Exhibit 20
Cover Photo: The world-famous windsurfing spot, Ho'okipa Beach Park, is the
point of this aerial view of Maui's North Shore. The photo also shows many
acres of sugar cane undeer cultivation by Hawaiian Commercial & Sugar Company
(HC&S), a division of A&B-Hawaii, Inc. The town of Kahului is far in the
background.
July 28, 1995
TO OUR SHAREHOLDERS
The net income of Alexander & Baldwin, Inc. (A&B) for the second quarter of
1995 was $23,476,000, or $0.51 per share. Net income for the comparable period
of 1994 was $20,934,000, or $0.45 per share. Net income for the first half of
1995 was $32,036,000, or $0.70 per share, versus $37,845,000, or $0.82 per
share, in 1994.
The 1995 results benefited from an after-tax gain on the sale of the
container-leasing business of Matson Leasing Company, Inc., of $17,206,000,
or $0.38 per share, partially offset by an after-tax charge of $5,050,000,
or $0.11 per share, for phasing out sugar-growing operations at the Company's
McBryde plantation on the island of Kauai.
THIRD-QUARTER DIVIDEND
On June 22, 1995, the Board of Directors authorized a third-quarter dividend
of $0.22 per share, payable on September 7, 1995 to shareholders of record as
of the close of business on August 3, 1995.
OPERATING PROFIT, SEGMENT SUMMARIES
Consolidated operating profit for both the second quarter and the first half
of 1995 was substantially lower than in the same periods of 1994. Comparisons
between the periods for each business segment are explained in the following
sections.
Lower Cargo Hampers Matson's Results
Ocean transportation operating profit in the second quarter of 1995 declined
by 30 percent, primarily the result of lower cargo volume in the Hawaii service
of Matson Navigation Company, Inc. (Matson) and higher fuel costs. In the
second quarter of 1994, a competitor's operations were disrupted by a strike,
which boosted Matson's carriage during that quarter. Partly because of that
additional volume in the prior year, comparison of Matson's total second-quarter
1995 Hawaii container volume with that of the 1994 second quarter reflects a
decline of 10 percent. Matson's total Hawaii automobile volume declined five
percent.
For the first half of 1995, ocean transportation operating profit declined by
27 percent, also primarily due to lower cargo and higher fuel costs. For that
period, Matson's total Hawaii container volume was down eight percent and its
total automobile volume was down two percent.
In spite of a small operating loss in the second quarter, results for Matson's
Pacific Coast Shuttle service, now nearing its first anniversary of service, are
continuing to improve. In addition, the process of due diligence continues on
the previously announced proposed strategic operating alliance with American
President Lines, Ltd. If final approvals are received, the agreement would
close in the fourth quarter and the new service would begin at the start of
1996.
XTRA PURCHASES MATSON LEASING FOR $360 MILLION
As previously announced, the sale of Matson Leasing closed on June 30, 1995.
The buyer, XTRA Corporation (XTRA), acquired all the containers and certain
other assets and assumed certain liabilities of Matson Leasing as of that date
for approximately $360 million. The container leasing segment results now are
classified as "discontinued operations." As a result, both revenue and
operating profit for prior periods have been restated.
Since its founding in 1989, Matson Leasing set a fast pace, rising from a
start-up to the seventh-largest international marine container leasing company.
A primary reason for that success was Matson Leasing's strong management team.
That team now will continue, intact, as part of the XTRA organization.
With this sale, A&B will strengthen its balance sheet and have a greater
ability to pursue capital investment opportunities in its remaining core
businesses, especially in ocean transportation and property development.
Income Property Portfolio Increases
Second-quarter 1995 property leasing operating profit was three-percent less
than that in the comparable period in 1994. Property leasing operating profit
for the first six months of 1995 was seven-percent lower than in the first half
of 1994. The portfolio benefited from continuing high occupancy levels for
Mainland properties, where year-to-date occupancy rates averaged 97 percent,
versus 96 percent last year. Occupancy levels for Hawaii properties averaged 89
percent, versus 94 percent last year. A smaller portfolio of leasable property,
due to the sale last year of a shopping center in Denver, Colorado, contributed
to the decreases in operating profit in the second quarter and the first half.
