ALEXANDER & BALDWIN, INC. 1995 ANNUAL REPORT
Alexander & Baldwin, Inc. is a diversified corporation with the majority of its
operations centered in Hawaii. Its principal business segments are:
Ocean Transportation
Property Development and Management
Food Products
Alexander & Baldwin, Inc. was founded in 1870 and was incorporated in 1900.
Its common stock is traded on The NASDAQ Stock MarketSM.
The trading symbol is ALEX.
Headquartered at 822 Bishop Street, Honolulu, Hawaii
The Company's mailing address is:
P. O. Box 3440, Honolulu, HI 96801-3440.
Telephone: (808)525-6611
Fax (808)525-6652
On the cover:
Expanding the tradition of Matson schedule integrity, S.S. Manulani carries
containers in Matson's new Pacific Coast service. By providing weekly coastwise
service between Los Angeles and the Pacific Northwest ports of Seattle and
Vancouver, B.C., the service, initiated in 1994, provides an alternative to
truck and rail in the West Coast's busy North/South transportation corridor.
Financial Highlights
1995 1994 Change
Revenue $ 1,020,455,000 $ 1,144,033,000 - 11%
Net Income $ 55,755,000 $ 74,608,000 - 25%
Per Share $ 1.23 $ 1.62 - 24%
Cash Dividends $ 40,035,000 $ 40,563,000 - 1%
Per Share $ 0.88 $ 0.88
Average Shares
Outstanding 45,492,000 46,059,000 - 1%
Total Assets $ 1,782,759,000 $ 1,925,775,000 - 7%
Shareholders'
Equity $ 649,678,000 $ 632,614,000 + 3%
Per Share $ 14.35 $ 13.85 + 4%
Return on Beginning
Shareholders'
Equity 8.8% 12.7% -
Current Ratio 1.4 to 1 1.3 to 1 -
Ratio: Long-term
Debt and Capital
Leases to Total
Capital .26 to 1 .32 to 1 -
Employees 3,076 3,581 - 14%
Contents
[Page references are for the printed Annual Report to Shareholders
and do not correlate to the electronic version.]
1 Financial Highlights
2 Letter to Shareholders
7 Review of Operations
8 Matson
12 ABHI
19 General Information
19 Board of Directors
19 Management, Organization
19 Common Stock
20 Dividends
20 Credit Ratings
20 Quarterly Results
21 Financial Report
40 Directors and Officers
Inside Back Cover
Principal Subsidiaries and Affiliates
Investor Information
To Our Shareholders
[Photo caption: John C. Couch, Chairman of the Board, President and Chief
Executive Officer, Alexander & Baldwin, Inc.]
[Photo caption:
A changed identity--the newly renamed S.S. Mahimahi, recently acquired from
American President Lines, inaugurates the Pacific Alliance service. The vessel
is shown in its new Matson markings, departing from Oakland, Calif., for
Hawaii, Guam and Far Eastern ports. The vessel then will return to the U.S.,
under charter to APL, carrying import cargo.]
Fellow Shareholders
Your Company's 125th anniversary year was a challenging one. Nonetheless, a
great deal was accomplished to build on our strengths and confront fundamental
changes in our business environment.
The Hawaii economy continued its extraordinarily slow recovery; competition
intensified in several of our primary markets; and, problems with administra-
tion of the current federal sugar program placed severe financial stress on
U.S. cane sugar refiners.
We are meeting these challenges head-on and have implemented a number of
strategic initiatives which will reduce costs, improve our competitive position
and open-up new market opportunities in each of our businesses.
Among the more significant initiatives were: the sale, for $362 million, of our
international marine container leasing unit, Matson Leasing Company, Inc.
(Matson Leasing); the purchase, for $168 million, of six container ships and
other assets from American President Lines, Ltd. (APL); and the establishment
of an alliance with APL that will permit Matson Navigation Company, Inc.
(Matson) to serve the Guam market while realizing substantial cost savings in
the Hawaii service. In the property development area, we launched our 76-acre
Maui Business Park by establishing an alliance with a prominent developer that
will result in the creation of a large new value retail center. In food
products, we announced the phasing-out of our historic, but unprofitable,
sugar-growing operations on Kauai by the end of 1996, and we moved aggressively
to reduce costs at our sugar refining and marketing business -- including a
major restructuring of the refinery operations that resulted in a 25-percent
reduction in the work force and should lower costs by $8 million annually.
Finally, we implemented a number of Company-wide initiatives to reduce general
and administrative costs by an additional $10 million per year. These
initiatives will help position each business to deal more effectively and
profitably with the challenges it faces in the years ahead.
While Hawaii's economy continues to show signs of slow, but persistent, growth,
there has been no concrete progress, as of mid-February, in the legislative
arena toward meaningful reform of the U.S. sugar program. The past year brought
into sharp focus flaws in existing sugar legislation. It especially has
disadvantaged the cane sugar refining segment, which markets half the sugar
consumed in the country. At this point, the timing and extent of any legisla-
tive reform remains uncertain. The federal budget impasse, as well as
continuing debate about overall farm legislation, are impeding resolution of
the matter.
1995 Financial Results Disappointing
A&B's 1995 net income was $55.8 million, down 25 percent from $74.6 million
earned in 1994. Earnings per share were $1.23, versus $1.62 in 1994. These 1995
figures incorporate a charge of $5.1 million for the closure of the Kauai sugar
operations, a charge of $2.4 million to write-down certain California and
Hawaiian Sugar Company, Inc. (C&H) assets, an $18 million gain on the sale of
Matson Leasing, and the $5.3 million in net income Matson Leasing earned prior
to its sale in June.
Strong cash flow again permitted the Company to proceed with important capital
commitments, while concurrently reducing debt, repurchasing shares and
continuing regular cash dividends. The annual dividend rate remained at $.88
per share. In addition to distributing $40 million in dividends, a total of
$11.6 million was spent during 1995 to repurchase 511,000 shares of outstanding
stock, continuing the A&B stock repurchase program begun in 1994. As a result,
each remaining shareholder has a larger ownership stake. To date, 1.2 million
shares, or nearly three percent of the shares outstanding at the start of the
program, have been repurchased at a total cost of $29.3 million. Share
repurchase remains an important mechanism for returning excess cash to
shareholders.
Matson's New Alliance With APL
The strengthening of tourism in Hawaii last year was not enough to offset a
reduction in statewide construction spending. As a result, Matson's total cargo
volume in the Hawaii Service declined. Competition also contributed to the
unfavorable year-over-year performance. Matson's 1994 results benefited from a
labor strike at its primary competitor. Also, that competitor inaugurated, at
mid-year 1995, a new eastbound service from Honolulu to Los Angeles which
affected the comparison.
In April 1995, Matson and APL announced their intent to operate a joint service
that would benefit both carriers by producing significant cost savings. The
core of Matson's business is its Hawaii Service. Most of the cargo volume in
this trade, however, travels westbound to Hawaii from the U.S. Mainland. As a
result, Matson's ships return eastbound "light," carrying less cargo.
Transpacific carriers, like APL, normally face the opposite situation. Their
high-volume direction is eastbound, carrying import cargo from the Far East. In
the joint service, vessel utilization on the round trip will improve
significantly.
The principal features of the strategic alliance are: Matson has purchased from
APL six vessels and assets related to its Guam shipping service. During the
first quarter of 1996, four of those vessels and one Matson ship will begin
operation of the new consolidated service between the U.S. Pacific Coast and
Hawaii, Guam and four ports in Korea and Japan; and Matson will take over an
established Guam trade from APL and share the cost of the new five-ship
combined service. Additional Matson benefits are revenue from cargo shipped to
Guam and other nearby destinations, and payments from APL for use of the
vessels to carry cargo from the Far East on the return voyages to the U.S.
