EXHIBIT 20 ALEXANDER & BALDWIN, INC. INTERIM REPORT TO SHAREHOLDERS THIRD QUARTER, 1995 [Cover Photo: At capacity -- Matson's flagship, MVR.J. Pfeiffer, carrying a record cargo. Plans call for this fuel-efficient ship to join several other vessels, to be purchased from American president Lines, in Matson's new Pacific Alliance service early in 1996.] October 27, 1995 To Our Shareholders The third quarter 1995 net income of Alexander & Baldwin, Inc. (A&B) 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. Net income in the 1994 quarter included $2,788,000, or $0.06 per share, from operations of Matson Leasing Company, Inc. (Matson Leasing), a subsidiary whose net assets were sold in June 1995. Net income for the first nine months of 1995 was $42,381,000, or $0.93 per share, versus $51,657,000, or $1.12 per share, in 1994. Net income in the first nine months of 1995 included $5,336,000, or $0.12 per share, from operations of Matson Leasing and a gain of $17,206,000, or $0.38 per share, on its sale. Net income in the first nine months of 1994 included $7,406,000, or $0.16 per share, from Matson Leasing operations. The 1995 nine-month 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 McBryde plantation on the island of Kauai. This charge was recorded in the second quarter of 1995. Fourth-Quarter Dividend On October 26, 1995, the Board of Directors authorized a fourth-quarter dividend of $0.22 per share, payable on December 7, 1995 to shareholders of record as of the close of business on November 9, 1995. Operating Profit, Segment Summaries Consolidated operating profit from continuing operations for the third quarter of this year was five percent higher than in the third quarter of 1994. Consolidated operating profit from continuing operations for the first nine months of 1995, however, was substantially lower than in the same period of 1994. Comparisons between the periods for each business segment are explained in the following sections. Interest Income Boosts Matson's Results Ocean transportation operating profit in the third quarter of 1995 rose by 20 percent, primarily due to greater interest income from higher investment balances, lower fuel prices, reduced operating and overhead expenses, and improved results in the Pacific Coast service. These improvements were partially offset by lower cargo volume in the Hawaii service. Hawaii container volume in the third-quarter of 1995 declined nine percent compared with the third quarter of 1994, primarily the result of continuing weakness in some sectors of Hawaii's economy. Comparing the same periods, Matson's Hawaii automobile volume declined by 18 percent. The higher investment balances result from the net proceeds of the sale of Matson Leasing. Certain of these funds are planned to be used in early 1996 to acquire vessels from American President Lines, Ltd. (APL) in a previously announced transaction. For the first nine months of 1995, ocean transportation operating profit declined by 13 percent, primarily due to lower cargo and higher fuel costs. For that period, Matson's Hawaii container volume was down eight percent and automobile volume was down seven percent. Income Property Results Higher Third-quarter 1995 property leasing operating profit was six-percent greater than in the comparable period in 1994. The improvement was primarily due to the start of ground lease revenue for a new Costco facility in Kahului, Maui, and higher contributions from Mainland properties. Property leasing operating profit for the first nine months of 1995 was three- percent lower than in the first nine months of 1994. Earlier in 1995, the leased property portfolio was smaller, due to the sale late in 1994 of a Denver shopping center, and because the Costco lease had not yet started. The leased property results are benefiting 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 developed Hawaii properties averaged 90 percent, versus 93 percent last year. Property Sales Low In Third Quarters 1994 and 1995 Total third-quarter 1995 property sales revenue was $2.4 million, versus $2.1 million recorded in the third quarter of 1994. Operating profit this quarter was about half of the 1994 figure. Sales in the third quarter of 1995 included 15 residential subdivision lots and condominium units, versus 20 subdivision lots in the same period of 1994. Property sales revenue of $9.4 million in the first nine months of 1995 was lower than the $14.8 million recorded in the first nine months of 1994. Operating profit from property sales for the first nine months was about one- third of that in the first nine months of 1994. 