are noted in brackets
in this electronic file format.
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[Four photos - caption: Representing A&B's business segments are (from top to
bottom): Matson's S.S. Maui, the first American vessel to be converted to a
technologically advanced "open top" design; Kahului Ikena, a residential deve-
lopment on Maui, one of many A&B Properties' projects underway on that island;
Matson Leasing containers in Bangkok exemplifying the five-year-old company's
growing international presence; and Kauai coffee trees growing at McBryde,
where value was added to the food products segment with the successful launch
in 1994 of a roasted, packaged coffee.]
[Cover photo caption: An aerial view of Maui's North Shore with the world famous
wind surfing spot, Ho'okipa Beach Park, in the foreground. The vast expanse of
land pictured is practically all property owned by A&B.]
Financial Highlights
1994 1993 Change
-------------- ------------ ------
Revenue $1,208,165,000 $979,466,000 + 23%
Net Income $74,608,000 $66,989,000 + 11%
Per Share $1.62 $1.45 + 12%
Cash Dividends $40,563,000 $40,777,000 - 1%
Per Share $0.88 $0.88 --
Average Shares
Outstanding 46,059,000 46,338,000 - 1%
Total Assets $ 1,932,788,000 $1,912,375,000 + 1%
Shareholders' Equity $632,614,000 $587,006,000 + 8%
Per Share $13.85 $12.65 + 9%
Return on Beginning
Shareholders' Equity 12.7% 12.0% --
Current Ratio 1.4 to 1 1.3 to 1 --
Ratio: Long-term Debt and
Capital Leases to .32 to 1 .37 to 1 --
Total Capital
Employees 3,581 3,709 - 3%
Amounts reflect the results of California and Hawaiian Sugar Company, Inc.
subsequent to acquisition in June 1993.
[Photo caption: The 4-story Alexander & Baldwin Building in the heart of down-
town Honolulu has been a city landmark and the Company's headquarters for 66
years.]
A Tribute to R.J. Pfeiffer
Robert J. Pfeiffer will retire from Alexander & Baldwin, Inc. (A&B) on March
31, 1995 after 37 and one-half years of distinguished service to the Company,
nearly 15 of which he has spent as Chairman of the Board and over 12 as
Chief Executive Officer ---- more than any other individual in A&B's 125-year
history, except John Waterhouse, son-in-law of Company co-founder, Samuel T.
Alexander.
The officers and employees of A&B wish to recognize and express their
appreciation for Mr. Pfeiffer's extraordinary record of leadership and
contributions to the Company. In his nearly four decades of service, a period of
significant growth and prosperity, he left an enduring mark on A&B. Under his
direction, the Company grew in strength and capability and, as a result, is
better equipped to face the future.
Mr. Pfeiffer began his A&B career at a Matson Navigation Company, Inc.
(Matson) subsidiary in 1956. He was appointed Matson President and CEO in 1973,
and he has served as Matson's chairman continuously from 1979 until his
retirement from A&B this year. The year 1973 also saw Mr. Pfeiffer assume his
first corporate office at A&B, when he was named Senior Vice President. In 1979
he was appointed President of A&B. He became CEO and Chairman of the Board in
1980. Under his stewardship, A&B has grown, modernized, diversified and estab-
lished a reputation as a leader in each of the areas in which it does business.
Here are a few indicators of the Company's progress during the Pfeiffer years:
1973 1980 1994
------------ ------------ -------------
Total Revenue $170,247,000 $461,278,000 $1,208,165,000
Shareholders' Equity 159,014,000 328,066,000 632,614,000
Total Assets 241,168,000 655,492,000 1,932,788,000
With Mr. Pfeiffer at the helm, Matson steered a course through a period of
tremendous growth, change and success and, in the process, was transformed into
one of the world's most efficient, modern ocean transportation companies.
Under Mr. Pfeiffer's leadership, A&B also modernized and diversified the
agribusiness activities in which the Company has its roots. The pioneering
investments made in drip irrigation of A&B's sugar plantations and automation of
its mills during this time ensured that the Company would maintain its leading
position in Hawaii sugar production.
Mr. Pfeiffer also directed the revitalization of the Company's property
development and management activities, thoughtfully pursuing the development of
commercial, industrial and residential properties on Maui and Kauai, while
continuing to uphold A&B's tradition of responsible stewardship of its
landholdings. He oversaw the key, final phases of development and sale of the
Wailea Resort on Maui, and then astutely employed the proceeds of the sale
to acquire a variety of Mainland properties in order to diversify the Company's
substantial real estate portfolio.
The Pfeiffer years also witnessed the birth of a major new area of enterprise
for the Company ---- worldwide marine container leasing, which has developed
into a growing profit center.
No summation of Mr. Pfeiffer's tenure at A&B would be complete without
mention of the care, concern and energy he devoted to building on the tradition
of Company involvement in the communities in which it operates. While Mr.
Pfeiffer took on a leadership role in numerous professional and community
groups, perhaps one of his most notable achievements was the creation of the
Alexander & Baldwin Foundation, which has become a leading supporter of
educational, cultural and human services organizations throughout Hawaii and on
the West Coast.
Bob Pfeiffer adopted as his watchword the Hawaiian "imua," which means "to
progress, to go forward." There is no word, in any language, better suited to
describe his attitude, his life, his legacy. We will miss him, and we extend to
him and his family our aloha and mahalo upon his retirement.
[Photo caption: John C. Couch, President and Chief Executive Officer, and
R. J. Pfeiffer, Chairman of the Board, on the balcony of the historic Alexander
& Baldwin Building]
To Our Shareholders
Fellow Shareholders
While Alexander & Baldwin, Inc. (A&B) continued to make satisfactory progress
in a number of key areas in 1994, overall financial results were not as good as
we had hoped. Accomplishments during the year, however, did demonstrate the
Company's financial and operating strength. Strong cash flow permitted the
Company to proceed with important capital expenditures, while concurrently
reducing debt, repurchasing shares and continuing regular cash dividend
payments.
Freight volume in our ocean transportation business was the highest since
that business began 112 years ago. Growing world trade propelled our
international marine container leasing business to record earnings. The
increasing pace of our property development and management business created
important opportunities to realize significant added value from our real
property assets. There even were some heartening developments in our food
products business, although the results of those operations were disappointing.
Looking ahead, although the food products segment faces some major challenges,
in general we are encouraged by more favorable local, national and international
economic trends than we have seen in recent years.
A&B's 1994 net income was $74.6 million, up 11 percent from $67.0 million in
1993. Earnings per share rose to $1.62, up 12 percent from $1.45 in 1993. Cash
flow from operations, before expenditures for real estate developments, was $194
million in 1994, just slightly below the record $195 million in 1993.
Repurchase Program Reflects Long-term Commitment
A&B's strong operating cash flow enabled the Company to proceed with its
current stock repurchase program. In December 1993, the Board of Directors
authorized the Company to repurchase up to two million shares during 1994 and
1995. The purchase authorization provides a means of improving overall returns
to shareholders without jeopardizing financial flexibility or missing attractive
growth opportunities. In 1994, A&B repurchased 722,500 shares at a total cost of
$17.7 million. As a result, each remaining shareholder has a larger ownership
stake. At the same time, cash flow was sufficient for the Company to fund $102
million in capital investments, to retire $53 million of outstanding debt, and
to pay dividends of $40.6 million.
Matson Meets Cargo Surges
During 1994, Matson Navigation Company, Inc. (Matson) demonstrated its
capability to handle efficiently significant increases in freight volume on
short notice. During the 24-day labor strike that shut down its major
competitor, Matson's newest vessel, the MV R. J. Pfeiffer, carried a record
cargo lift. In addition, the newly converted "open top" vessels, SSs Maui and
Kauai, fully utilized the ten-percent capacity increase provided by their recent
conversions.
In 1994, Matson successfully completed the largest computer software system
development effort in its history. This project encompassed the complete rewrite
of Matson's most critical business applications: customer service, booking,
billing and equipment control. The ramifications for improved customer service
are significant.
In addition, Matson increased its focus on building strategic alliances with
international carriers by offering them a wider variety of services, which now
include stevedoring and terminal services, intermodal services, coastwise feeder
vessel operations and container leasing. Matson's intermodal container shipping
subsidiary, Matson Intermodal System, Inc. (MIS), continued to grow in 1994,
largely because of this strategy. MIS now is the exclusive east-west intermodal
agent for both Columbus Line and Blue Star Line.
In July 1994, Matson launched its newest business venture, the Pacific Coast
Shuttle, by employing the former reserve vessel, S.S. Manulani, in a service
which operates between Los Angeles and the Pacific Northwest ports of Seattle
and Vancouver, British Columbia. This new service has attracted major
international carriers as customers.
Container Leasing
Matson Leasing Company, Inc. (Matson Leasing) continued to strengthen its
international presence by opening a new office in Rio de Janeiro. Matson Leasing
now has direct representation in every major trading area in the world. The
fleet size grew by about 11 percent to 160,000 twenty-foot equivalent units
(TEUs). A larger fleet, higher utilization and rate stability resulted in a 15-
percent increase in revenue.
A&B Properties, Inc. Leads Maui Development
A&B Properties' performance improved again in 1994, a noteworthy step in a
difficult period for real estate. A&B's property operations continue to build an
impressive inventory of development projects, especially in Hawaii. At the same
time, they continue to benefit from geographic diversity, with about half of all
leasing income received from properties outside Hawaii.
On Maui, A&B Properties has led the way in promoting the growth and
revitalization of retail activity. Maui's first Kmart store opened in 1993 on a
site leased from A&B Properties and since has become one of Kmart Corporation's
top performers. Progress continues at Triangle Square, with the first phase of
a new factory outlet mall, Maui Factory Stores, nearing completion. Ground was
broken in January 1995 for a new, 134,000 square-foot Costco store on A&B
property in Kahului. Also, plans have been initiated for the redevelopment of a
20-acre site, now occupied by the 44-year-old Kahului Shopping Center.
Kahului Industrial Park represents the Company's continued expansion of its
valuable light industrial and commercial holdings on Maui. This new development
is located in close proximity to the airport, harbor and the Kahului/Wailuku
urban core of Maui. Phase I consists of 76 acres and its addition will increase
A&B Properties' light industrial lands on Maui by approximately one-third. Sales
and leasing activity is expected to begin in late 1995 or early 1996.
Arapahoe Marketplace shopping center near Denver was sold for $21 million in
December. The sale demonstrates another way A&B Properties adds value to the
Company's real property investments. The Colorado property had been purchased
for $17 million, with tax-deferred proceeds from prior land sales. Since
acquisition of the property just after it was constructed in 1989, average rents
increased 16 percent, while operating costs remained constant. A&B Properties
intends to reinvest the sale proceeds in other income-producing properties,
utilizing tax-deferred property exchanges.
In 1994, A&B Properties also sold two parcels of land that were among
properties purchased from California and Hawaiian Sugar Company, Inc. (C&H) in
June 1993. Although acquired in connection with the purchase of C&H, those
properties were surplus to C&H's needs. The most valuable of the two parcels was
19.4 acres in Aiea on Oahu, which was sold for $17.8 million.
Low Food Products Margins
Operating in an extremely volatile market and one negatively impacted by
ineffective administration of the domestic sugar support program, A&B's food
products segment struggled in 1994. Hawaiian Commercial & Sugar Company on Maui
suffered because of relatively low yields. McBryde Sugar Company, Limited, on
Kauai, faced even greater challenges due to its higher sugar production costs,
and startup costs associated with its efforts to pioneer the large-scale growing
and marketing of coffee.
As discussed in last year's annual report, the decision to buy C&H in 1993
allowed A&B to integrate its sugar-growing activities with those of sugar
refining and marketing. Unfortunately, refined sugar prices have been depressed,
while raw sugar costs remained relatively high and volatile. The price decline
has been most significant in the western markets. Falling refined sugar prices
were primarily due to problems with administration of the sugar support program.
These problems, as well as flaws in the current legislation, are among issues to
be addressed when the various domestic agricultural commodity support programs
are reviewed for renewal later this year.
Outlook for 1995
As your Company begins its 125th year of progress, economic indicators signal
modest growth opportunities ahead. A&B continues to grow beyond Hawaii, but
about 80 percent of the Company's operating profit still depends primarily on
economic activity in the State. The visitor industry remains the largest single
component of Hawaii's Gross State Product. After three down years, visitor
arrivals and visitor days improved steadily during 1994 and the Hawaii Visitors
Bureau projects continued growth during 1995. The construction industry,
however, remains at a cyclical low.
Looking beyond Hawaii, growing international trade and stronger fundamentals
in the marine container leasing industry bode well for Matson Leasing. Worldwide
container trade is estimated to have increased about eight percent in 1994,
compared with less than four percent in 1993. In addition, the economic recovery
on the U.S. Mainland has had a positive impact on A&B Properties, with its
Mainland property portfolio realizing an average occupancy rate of 97 percent.
Each of the Company's business segments will continue to focus on achieving
greater operating efficiencies and exploring growth opportunities. At Matson,
the Company looks forward to the growth of the new Pacific Coast Shuttle
service, as well as continued implementation of programs that will improve the
efficiency of current operations and enhance the level of customer service.
Matson Leasing will continue to expand its container fleet in response to
customers' needs. A&B Properties will proceed with land entitlement efforts, as
well as continue to build on its success in development and redevelopment of
property for which entitlements have been granted and zoning is approved. With
labor negotiations scheduled during 1995 for C&H and for both Hawaii
plantations, and with the expiration of current federal agriculture support
programs, the food products segment, however, faces an unusual degree of
uncertainty.
The current sugar support program has disadvantaged the sugarcane sector of
the sweetener industry, which includes sugar beet growers and processors, corn
growers and processors, as well as sugarcane growers and refiners. A&B will
continue to work with these industry groups, congressional representatives and
Administration personnel to help structure a new program that will represent a
better balancing of all sweetener interests, including those of producers as
well as consumers.
Application of Economic Value Added (EVA)
A&B is highly diversified, with businesses that have varied financial
characteristics. Because the Company's overall returns on invested capital have
been inadequate during the past few years, the Company in 1994 began the
evaluation of a new financial management framework called Economic Value Added,
or EVA(R).
EVA combines traditional measures of operating profit with measurement of
capital returns to create a single, easily understood measure. It allows that
same measure to be used for corporate and unit planning, for capital investment
analysis, for period reporting and, potentially, for measurement of management
performance. Calculated from existing accounting measures, EVA promises to help
operating managers at all levels take greater responsibility for the stewardship
of capital invested in their respective operations. The Company will be applying
EVA techniques during 1995 on a trial basis to assess their utility and to help
focus attention throughout the organization on returns being generated on
capital employed.
Management Share Ownership
Over the past few years, there has been increased attention given to the
importance of share ownership by corporate officers as a means of promoting goal
congruence with shareholders in general. In that regard, in 1994 the Board of
Directors established share ownership guidelines for corporate officers of A&B.
The response has been reassuring. The number of officers who elected to take a
portion of their incentive compensation in stock rather than cash increased
dramatically in 1993 and 1994. At this point, the top 15 officers own outright
(i.e., separate from beneficial ownership through stock option grants)
approximately 640,000 shares or 1.4 percent of the total shares outstanding. We
believe increasing share ownership by key A&B officers is a healthy trend.
As shareholders, we would like to thank the employees of A&B and its
subsidiaries for their diligent efforts and hard work in 1994. As officers, we
pledge to our Board of Directors and fellow shareholders our continued efforts
to make A&B a superior investment.
/s/ John C. Couch
John C. Couch
President and
Chief Executive Officer
/s/ R. J. Pfeiffer
R. J. Pfeiffer
Chairman of the Board
February 17, 1995
[Photo caption: Matson continues to build strategic alliances with international
carriers by offering them a variety of services. The Company's new Pacific
Coast Shuttle service has attracted major international carriers as customers
since it was launched in mid-1994.]