Pacific Coast.
At midyear 1995, Matson Leasing was sold. From its launch in 1989, Matson
Leasing had grown rapidly and successfully to become the seventh-largest
international marine container leasing company in the world. To continue to
prosper, however, Matson Leasing needed significant amounts of additional
capital for the purchase of new containers. Strategically, we concluded that
A&B would be better served by investing in operating assets rather than
dedicating so much capital to financial assets. Proceeds from the sale of
Matson Leasing facilitated the purchase of the additional vessels, the
formation of the strategic alliance with APL and the initiation of service
to Guam. In addition, the sale permitted A&B to reduce debt and repurchase
shares.
Advances in computer and telecommunications technology continue to create
exciting new opportunities to enhance customer service and reduce costs. An
acknowledged leader in the transportation industry in this area, Matson last
year took another significant step forward. Near the end of 1995, all of
Matson's customer service operations were consolidated at a new, high-tech,
high-service center in Phoenix, Ariz. This new facility provides customers
"one-stop shopping" for all Matson services, and should save about $1 million
per year in operating and administrative costs.
[Photo caption:
With economic conditions on the island of Kauai still uncertain, A&B proceeded
with applications for important land designations and zoning changes. State and
County approvals were granted during 1995. Scenic Kukui'ula Bay and a total of
1,050 acres of A&B land mauka (toward the mountains) of the Bay now await
renewed economic growth for residential and commercial development.]
Food Products Segment Struggles
[Photo caption:
Convenience and innovation mark new packaging of C&H products. Although the
artwork is traditional, during 1995, C&H introduced new ways to make its
familiar, high-quality sugar products easier to use and to store between uses.]
A&B's McBryde plantation has grown sugar cane on the island of Kauai since
1899. With competitive changes in the industry, smaller, less economical
plantations like McBryde have struggled to survive. In spite of concerted
efforts by management and employees over many years, we concluded, reluctantly,
that McBryde's sugar operations could not be profitable on a sustained basis.
In June 1995, therefore, we announced that these sugar operations would be
phased out by harvest-end 1996, and that an $8.1 million pretax charge would
be taken in 1995 to cover all of the anticipated costs. This decision was
difficult, but necessary.
Coffee production and marketing, while still in the development stage, continue
to show promise. Last year we harvested about 1.8 million pounds of coffee on
4,000 acres formerly used for sugar. Production should more than double in the
next few years.
Although sugar refining losses in 1995 largely can be traced to the market
distortions (i.e., abnormally high raw sugar prices) created by the present
federal sugar program, the situation was exacerbated by a six-week strike at
C&H that spanned portions of the third and fourth quarters. The resulting labor
agreement, however, was constructive and will help the refiner become more cost
competitive.
Sugar production at the Company's large plantation on Maui in 1995 was about
25,000 tons (12 percent) lower than we had expected due to lower crop yields.
Abnormally dry weather accounted for much of the shortfall. A thorough review,
however, prompted important adjustments in agronomic practices that should
improve yields for subsequent crops.
Maui Business Park Leads Development
During 1995, A&B's geographically diverse property operations moved ahead on a
number of fronts. The largest and most significant achievements were the
construction progress and initial sales at Maui Business Park, a project we
formerly called Kahului Industrial Park. With an intended fully developed size
of about 240 acres, construction started with a 76-acre first phase. At year-
end, a significant sale and lease, of about 20 acres in total, was closed with
a prominent local developer. Plans call for development of a 275,000 square-
foot value retail center, Maui's first. Closing of this transaction, which
includes the purchase of 5.5 acres and a lease with purchase option on 14.5
additional acres of land, has been a catalyst for interest in Maui Business
Park. There are 32 additional lots offered in this first increment of the
project. Sales of the first three closed in 1995. Selling prices in this well-
located project are proceeding at planned levels.
Also on Maui, A&B is progressing on several residential developments. Sales
interest is strong in our newest development, the 93-lot residential sub-
division at Ku'au Bayview on the North Shore. This will be the first develop-
ment of individual house/lot packages by A&B in several years. In addition,
plans have been submitted for three new agricultural subdivisions on Maui,
and lot sales continue at the existing subdivision, Haiku Mauka on Maui's
North\Shore, where 29 of the 39 lots in the project were sold by year-end 1995.
Finally, sales began at midyear 1995 at Kahului Ikena, a 102-unit townhouse
condominium project.
Near year-end, the Kauai County Council approved zoning for 514 additional
acres of A&B's Kukui'ula planned residential project. When added to 213 acres
previously approved, the Kukui'ula project now comprises 727 acres of zoned
residential land adjacent to the Poipu resort area. Although the present
economic situation on the island of Kauai precludes taking immediate advantage
of this approval, this conclusive regulatory step enhances the value of the
property, and permits more detailed planning for future development.
On the U.S. Mainland, two shopping centers were purchased in June, adding to
A&B's leased property portfolio. These purchases preserve the tax-deferred
status of gains on previous real estate transactions and provide new sources of
earnings, cash flow and potential appreciation. One is a 168,000 square-foot
regional center in Reno, Nevada and the other a 43,000 square-foot neighborhood
center in Greeley, Colorado. The Company's total lease portfolio (2.8 million
square feet) continued to enjoy high occupancy rates during 1995, averaging 97
percent for the Mainland properties and 90 percent for those in Hawaii.
In California, the El Dorado County general plan was approved in early 1996,
incorporating our long-term plans for an 1,800-acre residential project at
Pilot Hill.
Outlook for 1996, Beyond
The outlook for Hawaii's economy remains modestly encouraging, with forecasts
of slow, but persistent, growth. Hawaii's visitor industry continues to
improve, with visitor arrivals near all-time highs. Important segments within
the construction industry, however, continue to contract, holding the industry
down and slowing the overall economic recovery.
Anticipating that the Hawaii economy will not provide much of a boost in 1996,
A&B will concentrate on successful implementation of the 1995 strategic
initiatives to grow earnings and improve profitability.
We are optimistic that Matson's overall results will improve in 1996 as a
result of the benefits from the new APL alliance. Hawaii Service revenue is
likely to remain under pressure, awaiting a more pronounced turnaround in
Hawaii's economy. The West Coast shipping industry will face labor contract
negotiations with the International Longshoremen's and Warehousemen's Union.
While there may be some difficult issues to resolve, we expect satisfactory
agreements will be reached without work disruption.
While food products results are expected to improve over those of last year,
major uncertainties remain about the federal sugar program and resulting sugar
prices. Our priorities for the coming year will be to continue to improve the
cost competitiveness of both our sugar refinery and sugar-growing activities
and, at the same time, to consider longer range strategic options for these
operations.
In the property area, we look forward to a good year as we respond to current
demand for development of new properties, as well as continue entitlement work
which will allow us to meet demand for improved commercial and residential
property over the next 10 to 20 years.
Cash flow is expected to remain strong. A&B has relatively few large investment
obligations in the next few years. Matson, however, will need to begin
replacing its fleet by the end of the century and plans for doing so will be
developed in the near future. The timing of additional large investments will
await improvement in the economic outlook for the markets served by our other
businesses.
A&B's 125th Anniversary
As noted earlier, in 1995, A&B celebrated the 125th anniversary of the
formation of its original sugar growing partnership. Each of the Company's core
businesses today traces its roots to that small sugar plantation on Maui.
During the subsequent century and a quarter, A&B has experienced great
successes as well as disappointments, enormous challenges as well as good
fortune, and significant changes as well as long periods of stability. An
enduring characteristic of the Company, and one I believe has contributed to
its successes, has been the willingness to take a long-term view of its
business opportunities and prospects. The Company also has a long history of
innovation and purposeful change. Given the challenges we faced in 1995, that
heritage was especially helpful.
