PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See the condensed statements of income, balance sheets, statements of cash flows
and financial notes included in the Alexander & Baldwin, Inc. (the Company) 1995
third quarter interim report. This report is included as Exhibit 20 and is
incorporated herein by reference.
The financial information referred to in the preceding paragraph is to be read
in conjunction with the following additional financial note:
(g) As discussed in note (e), XTRA Corporation acquired certain assets and
assumed certain liabilities of Matson Leasing Company, Inc. (Matson
Leasing), for approximately $360 million, subject to an independent
audit. The condensed statements of income related to the discontinued
container leasing segment are presented below (in thousands):
Three Months Nine Months
Ended Ended
September 30 September 30
1995 1994 1995 1994
------- ------- ------- -------
Revenue - $16,430 $35,344 $46,509
Costs and
Expenses - (11,952) (26,780) (34,624)
------- ------- ------- -------
Income before
Income Taxes - 4,478 8,564 11,885
Income Tax
Expense - ( 1,690) ( 3,228) ( 4,479)
------- ------- ------- -------
Net Income - $ 2,788 $ 5,336 $ 7,406
======= ======= ======= =======
Net assets of the discontinued container leasing segment at December
31, 1994 were as follows (in thousands):
Accounts receivable $ 13,802
Property, net 305,874
Other assets 1,027
Liabilities (7,013)
---------
Net assets $ 313,690
=========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIRD QUARTER EVENTS:
Operating Results: The third quarter 1995 net income was $10,345,000, or $0.23
per share. Net income for the comparable period of 1994 was $13,812,000, or
$0.30 per share. 1994 third quarter net income included $2,788,000, or $0.06
per share, from the operations of Matson Leasing, a subsidiary whose net assets
were sold in June 1995.
1995 year-to-date income was $42,381,000, or $0.93 per share, versus
$51,657,000, or $1.12 per share, for the first nine months of 1994. 1995 income
included $5,336,000, or $0.12 per share, for the discontinued operations of
Matson Leasing and a gain of $17,206,000, or $0.38 per share, on its sale. Net
income for the first nine months of 1994 included $7,406,000, or $0.16 per
share, for the discontinued operations. 1995 nine-months results included an
after-tax charge of $5,050,000, or $0.11 per share, for closing unprofitable
sugar-growing operations at the Company's plantation on the island of Kauai.
This charge was recorded in the second quarter of 1995 and is discussed in
greater detail below.
Labor Relations: On September 8, 1995, the members of the Sugar Workers Union
No. 1, AFL-CIO Seafarers International Union of North America, went on strike at
California and Hawaiian Sugar Company, Inc.'s (C&H) principal sugar refinery
located in Crockett, California. A settlement of the strike was reached on
October 17, 1995 when the union voted to accept a new three-year contract.
During the strike, all operations at the C&H refinery were shut down. Full
refinery operations had resumed by October 20, 1995. The main impacts of the
strike were lower quarterly revenue and an increased loss for the food products
segment. The estimated negative impact from the strike on the third quarter
operating profit was about $2 million. During the strike, C&H increased its
borrowing under its short-term commercial paper notes in order to fund advances
to growers and other ongoing charges.
Discontinued Operations: As described in notes (e) and (g) to the financial
statements, on June 30, 1995, the containers and certain other assets of Matson
Leasing were sold to XTRA Corporation, and certain liabilities of Matson Leasing
were assumed by XTRA Corporation, for approximately $360 million. Specifically
excluded from the transaction were Matson Leasing's long-term debt and U.S. tax
obligations. The proceeds from the sale have been principally used to repay
debt, to pay tax obligations and to fund capital needs of Matson Navigation
Company, Inc. (Matson).
Pacific Alliance: In April 1995, the Company and American President Companies,
Ltd. announced that their respective shipping subsidiaries had signed a
memorandum of understanding that outlined a 10-year strategic operating
alliance. The two companies subsequently entered into an "Agreement to
Implement the Execution and Closing of the Vessel Purchase, Purchase of Guam
Assets and Alliance Slot Hire Agreement" dated September 22, 1995 (included as
Exhibit 10.a.(xxix) to the Form 10-Q). This agreement contemplates Matson's
purchase of six containerships and certain assets on Guam from American
President Lines, Ltd. (APL) for approximately $163 million and the sharing of
cargo-carrying capacity for five Matson vessels, including four of the ships
acquired from APL. Under a separate 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. A partial closing of the
transaction involving one vessel is scheduled in December 1995, with the
remaining portion of the transaction expected to close in January 1996. Funds
for the ship purchases are expected to come from the proceeds from the sale of
Matson Leasing's net assets. The new Alliance service would begin in early
1996.