[Photo caption: Top: A&B Properties has successfully led the development of new
retail markets on Maui. The island's first Kmart opened in 1993 and already
has become one of the retailer's top performers.
Bottom: By applying the latest technology to existing operations, C&H now is
able to supply high quality liquid sweetners more efficiently to industrial cus-
tomers in Hawaii, utilizing a new liquid sugar plant at Aiea on Oahu.]
[Photo caption: Matson's newly converted S.S. Kauai sails under the Golden Gate
Bridge in San Francisco, where the ocean transportation company has its head-
quarters. Benefits of conversion work completed on this vessel in 1994 include
the industry-leading "open top" design and life-extension work that will add ten
to 15 years to the vessel's service life.]
Review of Operations
The following table shows the operating profit for each segment for the last
three years. Results and prospects for each segment are discussed in the
following pages.
PERCENT Percent Percent
OF of of
(Dollars in thousands) 1994 TOTAL 1993 Total 1992 Total
------ -- ------- -- ------- --
Ocean Transportation $97,319 61 $91,194 57 $97,195 77
Container Leasing 16,604 10 13,047 8 12,509 10
Property Development
and Management:
Leasing 23,163 15 22,975 14 21,357 17
Sales 18,522 12 18,570 12 16,820 13
Food Products (418) 0 12,692 8 (26,175) (21)
Other 3,143 2 2,357 1 4,263 4
[Graph entitled "A&B Operating Profit by Source 1984-1994": Graph shows the
contribution to total operating profit of each business segment. Data points
for the most recent 5 years of the graph are contained in the Industry Segment
Information.]
Matson
The ocean transportation operations of Alexander & Baldwin, Inc. (A&B) are
conducted by Matson Navigation Company, Inc. (Matson), a wholly owned subsidiary
headquartered in San Francisco. Matson is the principal carrier of containerized
cargo and automobiles between the U.S. Pacific Coast and Hawaii, with a fleet of
four container ships and four combination container/trailer ships in regularly
scheduled service between Hawaii and Los Angeles, Oakland and the U.S. Pacific
Northwest. The service includes transshipment of cargo by three barges operating
between Honolulu and the islands of Hawaii, Maui and Kauai. Matson also
operates a container barge between Honolulu and several mid-Pacific islands. In
1994, Matson launched a new coastwise service using one container ship that
operates along the West Coast. Matson's other ocean transportation subsidiaries
offer stevedoring and terminal services, intermodal services and harbor tug-boat
services.
Matson's mission is to be a customer's preferred provider of cargo
transportation services by offering a high-value service characterized by
reliability, frequency and ease-of-use.
Operating Results
In 1994, ocean transportation operations provided 50 percent of A&B's revenue
and 61 percent of its operating profit. For explanations of year-to-year
changes in results, please refer to Management's Discussion and Analysis
beginning on page 29.
1994 1993 1992
-------- -------- --------
(in thousands)
Revenue $604,754 $551,687 $537,669
Operating
Profit* 97,319 91,194 97,195
* Before interest expense, corporate expense and income taxes
Hawaii Cargo Volume
In 1994, total containerized freight reached a record level for Matson, up
four percent from 1993. Over the past ten years, Matson's containerized freight
carriage has grown at an annual compound rate of five percent.
Total Hawaii cargo carriage for the past three years was:
1994 1993 1992
------- ------- --------
(in thousands)
Freight
(TFEUs*) 241,000 232,000 236,000
Automobiles 117,000 109,000 111,000
* Twenty-four foot equivalent units
Westbound container volume surpassed 1993's record high by two percent.
1994's record numbers were primarily due to the April Teamster's strike that
shut down the operations of Matson's major competitor for 24 days. Eastbound
container volume rose nine percent over 1993, due in part to increases in
household goods shipments and the return of other carriers' empty containers.
Automobile volume increased seven percent in 1994, marking a notable gain,
but nevertheless was lower than the record years of 1990 and 1991. The decrease
from those years is attributable to the curtailment of manufacturers' incentives
for rental-car fleet purchases in late 1991.
[Graphs: Ten year freight (TFEUs) showing growth from slightly more than 150,000
TFEUs in 1985 to the 1994 level of 241,000 TFEUs; Ten year automobile volume
showing growth from approximately 69,000 units in 1985 to 117,000 in 1994.]
1994 Progress
The April Teamster's strike required Matson to meet virtually all of Hawaii's
ocean transportation needs and resulted in record or near-record freight volumes
on Matson vessels for nearly six weeks. Freight capacity was greatly enhanced by
recent fleet improvements. Matson's newest container ship, the MV R. J.
Pfeiffer, built in 1992, carried a record for the Company's fleet: 1,369
containers. The newly converted "open top" (i.e., without hatch covers)
vessels, SSs Maui and Kauai, sailed with maximum loads, with container capacity
that was more than ten-percent greater than it had been before their conversion.
In some cases, containers were stacked 11 high. Matson's ability to handle the
surge in freight efficiently also benefited from its terminal and intermodal
subsidiaries; in many instances, freight was moved by rail or truck to alternate
Matson West Coast facilities in order to make the earliest departure for Hawaii.
In August 1994, the State of Hawaii's Senate and House of Representatives issued
two separate proclamations commending Matson for its success in carrying the
wide range of commodities needed by the State without any disruption to the
regular flow of goods.
In 1994, Matson completed the largest computer software system development
that the Company has ever undertaken. The project exemplifies Matson's ongoing
commitment to applying technological innovations to improve its operations and
provide better service to its customers.
In the past decade, information systems, transportation technology and the
growth of intermodalism have allowed Matson to create a transportation network
that can pace the flow of freight effectively to meet customers' precise
distribution needs. Today, Matson provides many of its customers with fully
integrated logistics services that involve the Company in the entire
transportation process, from point of origin to destination. Matson's
centralized Customer Service Center in Los Angeles dramatically simplifies for
customers the task of making arrangements for ocean, truck and rail services,
and for equipment needs.
Matson was distinguished with two honors in 1994 that ranked its Hawaii
service among the best in the industry by logistics professionals. Matson
received a Transportation Quality Award from Traffic Management magazine for the
second straight year, obtaining the highest overall rating for ocean carriers.
This rating was based on results from a national quality survey that asked
readers to rate carriers in five key performance areas: price, on-time
delivery, customer service, damage/claim record and financial stability. Matson
also was named a 1994 Quality Carrier by Distribution magazine, based on
responses from a survey conducted by the publication.
Matson subsidiaries continued to grow in 1994 and benefit from new customer
accounts. Matson's contract stevedoring subsidiary, Matson Terminals, Inc.
(MTI), experienced gains in both earnings and asset utilization in 1994. Matson
Intermodal System, Inc. (MIS) increased its contribution to operating profit,
largely by combining its intermodal services with MTI's stevedoring services to
provide customers with an attractive strategic partner. These customer accounts
represent Matson's increased focus on building strategic alliances with
international carriers by offering a variety of services.
Consistent with this strategy, Matson launched its new Pacific Coast Shuttle
service in July 1994. With the completion of Matson's two-ship "open top"
modification project, the reserve vessel, S.S. Manulani, could be employed in a
service that operates between Los Angeles and the Pacific Northwest ports of
Seattle and Vancouver, British Columbia. The three primary markets the Pacific
Coast Shuttle targets are: feeder service for other ocean carriers under
connecting carrier agreements, domestic cargo moving between California and
Washington, and U.S. foreign commerce (primarily moving between Vancouver, B.C.
and Southern California).
Matson currently has 28 connecting carrier agreements signed. Eleven of these
are with companies that are among the world's largest ocean carriers. Both
transit times and freight rates for the service are competitive with rail and
truck transportation alternatives. At year end, the new service was approaching
break-even.
New labor contracts were signed in 1994 with the unlicensed offshore unions,
Marine Engineers and Beneficial Association, American Radio Association and
Masters, Mates & Pilots. International Longshoremen's and Warehousemen's Union
bargaining-unit agreements in Hawaii also were ratified in 1994.
In 1995, negotiations commence for machinists unions in Northern and Southern
California. Matson feels confident that the upcoming negotiations will result in
a satisfactory outcome and does not anticipate any disruption of service.
Shipping Rates
On November 17, 1994, Matson filed a 3.8-percent general rate increase that
became effective on January 22, 1995, as scheduled. In the ten-year period
ending in 1994, Honolulu's Consumer Price Index has risen 59 percent, the U.S.
CPI has risen 43 percent, while Matson's rates have increased just 21 percent.
Issues, Plans to Address Them
o Maritime Reform Legislation -- Congress adjourned on October 8, 1994
without passage of maritime reform legislation. The proposed maritime
reform bill provided for a new system of subsidy payments for American
ships sailing in international commerce and included specific protections
to ensure that domestic carriers, like Matson, would not be put at a
competitive disadvantage by subsidy recipients. The House passed the
Administration-sponsored bill, but it was never subjected to a vote in the
Senate. It is expected that maritime reform legislation will be
reintroduced in 1995, but identifying an acceptable funding source for the
program will remain a major obstacle to enactment. Matson continues to
support efforts to develop a new, comprehensive maritime policy, and will
remain actively involved in these efforts.
o Competition -- Matson remains the premier carrier in the trade, principally
due to its commitment to customer service. This is evidenced by Matson's
competitive advantages in number of sailings, on-time arrivals, capacity,
variety of container equipment and other unique services.
Operating Profit Outlook
In 1995, Matson expects freight volume to be comparable to 1994. Though
1994's container volume was inflated by a non-recurring surge that resulted from
the Teamster's strike, other factors such as an improving Hawaii economy should
result in Matson performing close to 1994's record highs. Earnings also should
benefit from the continued growth of the Pacific Coast Shuttle service and
improved subsidiary performance due to growth of customer accounts at MTI and
expansion of MIS' business.
[Ocean Transportation section photo captions: (1) C. Bradley Mulholland, Presi-
dent and Chief Executive Officer, Matson Navigation Company, Inc. (2) Opposite
page: Matson's flagship, MV R.J. Pfeiffer, carried record cargo during the April
Teamster's strike. The strike resulted in record or near-record freight volumes
on Matson vessels for nearly six weeks. (3) Matson Intermodal System, Inc. pro-
vides Matson with the most efficient and economical truck and rail services
available. MIS continues to expand its business, particularly with shipping
companies already utilizing other services of Matson or its subsidiaries.
(4) Top & Bottom Left: Matson's Hawaii service is distinguished by the diversi-
fied commodities it carries, ranging from large rolling stock, such as the city
of Honolulu's "The Bus," to eastbound goods, such as the growing market of
floriculture and nursery products. (5) Above: Matson's Pacific Coast Shuttle
service underscores the Company's ongoing focus on seeking ways to improve asset
utilization and to expand its earnings base. The new service required little
capital investment because it utilizes existing personnel, information systems,
West Coast terminals and the former reserve vessel, S.S. Manulani.]
MATSON LEASING
Segment Description
Marine container leasing operations of A&B are conducted by Matson Leasing
Company, Inc. (Matson Leasing), a wholly owned subsidiary of Matson.
Headquartered in San Francisco, Matson Leasing has established itself as one of
the premier marine container lessors in the world since beginning operations in
1989. Matson Leasing has 12 offices in North and South America, Europe, Asia,
and Australia, utilizing 92 depot locations worldwide.
Matson Leasing leases standard, dry cargo twenty-foot and forty-foot steel
containers, the predominant type of containers in use worldwide. At year-end
1994, approximately 112,000 containers were employed by Matson Leasing.
Expressed in twenty-foot equivalent units (TEUs), the fleet numbered
approximately 160,000 TEUs.
Matson Leasing's long-range goal is to be a mid-sized container lessor, which
will allow a balance of economies of scale with flexibility. It has and will
continue to differentiate itself from competitors by providing superior,
technologically-enhanced service and by remaining selective about which
customers and markets to serve. Matson Leasing is one of the industry's most
efficient leasing companies, which is important in the scale-driven container
leasing industry. When coupled with A&B's corporate strengths, Matson Leasing's
reputation for reliability and a service-driven culture make it an attractive
long-term partner for its customers.
Matson Leasing's customers are primarily international ocean carriers. By
year-end 1994, Matson Leasing had long-term and master leases with over 170
companies. Matson Leasing's top-ten customers accounted for approximately 42
percent of the Company's revenue, with no customer representing more than ten
percent of Matson Leasing's revenue.
With lessees frequently searching for alternatives in the container leasing
industry, Matson Leasing seeks to be the lessor of choice. Matson Leasing
provides a highly responsive and consistent service that reinforces its
commitment to be a long-term partner with its customers. Matson Leasing also
offers considerable value by providing additional services, such as management
informationproducts and maintenance cost containment programs that lower its
customers' overall cost of doing business.
Operating Results
In 1994, container leasing operations provided five percent of A&B's revenue
and ten percent of its operating profit. For explanations of year-to-year
changes in results, please refer to Management's Discussion and Analysis
beginning on page 29.
1994 1993 1992
------- -------- -------
(in thousands)
Revenue $64,132 $55,662 $50,468
Operating Profit* 16,604 13,047 12,509
* After interest expense, before corporate expense and income taxes
1994 Progress
Demand for leased containers improved in 1994. Part of this positive shift
was due to the increase in worldwide containerized trade of an estimated eight
percent, compared with just a four percent growth rate between 1992 and 1993.
Containerized trade in 1995 is expected to grow at seven percent, as the world's
major trading economies continue to improve modestly overall.
The upward trend in demand was reflected in Matson Leasing's utilization
rate, which averaged 88 percent in 1994, posting significant gains from 1993's
83 percent. Uncertain market conditions pushed rates lower early in 1994 but, by
year-end, rates had stabilized and demand had strengthened.
Matson Leasing added over 11,000 new containers to its fleet in 1994,
representing over 15,000 TEUs. These acquisitions increased fleet size in 1994
by 11 percent over 1993. A significant fleet expansion program also is planned
for 1995.
In only five years, Matson Leasing has established a worldwide network of
area offices. In 1994, a new office was opened in Rio de Janeiro, Brazil and an
agent was appointed in South Africa. Matson Leasing now has direct
representation in virtually every major trading area in the world.
Matson Leasing continues to develop value-added information systems, which
will provide a platform for improving overall customer service. Since it was
formed in 1989, Matson Leasing has been at the forefront in implementing
Electronic Data Interchange (EDI) for both fleet management and customer service
purposes. Matson Leasing is a founding member of the Concord EDI Group, a trade
association of leasing companies, steamship lines, depot operators, survey
companies and industry- related service providers. The Concord EDI Group's
objective is to provide a forum for the international intermodal transportation
industry to discuss and develop EDI guidelines.
The proprietary Mat-Flex system, introduced in 1993, allows customers to
design the manner in which billing information is displayed, making coordination
with customers' data systems much easier. A new Customer Access system provides
comprehensive information about Matson Leasing containers on lease to customers.
These innovations have helped Matson Leasing further its goal of becoming the
leader in the use of technology to enhance customer service.
Matson Leasing continues to strive to be the most efficient lessor in the
industry by maintaining a highly automated, streamlined organization. In the
container leasing industry, a key measure of efficiency is TEUs per employee.
Matson Leasing continues to outperform its counterparts in this measure, with
only 67 employees at year-end.
Issue, Plans to Address It
o Global Trade Imbalances -- Despite the assumptions of continued reasonable
growth in demand, Matson Leasing and the industry will be challenged to manage
changing global imbalances in trade successfully. A number of economies are
emerging from recessions. The resulting shifts in trade patterns and container
flows require careful inventory management. Japan, for example, is currently
emerging from a recession and expectations are that the container trade
imbalance into Japan will grow.
Operating Profit Outlook
Stronger container leasing fundamentals bode well for Matson Leasing in 1995.