1994 results included a sale of two prime, undeveloped acres near the harbor at Kahului, Maui. There were an aggregate of 29 residential subdivision lots and condominium units sold in the first nine months of 1995, versus 32 lots during that period last year. C&H Strike, Lower Sugar Production Food products operating losses increased in the third quarter of 1995 versus the same period in 1994. Results in the third quarter of 1995 reflect low refiner margins and a strike at California and Hawaiian Sugar Company, Inc. (C&H) by members of Sugar Workers Union No.1, AFL-CIO Seafarers International Union of North America that began on September 8 and ended on October 17. Third quarter results also reflect lower sugar yields, which will decrease the expected 1995 sugar harvest at Hawaiian Commercial & Sugar Company, A&B's plantation on Maui. For the nine months, the operating loss of $19.6 million compares with a loss of $1.5 million in the same period in 1994. The 1995 loss includes a pre-tax charge of $8.1 million for closing sugar operations on Kauai. Sugar refining operations of C&H continue to be hurt by raw cane sugar prices that have reached a 14-year high, and by relatively low refined product prices. Legislation that will affect many agricultural commodities, including sugar, is being considered by Congress. The deliberations now taking place in Washington, D.C. will significantly influence the future prospects for the Company's cane sugar refining and sugarcane growing operations. Transition Continues, Outlook A&B continues to face major challenges in its businesses, but the Company is moving ahead with strategic initiatives that will help improve earnings. During the quarter, we announced that an implementation agreement was reached with APL for the purchase of six vessels and subsequent operation of a new, cost- efficient joint service to Hawaii, Guam and the Far East. Also, we are progressing well with the construction and marketing of the first 42 acres of our new Maui Business Park, and are actively participating with industry groups and Congressional representatives in the important ongoing deliberations regarding sugar legislation. Recognizing that fundamental changes have taken place in some of the markets served by our businesses, we are continuing to work on a series of significant cost reduction initiatives. The first to be announced was the phase-out of unprofitable sugar operations on Kauai, which is proceeding as planned. Another is the consolidation of Matson's customer service operations at a new facility in Phoenix, Ariz. where operations are beginning this month. Additional changes are being evaluated and will be announced as soon as final plans are developed and approved. /s/ John C. Couch John C. Couch Chairman, President and Chief Executive Officer CONDENSED BALANCE SHEETS (In thousands) ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES September 30 December 31 1995 1994 --------- --------- (unaudited) ASSETS Current Assets: Cash and cash equivalents $ 52,544 $ 8,987 Accounts and notes receivable, net 158,098 129,156 Inventories 75,651 90,677 Property held for sale 3,120 4,014 Deferred income taxes 12,708 21,347 Prepaid expenses and other 12,014 14,127 Accrued deposits to Capital Construction Fund (23,774) (550) --------- --------- Total current assets 290,361 267,758 --------- --------- Investments 81,220 64,913 --------- --------- Real Estate Developments 72,967 66,371 --------- --------- Property, at cost 1,747,994 1,720,390 Less accumulated depreciation and amortization 775,541 744,718 --------- --------- Property - net 972,453 975,672 --------- --------- Capital Construction Fund 330,394 176,044 --------- --------- Net Assets of Discontinued Operations (Note e) - 313,690 --------- --------- Other Assets 48,403 67,713 --------- --------- Total $1,795,798 $1,932,161 --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term liabilities $ 35,718 $ 35,177 Short-term commercial paper borrowing 83,000 58,000 Accounts payable 35,904 51,757 Other 68,925 64,778 --------- --------- Total current liabilities 223,547 209,712 --------- --------- Long-term Liabilities: Long-term debt 386,127 526,231 Capital lease obligations 24,201 35,274 Post-retirement benefit obligations 119,045 116,610 Other 55,887 61,759 --------- --------- Total long-term liabilities 585,260 739,874 --------- --------- Deferred Income Taxes 335,876 349,961 --------- --------- Shareholders' Equity: Capital stock 37,328 37,493 Additional capital 40,120 38,862 Unrealized holding gains on securities 38,456 29,073 Retained earnings 549,028 541,910 Cost of treasury stock (13,817) (14,724) --------- --------- Total shareholders' equity 651,115 632,614 --------- --------- Total $1,795,798 $1,932,161 ========= ========= See financial notes. CONDENSED STATEMENTS OF INCOME (In thousands except per share amounts) ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES Three Months Ended Nine Months Ended September 30 September 30 1995 1994 (1) 1995 1994 (1) --------- --------- --------- --------- (unaudited) (unaudited) Revenue: Net sales, revenue from services and rentals $ 238,025 $ 279,120 $ 742,147 $ 784,109 Interest, dividends and other 8,261 5,536 20,128 16,027 --------- --------- --------- --------- Total revenue 246,286 284,656 762,275 800,136 --------- --------- --------- --------- Costs and Expenses: Costs of goods sold, services and rentals 194,694 233,159 616,791 628,653 