Stock Repurchases: There were no repurchases of the Company's common stock
during the third quarter of 1995. On October 2, 1995, the Company repurchased
261,434 shares of its common stock, bringing the 1995 repurchases to 511,434
shares. The Company has repurchased a total of 1,233,934 shares for $29.3
million since the two million share repurchase program was authorized by the
Board of Directors in December 1993.
Other: In September 1995, the Company began implementing cost control
initiatives affecting all segments of its businesses. Included in these
initiatives are the sale of an airplane, the freezing of executive salaries, the
elimination of Company-owned executive automobiles, staff reductions and process
improvements. Total Company-wide staff reductions among non-bargaining
personnel are expected to be approximately 120 positions. This represents
approximately ten percent of the Company's non-bargaining unit work force.
These staff reductions are expected to be accomplished through layoffs,
attrition and retirements, and exclude reductions associated with the sale
of Matson Leasing and the phasing out of sugar operations on Kauai. In
October, the Company eliminated 40 non-bargaining unit positions from its
corporate headquarters, its real-estate business and its Maui sugar
plantation and trucking businesses.
FINANCIAL CONDITION AND LIQUIDITY:
The Company's principal liquid resources, comprising cash and cash equivalents,
trade receivables, sugar inventories and unused lines of credit, less accrued
deposits to the Capital Construction Fund (CCF), totaled $440.4 million at
September 30, 1995, an increase of $12.4 million from December 31, 1994 (after
restating the balance sheet to reflect the discontinued operations of Matson
Leasing). The $12.4 million increase resulted from a $43.6 million increase in
cash and cash equivalents and a $28.9 million increase in receivables, partially
offset by an increase of $23.2 million in accrued deposits to the CCF, a $20.8
million reduction in available unused lines of credit and a $16.1 million
reduction in sugar inventories. The increase in cash and cash equivalents, the
increase in accrued deposits to the CCF and the reduction of available credit
facilities were primarily the result of cash available following the sale of
Matson Leasing's net assets. Receivables increased primarily due to an $18
million increase in amounts advanced by the Company to Hawaii sugarcane growers
and increases in trade receivables. The increased receivables were primarily in
the ocean transportation segment. The advances to growers consist of payments
made to the Hawaii sugarcane growers, pursuant to a supply with the Company.
The Company makes advances to the growers as they produce sugarcane for future
delivery to C&H. The advances are later deducted from the Company's actual
purchase price of the raw sugar.
Working capital totaled $66.8 million at September 30, 1995, an increase of $8.8
million from that at 1994 year-end (after restating the balance sheet to reflect
the discontinued operations of Matson Leasing). This increase was primarily due
to the previously mentioned increase of $43.6 million in cash and cash
equivalents, the $28.9 million increase in receivable balances and the reduction
of $15.9 million in trade accounts payable, partially offset by the previously
mentioned $23.2 million increase in accrued deposits to the CCF, an increase of
$25 million in short-term commercial paper borrowing, a $15 million reduction in
sugar and materials and supplies inventories and an $8.6 million reduction in
current deferred income tax assets. Approximately $10.9 million of the increase
in the trade receivable balances was due to normal business fluctuations. The
remaining $18 million increase in the receivable balance resulted from the
increased advances to sugarcane growers as noted in the previous paragraph. The
reduction in inventories and the increase in short-term commercial paper
borrowing resulted from seasonal business activities in the food products
segment and from the C&H strike. The increase in cash and cash equivalents and
the decrease in payables were residual impacts of the cash received from the
sale of Matson Leasing's net assets.
RESULTS OF SEGMENT OPERATIONS - THIRD QUARTER 1995 COMPARED WITH THE THIRD
QUARTER 1994:
The following analysis is based on a comparison of third quarter 1995 results
with those for third quarter 1994, which have been restated to reflect the sale
of Matson Leasing.
Ocean Transportation
For the third quarter of 1995, ocean transportation revenue of $150.5 million
declined three percent compared with 1994 third quarter levels. Operating
profit, however, of $26.6 million was 20 percent higher than in the third
quarter of 1994.
The revenue decline was attributable primarily to lower container cargo volume
in the Hawaii service. Hawaii container volume in the third quarter declined
nine percent compared with the third quarter of 1994. Automobile volume
declined 18 percent during that same period. Both of these declines reflect the
continuing weaknesses in certain sectors of Hawaii's economy, most notably
construction and sales of automobiles and durable goods.
The increase in operating profit was primarily due to greater interest income,
lower fuel prices, reduced operating and overhead expenses and improved results
in the Pacific Coast Shuttle Service, partially offset by the previously
mentioned lower cargo volume in the Hawaii service. Interest income increased
because Matson Leasing sales proceeds increased short term investments.
During the third quarter, as part of the Company's cost reduction efforts noted
earlier, the customer service operations of this segment began relocation to be
consolidated and relocated to Phoenix, Arizona. Additional cost control
initiatives are being undertaken to improve operating results.