Utilization rates should continue to rise, although moderately. Lease rates also
are expected to rise in 1995, as they traditionally lag increases in
utilization. Similary, fleet expansion planned for 1995 should result in
further gains in Matson Leasing's market share. Mitigating the above positive
factors will be the impact of increased interest rates. Considering all these
factors, Matson Leasing expects modest gains in operating profit in 1995.
[Container Leasing section photo captions: (1) Matson Leasing's reputation in
the international containerized trade has contributed greatly to Matson's
ability to build strategic alliances with international carriers. Blue Star
Line is an example of a carrier that is a customer of Matson Leasing, as well
as of Matson Terminals and Matson Intermodal System. (2) Left: Frederick M.
Gutterson, President and Chief Executive Officer, Matson Leasing Company, Inc.
(3) Right: Matson Leasing's international presence extends to even remote loca-
tions such as Ayutthaya, the capital of ancient Siam. (4) Left: Matson Leasing,
which celebrated its fifth anniversary in 1994, has established itself as one of
the premier container lessors in the world. Matson Leasing containers today are
seen in all major international trading areas, such as Hong Kong.
(5) Right: Matson Leasing's new Customer Access system is the Company's latest
technological innovation to improve customer service. Matson Leasing remains an
industry leader in information systems, particularly in the development of
Electronic Data Interchange (EDI).]
ABHI
The property development and management and the food products operations of
Alexander & Baldwin, Inc. (A&B) are conducted by A&B-Hawaii, Inc. (ABHI). ABHI's
operations extend from the cultivation of sugar cane in the fertile central
valley of Maui to refining and distributing sugar throughout the Western United
States, and from the development of master-planned communities in Hawaii to the
management of prime commercial, light industrial and retail properties on the
Mainland.
ABHI is responsible for the stewardship of some of A&B's most valuable
assets, its extensive landholdings in Hawaii. In all of its property-related
activities, both in Hawaii and elsewhere, A&B strives to be a responsible
steward of the land, employing its landholdings at their highest and best use,
consistent with community needs.
The extent and nature of the Company's landholdings dictate that, for the
foreseeable future, the highest and best use of the vast majority of its land is
for agriculture and conservation. ABHI's own agribusiness operations utilize
47,000 acres of land for sugarcane and coffee cultivation. Because sugar cane
currently is the best crop for a large percentage of the cultivatable land, A&B
is committed to improving the efficiency of those operations.
In 1993, A&B purchased, through ABHI, the portion of California and Hawaiian
Sugar Company, Inc. (C&H) that it did not already own. C&H refines raw cane
sugar in the San Francisco Bay Area and in Hawaii, and distributes industrial
and grocery products throughout the Western United States. This purchase
allowed ABHI to move closer to consumers, with the potential for creating and
capturing additional value for shareholders.
Property Development and Management
Segment Description
The property development and management activities of A&B are conducted by
ABHI and its subsidiary, A&B Properties, Inc. At year-end 1994, A&B owned
approximately 92,900 acres of land, including 68,900 acres on Maui, 21,900 acres
on Kauai, and 2,100 acres elsewhere. An additional 17,900 acres on Maui and
Kauai were leased from others. Approximately 92,100 acres of land owned by A&B
are planted in sugar cane and coffee or employed in other agricultural,
conservation or related uses. Currently, about 810 acres are fully zoned for
urban use. Of the 92,100 acres now zoned for agriculture or conservation, 1,350
acres are designated for urban use, and an estimated 9,800 acres in Hawaii and
1,800 acres on the Mainland have foreseeable development potential.
The combination of the large amount of land that the Company owns and the
location of that land provides A&B the opportunity to serve growing residential,
commercial and industrial markets on Maui and Kauai. Current uses of A&B land
vary from watershed and conservation areas to master-planned communities, and
from shopping malls and traditional residential developments to leased
commercial properties.
Four directional statements guide the activities of A&B Properties:
o Maintain an appropriate, market-oriented pace of entitlements, and related
development activity;
o Provide new sources of recurring income and cash flow through leasing;
o Redevelop existing properties in the Company's portfolio, when appropriate,
to ensure they are maintained at their highest and best use; and
o Develop and maintain a geographically diversified portfolio of commercial,
industrial and residential properties.
Operating Results
In 1994, property development and management operations provided eight
percent of A&B's revenue and 27 percent of its operating profit. For
explanations of year-to-year changes in results, please refer to Management's
Discussion and Analysis beginning on page 29.
1994 1993 1992
------ ------- -------
(in thousands)
Revenue:
Leasing $33,387 $32,606 $30,386
Sales 60,767 32,559 27,529
------- ------- -------
Total $94,154 $65,165 $57,915
======= ======= =======
Operating Profit:*
Leasing $23,163 $22,975 $21,357
Sales 18,522 18,570 16,820
------- ------- -------
Total $41,685 $41,545 $38,177
======= ======= =======
* Before interest expense, corporate expense and income taxes;
after Hurricane loss in 1992
1994 Progress
Entitlements
Work to obtain entitlements for urban use in 1994 focused on: A&B's
Kukui'ula development on Kauai, the proposed master-planned community at Pilot
Hill Ranch in California and the Company's continued participation in the update
of Maui's Community Plans.
In late 1993, a petition was filed for reclassification to urban use of 822
additional acres at Kukui'ula. Public hearings on the petition held by the State
Land Use Commission concluded in early 1995. During these hearings, both the
State of Hawaii and the County of Kauai testified in support of the Kukui'ula
project. A decision by the State Land Use Commission is expected by the end of
April. Should the petition be granted, County-level zoning of approximately 500
of these acres will be pursued. This acreage would be added to the approximately
220 acres for which State and County approvals already have been received, to
comprise the first phase of residential development of Kukui'ula.
Pilot Hill Ranch, an 1,800-acre parcel in El Dorado County, California,
approximately 40 miles northeast of Sacramento, is intended to be developed as a
master-planned residential community. El Dorado County currently is updating its
General Plan. The immediate entitlement objective is to have the project's
proposed land uses designated in the General Plan. The County is expected to act
on the Plan during 1995.
The Company also continues to pursue numerous projects as part of the current
ten-year update of the County of Maui's Community Plans. Community Plans in
Hawaii generally are the first step in the lengthy governmental land-approval
process, and they are intended to create a "blueprint" for planned development
activity over the following decade. A&B is seeking various urban designations
for its undeveloped lands within the four of nine County Plan regions where the
Company's lands are located. It is not yet known, however, which or how many of
these new designations will be approved.
Development
A&B development activity in 1994 centered around the Company's efforts in
Kahului, Maui.
The cornerstone of this activity is the 76-acre first phase of Kahului
Industrial Park, a light industrial/commercial business park ideally located
near Maui's primary airport and harbor. Construction bids have been received
and will be evaluated during the first quarter of 1995. Construction should
commence in mid-1995 and is expected to be completed by year-end 1996. Initial
sales activity will commence in late 1995 or early 1996, with a seven- to ten-
year absorption period for the first phase.
The Company is pursuing exciting retail opportunities in Kahului as well. A
13-acre, A&B-owned site, originally leased to Sam's Club, has been transferred
to PriceCostco, Inc. Costco plans to open a 134,000 square-foot retail facility
in mid-1995. Across the street, construction of the 28,000 square-foot first
phase of a factory outlet center at Triangle Square will be completed in early
1995. Construction of Triangle Square's second phase, comprising five buildings
totaling 80,000 square feet, should commence in mid-1995.
Residential developments on Maui include Kahului Ikena, a 102-unit market-
priced townhouse project in Kahului, and various Maui agricultural lot
subdivisions. Completion of Kahului Ikena should occur in mid-1995. ABHI is
examining whether to market this residential project on a rental basis or as
condominiums. Other residential sales activity in 1995 will come from Haiku
Mauka, a 39-lot agricultural subdivision.
Development activity also continued on the Company's five-lot industrial
subdivision at Port Allen on Kauai. Sales of these lots are expected in 1995.
Sales Activity
Large Parcel and Improved Property Sales
1994 sales included a number of key properties in the Company's development
and leasing portfolios. In November, the Company sold to a sports apparel
retailer, for $17.8 million, a 19.4-acre industrial parcel in Aiea on Oahu, that
it originally acquired from C&H. In December, ABHI sold Crockett Ranch, a large
California parcel also acquired from C&H, to the East (San Francisco) Bay
Regional Park District for $3.2 million. Finally, in December 1994, ABHI sold
Arapahoe Marketplace, a 192,000 square-foot retail shopping center located in
Greenwood Village, Colorado, to an institutional investor for approximately $21
million.
Improved Lot Sales
Also in Kahului, in 1994, ten lots in the Kamehameha Parkway Industrial
Subdivision, encompassing 4.4 acres, were sold for $6.1 million. Three of the
remaining four lots were sold in January 1995.
Subdivision Sales
In 1994, seven lot sales in Haiku Mauka were closed, at an average price of
about $182,000. Six lot sales were made in January 1995, with 24 lots remaining
to be sold.
In addition, the last five lots at Haiku Hill, a 37-lot agricultural
subdivision, were sold early in 1994.
On Kauai, sales activity continued at Eleele Nani II, the Company's mixed use
housing project. In 1994, eight of 17 market-priced lots were sold. In addition,
20 lots were sold to the County of Kauai for inclusion in its affordable housing
program.
Leased Property Portfolio
Hawaii Portfolio
The Hawaii leased property portfolio continued to perform according to
expectations. Occupancy remained high, averaging 92 percent over the course of
the year, despite significant vacancies at Kahului Shopping Center in
anticipation of its planned redevelopment.
Mainland Portfolio
Arapahoe Marketplace was the first property sold since the Company's
significant Mainland property investments were made in 1989-90. During the five
years in which A&B owned Arapahoe, the property's tenant mix was upgraded
significantly. The value created in this process was recognized both through
higher lease rents and a significant profit on the sale of the property.
The Mainland portfolio continued its strong overall performance. Occupancy
averaged 97 percent during the year, reaching an all-time high of 99 percent by
October 1994. Lease rents firmed in practically all markets.
Issues, Plans to Address Them
o Kukui'ula -- The Kauai economy has yet to recover from Hurricane Iniki's
effects. Some major hotels remain closed. Unemployment is in excess of 12
percent. The physical effects of the storm have required revisions to
Kukui'ula's master plan and to the existing zoning for the project's
original 220-acre first phase. The most prudent course of action is to wait
for some signs of economic recovery while completing the rezoning process.
Consequently, construction activity at Kukui'ula will remain suspended
during 1995.
o Replacement of Arapahoe -- Arapahoe Marketplace contributed over 13
percent of Mainland leasing operating profit. Management plans to replace
the property in the portfolio, using a tax-deferred real property exchange.
Potential replacement sites across the Western United States have been
visited, and a number of attractive opportunities have been
identified.Replacement property is expected to be acquired by mid-1995.
Operating Profit Outlook
Property leasing revenue and operating profit are both expected to be
modestly higher in 1995 than in 1994. A portion of the leased property portfolio
will post lower results, due to the sale of Arapahoe Marketplace and the
redevelopment of Kahului Shopping Center. Higher lease rates elsewhere and the
planned opening of Costco and Triangle Square, however, should more than offset
these decreases. Property sales in 1995 are expected to be lower because it will
be difficult to replicate the major sales in the fourth quarter of 1994, given
the current inventory of salable properties.
The importance of 1995 property development and management activities to the
Company's future, however, should not be underestimated. During the year,
important groundwork will be completed for revenue to be generated during the
next ten years. Kahului Industrial Park's initial sales, the Kukui'ula rezoning,
the entitlement of Pilot Hill Ranch and progress on the Maui Community Plans all
represent near-term actions with the potential for creating significant long-
term value.
[Property Development and Management section photo captions: (1) W. Allen Doane,
Executive Vice President and Chief Operating Officer, A&B-Hawaii, Inc.
(2)Opposite page: Although Maui's beauty is known to many who arrive via
Kahului Airport (upper right) to vacation there, the economic heart of the
island is the town of Kahului. A&B land and developments in and around that
area are used for a wide, and growing, variety of agricultural, industrial,
commercial and residential purposes. (3) Property development and sales in
Hawaii during 1994 included construction on Maui of Phase I of a factory outlet
center (left) and sale on Oahu of an old C&H refinery and surrounding land
(right). (4) A&B Properties' Mainland portfolio contributes about half of all
leasing income. The Company's Great Southwest property in the Dallas area (top)
benefited in 1994 from the region's growth as a major distribution center.
Arapahoe Marketplace near Denver (bottom) exemplifies A&B Properties' ability to
add value to an existing asset by upgrading the tenant mix, and then realizing
the added value by selling the property.]
Food Products
Segment Description
ABHI's food products segment includes the agribusiness operations of Hawaiian
Commerical & Sugar Company (HC&S) on Maui and McBryde Sugar Company, Limited
(McBryde) on Kauai, as well as the sugar refining and marketing operations of
C&H. A&B remains the largest sugar producer in Hawaii, producing about 34
percent of the State's total crop in 1994. ABHI's plantations produce raw sugar,
molasses, coffee and salable electric power. C&H, the largest sugar refiner in
the Western United States, supplies about ten percent of the refined sugar
produced in the country to consumer and industrial markets.
A&B remains committed to a healthy and efficient agricultural industry in
Hawaii. The company has adopted a three-part strategy to guide its food products
operations:
o Lay the ground work for long-term operating success at C&H through capital
improvements to the refinery, investments in and extension of the C&H
brand, and examination of marketing opportunities throughout North America,
while taking other initiatives to reduce operating costs and increase
efficiency;
o Invest in Hawaii's sugar industry through the expansion of cultivated
acreage, and improvements in operating technology and agronomy at HC&S; and
o Achieve long-term, large scale diversification of agricultural operations
through the coffee initiative at McBryde.
Operating Results
In 1994, food products operations provided 37 percent of A&B's revenue. The
operating loss in the segment totaled $418,000. For explanations of year-to-year
changes in results, please refer to Management's Discussion and Analysis
beginning on page 29.
1994 1993 1992
------- ------- --------
(in thousands)
Revenue $441,209 $304,007 $104,053
Operating Profit:*
Before Hurricane
Loss (418) 12,692 (2,272)
After Hurricane
Loss (418) 12,692 (26,175)
* Before interest expense, corporate expense and income taxes
1994 Progress
C&H
1994 was a difficult year for C&H. Ineffective administration of sugar price
supports and an excess supply of beet sugar created a challenging operating
environment for the sugarcane refiner. Relatively high raw cane sugar prices
combined with low prices for refined sugar products to destroy normal margins.
During the year, however, a number of initiatives were undertaken which should
lead to short-term improvements in operating results and enhancement of long-
term profitability.
Work began early in the year on the construction, by a third party, of a 240
megawatt cogeneration plant adjacent to the C&H refinery at Crockett,
California. When operational, the plant will use natural gas to produce steam
and electricity. The steam will be used to power the C&H refinery, significantly
reducing energy costs. Construction progressed throughout 1994, and the facility
is expected to begin operations in mid-1996.
C&H's new liquid sugar refinery at Aiea, Oahu started operations in 1994. The
plant supplies liquid sweeteners to industrial customers in Hawaii.
Introduction of this high-tech plant allowed for the closure, and subsequent
sale, of the old C&H refinery and surrounding land, and for substantial cost
savings.
Improvements also were started on C&H's Crockett refinery. Additional
capacity to handle foreign raw sugar was installed, while several packaging
lines are being upgraded to adjust to changing consumer demand. Opportunities
for both geographic expansion and product-line extensions were identified and
pursued in 1994. Aggressive cost-cutting and staff reductions were
accomplished. These and other initiatives will be pursued further in 1995.