Selling, general and administrative 25,811 28,347 81,774 83,210 Plantation closure (Note d) - - 8,100 - Interest (Note f) 9,513 6,457 24,676 20,402 Income taxes 5,923 5,669 11,095 23,620 --------- --------- --------- --------- Total costs and expenses 235,941 273,632 742,436 755,885 --------- --------- --------- --------- Income from continuing operations 10,345 11,024 19,839 44,251 Discontinued Operations (Note e): Income from operations of Matson Leasing Co. (net of interest and applicable income taxes) - 2,788 5,336 7,406 Gain on sale of Matson Leasing Co. net assets (less applicable income taxes of $9,100) - - 17,206 - --------- --------- --------- --------- Net Income $ 10,345 13,812 $ 42,381 $ 51,657 ========= ========= ========= ========= Earnings Per Share: Continuing Operations $ 0.23 $ 0.24 $ 0.44 $ 0.96 Discontinued Operations - 0.06 0.49 0.16 --------- --------- --------- --------- Total $ 0.23 $ 0.30 $ 0.93 $ 1.12 ========= ========= ========= ========= Dividends Per Share $ 0.22 $ 0.22 $ 0.66 $ 0.66 Average Number of Shares Outstanding 45,529 45,997 45,562 46,131 INDUSTRY SEGMENT DATA (In thousands) Revenue: Ocean Transportation $ 150,507 $ 154,542 $ 445,212 $ 450,436 Property Development and Management: Leasing 8,746 8,298 25,268 25,065 Sales 2,403 2,136 9,398 14,827 Food Products 83,946 118,983 280,331 307,640 Other 684 697 2,066 2,168 --------- --------- --------- --------- Total $ 246,286 $ 284,656 $ 762,275 $ 800,136 --------- --------- --------- --------- Operating Profit: (2) Ocean Transportation $ 26,592 $ 22,114 $ 64,549 $ 73,997 Property Development and Management: Leasing 6,033 5,709 17,236 17,781 Sales 328 748 3,548 9,407 Food Products (3) (4,350) (1,404) (19,580) (1,454) Other 640 636 1,909 1,997 --------- --------- --------- --------- Total $ 29,243 $ 27,803 $ 67,662 $ 101,728 --------- --------- --------- --------- (1) Restated to exclude discontinued operations, see Note (e). (2) Before interest expense, corporate expense and income taxes (3) Nine month amounts for 1995 include an $8.1 million charge for the closure of Kauai sugar operations. See Note (d). (4) Three month amount for 1994 and nine month amounts for 1995 and 1994 are after deducting interest expense of $3,330,000, $6,987,000 and $9,496,000, respectively. See financial notes. CONDENSED STATEMENTS OF CASH FLOWS (In thousands) ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES Nine Months Ended September 30 1995 1994 --------- --------- (unaudited) Cash Flows from Continuing Operating Activities $ 49,413 $ 64,173 --------- --------- Cash Flows from Continuing Investing Activities: Capital expenditures (48,434) (48,230) Proceeds from sale of subsidiary net assets 357,471 - Proceeds from disposal of property, investments and other assets 376 514 Deposits into Capital Construction Fund (132,064) (7,366) Withdrawals from Capital Construction Fund 938 9,803 Increase in investments (1,706) (32) --------- --------- Net cash provided by (used in) continuing investing activities 176,581 (45,311) --------- --------- Cash Flows from Continuing Financing Activities: Proceeds from issuances of long-term debt 40,000 41,000 Payment of long-term liabilities (191,280) (58,011) Proceeds from issuances of short-term commercial paper 25,000 9,000 Proceeds from issuances of capital stock 468 73 Repurchase of capital stock (5,337) (11,680) Dividends paid (30,073) (30,473) --------- --------- Net cash used in continuing financing activities (161,222) (50,091) --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents From Continuing Operations $ 64,772 ($ 31,229) ======== ======== Net Increase (Decrease) in Cash and Cash Equivalents From Discontinued Operations (Note e) ($ 21,785) $ 5,211 ======== ======== Other Cash Flow Information: Interest paid, net of amounts capitalized $ 28,988 $ 29,641 Income taxes paid, net of refunds 40,017 17,397 Other Non-cash Information: Accrued deposits to Capital Construction Fund, net of accrued withdrawals 23,224 1,170 Depreciation 75,500 79,726 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 the current year presentation. (d) In June 1995, the Company announced the closure of sugar production at its McBryde Sugar Company, Limited subsidiary on Kauai. The closure costs of $8.1 million are shown as a separate item in the accompanying income statements. (e) 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. Specifically excluded from the sale were the debt and United States tax obligations of the business. Accordingly, the container leasing segment is reported as a discontinued operation at September 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 is using the proceeds from the sale to repay debt and to meet the capital needs of the remaining segments. (f) Interest expense of Matson Leasing Co., Inc. had been classified an operating expense prior to the sale of the business. Following the sale, the lon-term debt reverted to Matson Navigation Company, Inc. and interest on the debt from July 1, 1995 forward has been classified as interesT expense.