Revised Federal Maritime Commission (FMC) guidelines for determining a just and
reasonable rate of return for the ocean transportation business became effective
on October 5, 1995. The changes to the FMC's guidelines are not expected to
have a material impact on the segment's future operating results.
Property Development and Management - Leasing
For the third quarter of 1995, property leasing revenue of $8.7 million
increased five percent and operating profit of $6 million increased six percent
compared with 1994 third quarter levels. The increases were attributable
primarily to the start of ground lease revenue for a new Costco facility on Maui
and higher contributions from Mainland property leases. Property leasing
operations also benefited from the second quarter purchase of two shopping
centers, one near Reno, Nevada and the other in Greely, Colorado, using the tax-
deferred proceeds from a 1994 sale of a Denver shopping center.
Property Development and Management - Sales
Total third-quarter 1995 property sales revenue was $2.4 million, a slight
increase from the $2.1 million recorded in the third quarter of 1994. Operating
profit for the quarter, however, was about half of the 1994 third quarter
amount. Sales in the third quarter of 1995 included 15 residential subdivision
lots and condominium units, versus 20 subdivision lots in the same quarter of
1994. The lower operating profit was the result of the sales mix because the
sales of subdivision lots have a greater profit margin than do those of
developed condominium units.
Food Products
For the third quarter of 1995, food products revenue of $83.9 million decreased
nearly 30 percent compared with 1994 third quarter levels. The third quarter
operating loss was $4.3 million compared with an operating loss of $1.4 million
in the third quarter of 1994.
The previously discussed strike by members of the Sugar Workers Union No. 1,
AFL-CIO Seafarers International Union of North America, resulted in closure of
C&H's primary refinery for nearly a month. As a consequence, sales of refined
sugar during September declined sharply. Approximately $2 million of the
segment's operating loss was attributable to the strike. The continuing high
raw sugar costs, which reached a 14-year high, and depressed refined sugar
prices also continued to pressure operating margins at C&H. The results of
operations at the Company's Hawaii sugar plantations were lower than in the
third quarter of 1994 due to higher raw sugar production costs per ton, a
consequence of lower yields.
A further discussion of the Company's efforts to improve this segment's results
is included in the analysis of year-to-date results.
OTHER ANALYSIS:
Interest Expense
For the third quarter of 1995, reported interest expense was $9,513,000,
compared with $6,457,000 for the third quarter of 1994. As described in
financial note (f), interest expense of Matson Leasing had been classified as an
operating expense prior to the sale of the business. Since the long-term debt
of Matson Leasing was not assumed by XTRA Corporation, the debt reverted to
Matson and a portion of the debt was repaid during the third quarter. Interest
on the remaining debt, from July 1, 1995 forward, has been classified as
interest expense. Gross interest expense for the third quarter of 1994, before
reclassifying Matson Leasing's interest as operating expense, was $9,787,000.
RESULTS OF SEGMENT OPERATIONS - FIRST NINE MONTHS OF 1995 COMPARED WITH THE
FIRST NINE MONTHS OF 1994:
The following analysis is based on a comparison of the results for the first
nine months of 1995 with the results for the first nine months of 1994, which
have been restated to reflect the sale of Matson Leasing.
Ocean Transportation
For the first nine months of 1995, compared with the same period of 1994, ocean
transportation revenue declined by about one percent, from $450.4 million to
$445.2 million. 1995 operating profit of $64.5 million declined by 13 percent
compared with 1994, primarily due to lower cargo and higher fuel prices during
the first half of the year. During the first nine months of 1995, Hawaii
container cargo declined eight percent and automobile volume declined seven
percent.
Property Development and Management - Leasing
Property leasing revenue of $25.3 million for the first nine months of 1995
increased slightly compared with 1994, but operating profit fell three percent,
between the same periods, to $17.2 million. The reduction in operating profit
was the result of the late 1994 sale of a Denver shopping center, the tax-
deferred proceeds of which were not reinvested until late in the second quarter
of 1995. In addition, the Costco ground lease, which was discussed earlier, did
not commence until the third quarter of 1995.
Occupancy rates for the U.S. Mainland property portfolio averaged 97 percent at
the end of the third quarter, compared with 96 percent a year earlier. Hawaii
occupancy rates, however, weakened slightly to 90 percent at September 30, 1995,
compared with 93 percent a year earlier. This weakening was the result of the
continued soft Hawaii economy.
Property Development and Management - Sales
Property sales revenue of $9.4 million for the first nine months of 1995 was
lower than the $14.8 million recorded during the first nine months of 1994.
Operating profit from property sales for the first nine months of 1995 was about
one-third of that for the comparable period of 1994.