Agribusiness
Sugar - Sugar production at HC&S was 12.5 tons sugar per acre (TSA), higher
than the 12.3 TSA attained for the same fields in 1992, but lower than the 13.4
TSA achieved in 1993. In an effort to improve yields further, HC&S is
evaluating its agronomic practices, including a critical review of
fertilization, cultivation and irrigation practices. In addition, planting of
new higher-yielding cane varieties is being accelerated. At McBryde, sugar
operations struggled. An anticipated recovery in yields from the relatively low
levels of the hurricane-damaged 1993 crop did not materialize.
At HC&S, a technologically advanced ultrafiltration plant was developed,
constructed and then initially tested during the latter part of 1994. When fully
operational, this new process should increase sugar recovery at the Puunene mill
by one and one-half percent, increasing production by more than 3,000 tons. A
second phase, which could quadruple the increase, currently is being evaluated.
The Puunene mill is the larger and more modern of two mills at HC&S, and
processes about two-thirds of the cane grown on the plantation.
In December, an agreement was reached to lease 1,300 additional acres of
land. Cultivation of about 500 of these acres in sugar cane will begin
immediately, with the first harvest expected for late 1996. This and subsequent
plantings eventually will add over 7,000 tons to HC&S' production, further
reducing unit costs.
Coffee - While progress was made on several fronts in coffee operations at
McBryde, the overall results of the year reflected the developmental nature of
the coffee crop. The amount of green coffee produced was significantly higher,
and the quality of the crop improved, but per-acre recovery rates remained
relatively low. The launch of a roasted and packaged product in Hawaii was
successful. The Company is marketing the remainder of the crop on the Mainland
and in Japan in whole bean form. The larger crop and better quality have
attracted buyers' interest. Production is expected nearly to double during the
1995 season.
Agribusiness operating statistics for the past three years were:
1994 1993 1992
---------- ------- -------
Raw sugar produced (tons) 223,000 240,000 216,000
Molasses produced (tons) 67,000 68,000 57,000
Electricity sold
(megawatt hours) 122,000 118,000 114,000
Green coffee produced
(pounds) 1,365,000 550,000 450,000
Cultivated acreage:
Sugar 43,000 43,000 43,000
Coffee 4,000 4,300 4,850
Issues, Plans to Address Them
o Farm Bill -- An effective domestic sugar program must ensure a fair price
to consumers and fair returns to producers. A&B is working with sweetener
industry groups to ensure that such a program is included in the upcoming
renewal of U.S. agricultural programs.
o Labor Contract Renegotiations -- On January 31, the collective bargaining
agreement between the Hawaii sugar growers and the International Longshore-
men's and Warehousemen's Union (ILWU) Local 142 expired. In addition, C&H's
agreements with the Sugar Workers Union and the ILWU expire on May 31,
1995. The uncertain market outlook and the currently weak financial
situation of the businesses that make up the food products seg-ment,
combined with less than robust economies in both Hawaii and California, all
point to a difficult negotiating environment.
o McBryde Operations -- On Kauai, the McBryde plantation continues to
struggle. Sugar operations at this plantation are hindered by their small
size and historically poor yields, while coffee has yet to prove its
potential. During 1994, a number of operating alternatives for McBryde were
being evaluated to improve the plantation's outlook. This work continues in
1995.
Operating Profit Outlook
It appears that 1995 will be another year which presents a challenging
operating environment for the food products segment. At C&H, short-term margin
pressure, which subsided only slightly with the implementation of marketing
allotments by the U.S. Department of Agriculture in late 1994, is expected to
continue. While HC&S is taking steps to remain cost competitive, McBryde's
future success undoubtably will require significant changes in its operations.
The challenges posed by currently unfavorable market conditions, labor
negotiations and reconsideration of the farm bill could make 1995 another
difficult year for ABHI's food products operations.
[Food Products section photo captions: (1) Top: HC&S' technologically advanced
ultrafiltration plant utilizes a new process that will increase sugar recovery
and, concurrently, increase the quality of sugar produced. (2) Bottom: Infor-
mation systems improve the efficiency of C&H's refinery operations at Crockett.
In the pan control room, all functions are monitored centrally. (3) Top: C&H's
Crockett sugar refinery is ideally located for distribution purposes, as it is
part of a deep water port, and next to a major rail line and an interstate high-
way. (4) Bottom: David G. Koncelik, President and Chief Executive Officer,
California and Hawaii Sugar Company, Inc. and Jon A. Wolthuis, Vice President,
Refinery Operations, at C&H's Crockett facility, where a new 240 megawatt
cogeneration plant is under construction. Steam from the new plant will reduce
significantly C&H's energy costs. (5) A display of ABHI's food products (top)
includes C&H refined sugar, Kauai Coffee and Maui brand washed raw sugar. Pack-
aging (bottom) of ABHI's newest food product, Kauai Coffee, which was marketed
for the first time during 1994.]
General Information
[Photo caption: A&B's Board of Directors (clockwise) John C. Couch, Maryanna G.
Shaw, Walter A. Dods Jr., Carson R. McKissick, Charles M. Stockholm, Charles G.
King, Alexander C. Waterhouse, Michael J. Chun, Leo E. Denlea Jr., Robert G.
Reed III, C. Bradley Mulholland, R. J. Pfeiffer.]
Board of Directors
Members of the current Board of Directors, including one advisory director,
beneficially own approximately ten percent of A&B shares.
At the Annual Meeting of Shareholders on April 28, 1994, shareholders elected
a total of 11 directors, all of whom were nominated by the Board. Re-elected
were Michael J. Chun, John C. Couch, Leo E. Denlea Jr., Walter A. Dods Jr.,
Charles G. King, Carson R. McKissick, C. Bradley Mulholland, R.J. Pfeiffer,
Robert G. Reed III, Maryanna G. Shaw and Charles M. Stockholm. Alexander C.
Waterhouse serves as an advisory director at the pleasure of the Board.
Management, Organization
Frederick M. Gutterson, vice president of Matson, became senior vice
president of Matson on April 28, 1994. He remains president and chief executive
officer of Matson Leasing Company, Inc.
Joseph G. LeClair, senior vice president of Matson, retired, effective August
1, 1994.
Norbert M. Buelsing was named vice president, property management, of ABHI,
effective August 25, 1994.
Branton B. Dreyfus was named vice president and area manager, Southern
California, of Matson, effective December 15, 1994.
Alyson J. Nakamura became secretary of ABHI, on June 22, 1994.
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 85,594 shares a day
in 1994, compared with 99,569 shares a day in 1993 and 94,461 in 1992.
Currently, 15 firms make a market in ALEX.
High and low sales prices per share, by quarter, for 1994 and 1993 were:
Quarter 1994 1993
------- ----------------- -----------------
First $ 28 1/4 - 24 5/8 $ 24 3/4 - 22 1/2
Second 26 1/4 - 23 3/4 28 - 23 3/4
Third 26 3/4 - 24 3/4 27 1/4 - 23
Fourth 26 - 21 1/4 26 3/4 - 23
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 quarterly dividend rate last was increased in the second quarter of
1990, from 20 cents a share to 22 cents.
Credit Ratings
As discussed in Note 6 to the financial statements, Matson has outstanding
commercial paper notes and revenue bonds aggregating approximately $239 million.
The issues are rated by the major credit rating agencies. The long-term bonds
are rated A+ by Standard & Poor's, and the commercial paper notes are rated A-
1/P-1/D-1 by Standard & Poor's, Moody's, and Duff & Phelps, respectively.
C&H has outstanding commercial paper aggregating approximately $72 million.
The commercial paper notes are rated A-1/P-2 by Standard & Poor's and Moody's,
respectively.
[Graphs: (1) "Year-End Stock Price Plus Dividends Per Share," 1984 through 1994,
data included in the "Eleven-Year Summary of Selected Financial Data."
(2) "Stock Price Range by Quarter," 1993 and 1994 data shown above.]
Quarterly Results (Unaudited)
Segment results by quarter for 1994 and 1993 are listed below
(in thousands, except per-share amounts)
1994 1993
--------------------------------------- -------------------------------------
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr. 2nd Qtr. 1st Qtr.
------- ------- ------- ------- ------- -------- -------- --------
Revenue:
Ocean transportation $154,318 $154,542 $159,403 $136,491 $142,627 $137,915 $139,255 $131,890
Container leasing 17,623 16,430 15,466 14,613 14,862 13,977 13,488 13,335
Property development
& management:
Leasing 8,322 8,298 8,315 8,452 7,989 8,198 8,118 8,301
Sales 45,940 2,136 4,082 8,609 11,072 1,772 7,612 12,103
Food products 133,569 118,983 103,209 85,448 120,315 120,188 43,470 20,034
Other 1,748 697 666 805 772 707 715 751
------- ------- ------- ------- ------- ------- ------- -------
Total revenue $361,520 $301,086 $291,141 $254,418 $297,637 $282,757 $212,658 $186,414
======= ======= ======= ======= ======= ======= ======= =======
Operating Profit:
Ocean transportation $23,322 $22,114 $29,591 $22,292 $22,795 $21,317 $24,858 $22,224
Container leasing 4,719 4,478 4,294 3,113 3,686 3,276 3,070 3,015
Property development
& management:
Leasing 5,382 5,709 5,896 6,176 4,974 5,999 5,897 6,105
Sales 9,115 748 3,124 5,535 8,458 12 2,940 7,160
Food products 1,036 (1,404) 14 (64) 7,606 4,973 1,073 (960)
Other 1,146 636 733 628 583 420 611 743
------- ------- ------- ------- ------- ------- ------- -------
Total operating profit 44,720 32,281 43,652 37,680 48,102 35,997 38,449 38,287
Interest expense 7,300 6,457 7,102 6,843 9,203 6,699 6,742 6,158
General corporate expenses 3,941 4,653 4,143 4,659 5,220 4,526 4,685 4,433
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 33,479 21,171 32,407 26,178 33,679 24,772 27,022 27,696
Income taxes 10,528 7,359 11,473 9,267 9,958 16,910 9,661 9,651
------- ------- ------- ------- ------- ------- ------- -------
Net income $22,951 $13,812 $20,934 $16,911 $23,721 $7,862 $17,361 $18,045
======= ======= ======= ======= ======= ======= ======= =======
Earnings per share $0.50 $0.30 $0.45 $0.37 $0.52 $0.17 $0.37 $0.39
======= ======= ======= ======= ======= ======= ======= =======
FINANCIAL REPORT
25 Independent Auditors' Report
26 Eleven-Year Summary of Selected Financial Data
28 Industry Segment Information
29 Management's Discussion and Analysis
32 Statements of Income
33 Statements of Cash Flows
34 Balance Sheets
36 Statements of Shareholders' Equity
37 Notes to Financial Statements
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, 1994 and 1993, and the related statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1994 (pages 28 and 32 to 43). 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, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 4 to the financial statements, in 1994 the Company changed
its method of accounting for investments to conform with Statement of Financial
Accounting Standards No. 115.
As discussed in Note 2 to the financial statements, in 1992 the Company changed
its method of accounting for postretirement benefits other than pensions to
conform with Statement of Financial Accounting Standards No. 106.
DELOITTE & TOUCHE LLP
Honolulu, Hawaii
January 27, 1995
Eleven-Year Summary of Selected Financial Data
(Dollars and shares in thousands except per-share amounts)
Alexander & Baldwin, Inc. and Subsidiaries
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
---------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Annual Operations:
Net sales and other
operating revenue $1,208,165 $979,466 $754,416 $748,454 $757,960 $846,318 $701,908 $655,276 $536,668 $506,311 $485,964
Deduct:
Cost of goods sold
and operating
expenses 1,067,228 837,495 621,552 590,867 561,979 513,434 495,234 470,928 409,563 399,362 388,959
Interest expense 27,702 28,802 23,881 24,575 29,602 26,965 27,406 21,104 16,042 18,453 21,449
Hurricane loss 24,803
Income taxes 38,627 46,180 23,675 44,206 58,412 107,218 61,535 62,167 575 37,051 31,926
---------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
continuing
operations 74,608 66,989 60,505 88,806 107,967 198,701 117,733 101,077 110,488 51,445 43,630
Cumulative effect
of change in
accounting principle (41,551)
---------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income $74,608 $66,989 $18,954 $88,806 $107,967 $198,701 $117,733 $101,077 $110,488 $51,445 $43,630
========== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Earnings per share:
Income from
continuing operations $1.62 $1.45 $1.31 $1.92 $2.34 $4.29 $2.35 $1.93 $1.97 $0.92 $0.79
Cumulative effect of
change in accounting
principle (0.90)
---------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income $1.62 $1.45 $0.41 $1.92 $2.34 $4.29 $2.35 $1.93 $1.97 $0.92 $0.79
========== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Return on beginning
equity 12.7% 12.0% 3.30% 16.70% 23.50% 45.20% 31.70% 21.40% 27.90% 13.90% 12.60%
Cash dividends per
share $0.88 $0.88 $0.88 $0.88 $0.86 $0.80 $0.77 $0.68 $0.66 $0.47 $0.40
Average number of
shares outstanding 46,059 46,338 46,294 46,213 46,133 46,326 50,079 52,444 55,990 55,750 55,561
Gross profit
percentage 22.2% 25.6% 29.8% 32.4% 36.0% 48.5% 38.8% 37.2% 35.2% 33.3% 31.1%
Effective income
tax rate 34.1% 40.8% 28.1% 33.2% 35.1% 35.0% 34.3% 38.1% 0.5% 41.9% 42.3%
Market price range
per share:
High $28.250 $28.000 $30.500 $29.500 $38.000 $39.500 $36.750 $32.000 $24.500 $14.750 $13.125
Low 21.250 22.500 21.500 21.000 19.000 31.250 20.875 16.000 14.000 10.875 8.125
Close 22.250 26.750 24.750 28.250 22.250 37.500 31.500 21.625 22.500 14.250 11.917
At Year End:
Shareholders of
record 6,729 7,056 7,507 7,749 7,860 7,650 7,201 6,859 6,749 6,662 6,731
Shares outstanding 45,691 46,404 46,333 46,229 46,201 46,096 50,099 50,347 56,095 55,789 55,618
Shareholders' equity $632,614 $587,006 $559,099 $578,669 $530,298 $459,712 $439,729 $371,007 $473,283 $396,718 $370,225
Per share 13.85 12.65 12.07 12.52 11.48 9.97 8.78 7.37 8.44 7.11 6.66
Total assets 1,932,788 1,912,375 1,685,928 1,554,959 1,371,170 1,142,143 1,070,483 981,737 934,032 863,836 786,569
Working capital 71,716 72,713 45,907 26,031 51,626 34,460 35,974 42,262 67,533 87,418 86,908
Cash and cash
equivalents 9,557 32,691 21,118 18,888 47,460 23,556 22,794 26,695 34,507 56,121 65,396
Property-net 1,281,546 1,326,936 1,173,709 1,072,753 891,503 711,872 548,066 520,124 489,076 480,345 465,615
Real estate devel-
opments-noncurrent 66,371 54,919 50,977 36,362 14,156
Long-term debt-
noncurrent 526,231 582,473 555,497 457,257 320,271 200,816 178,019 174,759 96,698 99,606 102,001
Capital lease
obligations-
noncurrent 35,274 44,495 59,816 69,717 86,392 95,241 100,306 106,935 90,818 96,337 81,049
Current ratio 1.4 to 1 1.3 to 1 1.4 to 1 1.2 to 1 1.4 to 1 1.4 to 1 1.4 to 1 1.5 to 1 1.9 to 1 2.3 to 1 2.1 to 1
Capital stock
price/earnings
ratio at
December 31 13.7 to 1 18.5 to 1 60.4 to 1 14.7 to 1 9.5 to 1 8.7 to 1 13.4 to 1 11.2 to 1 11.4 to 1 15.5 to 1 15.0 to 1
All share and per-share amounts reflect the stock
splits of 2-for-1 in 1988, 3-for-2 in 1986
and 2-for-1 in 1984.
