1995 FIRST QUARTER REPORT TO SHAREHOLDERS
Cover Photo: Sporting attractive local architecture and freshly planted
landscaping, the brand-new 28,000 square-foot Apex Building is nearly ready for
occupancy. Located at the intersection of three primary routes in Kahului,
Maui, the Apex Building is part of A&B's Triangle Square development -- a 10.6-
acre retail/commercial complex and factory outlet center.
May 2, 1995
TO OUR SHAREHOLDERS
Net income for the first quarter of 1995 was $8,560,000, or $0.19 per share.
In the first quarter of 1994, A&B earned $16,911,000 or $0.37 per share.
Comparing the periods, the decrease in earnings primarily was attributable to
lower cargo volume and higher fuel costs in the Company's ocean transportation
segment, combined with lower property sales and higher raw sugar costs.
The first quarter results were a major disappointment, but they were not
totally unexpected, given the current business environment in Hawaii. We do
not, however, believe that those quarterly results are indicative of the
Company's full-year potential.
We expect the Hawaii economy to strengthen moderately as the year progresses
and A&B's results should benefit from that growth. The challenges presented
today for the Company's businesses, however, only reinforce our resolve to move
forward with a number of initiatives, some just announced and some still being
planned, to strengthen each of the operations.
INITIATIVES ANNOUNCED
Last Thursday, A&B and American President Companies, Ltd. announced that their
respective shipping subsidiaries had signed a memorandum of understanding that
outlines a 10-year strategic operating alliance. Key elements of the proposal
include purchase by Matson Navigation Company, Inc. (Matson) of six
containerships and certain assets on Guam from American President Lines, Ltd.
(APL) for a total of approximately $166 million. Also, under a proposed vessel-
sharing agreement, Matson would operate and utilize five vessels on westbound
voyages from the U.S. Pacific Coast to Hawaii and Guam, and make the vessels'
space available to APL for return eastbound voyages from the Far East. Although
due diligence needs to be completed, detailed agreements remain to be worked
out, and necessary regulatory, as well as final Board approvals obtained, plans
call for the transaction to close in the fourth quarter of 1995. The new
alliance service would begin in early 1996.
At the same time, A&B announced that a prominent Hawaii developer of retail
centers has signed a memorandum of intent to buy 5.5 acres and lease 14 adjacent
acres at the Company's new Kahului Industrial Park, on Maui. A 280,000 square-
foot value retail center is planned. The land is part of the 76-acre first
phase of the project, construction of which recently has begun. The land sale
is expected to close in 1995.
Today, another initiative was announced. Matson signed a letter of intent in
response to an unsolicited offer from XTRA Corporation (XTRA) to sell the
containers and certain other assets and non-debt liabilities of Matson Leasing
Company, Inc. for $350 million. The decision to proceed with this transaction
is based on the conclusion that the sale of Matson Leasing to XTRA would improve
the container leasing business' opportunities to grow in response to customers'
needs. XTRA's attractive offer, its complementary strategic objectives and its
high regard for the existing Matson Leasing management team all were factors we
considered in reaching that conclusion. The proposed transaction envisions that
existing management and employees would remain in place. The sale would improve
A&B's ability to pursue alternative capital investment opportunities in its
remaining core businesses, especially ocean transportation and property
development. This transaction also is subject to due diligence and final
approval by both companies' Boards of Directors, as well as necessary regulatory
review.
COUCH SUCCEEDS PFEIFFER AS CHAIRMAN, ANNUAL MEETING
At the Annual Meeting of Shareholders held on April 27, 1995, shareholders re-
elected ten directors for one-year terms. 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, Robert G. Reed III, Maryanna G. Shaw and
Charles M. Stockholm. Shareholders also re-elected the firm of Deloitte &
Touche LLP as the auditors of the Company.
R. J. Pfeiffer, Chairman of the Board since 1980 and a director since 1978,
did not stand for re-election, having advised the Board that he wished to
retire. Mr. Pfeiffer stepped down as Chairman effective March 31, 1995. At the
February 1995 meeting of the Board of Directors, I was elected to succeed Mr.
Pfeiffer as Chairman.
SECOND-QUARTER DIVIDEND
On April 27, 1995, the Board of Directors authorized a second-quarter dividend
of $0.22 per share, payable on June 1, 1995 to shareholders of record as of May
11, 1995.
OPERATING PROFIT, SEGMENT SUMMARIES
Consolidated operating profit for the first quarter of 1995 was substantially
lower than in the first quarter of 1994. Operating profit was higher for marine
container leasing, but lower for A&B's other industry segments.
Cargo Volume Lower; Fuel Costs Higher
Ocean transportation operating profit in the first quarter of 1995 was 23-
percent lower than in the first quarter of 1994. The decline was attributable
primarily to lower container cargo volume in the Hawaii service. Substantially
higher fuel prices and start-up costs associated with the new Pacific Coast
Shuttle service also affected results.