Two properties ---- shopping centers near Reno, Nevada and Greeley, Colorado -
- --- were acquired late in the second quarter, using tax-deferred proceeds from
the Denver sale. Their combined contribution to operating profit should exceed
that of the Denver property.
Earnings also commenced late in the second quarter from a ground lease for a
newly-opened Costco Wholesale Warehouse facility located in Kahului, Maui.
1995 Property Sales Lower
Total second-quarter 1995 property sales revenue was $2.9 million, versus $4.1
million recorded in the second quarter of 1994. Operating profit this quarter
was about half the 1994 figure. Sales in the second quarter of 1995 included
several small, developed business lots, an unimproved parcel and four
residential lots. Sales in the second quarter of 1994 included a two-acre
parcel near the harbor at Kahului, Maui, one developed business lot and two
small, undeveloped parcels.
Property sales revenue of $7.0 million in the first half of 1995 was lower
than the $12.7 million recorded in the first half of 1994. Operating profit
from property sales for the first half was about one-third of that in the first
six months of 1994.
During the second quarter, construction began on the first phase of the 76-
acre Maui Business Park (a project formerly called Kahului Industrial Park). A
final agreement involving 19.5 acres in the Park to be developed into a retail
center is expected to be executed by year-end with a prominent Hawaii developer.
Construction of project infrastructure also began for the 92-home, 21-acre
Makana subdivision on the North Shore of Maui. If market conditions are
promising, a marketing and sales program will commence in late 1995 or early
1996. Sales activities also were initiated in the second quarter at the 102-
unit Kahului Ikena residential condominium project.
In early May, the State Land Use Commission approved a petition to grant State
urban district classification on an incremental basis for the balance of the
1,045-acre Kukui'ula planned residential community on Kauai. Construction on
the project remains suspended pending better economic conditions on that island.
A&B now is pursuing the next entitlement step, which is County zoning to create
a 727-acre first phase, so as to be prepared to move ahead when conditions
warrant.
Kauai Sugar to Phase Out;
Sugar Refining Losses Persist
Food products operating results declined substantially in the second quarter
of 1995 versus the same period in 1994. The segment broke even in the second
quarter of 1994, but there was a loss of $11.4 million in the second quarter
this year, which included an $8.1 million pre-tax charge for phasing out sugar
operations at the McBryde plantation on Kauai. Results in the second quarter of
1995 also reflect a larger operating loss at California and Hawaiian Sugar
Company, Inc. (C&H) and lower operating profit for sugar growing.
At McBryde, the phase-out announced on June 22 began with the immediate
cessation of cane planting. Harvesting of sugar cane will, however, continue
until September 1996. The Company's primary agricultural focus on Kauai now
will be on the coffee-growing activities at its Island Coffee Company, Inc.
subsidiary. Island Coffee is one of the largest drip-irrigated coffee
plantations in the world, with nearly 4,000 acres under cultivation. A&B's
sugar-growing activities henceforth will be concentrated at HC&S, the Company's
substantially larger and more efficient plantation on Maui.
Sugar refining operations of C&H were hurt by unusually high raw cane sugar
prices and continuing relatively low refined product prices. Although the
contracts with two labor units expired on May 31, 1995, refinery operations at
C&H are continuing without a contract at this time.
Legislation that will affect many agricultural commodities, including sugar,
presently is being considered by the Congress. A&B continues to work with the
sweetener industry and congressional representatives in an effort to include an
effective and fair domestic sugar program in this legislation.
1995 ---- INITIATIVES LEAD TO A TRANSITION
After growing rapidly for the past 30 years, Hawaii's economy has experienced
declines or no growth in the last four years, and prospects for a near-term
recovery remain uncertain. Faced with such uncertainty, businesses like ours
cannot afford simply to wait for the economic environment
to improve.