INDUSTRY SEGMENT INFORMATION
(In thousands)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
1994 1993 1992 1991 1990
---------- ---------- ---------- --------- ----------
REVENUE:
Ocean transportation $ 604,754 $ 551,687 $ 537,669 $ 550,423 $ 543,137
Container leasing 64,132 55,662 50,468 32,470 10,410
Property development
and management:
Leasing 33,387 32,606 30,386 27,702 24,077
Sales 60,767 32,559 27,529 24,634 57,900
Food products 441,209 304,007 104,053 110,947 119,777
Other 3,916 2,945 4,311 2,278 2,659
---------- ---------- ---------- --------- ----------
Total revenue $1,208,165 $ 979,466 $ 754,416 $ 748,454 $ 757,960
========== ========== ========== ========== ==========
OPERATING PROFIT:
Ocean transportation $ 97,319 $ 91,194 $ 97,195 $ 109,792 $ 124,408
---------- ---------- ---------- ---------- ----------
Container leasing 16,604 13,047 12,509 6,708 667
---------- ---------- ---------- ---------- ----------
Property development
and management:
Leasing 23,163 22,975 21,357 19,953 15,387
Sales 18,522 18,570 17,720 20,852 51,969
Hurricane loss - - (900) - -
---------- ---------- ---------- ---------- ----------
41,685 41,545 38,177 40,805 67,356
---------- ---------- ---------- ---------- ----------
Food products:
Before Hurricane loss (418) 12,692 (2,272) 16,123 18,473
Hurricane loss - - (23,903) - -
---------- ---------- ---------- ---------- ----------
(418) 12,692 (26,175) 16,123 18,473
---------- ---------- ---------- ---------- ----------
Other 3,143 2,357 4,263 1,957 2,884
---------- ---------- ---------- ---------- ----------
Total operating
profit 158,333 160,835 125,969 175,385 213,788
Interest expense (27,702) (28,802) (23,881) (24,575) (29,602)
General corporate
expenses (17,396) (18,864) (17,908) (17,798) (17,807)
---------- ---------- ---------- ---------- ----------
Income before
income taxes $ 113,235 $ 113,169 $ 84,180 $ 133,012 $ 166,379
========== ========== ========== ========== ==========
IDENTIFIABLE ASSETS:
Ocean transportation $ 850,487 $ 880,110 $ 958,419 $ 944,092 $ 879,900
Container leasing 324,149 305,866 295,348 197,400 94,945
Property development
and management 271,073 268,581 258,653 234,955 211,962
Food products 399,717 418,724 135,071 146,925 144,607
Other 87,362 39,094 38,437 31,587 39,756
---------- ---------- ---------- ---------- ----------
Total assets $1,932,788 $1,912,375 $1,685,928 $1,554,959 $1,371,170
========== ========== ========== ========== ==========
CAPITAL EXPENDITURES:
Ocean transportation $ 29,676 $ 53,745 $ 64,333 $ 141,157 $ 102,357
Container leasing 33,932 28,913 111,002 107,678 73,911
Property development
and management 21,193 34,772 37,819 34,728 73,397
Food products 18,665 26,637 8,589 17,496 11,162
DEPRECIATION AND AMORTIZATION:
Ocean transportation $ 55,663 $ 55,738 $ 52,829 $ 51,381 $ 44,887
Container leasing 21,113 19,432 15,601 8,730 2,976
Property development
and management 5,246 4,860 4,523 4,338 4,305
Food products 21,340 15,974 10,665 10,716 10,297
MANAGEMENT'S DISCUSSION AND ANALYSIS
Alexander & Baldwin, Inc. and Subsidiaries
RESULTS OF OPERATIONS
CONSOLIDATED EARNINGS
Net income for 1994 was $74,608,000, or $1.62 per share. Net income for
1993 was $66,989,000, or $1.45 per share, after recording the effect of a
Federal tax rate change that increased the 1993 income tax expense by
$8,827,000. In 1994, improved results for ocean transportation, container
leasing and property leasing were offset by lower results for food products.
Operating profit from property sales was virtually unchanged.
Amounts for 1994 include the results of California and Hawaiian Sugar
Company (C&H), for the entire year. 1993 amounts include the results of C&H
subsequent to its acquisition in June 1993.
1994 COMPARED WITH 1993
OCEAN TRANSPORTATION revenue increased ten percent in 1994 compared with 1993,
primarily due to increased cargo (a portion of which was the result of a
competitor's labor strike), higher rates and new customers served by Matson
Navigation Company's (Matson) stevedoring and intermodal subsidiaries.
Operating profit rose seven percent as a result of increased revenue, partially
offset by higher fuel costs and costs associated with the start-up of Matson's
new Pacific Coast Shuttle service. Hawaii container volume and automobile
carriage increased four and seven percent, respectively, from 1993 levels.
CONTAINER LEASING revenue rose 15 percent and operating profit increased 27
percent, due to larger container inventories, improved utilization levels and a
stabilizing of lease rates. Fleet size increased to 160,000 twenty-foot
equivalent units (TEUs) at the end of 1994, from 145,000 TEUs at the end of
December 1993. The 1994 average utilization was 88 percent, versus 83 percent
in 1993.
PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue and operating profit
increased slightly. In 1994, the occupancy rates for the U. S. mainland
property and Hawaii property portfolios averaged 97 percent and 92 percent,
respectively. In comparison, 1993 occupancy rates for the U. S. mainland
property and Hawaii property portfolios averaged 93 percent and 94 percent,
respectively. Hawaii property occupancy levels declined primarily because of
vacancies to permit the redevelopment of certain properties and the availability
of additional competitive space. Overall, the leased-property portfolios
continued to benefit from high occupancy levels and favorable lease rates.
PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue of $60,767,000 during the
year was nearly double 1993's revenue of $32,559,000. Due to the mix of
properties sold, however, operating profit remained virtually the same. Sales
in 1994 included a Mainland shopping center, five developed industrial lots, one
large industrial site acquired in connection with the C&H acquisition, four
undeveloped parcels, and 40 residential lots. In 1993 sales included one
developed industrial lot, four undeveloped parcels and 101 residential lots.
FOOD PRODUCTS revenue increased 45 percent, primarily due to the full-year
effect of the acquisition of C&H. The operating loss in 1994 of $418,000
represents a decline from 1993's operating profit of $12,692,000. The decrease
was due to poorer plantation yields, higher raw sugar costs and lower selling
prices for refined sugar.
Early in the fourth quarter of 1994, the U. S. Department of Agriculture
adjusted the quota for imports of foreign raw cane sugar into the U. S. and also
imposed domestic marketing allotments. These actions were intended to provide a
more stable supply of both refined sugar products and raw sugar available for
processors. As the effects of these actions began to be reflected in the
marketplace, refiner margins improved modestly. Unfortunately, raw cane sugar
prices again have risen in early 1995 and expanded beet sugar production
continues to put pressure on refiner margins. The inequities among different
segments of the domestic sweetener industry, caused by the current sugar
legislation, are an issue that will be of central concern during debate on
renewal of domestic agricultural programs in this session of Congress.
OTHER operating profit increased 33 percent, due to the gain from the sale of a
corporate aircraft in 1994.
1993 COMPARED WITH 1992
OCEAN TRANSPORTATION revenue increased three percent in 1993 compared with 1992,
due principally to a 3.5-percent general rate increase in early 1993. Total
freight volume declined slightly in 1993 compared with the 1992 volume,
primarily reflecting fewer eastbound shipments.
1993 operating profit fell six percent from 1992, due to lower interest
income and increased labor and depreciation expenses, partially offset by
freight revenue gains.
CONTAINER LEASING revenue increased ten percent and operating profit increased
four percent in 1993 compared with 1992. The revenue increase was due to the
increased container units in service, partially offset by lower utilization and
lease rental rates. At December 31, 1993, 145,000 TEUs were in service,
compared with 133,000 TEUs a year earlier.
Expenses increased 12 percent in 1993 compared with 1992, due to increased
interest, depreciation and container repositioning and storage expenses, as well
as costs associated with the opening of new depots and offices.
PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue increased seven percent
and operating profit increased eight percent in 1993 compared with 1992,
reflecting increased occupancy and rents.
PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue increased 18 percent in 1993
compared with 1992, but operating profit increased only five percent compared
with the pre-Hurricane results of 1992. The increased revenue was due
principally to sales of 101 residential subdivision units for $13,402,000 in
1993, compared with sales of 50 units in 1992 for $8,714,000. Most of the 1993
sales were lower-margin affordable units. In 1993, the Company had higher-margin
large-parcel sales totaling $19,157,000, compared with $18,815,000 in 1992.
FOOD PRODUCTS revenue increased from approximately $104 million in 1992 to $304
million in 1993, reflecting the addition of C&H for nearly seven months in 1993.
Operating profit was $12,692,000 for 1993 compared with a pre-Hurricane
operating loss of $2,272,000 in 1992. This improvement in operating profit was
due primarily to the inclusion of C&H in operating results and to a lower cost
per ton of sugar at A&B's sugar plantations. Favorable plantation yields,
operating efficiencies and cost reduction initiatives contributed to the lower
cost per ton.
OTHER income and operating profit for 1993 declined from 1992 and returned to
1991 levels, due to the gain from a sale, in 1992, of a corporate aircraft.
Investment income increased slightly.
FOURTH-QUARTER RESULTS - 1994 COMPARED WITH 1993
A&B reported fourth-quarter net income of $22,951,000, or $0.50 per share,
versus $23,721,000, or $0.52 per share in 1993. Revenue for the fourth quarter
of 1994 was $361,520,000, compared with $297,637,000 a year earlier.
For the fourth quarter of 1994, consolidated operating profit of
$44,720,000 was seven percent less than in the comparable period of 1993.
Higher results for ocean transportation, container leasing, property sales and
property leasing were more than offset by lower results for food products.
OCEAN TRANSPORTATION revenue and operating profit increased eight and two
percent, respectively, compared with 1993 fourth quarter levels. These
increases were due primarily to higher eastbound Hawaii cargo volume, favorable
pension expenses and the benefits of the new customers served by Matson's
stevedoring and intermodal subsidiaries, partially offset by higher fuel costs,
the costs of an early retirement program, vessel repairs and costs associated
with operations of the Pacific Coast Shuttle. Fourth-quarter 1994 total Hawaii
container volume rose two percent and total Hawaii automobile volume rose 25
percent.
CONTAINER LEASING revenue rose 19 percent compared with the fourth quarter of
1993. Operating profit rose a strong 28 percent. These increases were the
results of the same factors that resulted in an increase based on year-to-year
comparisons. An average utilization rate of more than 89 percent in the fourth
quarter of 1994 compared favorably with 85 percent in the year-earlier period.
PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue and operating profit
increased four and eight percent, respectively, compared with 1993 fourth
quarter levels. Overall, the leased-property portfolio continues to benefit
from high occupancy levels and favorable lease rates. Hawaii occupancy rates
were affected adversely by the planned relocation of tenants from an older
shopping center in Kahului, Maui that is being prepared for redevelopment.
PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue was $45,940,000, versus
$11,072,000 in the 1993 fourth quarter. Operating profit from property sales
was $9,115,000, eight-percent higher than in the fourth quarter of 1993. Sales
in the fourth quarter of 1994 included a Mainland shopping center, two former
C&H properties (an industrial site on Oahu and 1,320 acres of undeveloped land
in California) and eight residential lots.
FOOD PRODUCTS revenue increased 11 percent from 1993 levels. Operating profit,
however, decreased to $1,036,000 from $7,606,000 in the 1993 fourth quarter, due
primarily to lower selling prices for refined sugar.
FINANCIAL CONDITION AND LIQUIDITY
Principal liquid resources, which consist of cash and cash equivalents,
trade receivables, sugar inventories and unused lines of credit, less
outstanding commercial paper guaranteed by lines of credit and accrued deposits
to the Capital Construction Fund (CCF), totaled $442,382,000 at December 31,
1994, compared with $371,370,000 at December 31, 1993, an increase of
$71,012,000 (19 percent). An $89,732,000 increase in unused lines of credit was
partially offset by a $23,134,000 decrease in cash and cash equivalents. The
increase in available lines of credit resulted from the combination of the
establishment of new revolving credit facilities as well as decreased borrowings
from existing credit facilities.
Working capital of $71,716,000 at December 31, 1994 remained relatively
stable, compared with working capital at December 31, 1993 of $72,713,000, a
decrease of $997,000, or approximately one percent. The Company's current ratio
of 1.4:1 was virtually unchanged from 1.3:1 at year-end 1993.
In 1994, the Company repurchased 722,500 shares for $17,717,000. Selective
purchases are expected to continue as funds are available and attractive
purchase opportunities arise. These purchases are being made in accordance with
a program to purchase up to two million shares of the Company's stock in 1994
and 1995, which was approved by the Board of Directors in December 1993.
Net cash provided by operating activities, before all capital expenditures,
in 1994 was $193,578,000, representing a $1,002,000 decrease from 1993 levels.
The decrease was the result of liquidating an unusually high level of sugar
inventory at the time of the acquisition of C&H and income taxes, partially
offset by proceeds from real estate sales. In 1994, operating cash flows were
used principally for capital expenditures, payments of long-term borrowings,
payment of regular quarterly dividends and the previously noted stock
repurchases. In 1993, operating cash flows were used in a similar pattern,
except that there were no repurchases of stock and capital expenditures were
significantly higher. In addition, withdrawals in 1993 of $87,495,000 from the
CCF were used to prepay long-term debt, purchase a previously leased vessel and
make payments toward the reconstruction of vessels.
During 1995, internal cash flows are expected to be sufficient to finance
working capital needs, dividends, capital expenditures and debt service. The
Company maintains numerous bank credit lines and also can issue additional
commercial paper.
CAPITAL EXPENDITURES
In 1994, capital expenditures were $102,183,000, compared with $154,167,000
in 1993. The decrease was primarily due to reduced expenditures for vessel
life-extension work and open top vessel conversions. Capital expenditures
approved, but not yet spent, at December 31, 1994 were $104,677,000. Ocean
transportation capital expenditures in 1994 of $29,676,000 were for vessel life-
extension work and open top conversions of selected vessels, as well as for
computer systems. Container leasing capital expenditures in 1994 of $33,932,000
primarily resulted from the addition of containers. Property development and
management capital expenditures in 1994 of $21,193,000 were the result of
various ongoing commercial and residential developments. Food products
capital expenditures in 1994 of $18,665,000 were primarily for the continuation
of the Company's liquid sugar refinery, coffee project, and for the cane juice
ultrafiltration and softening project.
ENVIRONMENTAL MATTERS
As with most industrial and land-development companies of our size, A&B'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
takes a proactive role in identifying potential environmental concerns. The
Company currently is involved in two proceedings related to environmental
matters that are described in its Forms 10-K for 1993 and 1994. While it is not
feasible to predict or determine the ultimate outcome of these proceedings,
management does not believe that they ultimately would result in a materially
adverse effect on the Company's financial position, results of operations,
liquidity or capital resources. Management believes that appropriate
liabilities have been accrued for these matters.
OUTLOOK FOR 1995
Earnings are expected to remain stable in 1995, compared with 1994, and
operating cash flow is expected to increase modestly. The important tourism
component of the Hawaii economy has recovered steadily since the start of 1994,
although the impact from recent international events could impact this recovery
in 1995 adversely. Although the construction industry still has not reversed
the steady decline since its cyclical peak in 1991, the Federal government has
announced plans for additional construction in Hawaii in 1995 and 1996.
The ocean transportation segment is well-positioned to take advantage of a
strengthening Hawaii economy and to benefit from significant operating leverage
available in the Hawaii freight system. Improved organizational efficiency
being gained through technology should help improve profitability and
implementation of the Pacific Coast Shuttle service should contribute to growth
in 1995.