During the year, all of A&B's business segments continued to face significant
near-term problems. Nevertheless, in each case, important steps were taken to
deal not only with the immediate issues, but also to improve future results. We
remain firmly committed to providing improved returns for our shareholders as
the Company continues to grow with and beyond Hawaii.
On behalf of all shareholders, I want to thank the employees of A&B and its
subsidiaries for their contributions to our progress in 1995. I also would like
to thank the shareholders, directors and employees for their support during my
first year as chairman of this venerable company. The creativity, commitment
and capabilities of my associates and the inherent strengths of our businesses
give me confidence in our prospects for greater success in the years ahead.
John C. Couch
Chairman of the Board,
President and
Chief Executive Officer
February 16, 1996
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) 1995 Total 1994 Total 1993 Total
- ------------------------------------------------------------------------------------------
Ocean Transportation $ 87,769 88 $ 97,319 69 $ 91,194 62
Property Development
and Management:
Leasing 23,063 23 23,163 16 22,975 15
Sales 14,497 14 18,522 13 18,570 13
Food Products (27,797) -28 (418) - 12,692 9
Other 2,593 3 3,143 2 2,357 1
[Graph: A&B Operating Profit by Source 1985-1995
The graph illustrates the contributions to operating
profit by each business segment.]
Matson
[Photo caption:
C. Bradley Mulholland, President and Chief Executive Officer, Matson
Navigation Company, Inc.]
[Photo caption:
Heading for port and laden with varied cargoes for consumers, the S.S. Kauai
steams near Hawaii's famous landmark, Diamond Head. Four weekly Matson ship
arrivals in Hawaii provide the capacity and frequency of service needed to
assure ample supplies of commodities required to support the State's diverse
economy.]
[Photo caption:
Top: With one call to the brand new customer service center, customers have
access to Matson's entire freight information network. Customer service
representatives use state-of-the-art hardware and software to help shippers of
all sizes transport their cargo.
Bottom: New refrigerated containers arrive. Much of the cargo moving to and
from Hawaii requires precise temperature control. During 1995, Matson invested
$14 million to provide nearly 500 new refrigerated containers for its
customers.]
[Photo caption:
Top: John Perillo (right), assistant store manager, and Bobby DePeralta (left)
produce manager for Safeway view the array of fresh produce delivered by Matson
to their new store in Kapolei, Oahu. Economical shipping costs, reliable
customer service and schedule integrity make Matson a dependable carrier for
many of Hawaii's shippers.
Left: In 1995, the hailing port for all of Matson's ships was changed to
Honolulu. Whether Matson ships call on Yokohama, Vancouver, Los Angeles or
Guam, the strong, historic links between Matson and Hawaii will be seen clearly
by all.]
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,
utilizing container ships and combination container/trailer ships in regularly
scheduled service between Hawaii and Los Angeles, Oakland and the U.S. Pacific
Northwest. This core Hawaii service includes transshipment of cargo between
Honolulu and the islands of Hawaii, Maui and Kauai.
During 1995, Matson announced a new trans-Pacific service, which started
operations in February 1996. In conjunction with American President Lines, Ltd.
(APL), the Pacific Alliance service offers weekly sailings from Oakland,
Honolulu, Guam, Busan, Hakata, Nagoya, Yokohama and Los Angeles. Matson also
operates a Pacific Coast service using one container ship that operates along
the West Coast and a container barge service between Honolulu and several mid-
Pacific islands.
In addition, Matson subsidiaries offer stevedoring and terminal services,
intermodal services and harbor tugboat services.
At midyear 1995, Matson's international marine container leasing operations,
established in 1989, were sold for $362 million.
Matson's mission is to be a preferred provider of cargo transportation services
by offering a high-value service, characterized by reliability, frequency,
efficiency and ease-of-use.
Operating Results
In 1995, ocean transportation operations provided 58 percent of A&B's revenue
and 88 percent of its operating profit. For explanations of year-to-year
changes in results, please refer to Management's Discussion and Analysis on
page 25.
1995 1994 1993
---- ---- ----
(in thousands)
Revenue $593,807 $604,754 $551,687
Operating
Profit* $ 87,769 $ 97,319 $ 91,194
*Before interest expense, corporate expense and
income taxes
Hawaii Service Cargo
In 1995, Matson's total Hawaii service containerized freight declined by nine
percent from the volume in 1994. For the sixth consecutive year, the Hawaii
economy had little or no growth, and there was no event similar to a 24-day
strike that had shut down a principal competitor in 1994. Over the past ten
years, however, Matson's containerized freight carriage units have grown at an
annual compound rate of four percent.
Total Hawaii service volume for the past three years was:
1995 1994 1993
---- ---- ----
Freight
(Units*) 157,200 173,300 171,600
Automobiles 107,100 116,800 109,300
*Starting in 1995, to conform better with industry practice, Matson changed its
basic measure of freight from twenty-four foot equivalent units (TFEUs) to
container units. All years are now reported on this new basis.
[Graph: Ten year Freight volume]
[Graph: Ten year Automobile volume]
Although tourism in Hawaii experienced moderate growth during 1995, the
construction industry continued a cyclical decline, which offset the benefit of
greater visitor traffic.
Due to reductions in Hawaii rental car fleets, greater competition and soft
consumer demand for new automobiles, total automobile carriage to and from
Hawaii also decreased in 1995, by eight percent.
1995 Progress
The single most significant step during 1995 for Matson was the announcement
and successful negotiation of a strategic alliance with APL. In addition to
the new joint service, the agreement included the purchase, for $168 million,
of six APL container ships, shoreside spares and operating assets on Guam. The
alliance allows Matson to reduce costs in the Hawaii service; adds relatively
inexpensive fleet capacity; and introduces a new service to Guam that
complements the Hawaii service. The six ships include three C-9 vessels, the
largest and most modern American-built vessels operating in U.S. foreign
trades, and three C-8 vessels. Four of the APL vessels will join the MV R. J.
Pfeiffer in the new weekly trans-Pacific service. Under the agreement, Matson
and APL share the costs of round trip voyages, with the vessels carrying
primarily Matson freight on the westbound leg and APL freight eastbound. Both
carriers benefit from the resulting greater utilization of assets.
For Matson, the new Guam service marks its entry into a growing island trade,
where the Company can capitalize on its experience in delivering dependable,
on-time shipping that has a crucial role in the distribution systems of the
island's businesses. The weekly schedule to Guam features a Thursday morning
arrival, ensuring customers fresh inventories for high-volume weekend sales.
Using connecting carrier agreements, the service also extends to surrounding
island neighbors, such as Saipan, Tinian, Rota, Yap, Chuuk, Pohnpei and Palau.
The new service is a natural fit for Matson, whose strategic focus is serving
Pacific domestic trades. Another example of this focus is Matson's Pacific
Coast service, inaugurated in July 1994. Volume in this weekly coastwise
service between Los Angeles and the Pacific Northwest ports of Seattle and
Vancouver, British Columbia continues to grow. The Pacific Coast service
targets three primary markets: 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). Although this service has not yet reached its
profitability objectives, customer response has been very positive, largely
due to the strong record of dependable, on-time service. One of the newly
acquired APL vessels, the S.S. Ewa, recently was assigned to the service,
replacing the S.S. Manulani. The new ship adds greater 20- and 40-foot
container capacity to the trade.
In late 1995 and early 1996, Matson consolidated all of its customer service
activities in a new facility located in Phoenix, Arizona. Along with
significant cost savings, the centralization of this function allows customers
to call just one toll-free number (1-800-4MATSON) for any matter regarding
Matson's Hawaii, Pacific Alliance, Pacific Coast or Mid-Pacific services.