First-quarter 1995 results benefited from a 3.8 percent general rate increase
implemented in January. Reflecting economic conditions in Hawaii, however,
total Hawaii service container volume was about five-percent lower than in the
first quarter of 1994. Total shipments of automobiles were virtually the same
in both periods.
Container Utilization Rates Continue Higher
Container leasing operating profit in the first quarter of 1995 was more than
one-third higher than in the first quarter of 1994. The container fleet in
service grew to approximately 165,000 twenty-foot equivalent units (TEUs) at the
end of March 1995, compared with 147,000 TEUs a year earlier. The average fleet
utilization rate increased to nearly 90 percent in the first quarter of 1995,
from 86 percent in the first quarter of 1994, reflecting growth in international
trade and, therefore, increased demand for leased containers. Lease rates
remained stable.
Less Inventory, Tenant Relocations
For the first quarter of 1995, property leasing operating profit was 11-
percent lower than in the first quarter of 1994. The decrease primarily was
attributable to a smaller inventory of leasable property. In the fourth quarter
of 1994, A&B sold a shopping center in Denver, Colorado with 192,000 square-feet
of leasable space. The Company expects to use the proceeds to acquire, via a
tax-deferred exchange, appropriate replacement property during the second
quarter.
Occupancy rates for the U.S. mainland leased property remained high and the
same as a year ago, at 97 percent. Lease rates remain firm. Due to the
relocation of tenants from an older shopping center on Maui which soon is to be
renovated, Hawaii occupancy rates now are at 89 percent, versus 93 percent in
the first quarter of 1994.
Lower Property Sales Reflect Smaller Inventory
Property sales revenue of $4.1 million in the first quarter of 1995 was $4.5
million lower than in the first quarter of 1994. First-quarter 1995 sales
included three industrial lots at a Kahului, Maui business park and ten
residential subdivision lots at developments on Maui and Kauai. Sales in the
first quarter of 1994 included eight industrial lots at the same Kahului
business park and ten residential subdivision lots on Maui and Kauai. The lower
sales reflect, in large part, a smaller inventory of properties available for
sale. There were 14 developed industrial parcels available for sale in the
first quarter of 1994, versus just four this year.
Poor Market Conditions for Food Products
The food products segment incurred an operating loss for the first quarter of
1995 of $3.8 million, versus a loss of $64,000 in the first quarter of 1994.
High raw sugar prices and depressed refined product prices continued to
disadvantage A&B's sugar-refining and marketing unit, California and Hawaiian
Sugar Company, Inc. (C&H). In addition, A&B's Hawaii plantations had lower
results than in the first quarter of 1994, due to higher production costs per
ton for their sugar.
One-year labor agreements were reached with bargaining units at both
plantations. The previous contracts expired on January 31. Negotiations to
renew contracts with sugar refinery workers at C&H are proceeding. The present
contracts expire on May 31.
The U. S. Congress is proceeding with hearings leading up to renewal of
current U. S. farm programs. A&B is active in industry efforts to structure a
new program that will balance better the needs of all segments of the sweetener
industry.
Interest Rates Higher; Lower Long-Term Balances
Higher interest rates were the primary reason that interest expense for the
first quarter of 1995 was higher than in the first quarter of 1994. Although
long-term obligations were less, short-term financing for sugar inventories
rose.
DOANE NAMED ABHI PRESIDENT, OTHER MANAGEMENT CHANGES
W. Allen Doane, executive vice president and chief operating officer of A&B
Hawaii, Inc., was appointed president and chief operating officer.
Kevin C. O'Rourke, vice president and general counsel of Matson, was appointed
senior vice president and general counsel.
Paul E. Stevens, vice president (marketing) of Matson, was appointed a senior
vice president.
The three changes were effective as of April 27, 1995.
SHARE REPURCHASES CONTINUED
The Company repurchased 250,000 additional shares of its common stock during
the first quarter of 1995. A total of 972,500 shares has been acquired to date
under the repurchase authorization announced in December 1993.
At the Annual Meeting, I had the opportunity to comment on the significance of
1995. It marks the 125th anniversary of A&B's founding. The Company's record
of progress is a remarkable achievement. Our history has been one of a
continuous stream of new challenges and opportunities and of constant change. I
believe that the ability to anticipate and initiate purposeful change has been
one of the Company's secrets to success. The initiatives we have just announced
are in keeping with that tradition.
/s/ John C. Couch
Chairman, President and
Chief Executive Officer
Condensed Statements of Income
(In thousands except per share amounts)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Three Months Ended
March 31
1995 1994
--------- ---------
(unaudited)
Revenue:
Net sales, revenue from services and rentals $ 256,595 $ 248,369
Interest, dividends and other 6,377 6,049
--------- ---------
Total revenue 262,972 254,418
--------- ---------
Costs and Expenses:
Costs of goods sold, services and rentals 210,610 191,927
Selling, general and administrative 31,501 29,470
Interest 7,452 6,843
Income taxes 4,849 9,267
--------- ---------
Total costs and expenses 254,412 237,507
--------- ---------
Net Income $ 8,560 $ 16,911
========= =========
Earnings Per Share $ 0.19 $ 0.37
Dividends Per Share $ 0.22 $ 0.22
Average Number of Shares Outstanding 45,643 46,308
See financial notes.