The container leasing segment will benefit from strengthening international
economic conditions. It should maintain the higher utilization levels achieved
in the fourth quarter of 1994, while marketing new fleet units and benefiting
from firming lease rates.
The property leasing segment will continue to encounter competitive
pressures in most markets. The leasing segment should benefit, however. from
its diversified portfolio, as lease rates in Mainland markets continue to
recover. The property development segment will focus primarily on the
entitlement phase of various long-term projects. Proceeds from the 1994 sale of
a Mainland property are expected to be reinvested, on a tax-deferred basis, in
other Mainland properties in markets with strong underlying economic
fundamentals to support future growth. Other property sales will be evaluated
to maximize the Company's return on capital invested.
For food products, which currently is the Company's weakest operating
segment, the focus will be on improving the basic business operations, working
to influence new agricultural legislation, enhancing margins and seeking new
sources of earnings. Also, key labor contracts for plantation and sugar
refinery workers expire in January and May 1995, respectively. The segment's
challenges pertain both to concluding these separate negotiations without work
stoppages and attaining cost-savings, productivity and efficiency goals.
Improved coffee yields and margins, as well as expanded coffee marketing
efforts, should help improve results.
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 accounting control systems and related policies
and procedures designed to provide reasonable assurance that assets are
safeguarded, 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
accounting 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 accounting
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 (see Independent
Auditors' Report on page 25).
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 the work performed by them in
discharging their respective responsibilities and to assure their independent
and free access to the Committee.
/s/ R. J. Pfeiffer /s/ John C. Couch
------------------------ ------------------------
R. J. Pfeiffer John C. Couch
Chairman of the Board President and
Chief Executive
Officer
STATEMENTS OF INCOME
(In thousands except per-share amounts)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Year Ended December 31, 1994 1993 1992
-------------------------------------------------------------------
REVENUE:
Net sales, food products $ 427,524 $ 281,816 $ 95,818
Net sales, property
development and other 59,412 43,764 27,526
Transportation and
terminal services 536,510 500,986 484,532
Rentals and other services 161,764 135,394 122,016
Gain on sale of property
and other 8,486 4,362 4,801
Interest 11,678 10,487 17,241
Dividends 2,791 2,657 2,482
---------- --------- --------
Total revenue 1,208,165 979,466 754,416
---------- --------- --------
COSTS AND EXPENSES:
Cost of goods sold 422,444 267,730 108,094
Cost of services 517,322 461,136 421,675
Selling, general
and administrative 127,462 108,629 91,783
Interest 31,427 31,382 31,643
Interest capitalized (3,725) (2,580) (7,762)
Hurricane loss - - 24,803
---------- --------- --------
Total costs and expenses 1,094,930 866,297 670,236
---------- --------- --------
Income Before Income Taxes
and Cumulative
Effect of Change in Accounting
for Post-retirement Benefits 113,235 113,169 84,180
Income Taxes 38,627 46,180 23,675
---------- --------- --------
Income Before Cumulative Effect
of Change in Accounting for
Post-retirement Benefits 74,608 66,989 60,505
Cumulative Effect of Change in
Accounting for Post-retirement
Benefits (net of income taxes
of $23,734) - - (41,551)
---------- --------- --------
Net Income $ 74,608 $ 66,989 $ 18,954
========== ========= =========
EARNINGS PER SHARE OF COMMON STOCK:
Income Before Cumulative Effect
of Change in Accounting for
Post-retirement Benefits $ 1.62 $ 1.45 $ 1.31
Cumulative Effect of Change in
Accounting for Post-retirement
Benefits - - (0.90)
---------- --------- ---------
Net Income $ 1.62 $ 1.45 $ 0.41
========== ========= =========
Average Common Shares Outstanding 46,059 46,338 46,294
---------- --------- ---------
See notes to financial statements.
STATEMENTS OF CASH FLOWS (In thousands)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Year Ended December 31, 1994 1993 1992
---------------------------------------------------------------------
CASH FLOWS FROM OPERATIONS:
Net income $ 74,608 $ 66,989 $ 18,954
Adjustments to reconcile net
income to net cash provided by
operations:
Depreciation 105,150 97,750 85,370
Hurricane loss - - 24,803
Post-retirement benefits - - 41,551
Equity in undistributed loss
of affiliate - 291 988
Gain on disposal of property,
investments and
other assets (5,847) (701) (2,318)
Changes in assets and
liabilities:
Accounts and notes
receivable (5,478) (7,250) (4,477)
Sugar inventory 1,331 21,918 4,245
Other inventories (220) (7,422) (967)
Prepaid expenses and
other assets 21,404 9,978 7,172
Accounts payable (3,623) (4,985) (457)
Income taxes payable (6,210) 13 (8,455)
Deferred income taxes
payable 23,178 30,738 13,332
Other liabilities (10,715) (12,739) 309
--------- -------- ---------
Cash provided by operations
before expenditures for real
estate developments 193,578 194,580 180,050
Capital expenditures for real
estate developments held
for sale (6,817) (1,703) (22,517)
--------- -------- ---------
Net cash provided
by operations 186,761 192,877 157,533
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for
property (82,723) (139,589) (190,675)
Capital expenditures for real
estate developments
held for investment (12,643) (12,875) (12,778)
Acquisition of California and
Hawaiian Sugar Company, Inc. - (62,564) -
Receipts from disposal of
income producing property,
investments and
other assets 2,492 10,977 3,882
Deposits into Capital
Construction Fund (8,900) - (31,025)
Withdrawals from
Capital Construction Fund 9,383 87,495 27,335
Increase in investments (32) (1,108) (2,625)
--------- -------- ---------
Net cash used in
investing activities (92,423) (117,664) (205,886)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of
long-term debt 31,000 89,500 267,205
Payments of long-term
liabilities (84,314) (112,651) (176,802)
Payments of short-term
commercial paper borrowings
- net (6,000) - -
Repurchases of capital stock (17,717) - -
Proceeds from issuances of
capital stock 122 288 924
Dividends paid (40,563) (40,777) (40,744)
--------- -------- ---------
Net cash provided by (used
in) financing activities (117,472) (63,640) 50,583
--------- -------- ---------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) for
the year (23,134) 11,573 2,230
Balance, beginning of year 32,691 21,118 18,888
--------- -------- ---------
Balance, end of year $ 9,557 $ 32,691 $ 21,118
========= ======== =========
OTHER CASH FLOW INFORMATION:
Interest paid, net of amounts
capitalized $ 44,064 $ 43,682 $ 32,499
Income taxes paid 18,391 15,123 22,259
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Tax-deferred property
exchanges 22,200 - -
Accrued deposits to Capital
Construction Fund,
net of accrued withdrawals 1,333 (1,746) (11,129)
See notes to financial statements.
BALANCE SHEETS
(In thousands except per-share amounts)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
December 31, 1994 1993
---------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,557 $ 32,691
Accounts and notes receivable:
Trade, less allowances
of $10,133 and $9,538 124,050 120,069
Other 18,908 15,811
Inventories:
Sugar 52,648 53,979
Materials and supplies 38,029 37,178
Real estate held for sale 4,014 10,504
Deferred income taxes 15,366 2,042
Prepaid expenses and other assets 14,525 11,906
Accrued withdrawals from (deposits
to) Capital Construction Fund (550) 783
---------- ----------
Total current assets 276,547 284,963
---------- ----------
INVESTMENTS 64,913 17,449
---------- ----------
REAL ESTATE DEVELOPMENTS 66,371 54,919
---------- ----------
PROPERTY:
Land 52,202 65,403
Buildings 190,852 202,643
Vessels 651,435 631,896
Machinery and equipment 1,024,398 955,942
Water, power and sewer systems 86,254 84,530
Other property improvements 88,688 105,459
---------- ----------
Total 2,093,829 2,045,873
Less accumulated depreciation
and amortization 812,283 718,937
---------- ----------
Property -- net 1,281,546 1,326,936
---------- ----------
CAPITAL CONSTRUCTION FUND 176,044 175,194
---------- ----------
OTHER ASSETS -- NET 67,367 52,914
---------- ----------
Total $1,932,788 $1,912,375
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 27,239 $ 13,089
Current portion of capital
lease obligations 7,938 9,732
Short-term commercial paper
borrowings 58,000 64,000
Accounts payable 36,545 39,175
Payrolls and vacation pay 19,847 20,291
Uninsured claims 12,110 9,336
Post-retirement benefit obligations
- current portion 6,582 6,676
Taxes other than income 5,390 4,802
Accrued interest payable 4,611 8,060
Promotional programs 4,563 8,322
Income taxes - 3,506
Accrued and other liabilities 22,006 25,261
---------- ----------
Total current liabilities 204,831 212,250
---------- ----------
LONG-TERM LIABILITIES:
Long-term debt 526,231 582,473
Capital lease obligations 35,274 44,495
Post-retirement benefit obligations 116,610 112,898
Pension obligations 21,933 26,138
Uninsured claims 12,337 15,180
Other 32,997 33,486
---------- ----------
Total long-term liabilities 745,382 814,670
---------- ----------
DEFERRED INCOME TAXES 349,961 298,449
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Capital stock -- common stock without
par value; authorized, 150,000
shares ($.75 stated value per share);
outstanding, 45,691 shares in 1994
and 46,404 shares in 1993 37,493 38,028
Additional capital 38,862 38,510
Unrealized holding gains on
securities 29,073 -
Retained earnings 541,910 525,192
Cost of treasury stock (14,724) (14,724)
---------- ----------
Total shareholders' equity 632,614 587,006
---------- ----------
Total $1,932,788 $1,912,375
========== ==========
See notes to financial statements.
STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands except per-share amounts)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Three Years Ended December 31, 1994
Capital Stock
------------------------------------
Issued In Treasury
---------------- ----------------- Unrealized
Additional Holding Retained
Shares Stated Shares Cost Capital Gains Earnings
Value
------- ------- ------ -------- --------- --------- ---------
BALANCE,
DECEMBER 31, 1991 50,660 $37,995 4,431 $(17,201) $ 34,144 $ 523,731
CHANGES IN 1992:
Stock options
exercised 126 95 3,010
Acquired in payment
of options (101) (76) (2,734)
Issued -- incentive
plan 2 2 (77) 1,709 214
Net income 18,954
Cash dividends --
$.88 per share (40,744)
------- ------- ------ -------- --------- ---------
BALANCE,
DECEMBER 31, 1992 50,687 38,016 4,354 (15,492) 37,368 499,207
CHANGES IN 1993:
Stock options
exercised 23 17 572
Acquired in payment
of options (7) (6) (227)
Issued -- incentive
plan 1 1 (54) 768 570
Net income 66,989
Cash dividends --
$.88 per share (40,777)
------- ------- ------ -------- --------- ---------
BALANCE,
DECEMBER 31, 1993 50,704 38,028 4,300 (14,724) 38,510 525,192
CHANGES IN 1994:
Shares repurchased
and retired (723) (542) (17,175)
Stock options
exercised 12 9 352
Acquired in payment
of options (6) (5) (152)
Issued--incentive
plan 4 3
Unrealized holding
gains on
securities $ 29,073
Net income 74,608
Cash dividends --
$.88 per share (40,563)
------- ------- ------ -------- --------- --------- ---------
BALANCE,
DECEMBER 31, 1994 49,991 $37,493 4,300 $(14,724) $ 38,862 $ 29,073 $ 541,910
======= ======= ====== ======== ========= ========= =========
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of Alexander & Baldwin, Inc. and all subsidiaries, after elimination
of significant intercompany amounts.
OCEAN TRANSPORTATION: Voyage revenue and variable costs and expenses are
included in income at the time each voyage commences.
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.
CONTAINER LEASING: Revenue and maintenance and repair costs are recorded
ratably over the terms of specific lease and rental agreements. Container
depreciation and general and administrative expenses are charged to expense as
incurred. Interest expense is included in cost of services.
PROPERTY DEVELOPMENT AND MANAGEMENT: Sales are recorded when the risks and
benefits of ownership have passed to the buyers (generally at 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 either as Property or as Real Estate Held For Sale when
construction is complete, based upon the Company's intent. Cash flows related
to real estate developments are classified as operating or investing
activities, based upon the Company's intention either to sell the property or
to retain ownership of the property as an investment following completion of
construction.
FOOD PRODUCTS: Revenue is recorded when refined sugar products and coffee are
sold to third parties.
Costs of growing sugar cane are charged to the cost of production in the year
incurred and to cost of sales as refined products are sold. The cost of raw
cane sugar purchased from third parties is recorded as inventory at the
purchase price.
Costs of developing coffee are capitalized during the development period and
depreciated over the estimated productive lives of the orchards. 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: Sugar inventory, consisting of raw and refined sugar, is 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. Assets held under
capital leases are included with property owned. Gains or losses from
property disposal 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.
DEPRECIATION: Depreciation is computed using the straight-line method.
Depreciation expense includes amortization of assets under capital leases and
vessel spare parts.
Estimated useful lives of property are as follows:
Buildings 10 to 50 years
Vessels 14 to 40 years
Marine containers 15 years
Machinery and equipment 3 to 35 years
Utility systems and other
depreciable property 5 to 60 years
OTHER NON-CURRENT ASSETS: Other non-current assets consist principally of
supply contracts and other intangible assets. These assets are being
amortized using the straight-line method over periods not exceeding 30 years.
PENSION PLANS: Certain ocean transportation subsidiaries are members of the
Pacific Maritime Association (PMA), the Maritime Service Committee or the
Hawaii Stevedore Committee, which negotiate multi-employer pension plans
covering certain seagoing and shoreside bargaining unit personnel. The
subsidiaries 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, noncontributory, single-employer defined benefit plans cover
substantially all other employees.
INCOME TAXES: Current 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
statements and income tax returns.
FAIR VALUES: The carrying values of current assets (other than inventories,
real estate held for sale, deferred income taxes and prepaid and other assets)
and of debt instruments are reasonable estimates of their fair values.
FUTURES CONTRACTS: Realized and unrealized gains and losses on commodity
futures contracts are deferred and recorded in inventory in the period in
which the related inventory purchases occur. These amounts are not
significant.
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 reasonably estimated.
RECLASSIFICATION: Certain amounts in the 1993 and 1992 financial statements
have been reclassified to conform with the 1994 presentation.
2. POST-RETIREMENT BENEFIT PLANS
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.
In 1992, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," which require the accrual of post-retirement
benefits during the years an employee provides services to the Company. Prior
to 1992, the costs of such benefits (principally medical and group life
insurance premiums) were charged to expense on a pay-as-you-go basis. The
Company elected to immediately recognize the accumulated post-retirement
benefit obligation upon adoption of the Standard. The cumulative effect of
this accounting change as of January 1, 1992, resulted in a decrease in net
income of $41,551,000, or $0.90 per share, in 1992.
The net periodic cost for post-retirement health care and life insurance
benefits during 1994, 1993 and 1992 included the following:
1994 1993 1992
------ ------ ------
(In thousands)
Service cost $2,149 $1,524 $1,420
Interest cost 7,825 4,742 4,598
Net amortization (216) - -
------ ------ ------
Post-retirement
benefit cost $9,758 $6,266 $6,018
====== ====== ======
The unfunded accumulated post-retirement benefit obligation at December 31,
1994 and 1993 is summarized below:
1994 1993
-------- --------
(In thousands)
Accumulated post-retirement
benefit obligation:
Retirees $ 64,619 $ 70,246
Fully-eligible active
plan participants 10,577 10,924
Other active plan
participants 30,359 33,668
Unrecognized prior
service cost 3,215 2,810
Unrecognized net gain 14,422 1,926
-------- --------
Total 123,192 119,574
Current obligation 6,582 6,676
-------- --------
Non-current obligation $116,610 $112,898
======== ========
For 1994 and 1993, the weighted average discount rates used in determining the
accumulated post-retirement benefit obligation were 8% and 7%, respectively,
and the assumed health care cost trend rate used in measuring the accumulated
post-retirement benefit obligation for both years was 10% for 1993 through
2001, decreasing to 5% thereafter. If the assumed health care cost trend rate
were increased by one percentage point, the accumulated post-retirement
benefit obligation as of December 31, 1994 and 1993 would have increased by
approximately $12,235,000 and $13,386,000, respectively, and the net periodic
post-retirement benefit cost for 1994 and 1993 would have increased by
approximately $2,153,000 and $989,000, respectively.