Along with allowing for future growth, the new center assures that Matson is
strategically positioned to utilize new information systems to speed customer
transactions and to broaden the data available to customer service
representatives and customers.
In 1995, several schedule changes important to customers were made in the
Hawaii service. By reconfiguring the fleet, transit time for one of the two
weekly ships from the important Los Angeles market to Honolulu was reduced by
ten hours. As a result, Oahu customers now can receive their freight one
business day earlier. Transit times to Neighbor Island ports also were reduced.
Matson was recognized during 1995 with two honors 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 third straight year, the only carrier ever to have been so honored, and
the only U.S. carrier recognized in 1995. This rating is based on a national
quality survey that asked readers to rate carriers in five key performance
areas: price, on-time delivery, customer service, damage/claims record and
financial stability. As a result of another survey, Matson also was named a
1995 Quality Carrier by Distribution magazine, the second consecutive year
Matson was so recognized.
In a subtle, but meaningful, change, during 1995 Matson underscored the
importance of Hawaii to its business by changing the hailing, or "home," port
of all its vessels from San Francisco to Honolulu. This change acknowledges
that Hawaii is the hub of Matson's operations and that, just as Matson's ships
bear Hawaiian names, the Company's services have long been synonymous with
Hawaii.
Two important Matson subsidiaries continued to benefit its operations and
financial results during 1995. Matson's contract stevedoring subsidiary, Matson
Terminals, Inc., also serves three international carriers, spreading the fixed
costs of terminals over greater volume. Matson Intermodal System, Inc. (MIS)
arranges overland transportation for Matson and many other carriers. Because
MIS is not committed to use any proprietary rail service, it is free to search
out the carriers offering the lowest cost and best schedule for cargo
originating from inland points nationwide.
Shipping Rates
On November 21, 1995, Matson filed a 3.8-percent general rate increase that
became effective on January 28, 1996, as scheduled. Barring unforeseen
circumstances, Matson has no plans to seek additional across-the-board
increases during 1996. In the ten-year period ending in 1994, Honolulu's
Consumer Price Index has risen 57 percent and the U.S. CPI has risen 42
percent, but Matson's rates have increased just 23 percent.
1996 Labor Negotiations
Present labor contracts with the International Longshoremen's and
Warehousemen's Union bargaining units on the West Coast and in Hawaii will
expire in July 1996. In addition, contracts expire in mid-June with unlicensed
seagoing crew members. Matson anticipates that the contracts will be
renegotiated in the normal course of business, without any disruption to
service.
Issues, Plans to Address Them
Support for the Jones Act: Periodically, Congress re-examines the legislation
under which Matson and other companies serve the U.S. domestic shipping trades.
The present law, commonly known as the Jones Act, is one of many similar laws,
enacted since 1789, that have reserved for American citizens the exclusive
right to offer shipping services between two ports within the U.S. Similar laws
reserve airline service, telecommunications and public utility businesses for
U.S. citizens.
The current deregulatory climate in Congress has prompted Matson to join with
over 400 other organizations in founding the broad-based Maritime Cabotage Task
Force, to educate the public on the economic, national security, environmental
and safety benefits of the Jones Act. In short, because vessels are governed by
the laws of the country where the vessel is documented, U.S. vessels must
comply with safety, environmental, labor practices and other policies that
have been deemed important and proper for the conduct of business in this
country. Other countries' vessels do not have these obligations and their
attendant costs, nor do they adhere to the same standards. It is Matson's
intent to support the Jones Act actively and to take a leadership role in
demonstrating the efficiency, commitment and innovation that is found in the
unsubsidized U.S. domestic fleet.
Competition, Hawaii's Economic Pause: The Hawaii trade is highly competitive
and, in the past five years, fundamental economic factors have limited growth
in cargo. Matson has remained, and plans to continue as, the premier carrier in
the trade. This commitment is evidenced by Matson's substantial investments in
the trade and by its competitive advantages in number of sailings, on-time
arrivals, capacity, variety of container equipment and other unique services.
Operating Profit Outlook
In 1996, due primarily to economic conditions, Matson expects Hawaii freight
volume to be comparable to 1995. Revenue will benefit, however, from the new
cargo carried to Guam. Operating profit will improve moderately with the net
contribution of that cargo, plus the benefits of lower eastbound Hawaii Service
costs and improved subsidiary contributions. Earnings also should benefit from
the continued growth of the Pacific Coast service.
ABHI
[Photo caption:
W. Allen Doane, President and Chief Operating Officer, A&B-Hawaii, Inc.]
[Photo caption:
Steady progress in the development of Maui Business Park is evident in the new
roadways, at the center of this photo. Constructed on former sugar-growing
lands near Maui's airport and at the intersection of several major roads, Maui
Business Park is receiving deserved interest among potential buyers. Sales of
the first lots in the first phase closed in December 1995.]
[Photo caption:
To attract buyers in a very selective market, recent A&B developments have
ranged from agricultural subdivisions, where buyers acquire large lots and
build their own dwellings (upper), to moderately priced townhouses (lower).]
[Photo caption:
Finished products at A&B developments in Kahului, Maui. Eagle Distributor's new
warehouse (above) handles Budweiser and other popular beverage products island-
wide. A Matson customer, Eagle constructed the warehouse in the Kamehameha
Parkway industrial subdivision, built by A&B. A&B is leasing the distinctive
Apex Building (above, right) to new commercial users at the Triangle Square
development. Also at Kamehameha Parkway (right) is a medical building, offering
a variety of physicians' services.]
[Photo caption:
During 1995, A&B acquired two shopping centers to replace one sold in 1994. The
photos above and to the left are of the 168,000 square-foot regional shopping
center called Airport Square, located in fast-growing Reno, Nev.]
[Photo caption:
From the field to the sugar bowl. It is hard to visualize the massive scale of
modern sugar cultivation and harvesting. A cane hauler at HC&S carries 65 tons
of cane from a field to the sugar mill, where it is processed into raw sugar
for transport to the Mainland and refining into more familiar forms of sugar
products.]
[Photo caption:
Coffee production has qualities of both a science and an art. A taster in the
photo (upper left) samples the quality of coffee brewed from separate batches
of Kauai Coffee. Estate-grown Kauai Coffee products packaging (top): green
beans in a burlap sack; roasted, for restaurant use, in the plastic pack and,
for retail, in smaller foil bags. Raw sugar for re-export. Benefiting from
economies of scale, C&H refines foreign sugar and re-exports the finished
products (left).]
[Photo caption:
The massive scale and sophistication of the new 240 megawatt cogeneration plant
adjacent to C&H's Crockett, Calif. refinery is apparent in this photo. Full-
scale operations are scheduled for May 1996.]
The property development and management, and 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 the refining and distribution of 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, ABHI 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 40,000 acres of land for sugarcane and coffee cultivation. Because
sugar cane currently is the best crop for a large percentage of the Company's
cultivatable land, A&B is committed to improving the efficiency and profit-
ability of its sugar 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.
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 1995, A&B owned
approximately 92,800 acres, including 68,800 acres on Maui, 21,900 acres on
Kauai, and 2,000 acres elsewhere. An additional 19,000 acres on Maui and Kauai
are leased from others. Approximately 91,500 acres owned by A&B are planted in
sugar cane and coffee or are employed in other agricultural, conservation or
related uses. Currently, about 1,300 acres are fully zoned for urban use. An
estimated 9,700 acres in Hawaii that now are zoned for agriculture or non-urban
uses have foreseeable urban 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.
A&B also owns a diversified portfolio of commercial and industrial income-
producing properties. That improved property includes approximately 2.8 million
square feet in Hawaii and in five Western states.