That is why we initiated the projects announced recently, including the sale
of Matson Leasing, the agreement for development of a substantial retail
facility at our new Maui Business Park, the decision to phase out sugar at
McBryde, the acquisition of additional income-producing properties on the
Mainland and the proposed alliance between Matson and American President Lines,
as well as last year's start-up of Matson's new Pacific Coast Shuttle service.
These, and other initiatives being planned, are essential to ensure the
Company's continued growth and profitability.
/s/ John C. Couch
John C. Couch
Chairman, President and
Chief Executive Officer
Condensed Balance Sheets
(In thousands)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
June 30 December 31
1995 1994
---------- ----------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $367,452 $8,987
Accounts and notes receivable, net 147,630 129,156
Inventories 98,793 90,677
Property held for sale 3,200 4,014
Deferred income taxes 13,982 21,347
Prepaid expenses and other 9,724 14,127
Accrued deposits to Capital
Construction Fund (146,511) (550)
---------- ----------
Total current assets 494,270 267,758
---------- ----------
Investments 74,059 64,913
---------- ----------
Real Estate Developments 66,523 66,371
---------- ----------
Property, at cost 1,730,283 1,720,390
Less accumulated depreciation
and amortization 753,855 744,718
---------- ----------
Property - net 976,428 975,672
---------- ----------
Capital Construction Fund 327,033 176,044
Net Assets of Discontinued ---------- ----------
Operations (Note f) - 313,690
---------- ----------
Other Assets 48,742 67,713
---------- ----------
Total $1,987,055 $1,932,161
========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term liabilities $144,210 $35,177
Short-term commercial paper borrowing 76,000 58,000
Accounts payable 40,409 51,757
Other 99,675 64,778
---------- ----------
Total current liabilities 360,294 209,712
---------- ----------
Long-term Liabilities:
Long-term debt 437,829 526,231
Capital lease obligations 30,305 35,274
Post-retirement benefit obligations 118,988 116,610
Other 55,955 61,759
---------- ----------
Total long-term liabilities 643,077 739,874
---------- ----------
Deferred Income Taxes 347,920 349,961
---------- ----------
Shareholders' Equity:
Capital stock 37,307 37,493
Additional capital 39,541 38,862
Unrealized holding gains on securities 34,049 29,073
Retained earnings 538,684 541,910
Cost of treasury stock (13,817) (14,724)
---------- ----------
Total shareholders' equity 635,764 632,614
---------- ----------
Total $1,987,055 $1,932,161
========== ==========
See financial notes.
Condensed Statements of Income
(In thousands except per share amounts)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 (1) 1995 1994 (1)
-------- -------- -------- --------
(unaudited) (unaudited)
Revenue:
Net sales, revenue from services and rentals $264,581 $271,181 $504,122 $504,989
Interest, dividends and other 5,686 4,494 11,867 10,491
-------- -------- -------- --------
Total revenue 270,267 275,675 515,989 515,480
-------- -------- -------- --------
Costs and Expenses:
Costs of goods sold, services and rentals 221,864 213,110 422,097 395,494
Selling, general and administrative 27,151 27,350 55,963 54,863
Plantation closure (Note e) 8,100 - 8,100 -
Interest 7,711 7,102 15,163 13,945
Income taxes 1,901 9,847 5,172 17,951
-------- -------- -------- --------
Total costs and expenses 266,727 257,409 506,495 482,253
-------- -------- -------- --------
Income from continuing operations 3,540 18,266 9,494 33,227
Discontinued Operations (Note f):
Income from operations of Matson Leasing Co.
(less applicable income taxes) 2,730 2,668 5,336 4,618
Gain on sale of Matson Leasing Co.