3. EMPLOYEE BENEFIT PLANS
Total contributions to the multi-employer pension plans covering personnel in
shoreside and seagoing bargaining units were $8,216,000 in 1994, $8,626,000 in
1993 and $7,638,000 in 1992. Union collective bargaining agreements provide
that total employer contributions during the terms of the agreements be
sufficient to meet the normal costs and amortization payments required to be
funded during those periods. Contributions are generally based on union labor
used or cargo handled or carried. 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 the Employee Retirement Income Security Act of 1974, as amended,
and are paying premiums to the Pension Benefit Guarantee Corporation (PBGC).
The statutes provide that an employer which 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.
In 1994, a subsidiary terminated a single-employer defined benefit pension
plan covering longshore personnel in Hawaii. Concurrently, the subsidiary
joined a multi-employer pension plan with the other major stevedoring
companies in Hawaii. As a result of this action, the previously-recorded
unfunded pension obligation of the terminated single-employer plan of
$2,348,000 was eliminated. This elimination was recorded as a reduction of
expenses in the Statements of Income. All employees previously covered under
the single-employer plan are now covered under the multi-employer plan without
loss of vesting or benefits.
Under special rules approved by the PBGC and adopted by the 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 $7,378,000 for various
plan years ended December 1994 and 1993, and July 1994, 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.
The net cost (benefit) of single-employer defined benefit pension plans,
covering substantially all other employees, was $3,816,000 in 1994, $4,318,000
in 1993 and $(510,000) in 1992. Expense components for all single-employer
plans for the three years were as follows:
1994 1993 1992
------- ------- -------
(In thousands)
Service cost--benefits
earned during the year $ 7,317 $ 5,907 $ 4,528
Interest cost on
projected benefit
obligations 20,542 17,584 11,755
Actual return on plan
assets (24,122) (18,776) (14,252)
Net amortization and
deferral (1,221) (2,514) (2,541)
Curtailment and
termination benefits 1,300 2,117 -
------- ------- -------
Net pension cost
(benefit) $ 3,816 $ 4,318 $ (510)
======= ======= =======
The funded status of the single-employer plans at December 31, 1994 and 1993
was as follows:
1994 1993
---------------------- -------------------
(In thousands)
ASSETS ACCUMULATED Assets Accumulated
EXCEED BENEFITS Exceed Benefits
ACCUMULATED EXCEED Accumulated Exceed
BENEFITS ASSETS Benefits Assets
-------- -------- -------- --------
Actuarial present value
of benefit obligation:
Vested benefits $122,153 $112,925 $138,110 $113,585
Non-vested benefits 3,830 4,297 6,853 3,102
-------- -------- -------- --------
Accumulated benefit
obligation 125,983 117,222 144,963 116,687
Additional amounts
related to projected
compensation levels 22,927 11,277 29,180 15,707
-------- -------- -------- --------
Projected benefit
obligation 148,910 128,499 174,143 132,394
Plan assets at
fair value 178,118 104,867 202,071 102,527
-------- -------- -------- --------
(Excess) Deficiency of
plan assets over
projected benefit
obligation. (29,208) 23,632 (27,928) 29,867
Prior service costs to
be recognized in future
years (2,121) (1,656) (2,551) (1,576)
Unrecognized actuarial
net gain (loss) 27,468 (1,227) 25,517 (3,326)
Unrecognized net asset
(obligation) at
January 1, 1987
(being amortized over
periods of 4 to 15
years) 4,660 385 6,428 (293)
-------- -------- -------- --------
Accrued pension liability $ 799 $ 21,134 $ 1,466 $ 24,672
======== ======== ======== ========
For 1994 and 1993, projected benefit obligations were determined using
discount rates of 8% and 7%, respectively, and assumed increases in future
compensation levels of 5% for both years. The expected long-term rate of
return on assets for both years was 8 1/4%. The assets of the plans consist
principally of listed stocks and bonds.
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 projected benefit obligation, included with other non-
current liabilities, relating to these unfunded plans, totaled $7,661,000 and
$7,285,000 at December 31, 1994 and 1993, respectively.
4. INVESTMENTS
At December 31, 1994 and 1993, investments principally consisted of marketable
equity securities, limited partnership interests and purchase-money mortgages.
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The marketable equity
securities are classified as "available for sale" and are, at December 31,
1994, stated at quoted market values totaling $56,312,000 (cost basis
$9,966,000). The unrealized holding gain on these securities as of December
31, 1994 amounted to $29,073,000, net of deferred income taxes, and has been
recorded as a separate component of shareholders' equity.
At December 31, 1993, these securities were stated at their historical cost
basis of $10,486,000 (quoted market value was $64,129,000).
The remaining investments are recorded at cost, which approximated market
values, of $8,601,000 and $6,963,000 at December 31, 1994 and 1993,
respectively.
See Note 9 for a discussion of market values of investments in the Capital
Construction Fund.
5. LEASES
THE COMPANY AS LESSEE: Various subsidiaries of the Company lease a vessel
and certain land, buildings and equipment under both capital and operating
leases. Capital leases include one vessel leased for a term of 25 years
ending in 1998; containers, machinery and equipment for terms of 5 to 12 years
expiring through 1997; and a wastewater treatment facility in California, the
title of which will revert to a subsidiary in 2002. Principal operating
leases cover office and terminal facilities for periods which expire between
1995 and 2026. Management expects that in the normal course of business, most
operating leases will be renewed or replaced by other leases.
Rental expense under operating leases for the three years ended December 31,
1994 is shown below:
1994 1993 1992
------- ------- -------
(In thousands)
Minimum rentals $47,500 $43,050 $43,212
Contingent rentals 669 220 330
------- ------- -------
Total $48,169 $43,270 $43,542
======= ======= =======
Contingent rentals are based principally on the use of certain terminal and
port facilities and the use of agricultural water and land. Payments for
certain leased terminal and port facilities are compensated by charges under
tariffs paid by others. Income from sublease rentals is not significant.
Assets recorded under capital lease obligations and included in property at
December 31, 1994 and 1993 were as follows:
1994 1993
-------- --------
(In thousands)
Vessels $ 55,253 $ 55,253
Machinery and equipment 42,870 50,056
-------- --------
Total 98,123 105,309
Less accumulated amortization 86,115 80,021
-------- --------
Property under capital
leases--net $ 12,008 $ 25,288
======== ========
Future minimum payments under all leases and the present value of minimum
capital lease payments as of December 31, 1994 were as follows:
Capital Operating
Leases Leases
------- --------
(In thousands)
1995 $11,935 $ 27,120
1996 14,759 17,654
1997 15,026 15,223
1998 10,703 14,849
1999 609 14,870
Thereafter 1,641 121,405
------- --------
Total minimum lease
payments 54,673 $211,121
========
Less amount representing
interest 11,461
-------
Present value of future
minimum payments 43,212
Less current portion 7,938
-------
Long-term obligations at
December 31, 1994 $35,274
=======
As described in Note 6, a subsidiary is obligated to pay principal of and
interest on Special Facility Revenue Bonds issued by the Department of
Transportation of the State of Hawaii to finance construction of terminal
facilities which are leased by a subsidiary. Rent expense for the facilities
includes bond interest. An accrual, included in long-term debt, provides for
a pro-rata portion of the principal due on these bonds.
THE COMPANY AS LESSOR: Various Company subsidiaries lease land, buildings,
land improvements and marine containers under operating leases. The
historical cost of and accumulated depreciation on leased property at December
31, 1994 and 1993 were as follows:
1994 1993
-------- --------
(In thousands)
Leased property $578,190 $568,280
Less accumulated
amortization 97,793 74,621
-------- --------
Property under operating
leases--net $480,397 $493,659
======== ========
Total rental income under these operating leases for the three years ended
December 31, 1994 was as follows:
1994 1993 1992
------- ------- -------
(In thousands)
Minimum rentals $57,864 $58,838 $55,358
Contingent rentals
(based on sales volume) 1,515 1,111 1,160
------- ------- -------
Total $59,379 $59,949 $56,518
======= ======= =======
Future minimum rental income on non-cancelable leases at December 31, 1994 was
as follows:
Operating
Leases
--------
(In thousands)
1995 $ 48,234
1996 42,160
1997 33,554
1998 20,832
1999 15,674
Thereafter 164,777
--------
Total $325,231
========
6. LONG-TERM DEBT, CREDIT AGREEMENTS
At December 31, 1994 and 1993, long-term debt consisted of the following:
1994 1993
-------- --------
(In thousands)
Commercial paper, 3.2% - 6.3%,
due 1995 $304,301 $310,908
Bank revolving credit
loans (1994 high 6.63%,
low 3.63%)
due after 1994 52,500 61,000
Term loans:
7.19%, payable through 2007 75,000 75,000
9%, payable through 1999 50,000 50,000
8%, payable through 2000 50,000 50,000
9.05%, payable through 1999 32,611 37,558
9.8%, payable through 2004 20,833 22,917
7.65%, payable through 2001 10,000 10,000
11.78%, payable through 1997 1,848 2,361
9.1%, repaid in 1994 - 22,000
10.03%, repaid in 1994 - 3,300
Mortgage loans, collateralized by
land and buildings:
11%, payable through 1995 3,046 3,091
12.5%, payable through 1995 2,724 2,765
Other 281 29
Limited partnership subscription
notes, no interest,
payable through 1996 1,700 2,550
Special facility revenue bonds,
5.75%, payable 2013 6,626 6,083
-------- --------
Total 611,470 659,562
Less current portion 27,239 13,089
Commercial paper
classified as current 58,000 64,000
-------- --------
Long-term debt $526,231 $582,473
======== ========
REVOLVING CREDIT FACILITIES: The Company and a subsidiary have a revolving
credit and term loan agreement with five commercial banks, whereby they may
borrow up to $155,000,000 under revolving loans to November 30, 1996 at
varying rates of interest. Any revolving loan outstanding on that date may be
converted into a term loan, which would be payable in 16 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, 1994 and 1993, $20,000,000 and $55,000,000,
respectively, were outstanding under this agreement.
The Company and a subsidiary have an uncommitted $65,000,000 short-term
revolving credit agreement with a commercial bank. The agreement extends to
November 30, 1995, but may be canceled by the bank at any time. At December
31, 1994 and 1993, $12,500,000 and $6,000,000, respectively, were outstanding
under this agreement.
In 1994, the Company and a subsidiary entered into an uncommitted $25,000,000
revolving credit agreement with a commercial bank. The agreement extends to
July 18, 1997. At December 31, 1994, $20,000,000 was outstanding under this
agreement.
A subsidiary has a $25,000,000 two-year revolving credit agreement with a
financial institution to provide general corporate funds. At December 31,
1994 and 1993, no balances were outstanding under this agreement.
A subsidiary has a $25,000,000 revolving credit agreement maturing April 1995.
This agreement serves as a commercial paper liquidity back-up line. The
Company intends to renew this agreement upon maturity. At December 31, 1994
and 1993, no balances were outstanding under this agreement.
TERM LOANS: In 1993, an unsecured series of 19 notes, which aggregated
$75,000,000, with varying maturity dates ranging from 1997 through 2007, and
with interest rates ranging from 6.23% to 7.46% (average 7.19%), were entered
into in connection with the acquisition of California and Hawaiian Sugar
Company, Inc. (C&H).
As a result of the purchase of C&H, a subsidiary has a term loan with
outstanding balances of $20,833,000 and $22,917,000 at December 31, 1994 and
1993, respectively. Annual principal payments of $2,083,000 are payable
through 2004. Interest, at 9.8%, is payable quarterly. The loan is
guaranteed by the subsidiary's parent and the Company.
COMMERCIAL PAPER: There are three commercial paper programs.
The first program was used by a subsidiary to finance the construction of a
vessel, which was completed in 1992. At December 31, 1994, $149,570,000 of
commercial paper notes was outstanding under this program. Maturities ranged
from 3 to 41 days. The borrowings outstanding under this program are
classified as long-term since the subsidiary intends to continue the program
indefinitely, and eventually to repay the program with qualified withdrawals
from the Capital Construction Fund.
The second commercial paper program, which commenced in 1992, was used to
finance the acquisition of marine containers. At December 31, 1994,
$82,731,000 of commercial paper notes was outstanding under this program.
Maturities ranged from 4 to 37 days. The commercial paper borrowings
outstanding under this program are classified as long-term since the
subsidiary intends to continue this program on a long-term basis and has
established the necessary credit facilities to do so. At December 31, 1994,
$100,000,000 of long-term revolving credit facilities was available to support
these outstanding notes.
The third commercial paper program is used by a subsidiary to fund the
purchases of sugar inventory from Hawaii sugar growers and to provide working
capital for sugar refining and marketing operations. At December 31, 1994,
$72,000,000 of commercial paper notes was outstanding under this program. The
interest cost and certain fees on the borrowings relating to sugar inventory
advances to growers are paid by the growers rather than by the subsidiary. At
December 31, 1994, no amounts were outstanding as advances to growers under
this program. Maturities ranged from 4 to 34 days. Of the total commercial
paper borrowing, $58,000,000 was classified as current. The commercial paper
is supported by a $100,000,000 backup revolving credit facility with six
commercial banks. Both the commercial paper program and the backup facility
are guaranteed by the subsidiary's parent and the Company.
SPECIAL FACILITY REVENUE BONDS: A subsidiary is obligated to pay principal of
and interest on $16,500,000 of 5.75% Special Facility Revenue Bonds issued in
1993 and due in 2013. An accrual is included in long-term debt for the pro-
rata portion of the principal due on these bonds (see Note 5).
LONG-TERM DEBT MATURITIES: At December 31, 1994, maturities and planned
prepayments of all long-term debt during the next five years totaled
$27,239,000 for 1995, $36,542,000 for 1996, $36,718,000 for 1997, $29,210,000
for 1998 and $37,377,000 for 1999.
7. INCOME TAXES
The provision for income taxes for the three years ended December 31, 1994
consisted of the following:
1994 1993 1992
------- ------- -------
(In thousands)
Current:
Federal $15,189 $13,275 $ 9,908
State 260 2,167 435
------- ------- -------
Total 15,449 15,442 10,343
Deferred 23,178 30,738 13,332
------- ------- -------
Provision for income taxes $38,627 $46,180 $23,675
======= ======= =======
Total income tax expense for the three years ended December 31, 1994 differs
from amounts computed by applying the statutory Federal rate to pre-tax
income, for the following reasons:
1994 1993 1992
------- ------- -------
(In thousands)
Computed income tax
expense $39,632 $39,609 $28,621
Increase (decrease) resulting
from:
Tax rate increases - 7,741 -
State tax on income, less
applicable Federal tax 1,542 1,417 2,106
Resolution of tax audits - - (2,506)
Fair market value over
cost of donations (2,138) - (1,927)
Low-income housing credits (1,219) (1,214) (1,214)
Other-net 810 (1,373) (1,405)
------- ------- -------
Provision for income
taxes $38,627 $46,180 $23,675
======= ======= =======
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax liability at December 31, 1994 and 1993 were
as follows:
1994 1993
-------- --------
(In thousands)
Deposits to the CCF $201,963 $198,414
Accelerated depreciation 111,253 101,252
Tax-deferred gains on real
estate transactions 68,488 64,469
Unrealized holding gains on
securities 17,273 -
Post-retirement benefits (45,209) (45,041)
Alternative minimum tax
benefits (6,531) (5,893)
Capitalized leases 2,409 (6,328)
Insurance reserves (1,759) (4,813)
Other-net (13,292) (5,653)
-------- --------
Total $334,595 $296,407
======== ========
The Internal Revenue Service has completed audits of the Company's tax returns
through 1988 and, with one exception, has tentatively settled all issues
raised during such audits. The settlements had no material effect on the
Company's financial position or results of operations. The Company is
contesting the remaining issue, which relates to the timing of certain
deductions for tax purposes. Management believes that the ultimate resolution
of this issue will not have a material effect on the Company's financial
position.