The following directional statements guide the activities of A&B Properties:
Maintain a market-oriented pace of entitlements and related development as well
as sales activity;
Provide new sources of recurring income and cash flow, through leasing;
Redevelop existing properties in the Company's portfolio, when appropriate, to
ensure they are at their highest and best use; and
Develop and manage a geographically diversified portfolio of commercial,
industrial and residential properties.
Operating Results
In 1995, property development and management operations provided six percent of
A&B's revenue and 38 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 25.
1995 1994 1993
---- ---- ----
(in thousands)
Revenue:
Leasing $34,073 $33,387 $32,606
Sales 25,835 60,767 32,559
------- ------- -------
Total $59,908 $94,154 $65,165
======= ======= =======
Operating Profit:*
Leasing $23,063 $23,163 $22,975
Sales 14,497 18,522 18,570
------- ------- -------
Total $37,560 $41,685 $41,545
======= ======= =======
*Before interest expense, corporate expense and
income taxes
1995 Progress
Entitlements
Work to obtain entitlements for urban use in 1995 focused on: the Kukui'ula
residential development on Kauai, the proposed master-planned residential
community at Pilot Hill in California and the continued participation in the
update of the County of Maui's community plans.
In May 1995, the Hawaii State Land Use Commission approved urban
reclassification of 822 acres at Kukui'ula. Approval was granted for 537 acres
immediately and for 285 additional acres when certain on- and off-site
improvements are completed. At year-end, the County of Kauai approved rezoning
of 514 acres for development. Adding that approval to 213 acres previously
approved, the total reconfigured first phase of development is 727 acres.
Renewal of construction, however, awaits improved economic conditions on Kauai,
especially in housing demand.
Pilot Hill, an 1,800-acre parcel located in El Dorado County, California, is
expected to be developed as a master-planned residential community. El Dorado
County, located 40 miles northeast of Sacramento, completed the legally man-
dated update of its General Plan on January 12, 1996. The project was
designated a "planned community" in the new plan.
The Company continues to pursue a number of projects as part of the ten-year
update of Maui's community plans. Community plans in Hawaii generally are the
first step in the lengthy governmental land approval process, creating a
"blueprint" for planned development activity over the following decade. A&B is
seeking various urban designations for portions of its undeveloped land within
four Plan regions where most of the Company's holdings are located.
Development
The largest and most prominent development activity in 1995 was the construc-
tion of on- and off-site improvements for Maui Business Park, a light
industrial/commercial business park located near Maui's primary airport and
commercial harbor. Ultimately planned to consist of about 240 acres, Maui
Business Park's construction last year included mass grading, roads, utilities
and landscaping for phase IA (42 acres), and mass grading for phase IB (34
acres), plus substantial off-site drainage and sewer work. Significant off-site
road work remains to be completed during 1996.
Nearby, Maui's first Costco opened for business in May 1995. The facility was
constructed by Costco on a 13-acre parcel ground-leased from A&B. Across the
street, the 28,000 square foot Apex Building, developed by A&B and completed in
1995, is now 30-percent leased.
Other projects constructed on Maui in 1995 include Kahului Ikena, a 102-unit
townhouse project. Kahului Ikena sales commenced in June 1995. Also, grading,
drainage and on-site improvements were nearly finished by year-end on a
21-acre, 92-lot residential project called Ku'au Bayview, at Pa'ia, on Maui's
rural North Shore. Construction of two model homes is underway, which is
expected to reinforce already active interest in the house/lot packages to be
offered.
Sales Activity
Large Parcel Sales
In the fourth quarter of 1995, 38 acres in the Spreckelsville, Maui area were
sold in bulk to a developer for $2.4 million. The buyer intends to continue
with A&B's plans for subdivision of the property into 17 lots.
Improved Lot Sales
At Maui Business Park, the sale of 5.5 acres and lease of 14.5 acres closed in
late 1995 for a site planned by a local developer for a 275,000 square-foot
value retail center. Marketing of the 32 lots in Phase IA of Maui Business Park
also commenced in late 1995. Three of these lots, comprising 1.3 acres, closed
in December for $1.7 million.
Total Available Sold Available
Salable In In In
Project Units 1995 1995 1996
- ------- ------- --------- ---- ---------
Maui Business
Park (Phase IA) 32 32 3 29
Kamehameha
Parkway
Business Park 35 4 4 -
Port Allen
Industrial lots 5 5 4 1
Through 1995, four lots in the Kamehameha Parkway industrial subdivision in
Kahului, Maui, encompassing a total of 1.4 acres, were sold for $2.1 million.
These sales closed out the 35-lot project. On Kauai, four lots in the Port
Allen development, comprising 1.4 acres, were sold for $900,000.
Residential, Agricultural
Subdivision Sales
During 1995, 22 lot sales in Haiku Mauka were closed, at prices averaging
$169,000. Approvals are being sought for additional agricultural lot
subdivisions on Maui.
There were 21 sales during 1995 at the Kahului Ikena condominium project, at an
average price of $150,000.
Total Available Sold Available
Salable In In In
Project Units 1995 1995 1996
------- --------- ---- ---------
Haiku Mauka 39 32 22 10
Kahului Ikena 102 102 21 81
Eleele Nani II 146 10 4 6
Ku'au Bayview 92 Under - 92
Constr.
On Kauai, sales activity continued at Eleele Nani II, the Company's mixed-use
housing project. In 1995, four lots were sold, at an average price of $118,000.
Growing Leased Property Portfolio
Hawaii Portfolio
The Hawaii leased property portfolio consists of improved properties and ground
leases. The portfolio continued to enjoy relatively high occupancy levels in
spite of the sluggish economy. Occupancy averaged 90 percent over the course
of the year.
Aesthetic improvements to the (44-year old) Kahului Shopping Center were
initiated in 1995, resulting in a favorable response by local merchants to
leasing initiatives.
Mainland Portfolio
The Mainland portfolio, containing about 2.1 million square feet of leasable
area, achieved an average occupancy level of 97 percent in 1995. Two new
properties were acquired in 1995 to replace a Denver shopping center sold in
December 1994. Airport Square, a 168,000 square foot regional center, located
in Reno, Nevada, is anchored by PetsMart and Office Depot. It also benefits
from an adjoining Costco store. The second acquisition was Market Square, a
43,000 square foot neighborhood center in Greeley, Colorado. Tenants include
Blockbuster Video and Chili's Bar & Grill.
Issues, Plans to Address Them
Kauai Economy, Kukui'ula Development: The Kauai economy has yet to recover
fully from Hurricane Iniki's effects and from the statewide economic doldrums.
Several hotels remain closed. Unemployment on that island remains about nine
percent. In response to these conditions, further investment in the Kukui'ula
project will continue to be deferred until prospects for housing and commercial
demand improve.
Overall Real Estate Demand: Consumers' concerns and public and private
employment cutbacks have had a negative effect on real estate activity
statewide. Although selling prices generally have remained stable, there is
downward pressure on lease rates for office, retail and industrial space. The
introduction of value retailing has benefited A&B through its ground leases to
several large participants, but the new competition has heightened pressure on
the existing retailers in those markets. A&B has been fortunate that Maui has
enjoyed stronger economic activity than the rest of the State, and most of the
Company's projects and land holdings are favorably located on that island. The
present market circumstances, however, call for care and selectivity regarding
investment to ensure timely recovery of invested capital.
Operating Profit Outlook
Property leasing revenue and operating profit are both expected to be higher in
1996 than in 1995. The leased property portfolio is expected to improve its
results due to a full-year contribution by the new Costco ground lease, other
new tenancies and the two new Mainland shopping centers. Property sales revenue
likely will be higher, but the sales mix will consist of more lower-margin
properties, such as residential subdivisions, versus large parcels, which may
lead to moderately lower operating profit for that part of the segment's
results.