Industry Segment Data
(In thousands)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Three Months Ended
March 31
1995 1994
--------- ---------
(unaudited)
Revenue:
Ocean Transportation $ 145,042 $ 136,491
Container Leasing 17,250 14,613
Property Development and Management:
Leasing 8,081 8,452
Sales 4,121 8,609
Food Products 87,797 85,448
Other 681 805
--------- ---------
Total $ 262,972 $ 254,418
========= =========
Operating Profit: (1)
Ocean Transportation $ 17,102 $ 22,292
Container Leasing (2) 4,184 3,113
Property Development and Management:
Leasing 5,474 6,176
Sales 1,696 5,535
Food Products (3,842) (64)
Other 613 628
--------- ---------
Total $ 25,227 $ 37,680
========= =========
(1) Before interest expense (except for Container Leasing), corporate expense
and income taxes
(2) After interest expense
See financial notes.
Condensed Balance Sheets
(In thousands)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Three Months Ended
March 31
1995 1994
--------- ---------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 21,827 $ 9,557
Accounts and notes receivable, net 145,864 142,958
Inventories 110,023 90,677
Property held for sale 3,451 4,014
Deferred income taxes 15,451 15,366
Prepaid expenses and other 13,315 14,525
Accrued deposits to Capital
Construction Fund (725) (550)
--------- ---------
Total current assets 309,206 276,547
--------- ---------
Investments 69,166 64,913
--------- ---------
Real Estate Developments 69,360 66,371
--------- ---------
Property, at cost 2,114,627 2,093,829
Less accumulated depreciation
and amortization 836,987 812,283
--------- ---------
Property - net 1,277,640 1,281,546
--------- ---------
Capital Construction Fund 178,580 176,044
--------- ---------
Other Assets 70,369 67,367
--------- ---------
Total $ 1,974,321 $ 1,932,788
=========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term liabilities $ 37,155 $ 35,177
Short-term commercial paper borrowing 78,884 58,000
Accounts payable 42,486 36,545
Other 65,981 75,109
--------- ---------
Total current liabilities 224,506 204,831
--------- ---------
Long-term Liabilities:
Long-term debt 552,083 526,231
Capital lease obligations 32,439 35,274
Post-retirement benefit obligations 117,728 116,610
Other 62,030 67,267
--------- ---------
Total long-term liabilities 764,280 745,382
--------- ---------
Deferred Income Taxes 356,252 349,961
--------- ---------
Shareholders' Equity:
Capital stock 37,307 37,493
Additional capital 39,503 38,862
Unrealized holding gains on securities 31,016 29,073
Retained earnings 535,274 541,910
Cost of treasury stock (13,817) (14,724)
--------- ---------
Total shareholders' equity 629,283 632,614
--------- ---------
Total $ 1,974,321 $ 1,932,788
=========== ===========
See financial notes.
Condensed Statements of Cash Flows
(In thousands)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Three Months Ended
March 31
1995 1994
--------- ---------
(unaudited)
Cash Flows from Operating Activities $ 13,075 $ 27,640
--------- ---------
Cash Flows from Investing Activities:
Capital expenditures (27,612) (21,281)
Proceeds from disposal of property,
investments and other assets 403 734
Deposits into Capital Construction Fund (2,361) (2,449)
Withdrawals from Capital Construction Fund - 9,130
Increase in investments (1,560) (17)
--------- ---------
Net cash used in investing activities (31,130) (13,883)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from issuances of long-term debt 33,000 20,500
Payment of long-term liabilities (8,176) (6,702)
Proceeds from (payments of) issuances of
short-term commercial paper 20,884 (14,000)
Proceeds from issuances of capital stock - 73
Repurchase of capital stock (5,337) (7,500)
Dividends paid (10,046) (10,209)
--------- ---------
Net cash provided by (used in) financing
activities 30,325 (17,838)
--------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents $ 12,270 ($ 4,081)
========= =========
Other Cash Flow Information:
Interest paid, net of amounts capitalized $ 10,753 $ 9,817
Income taxes paid, net of refunds 730 3,869
Other Non-Cash Information:
Accrued deposits to Capital Construction
Fund, net of accrued withdrawals 175 1,583
Depreciation 26,684 26,237
See financial notes.
FINANCIAL NOTES
(Unaudited)
(a) Because of the nature of the Company's operations, the results for interim
periods are not necessarily indicative of results to be expected for the
year, but, in the opinion of management, all material adjustments necessary
for the fair presentation of interim period results have been included in
this interim financial report.
(b) Estimated effective annual income tax rates differ from statutory rates,
primarily due to the dividends deductions and various tax credits.
(c) Certain amounts have been reclassified to conform with the current year
presentation.