8. CAPITAL STOCK AND STOCK OPTIONS
A&B has a stock option plan ("1989 Plan") under which key employees may be
granted stock purchase options and stock appreciation rights. A second stock
option plan for key employees terminated in 1993, but shares previously
granted under the plan are still exercisable. Under the 1989 Plan, option
prices may not be less than the fair market value of a share of the Company's
common stock on the dates of grant, and each option generally becomes
exercisable in-full one year after the date granted. Payment for options
exercised, to the extent not reduced by the application or surrender of stock
appreciation rights, may be made in cash or in shares of the Company's stock.
If payment is made in shares of the Company's stock, the option holder may
receive, under a reload feature of the 1989 Plan, a new stock option for the
number of shares equal to that surrendered, with an option price not less than
at the fair market value of the Company's stock on the date of exercise.
During 1994, 448,200 new options were granted under the 1989 Plan.
The 1989 Plan also permits 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 plan.
The Company also has a Directors' stock option plan, under which 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 average fair market value of the shares for the five consecutive trading
days prior to the grant date. Each option becomes exercisable six months
after the date granted. At December 31, 1994, a total of 150,000 options have
been granted under the plan, 3,000 options have been cancelled and no options
have been exercised.
Changes in shares under all option plans for the three years ended December
31, 1994, were as follows:
Price Range
Shares Per Share
--------- --------------
1992:
Outstanding, January 1 1,383,205 $17.375-37.875
Granted 495,665 24.250-28.250
Exercised (126,266) 17.375-24.250
Canceled (41,700) 24.250-36.250
Outstanding, ---------
December 31 1,710,904 17.375-37.875
1993:
Granted 423,200 24.250-24.500
Exercised (23,576) 17.375-24.750
Canceled (73,400) 24.250-36.250
Outstanding, ---------
December 31 2,037,128 17.375-37.875
1994:
Granted 475,200 24.700-27.000
Exercised (12,300) 17.375-24.750
Canceled (55,996) 24.250-36.250
Outstanding,
December 31 ---------
(1,996,051 exercisable) 2,444,032 $17.375-37.875
=========
Options outstanding at December 31, 1994 include 60,166 shares which carry
stock appreciation rights. The outstanding options do not have a material
dilutive effect in the calculation of earnings per share of common stock.
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 outstanding 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.
9. 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 not subject to Federal income taxes in
the year earned, but 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 preference items
for inclusion in Federal alternative minimum taxable income. Deposits not
committed for qualified purposes within 25 years from December 31, 1986, or
later date of deposit, will be treated as non-qualified withdrawals.
As discussed in Note 4, in 1994 the Company adopted the provisions of SFAS No.
115. The subsidiary has classified its investments in the CCF as "held-to-
maturity" and, accordingly, has not reflected temporary unrealized market
gains and losses in the Balance Sheets or Statements of Income. The long-term
nature of the CCF program supports the subsidiary's intention to hold these
investments to maturity.
At December 31, 1994 and 1993, the balances on deposit in the CCF consisted of
the following (in thousands):
1994 1993
------------------------------ --------
AMORTIZED FAIR UNREALIZED Amortized
COST VALUE LOSS Cost
-------- -------- -------- --------
Mortgage-backed
securities $108,247 $ 96,678 $(11,569) $127,871
Cash and cash
equivalents 64,263 64,263 - 48,106
Treasury notes 2,984 2,984 - -
Accrued deposits
(withdrawals) 550 550 - (783)
-------- -------- -------- --------
Total $176,044 $164,475 $(11,569) $175,194
======== ======== ======== ========
Fair value of the mortgage-backed securities ("MBS") was determined by an
outside investment management company, based on the experience of trading
identical or substantially similar securities. No central exchange exists for
these securities; they are traded over-the-counter.
During 1994, the fair value of the subsidiary's investments in MBS declined in
relation to amortized cost, due to interest rate sensitivity inherent in the
fair value determination of such securities. While a temporary unrealized
market loss exists, the subsidiary intends to hold these investments to
maturity, which ranges from 1995 through 2024. The MBS have a weighted
average life of 4.5 years. The Company had earnings of $8,292,000 in 1994,
$7,218,000 in 1993 and $11,293,000 in 1992 from its MBS investment account.
Fair values of the remaining CCF investments were based on quoted market
prices, if available. If a quoted market price was not available, fair value
was estimated, using quoted market prices of similar securities and
investments. These remaining investments mature in 1995.
During 1994, there were no sales of securities classified as "held-to-
maturity" included in the CCF.
10. RELATED PARTY TRANSACTIONS, COMMITMENTS AND CONTINGENCIES
At December 31, 1994, the Company and its subsidiaries had an unspent balance
of total appropriations for capital expenditures of approximately
$104,677,000. However, there is no contractual obligation to spend this
entire amount.
A subsidiary has arranged for standby letters of credit of approximately
$15,800,000, necessary to qualify as a self-insurer for state and federal
workers' compensation liabilities.
Bank letters of credit have been issued on behalf of a subsidiary in favor of
certain container manufacturers. When presented, these letters may be paid,
at the subsidiary's option, by a back-up line of credit. At December 31,
1994, $1,585,000 was outstanding under these letters of credit.
A subsidiary is party to a five-year agreement with a computer processing
service, expiring in 1996, to provide off-site mainframe processing. The
annual average cost of this agreement is $4,150,000.
A subsidiary has received a favorable court judgment resulting from a
contested insurance claim. The claim was for reimbursement of certain
expenses incurred by the subsidiary in connection with repairing port
facilities damaged by a 1989 earthquake. Although the award has been
appealed, management and its outside counsel believe that the ultimate outcome
of this litigation will be an award at least equal to the claim recorded in
the financial statements.
A subsidiary is a party, acting as the steam host, to a Steam Purchase
Agreement with a developer who has received regulatory authority approval to
construct and operate a cogeneration facility contiguous to the subsidiary's
California refinery. The agreement provides that, during the 30-year period
of the agreement, the subsidiary will receive steam necessary for refinery
operations at a reduced price, compared to the market price of fuel which
presently must be purchased to generate its steam requirements.
A subsidiary is party to a long-term sugar supply contract with Hawaiian Sugar
& Transportation Cooperative (HSTC), a raw sugar marketing and transportation
cooperative owned by two other subsidiaries and by the other Hawaii sugar
growers. Under the terms of this contract, the subsidiary 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 subsidiary made purchases of raw sugar totaling
$271,212,000 and $134,700,000 under the contract during 1994 and 1993,
respectively. The contract also requires that the subsidiary provide cash
advances to HSTC prior to the physical receipt of the sugar at its refineries
(see Note 6). Such advances are determined by the estimated raw sugar market
prices. Amounts due to HSTC upon delivery of raw sugar to the subsidiary's
refineries are offset against outstanding advances to HSTC.
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.
11. INDUSTRY SEGMENTS
Industry segment information for 1994, 1993 and 1992, on page 28, is
incorporated herein by reference. Segments are:
Ocean transportation -- carrying freight between various U.S. and Canadian
West Coast, Hawaii and Western Pacific ports, and providing terminal services.
Container leasing -- leasing marine containers in international markets.
Property development and management -- developing, managing and selling
residential, commercial and industrial properties.
Food products -- growing, processing and marketing sugar, molasses and coffee,
and generating and selling electricity.
Directors And Officers
Alexander & Baldwin, Inc.
DIRECTORS
MICHAEL J. CHUN (51)*
President, The Kamehameha Schools (educational institution)
JOHN C. COUCH (55)
President and Chief Executive Officer, Alexander & Baldwin, Inc.
President and Chief Executive Officer, A&B-Hawaii, Inc.
Vice Chairman of the Board, Matson Navigation Company, Inc.
LEO E. DENLEA JR. (63)*
Chairman of the Board, President and Chief Executive Officer,
Farmers Group, Inc. (insurance)
WALTER A. DODS JR. (53)*
Chairman of the Board and Chief Executive Officer, First Hawaiian, Inc.
Chairman of the Board and Chief Executive Officer, First Hawaiian Bank
(banking)
CHARLES G. KING (49)**
Vice President, Kuhio Motors, Inc. (automobile dealership)
CARSON R. McKISSICK (62)*
Managing Director, The Corporate Development Company (financial advisory
services)
C. BRADLEY MULHOLLAND (53)
President and Chief Executive Officer, Matson Navigation Company, Inc.
R. J. PFEIFFER (75)*
Chairman of the Board, Alexander & Baldwin, Inc.
Chairman of the Board, A&B-Hawaii, Inc.
Chairman of the Board, Matson Navigation Company, Inc.
ROBERT G. REED III (67)**
Independent Business Consultant
MARYANNA G. SHAW (56)*
Private Investor
CHARLES M. STOCKHOLM (62)**
Managing Director, Trust Company of the West (investment management services)
ADVISORY DIRECTOR
ALEXANDER C. WATERHOUSE (83)
Vice Chairman, Waterhouse Properties, Inc. (private investments)
* Audit Committee Members
** Compensation and Stock Option Committee Members
All ages as of March 31, 1995
Alexander & Baldwin, Inc.
Officers
R. J. PFEIFFER (75)
Chairman of the Board
JOHN C. COUCH (55)
President and Chief Executive Officer
MEREDITH J. CHING (38)
Vice President (Government & Community Relations)
G. STEPHEN HOLADAY (50)
Vice President and Controller
JOHN B. KELLEY (49)
Vice President (Corporate Planning & Development, Investor Relations)
MILES B. KING (47)
Vice President and Chief Administrative Officer
MICHAEL J. MARKS (56)
Vice President, General Counsel and Secretary
GLENN R. ROGERS (51)
Vice President, Chief Financial Officer and Treasurer
ROBERT K. SASAKI (54)
Vice President (Properties)
A&B-Hawaii, Inc.
Officers
R. J. PFEIFFER (75)
Chairman of the Board
JOHN C. COUCH (55)
President and Chief Executive Officer
W. ALLEN DOANE (47)
Executive Vice President and Chief Operating Officer
RICHARD F. CAMERON (62)
Senior Vice President (Agribusiness)
G. STEPHEN HOLADAY (50)
Senior Vice President, Chief Financial Officer and Treasurer
MILES B. KING (47)
Senior Vice President (Industrial Relations)
DAVID G. KONCELIK (53)
Senior Vice President (President and Chief Executive Officer, California and
Hawaiian Sugar Company, Inc.)
MICHAEL J. MARKS (56)
Senior Vice President and General Counsel
ROBERT K. SASAKI (54)
Senior Vice President (Properties)
NORBERT M. BUELSING (44)
Vice President (Property Leasing)
MEREDITH J. CHING (38)
Vice President (Government & Community Relations)
KEITH A. GOTO (51)
Vice President (Labor Relations)
JOHN B. KELLEY (49)
Vice President (Corporate Planning & Development)
STANLEY M. KURIYAMA (41)
Vice President (Land Planning & Entitlements)
JUDITH A. WILLIAMS (51)
Vice President (Assistant Manager, McBryde)
THOMAS A. WELLMAN (36)
Controller
ALYSON J. NAKAMURA (29)
Secretary
Matson Navigation Company, Inc.
Officers
R. J. PFEIFFER (75)
Chairman of the Board
JOHN C. COUCH (55)
Vice-Chairman of the Board
C. BRADLEY MULHOLLAND (53)
President and Chief Executive Officer
RAYMOND J. DONOHUE (58)
Senior Vice President and Chief Financial Officer
FREDERICK M. GUTTERSON (52)
Senior Vice President (President and Chief Executive Officer,
Matson Leasing Company, Inc.)
MILES B. KING (47)
Senior Vice President (Human Resources)
GARY J. NORTH (50)
Senior Vice President (Operations) (President and Chief Operating Officer,
Matson Terminals, Inc.)
RICHARD S. BLISS (56)
Vice President (Area Manager, Hawaii)
ROBERT L. DAWDY (50)
Vice President ( West Coast Operations)
BRANTON B. DREYFUS (41)
Vice President (Area Manager, Southern California)
JOHN C. GOSLING (58)
Vice President (General Manager, Engineering)
PHILIP M. GRILL (47)
Vice President (Government Relations)
DALE B. HENDLER (41)
Vice President (Information Services)
MERLE A. K. KELAI (63)
Vice President (Community Relations)
KEVIN C. O'ROURKE (48)
Vice President and General Counsel
RONALD H. ROTHMAN (53)
Vice President (Industrial Relations)
PAUL E. STEVENS (42)
Vice President (Marketing)
MICHAEL J. MARKS (56)
Secretary
TIMOTHY H. REID (48)
Treasurer
JOSEPH A. PALAZZOLO (46)
Controller
Principal Subsidiaries
And Affiliates (1)
A&B-HAWAII, INC. Honolulu
Division:
Hawaiian Commercial & Sugar Company Puunene, Maui
Subsidiaries:
A&B Development Company (California) San Francisco
A&B Properties, Inc. Honolulu
California and Hawaiian Sugar
Company, Inc. Crockett, CA
East Maui Irrigation Company, Limited Puunene, Maui
Kahului Trucking & Storage, Inc. Kahului, Maui
Kauai Commercial Company, Incorporated Puhi, Kauai
Kukui'ula Development Company, Inc. Poipu, Kauai
McBryde Sugar Company, Limited Eleele, Kauai
Subsidiary: Island Coffee
Company, Inc. Eleele, Kauai
South Shore Community Services, Inc. Poipu, Kauai
South Shore Resources, Inc. Poipu, Kauai
WDCI, INC. Honolulu
HAWAIIAN SUGAR & TRANSPORTATION COOPERATIVE (2) Crockett, CA
MATSON NAVIGATION COMPANY, INC. San Francisco
Subsidiaries:
Matson Intermodal System, Inc. San Francisco
Matson Leasing Company, Inc. San Francisco
Matson Services Company, Inc. San Francisco
Matson Terminals, Inc. San Francisco
----------------------------------------------------------
(1) Wholly owned unless otherwise indicated.
(2) A cooperative owned with other Hawaii sugar companies.
----------------------------------------------------------
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, 1995.
INVESTOR INQUIRIES
Shareholders having questions about A&B are encouraged to write to R. J.
Pfeiffer, Chairman of the Board; John C. Couch, President and Chief Executive
Officer; or Michael J. Marks, Vice President, General Counsel and Secretary.
Inquiries from professional investors may be directed to John B. Kelley, Vice
President, Investor Relations. Phone (808) 525-8422.
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 Michael J. Marks, Vice President, General Counsel and Secretary, Alexander &
Baldwin, Inc., P. O. Box 3440, Honolulu, HI 96801-3440.
TRANSFER AGENTS
CHEMICAL TRUST COMPANY OF CALIFORNIA
San Francisco, California
CHEMICAL BANK
New York, New York
REGISTRARS
CHEMICAL TRUST COMPANY OF CALIFORNIA
San Francisco, California
CHEMICAL BANK
New York, New York
AUDITORS
DELOITTE & TOUCHE LLP
Honolulu, Hawaii