Continued efforts to enhance the future value of the property portfolio through
entitlement gains also are an important contributor to future shareholder
value. These efforts will continue throughout 1996, both for Hawaii and
Mainland properties.
Hawaii
------------------------
(In acres) Maui Kauai Total Mainland Total
---- ----- ----- -------- -----
Fully Entitled Urban 393 796 1,189 139 1,328
Agr/Pasture/Misc 52,947 8,108 61,055 1,901 62,956
Conservation 15,500 13,000 28,500 - 28,500
------ ------ ------ ------ ------
Total 68,840 21,904 90,744 2,040 92,784
====== ====== ====== ====== ======
Designated Urban 613 373 986 1,841 2,827
Urban Potential 6,245 3,450 9,695 - 9,695
Food Products
Segment Description
ABHI's food products segment includes the sugar production operations of
Hawaiian Commercial & Sugar Company (HC&S) on Maui and McBryde Sugar Company,
Limited (McBryde) on Kauai, the coffee production and marketing activities of
Island Coffee Company, Inc. (Island Coffee) on Kauai, as well as the sugar
refining and marketing operations of C&H. A&B is the largest sugar producer in
Hawaii, having grown about 45 percent of the State's total crop in 1995.
ABHI's two plantations produce raw sugar, molasses, coffee and surplus electric
power which is sold to utilities. C&H is the largest sugarcane refiner in the
Western United States, supplying to consumer and industrial markets about 16
percent of the refined cane sugar produced in the country.
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: While taking steps to reduce operating costs and increase
efficiency, lay the groundwork for long-term operating success at C&H through
improvements to the refinery, extension of the C&H brand and examination of
marketing opportunities throughout North America.
Sustain profitable sugar production through the expansion of cultivated acreage
and improvements in technology and agronomy at HC&S.
Pursue the best long-term strategy for production and marketing of its premium,
estate-grown Kauai Coffee.
Operating Results
In 1995, food products operations provided 36 percent of A&B's revenue. The
operating loss in the segment, however, totaled $27,797,000, including an
$8,100,000 provision for cessation of sugar operations at McBryde and a
$3,800,000 charge for writing-down certain operating assets at C&H. For
explanations of year to year changes in results, please refer to Management's
Discussion and Analysis on page 25.
1995 1994 1993
---- ---- ----
(in thousands)
Revenue $363,944 $441,209 $304,007
Operating Profit
(Loss)* $(27,797) $ (418) $ 12,692
*Before interest expense, corporate expense
and income taxes
1995 Progress
C&H
As expected, 1995 was a very difficult year for C&H. Continuing ineffective
administration of sugar price supports by the U.S. Department of Agriculture,
and an excess supply of beet sugar prolonged and deepened the financial plight
of all U.S. cane sugar refiners. Relatively high raw cane sugar prices combined
with low prices for refined sugar products to destroy normal refiners' margins.
These difficult external circumstances were exacerbated by a six-week strike by
C&H refinery workers during September and October of 1995.
Part of the potential recognized in the acquisition of C&H in June 1993 was
that the organization could be made more competitive, by transforming C&H from
an agricultural co-op to an independent refiner/marketer. A comprehensive
"benchmarking" study was prepared, comparing C&H's costs with those of other
companies in the industry. A number of areas were identified where C&H could
significantly streamline its operations and reduce operating costs. As a
result, an announcement was made late in December 1995 that nearly one-quarter
of the entire work force, from both the bargaining and non-bargaining units,
would not return to C&H after the normal year-end shut-down period. This
restructuring is projected to yield savings exceeding $8 million annually.
The step, however difficult, was essential for continued successful operation
of the business.
With the restructuring, C&H will be more competitive within its industry and
with other caloric sweetener producers. For the sugar refining business to
achieve financial returns commensurate with its cost of capital, however,
further improvements are necessary and planned. The refiners' prospects also
could be influenced significantly by the outcome of the current congressional
debate on the reform of U.S. agricultural programs.
Construction continued during 1995 on a 240-megawatt cogeneration plant being
built by a third party adjacent to the C&H refinery at Crockett. Now planned
for initial full-scale operation in May 1996, the plant will use natural gas to
produce steam and electricity. The steam will be used to power the C&H
refinery, significantly reducing its energy costs.
Agribusiness
Sugar - Although the high raw sugar prices that hurt C&H`s results benefit
A&B's sugar plantations, 1995 presented additional challenges that offset the
gains at HC&S. Sugar production at that plantation was just 11.2 tons of sugar
per acre (TSA), the lowest level in ten years. A number of factors appear to
have caused this decrease in yield but record low levels of rainfall is the
most significant. HC&S and industry scientists have critically reviewed sugar
cane varieties, weather factors, and fertilization, cultivation and irrigation
practices. As a result of this analysis steps have been taken to mitigate the
adverse effects. Initial improvements will be seen in the 1996 harvest but,
because sugar cane in Hawaii is grown on a two-year cycle, the improvement will
be more apparent in the 1997 harvest.
In June 1995, A&B announced that sugar operations at McBryde would be phased
out. The last harvest is scheduled to end in September 1996 and all anticipated
costs will be covered by the $8,100,000 pre-tax charge taken in June 1995.
Approximately 6,200 acres of land used for sugar production at McBryde were
leased from others. Under provisions of the leases, this acreage will be
returned to its owners when sugar harvesting is completed. Approximately 4,000
acres of land at McBryde remains planted in coffee.
Coffee - Operations at Island Coffee continue to develop and show promise.
Total green coffee produced during the 1995 harvest, nearly 1.8 million pounds,
was about 30-percent higher than that in 1994. Both the quality of the crop and
per-acre recovery rate improved. The Company is marketing the bulk of the green
(unroasted) coffee on the Mainland. The larger crop and better quality are
attracting buyers' interest. Sales in Hawaii of roasted and packaged coffee
products also continue to increase. Coffee production is expected to rise again
in the 1996 harvest.
Power - Sales of power from HC&S and McBryde to local electric utilities
totaled 118,000 MW hours, versus 122,000 in 1994. Unusually low rainfall on
Maui during the year necessitated greater use of power for irrigation pumping
and lessened the amount of power available for sale.
Agribusiness operating statistics for the past three years were:
1995 1994 1993
---- ---- ----
Raw sugar
produced
(tons) 222,000 223,000 240,000
Molasses
produced
(tons) 73,000 67,000 68,000
Electricity sold
(megawatt
hours) 118,000 122,000 118,000
Green coffee
produced
(pounds) 1,770,000 1,365,000 550,000
Cultivated
acreage:
Sugar 40,400 43,000 43,000
Coffee 4,000 4,000 4,300
Issues, Plans to Address Them
National Sugar Legislation - The original goal of the U.S. sugar programs was
to insulate U.S. consumers and producers from the volatility of the world
market, by establishing market prices that would allow efficient producers to
survive and to ensure ample supplies of a wide variety of reasonably priced
sugar products to consumers, at no cost to the taxpayer. Because the country
is a net importer of sugar, regulating the amount of imported raw cane sugar
is the primary mechanism used under current law to control sugar prices. The
increasing diversity, complexity and dynamics of the U.S. sweetener market has
revealed serious flaws in this simplistic approach to price control. The result
has been unintended market distortions. Among other things, reduced import
quotas inflated the price of raw cane sugar above the price of refined sugar
products. As a result, operating margins of sugarcane refiners which market
half the sugar consumed in the country, have been negative.
Current legislative proposals do not provide meaningful relief to cane
refiners. C&H continues to participate in the legislative process with other
industry groups and to encourage reform that better balances the needs of all
industry segments. The outcome of these on-going deliberations remains
uncertain but new agricultural bills are expected to be brought to a vote in
the House and Senate during the first quarter.