(less applicable income taxes of $9,100) 17,206 - 17,206 -
-------- -------- -------- --------
Net Income $23,476 $20,934 $32,036 $37,845
======== ======== ======== ========
Earnings Per Share:
Continuing Operations $0.08 $0.39 $0.21 $0.72
Discontinued Operations $0.43 $0.06 $0.49 $0.10
-------- -------- -------- --------
Total $0.51 $0.45 $0.70 $0.82
======== ======== ======== ========
Dividends Per Share $0.22 $0.22 $0.44 $0.44
Average Number of Shares Outstanding 45,513 46,091 45,578 46,199
Industry Segment Data (In thousands)
Revenue:
Ocean Transportation $149,663 $159,403 $294,705 $295,894
Property Development and Management:
Leasing 8,441 8,315 16,522 16,767
Sales 2,874 4,082 6,995 12,691
Food Products 108,588 103,209 196,385 188,657
Other 701 666 1,382 1,471
-------- -------- -------- --------
Total $270,267 $275,675 $515,989 $515,480
======== ======== ======== ========
Operating Profit: (2)
Ocean Transportation $20,855 $29,591 $37,957 $51,883
Property Development and Management:
Leasing 5,729 5,896 11,203 12,072
Sales 1,524 3,124 3,220 8,659
Food Products :
Before Plantation Closure (3,288) 14 (7,130) (50)
Plantation Closure (8,100) - (8,100) -
Other 656 733 1,269 1,361
-------- -------- -------- --------
Total $17,376 $39,358 $38,419 $73,925
======== ======== ======== ========
(1) Restated to exclude discontinued operations
(2) Before interest expense, corporate expense and income taxes
See financial notes.
Condensed Statements of Cash Flows
(In thousands)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Six Months Ended June 30 1995 1994
- ---------------------------------------------------------------------------------------------
(unaudited)
Cash Flows from Continuing Operating Activities $48,342 $50,681
------- -------
Cash Flows from Continuing Investing Activities:
Capital expenditures (27,681) (30,986)
Proceeds from sale of subsidiary 357,471 -
Proceeds from disposal of property,
investments and other assets 185 617
Deposits into Capital Construction Fund (5,173) (4,764)
Withdrawals from Capital Construction Fund 145 9,711
Increase in investments (1,616) (15)
------- -------
Net cash provided by (used in) continuing
investing activities 323,331 (25,437)
------- -------
Cash Flows from Continuing Financing Activities:
Proceeds from issuances of long-term debt 40,000 25,500
Payment of long-term liabilities (24,597) (22,135)
Proceeds from issuances of
short-term commercial paper 18,000 3,000
Proceeds from issuances of capital stock - 73
Repurchase of capital stock (5,337) (10,278)
Dividends paid (20,059) (20,353)
------- -------
Net cash provided by (used in)
continuing financing activities 8,007 (24,193)
------- -------
Net Increase in Cash and Cash
Equivalents From Continuing Operations $379,680 $1,051
======== =======
Net Increase (Decrease) in Cash and Cash Equivalents
From Discontinued Operations (Note f) ($21,785) $3,645
======== =======
Other Cash Flow Information:
Interest paid, net of amounts capitalized $21,843 $20,144
Income taxes paid, net of refunds 1,191 12,875
Other Non-Cash Information:
Accrued deposits to Capital Construction
Fund, net of accrued withdrawals 145,961 2,006
Depreciation 53,797 52,167
Cash dividends accrued 10,013 10,120
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-received deductions and various tax credits.
(c) Certain amounts have been reclassified to conform with current year
presentation.
(d) Dividends payable in September 1995 and 1994 ($0.22 per share) were
declared and accrued as liabilities in June of the respective years.
(e) In June 1995, the Company announced the restructuring of its
agricultural operations in Hawaii with the phase out of sugar production at
its McBryde Sugar Company, Limited subsidiary on Kauai. The restructuring
costs of $8.1 million are shown as a separate item in the accompanying
income statements.
(f) On June 30, 1995, the Company sold the containers and certain other assets
and liabilities of Matson Leasing Company, Inc. to XTRA Corporation for
approximately $360 million. Accordingly, the container leasing segment is
reported as a discontinued operation at June 30, 1995, and the consolidated
financial statements separately report the net assets, operating results
and cash flows of the business. The amounts presented for prior periods
have been restated for comparability.
The sale resulted in a pre-tax gain of $26.3 million, which included the
gain on the sale of assets less estimated costs to be incurred in
connection with the sale. The Company plans to use the proceeds from the
sale to repay debt and to meet the capital needs of the remaining segments.