1994 year-to-date results included the sale of two prime, undeveloped acres of
land near the harbor at Kahului, Maui. No similar undeveloped land sales
occurred in the first nine months of 1995. Also during the first nine months of
1995, 29 residential subdivision lots and condominium units were sold, compared
with the sales of 32 subdivision lots during the same period of 1994.
The mix of property sales in any given period can be diverse. These sales can
include property sold under threat of condemnation, developed residential real-
estate, commercial properties, developable subdivision lots and undeveloped
land. The sale of undeveloped land and subdivision lots generally contribute
more to operating profit than the sale of developed and commercial property, due
to the low cost basis of Hawaii land in the Company's accounting records. The
Company's historical Hawaii land cost is approximately $145 per acre.
Consequently, property sales revenue trends and the current asset balance of
property held for sale are not necessarily indicators of future profitability
for this segment.
Food Products
Revenue for the first nine months of 1995 was $280.3 million, compared with
$307.6 million for the comparable period of 1994. The lower revenue was mainly
due to the C&H strike. For the first nine months of 1995, the food products
operating loss was $19.6 million, compared with an operating loss of $1.5
million for the first nine months of 1994.
In June 1995, the Company began the closure of its sugar plantation on Kauai.
The final sugarcane harvest for the plantation is expected to be completed in
September 1996. Pre-tax closure costs of $8.1 million were recorded in the
second quarter of the year, contributing to the significant loss in the food
products segment for the year.
The principal components of the $8.1 million closure cost included the write-off
of the Koloa factory and other sugar-related fixed assets, materials and
supplies inventories, severance costs (determined by bargaining unit contracts
and Company policies), and self insurance medical and workers compensation
costs, partially offset by pension and post-retirement benefit plan curtailment
gains. Approximately 200 employees will be laid-off during the closure process.
Sugar production is continuing at the Company's Maui plantation.
Also contributing to the current year operating loss were lower yields at the
Company's Maui sugar plantation, increases in raw cane sugar prices, relatively
low refined sugar prices, and the strike by a C&H labor union.
As discussed in the 1994 Annual Report to Shareholders, management is concerned
about the significant losses in this business segment and is actively working to
return the operating results to acceptable levels.
Recently, due to the declining sugar yields at the Company's Maui plantation, a
task force, comprised of industry specialists, was formed to study this problem
and to make recommendations to the Company. Results of this study indicate that
the yield declines are temporary and have been caused by water and fertilizer
deficiencies which are correctable. The lower yields, however, may continue into
1996 due to the two-year crop cycles of Hawaiian sugarcane.
Since the Company's acquisition of C&H, a number of initiatives are underway or
have been implemented to lower costs and increase revenue in the sugar refining
operation. Construction is continuing, by a third party, of a 240 megawatt
cogeneration plant adjacent to C&H's primary refinery in Crockett, California.
When operational in 1996, the plant will be used to power the C&H refinery,
significantly reducing its energy costs. Operating improvements are also being
made within the refinery. These improvements will increase its capacity to
handle foreign sugar and will upgrade several packaging lines. Opportunities
for product expansions continue to be evaluated.
Unlike other types of commodity-oriented businesses, the price support
mechanisms of the current sugar program limit the ability of refined sugar
prices to move in parallel with the changes in raw sugar prices. With raw sugar
prices having reached a 14-year high during the year and relatively low refined
prices continuing, the prospects for profitability of this segment are reduced
significantly. The ineffective administration of the current support program,
combined with an excess supply of beet sugar, continue to place severe pressure
on the sugarcane refining margins of the Company.
The Company's sugar producing and refining businesses may be impacted
significantly by the farm legislation which is currently being considered by
Congress. The impact of these deliberations on the Company's operations cannot
be projected at this time. Management believes that this impact could be
material to the future prospects for the Company's cane sugar refining and
growing operations. The Company is actively participating with industry groups
and Congressional representatives on issues related to sugar legislation.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10. Material contracts.
10.a.(xxix) Agreement to Implement the Execution and Closing of
Vessel Purchase, Purchase of Guam Assets and Alliance Slot Hire
Agreement between Matson Navigation Company, Inc. and American
President Lines, Ltd., dated as of September 22, 1995.
11. Statement re computation of per share earnings.
20. Report furnished to security holders.
(i) Condensed Balance Sheets, Condensed Statements of Income,
Condensed Statements of Cash Flows and Financial Notes as
appearing in the Alexander & Baldwin, Inc. Interim
Report/Third Quarter 1995.
27. Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALEXANDER & BALDWIN, INC.
(Registrant)
Date: November 13, 1995 /s/ Glenn R. Rogers
Glenn R. Rogers
Vice President and Chief
Financial Officer
Date: November 13, 1995 /s/ G. Stephen Holaday
G. Stephen Holaday
Vice President and Controller