HC&S Costs and Yields - To preserve their already thin operating margins,
growers of sugar cane must constantly work to reduce their costs. HC&S has, for
many years, successfully pursued a steady stream of cost-saving and cost-
cutting measures. In addition, its work on new cane varieties and other forms
of yield improvement have contributed greatly to its success. During 1996 and
thereafter, as the industry becomes more competitive and costs rise, the
importance of similar initiatives to achieve continuous improvements will
become greater.
Coffee - This relatively new business is still in a developmental stage, with
marketing the larger crop a major focus in the near future. Its overall
contribution to profit is not expected to be significant in the near term.
Operating Profit Outlook
With no consensus now apparent regarding new farm legislation, and with the
present law expiring in September 1996, there continues to be uncertainty about
the business prospects for this segment. The recent restructuring at C&H,
however, will provide a substantial and favorable improvement for operations
and financial performance. Two increases in sugar import quotas announced by
the U.S. Department of Agriculture, and reports of firming refined product
prices also will help improve refiners' margins. But, in the absence of
meaningful progress toward legislative reform and more favorable terms of new
legislation, the food products segment is unlikely to return to acceptable
levels of profitability and financial returns in the next year.
General Information
[Photo caption:
Because Maui is central to A&B's history, the 125th anniversary of Alexander &
Baldwin, Inc., was the occasion for a community gathering on the grounds of the
new Maui Community Arts and Cultural Center. Along with Hawaiian food
delicacies, being enjoyed by these gentlemen, the day also provided many A&B
retirees, employees and families the opportunity to enjoy each other's company
and many fond memories.]
Board of Directors
Members of the current Board of Directors, including one advisory director,
beneficially own approximately seven percent of A&B shares.
At the Annual Meeting of Shareholders on April 27, 1995, shareholders elected a
total of 10 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, 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.
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, John C. Couch was elected to
succeed Mr. Pfeiffer as Chairman, effective April 1, 1995. The Board also
elected Mr. Pfeiffer to the honorary position of Chairman Emeritus.
Management, Organization
W. Allen Doane, executive vice president and chief operating officer of ABHI,
was appointed president and chief operating officer of ABHI, effective April
27, 1995.
Kevin C. O'Rourke, vice president and general counsel of Matson, was appointed
senior vice president and general counsel of Matson, effective April 27, 1995.
Paul E. Stevens, vice president (marketing) of Matson, was appointed a senior
vice president of Matson, effective April 27, 1995.
Frederick M. Gutterson, senior vice president of Matson, and president and
chief executive officer of Matson Leasing, left the Company in the course of
the sale of Matson Leasing.
[Graph: Ten year history of year-end stock price plus dividends per share.
Data is available in the Eleven-Year Summary of Selected Financial Data.]
Common Stock
A&B's 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 86,022 shares a day
in 1995, compared with 85,594 shares a day in 1994 and 99,569 in 1993.
Currently, 16 firms make a market in ALEX.
High and low sales prices per share, by quarter, for 1995 and 1994 were:
Quarter 1995 1994
- ------- ---- ----
First $24-1/4 - 20-1/2 $28-1/4 - 24-5/8
Second 25-1/2 - 21-3/4 26-1/4 - 23-3/4
Third 25-1/2 - 22-1/4 26-3/4 - 24-3/4
Fourth 24-1/4 - 22-1/2 26 - 21-1/4
[Graph: Stock Price Range by Quarter
Data points are in the above table.]
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 8 to the financial statements, Matson has outstanding
commercial paper notes aggregating approximately $149 million. These notes are
rated A-1/P-1/D-1 by Standard & Poor's, Moody's, and Duff & Phelps,
respectively. Standard & Poor's rates Matson's senior debt as A-.
C&H has outstanding commercial paper aggregating $97 million. The commercial
paper notes are rated A-2/P-2 by Standard & Poor's and Moody's, respectively.
Quarterly Results (Unaudited)
Segment results by quarter for 1995 and 1994 are listed below (in thousands,
except per share amounts).
1995 1994
-------------------------------------- --------------------------------------
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
-------- -------- -------- -------- -------- -------- -------- --------
Revenue:
Ocean transportation $148,595 $150,507 $149,663 $145,042 $154,318 $154,542 $159,403 $136,491
Property development & management:
Leasing 8,805 8,746 8,441 8,081 8,322 8,298 8,315 8,452
Sales 16,437 2,403 2,874 4,121 45,940 2,136 4,082 8,609
Food products 83,613 83,946 108,588 87,797 133,569 118,983 103,209 85,448
Other 730 684 701 681 1,748 697 666 805
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue $258,180 $246,286 $270,267 $245,722 $343,897 $284,656 $275,675 $239,805
======== ======== ======== ======== ======== ======== ======== ========
Operating Profit:
Ocean transportation $ 23,220 $ 26,592 $ 20,855 $ 17,102 $ 23,322 $ 22,114 $ 29,591 $ 22,292
Property development & management:
Leasing 5,827 6,033 5,729 5,474 5,382 5,709 5,896 6,176
Sales 10,949 328 1,524 1,696 9,115 748 3,124 5,535
Food products (8,217) (4,350) (11,388) (3,842) 1,036 (1,404) 14 (64)
Other 684 640 656 613 1,146 636 733 628
-------- -------- -------- -------- -------- -------- -------- --------
Total operating profit 32,463 29,243 17,376 21,043 40,001 27,803 39,358 34,567
Interest expense 8,753 9,513 7,711 7,452 7,300 6,457 7,102 6,843
General corporate expenses 2,690 3,462 4,224 4,366 3,941 4,653 4,143 4,659
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes 21,020 16,268 5,441 9,225 28,760 16,693 28,113 23,065
Income taxes 8,440 5,923 1,901 3,271 9,032 5,669 9,847 8,104
-------- -------- -------- -------- -------- -------- -------- --------
Income from continuing operations 12,580 10,345 3,540 5,954 19,728 11,024 18,266 14,961
Discontinued operations:
Income from MLC operations - - 2,730 2,606 3,223 2,788 2,668 1,950
Gain on sale of MLC 794 - 17,206 - - - - -
-------- -------- -------- -------- -------- -------- -------- --------
Net income $ 13,374 $ 10,345 $ 23,476 $ 8,560 $ 22,951 $ 13,812 $ 20,934 $ 16,911
======== ======== ======== ======== ======== ======== ======== ========
Earnings per share $0.30 $0.23 $0.51 $0.19 $0.50 $0.30 $0.45 $0.37
======== ======== ======== ======== ======== ======== ======== ========
FINANCIAL REPORT
21 Independent Auditors' Report
22 Eleven-Year Summary of Selected Financial Data
24 Industry Segment Information
25 Management's Discussion and Analysis
28 Statements of Income
29 Statements of Cash Flows
30 Balance Sheets
32 Statements of Shareholders' Equity
33 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, 1995 and 1994, and the related
statements of income, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995 (pages 24 and 28 to 39).
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, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
As discussed in Note 4 to the financial statements, the Company discontinued
the container leasing segment of its operations in June 1995, when it sold
certain assets and liabilities of Matson Leasing Company, Inc. The gain on
sale and results of operations prior to the sale are included in discontinued
operations in the accompanying financial statements.
As discussed in Note 7 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.
DELOITTE & TOUCHE LLP
Honolulu, Hawaii
January 25, 1996
Eleven-Year Summary of Selected Financial Data
(Dollars and shares in thousands except per-share amounts)
Alexander & Baldwin Inc. and Subsidiaries
1995 1994 1993 1992 1991
----------- ----------- --------- --------- ---------
Annual Operations:
Net sales and other
operating revenue $ 1,020,455 $ 1,144,033 $ 923,804 $ 703,948 $ 715,984
Deduct:
Cost of goods sold and
operating expenses 926,972 1,019,700 794,880 583,593 565,105
Plantation closure 8,100 - - - -
Interest expense 33,429 27,702 28,802 23,881 24,575
Hurricane loss - - - 24,803 -
Income taxes 19,535 32,652 41,386 19,044 42,359
----------- ----------- --------- --------- ---------
Income from continuing
operations 32,419 63,979 58,736 52,627 83,945
Income (loss) from
discontinued operations 23,336 10,629 8,253 7,878 4,861
Cumulative effect of change
in accounting principle - - - (41,551) -
----------- ----------- --------- --------- ---------
Net income $ 55,755 $ 74,608 $ 66,989 $ 18,954 $ 88,806
=========== =========== ========= ========= =========
Earnings per share:
Income from continuing
operations $ 0.72 $ 1.39 $ 1.27 $ 1.14 $ 1.82
Income (loss) from
discontinued operations 0.51 0.23 0.18 0.17 0.10
Cumulative effect of change
in accounting principle - - - (0.90) -
----------- ----------- --------- --------- ---------
Net income $ 1.23 $ 1.62 $ 1.45 $ 0.41 $ 1.92
=========== =========== ========= ========= =========
Return on beginning equity 8.8% 12.7% 12.0% 3.3% 16.7%
Cash dividends per share $ 0.88 $ 0.88 $ 0.88 $ 0.88 $ 0.88
Average number of shares
outstanding 45,492 46,059 46,338 46,294 46,213
Gross profit percentage 20.2% 21.2% 24.9% 29.1% 31.9%
Effective income tax rate 37.6% 33.8% 41.3% 26.6% 33.5%
Market price range
per share:
High $ 25.500 $ 28.250 $ 28.000 $ 30.500 $ 29.500
Low $ 20.500 $ 21.250 $ 22.500 $ 21.500 $ 21.000
Close $ 23.000 $ 22.250 $ 26.750 $ 24.750 $ 28.250
At Year End:
Shareholders of record 6,357 6,729 7,056 7,507 7,749
Shares outstanding 45,280 45,691 46,404 46,333 46,229
Shareholders' equity $ 649,678 $ 632,614 $ 587,006 $ 559,099 $ 578,669
Per share 14.35 13.85 12.65 12.07 12.52
Total assets 1,782,759 1,925,775 1,904,742 1,676,635 1,547,648
Working capital 84,399 58,392 64,884 40,013 23,195
Cash and cash equivalents 32,150 8,987 32,295 20,827 18,675
Property-net 973,514 975,672 1,032,983 888,621 882,513
Real estate developments
-noncurrent 56,104 66,371 54,919 50,977 36,362
Long-term debt-noncurrent 380,389 519,605 576,390 549,960 452,279
Capital lease obligations
-noncurrent 24,186 35,274 44,495 59,816 69,717
Current ratio 1.4 to 1 1.3 to 1 1.3 to 1 1.4 to 1 1.2 to 1
Capital stock
price/earnings
ratio at December 31 18.7 to 1 13.7 to 1 18.5 to 1 60.4 to 1 14.7 to 1
All share and per-share amounts reflect the stock splits of 2-for-1 in 1988 and 3-for-2 in 1986.
All Statement of Income and Balance Sheet data, and related ratios have been restated to reflect Matson Leasing Company
as discontinued operations, due to the sale of its net assets in 1995.
Eleven-Year Summary of Selected Financial Data, Continued
(Dollars and shares in thousands except per-share amounts)
Alexander & Baldwin Inc. and Subsidiaries
1990 1989 1988 1987 1986 1985
----------- ----------- --------- --------- --------- ---------
Annual Operations:
Net sales and other
operating revenue $ 747,550 $ 845,936 $ 701,908 $ 655,276 $ 536,668 $ 506,311
Deduct:
Cost of goods sold and
operating expenses 552,236 512,499 495,234 470,928 409,563 399,362
Plantation closure - - - - - -
Interest expense 29,602 26,965 27,406 21,104 16,042 18,453
Hurricane loss - - - - - -
Income taxes 58,820 107,461 61,535 62,167 575 37,051
----------- ----------- --------- --------- --------- ---------
Income from continuing
operations 106,892 199,011 117,733 101,077 110,488 51,445
Income (loss) from
discontinued operations 1,075 (310) - - - -
Cumulative effect of change
in accounting principle - - - - - -
----------- ----------- --------- --------- --------- ---------
Net income $ 107,967 $ 198,701 $ 117,733 $ 101,077 $ 110,488 $ 51,445
=========== =========== ========= ========= ========= =========
Earnings per share:
Income from continuing
operations $ 2.32 $ 4.30 $ 2.35 $ 1.93 $ 1.97 $ 0.92
Income (loss) from
discontinued operations 0.02 (0.01) - - - -
Cumulative effect of change
in accounting principle - - - - - -
----------- ----------- --------- --------- --------- ---------
Net income $ 2.34 $ 4.29 $ 2.35 $ 1.93 $ 1.97 $ 0.92
=========== =========== ========= ========= ========= =========
Return on beginning equity 23.5% 45.2% 31.7% 21.4% 27.9% 13.9%
Cash dividends per share $ 0.86 $ 0.80 $ 0.77 $ 0.68 $ 0.66 $ 0.47
Average number of shares
outstanding 46,133 46,326 50,079 52,444 55,990 55,750
Gross profit percentage 36.0% 48.5% 38.8% 37.2% 35.2% 33.3%
Effective income tax rate 35.5% 35.1% 34.3% 38.1% 0.5% 41.9%
Market price range
per share:
High $ 38.000 $ 39.500 $ 36.750 $ 32.000 $ 24.500 $ 14.750
Low $ 19.000 $ 31.250 $ 20.875 $ 16.000 $ 14.000 $ 10.875
Close $ 22.250 $ 37.500 $ 31.500 $ 21.625 $ 22.500 $ 14.250
At Year End:
Shareholders of record 7,860 7,650 7,201 6,859 6,749 6,662
Shares outstanding 46,201 46,096 50,099 50,347 56,095 55,789
Shareholders' equity $ 530,298 $ 459,712 $ 439,729 $ 371,007 $ 473,283 $ 396,718
Per share 11.48 9.97 8.78 7.37 8.44 7.11
Total assets 1,364,165 1,141,671 1,070,483 981,737 934,032 863,836
Working capital 55,340 33,906 35,974 42,262 67,533 87,418
Cash and cash equivalents 47,351 23,389 22,794 26,695 34,507 56,121
Property-net 799,942 691,194 548,066 520,124 489,076 480,345
Real estate developments
-noncurrent 14,156 - - - - -
Long-term debt-noncurrent 315,851 196,954 174,715 172,014 94,512 97,978
Capital lease obligations
-noncurrent 86,392 95,241 100,306 106,935 90,818 96,337
Current ratio 1.5 to 1 1.4 to 1 1.4 to 1 1.5 to 1 1.9 to 1 2.3 to 1
Capital stock
price/earnings
ratio at December 31 9.5 to 1 8.7 to 1 13.4 to 1 11.2 to 1 11.4 to 1 15.5 to 1
INDUSTRY SEGMENT INFORMATION
(In thousands)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
REVENUE:
Ocean transportation........................ $ 593,807 $ 604,754 $ 551,687 $ 537,669 $ 550,423
Property development and management:
Leasing.................................. 34,073 33,387 32,606 30,386 27,702
Sales.................................... 25,835 60,767 32,559 27,529 24,634
Food products............................... 363,944 441,209 304,007 104,053 110,947
Other....................................... 2,796 3,916 2,945 4,311 2,278
---------- --------- --------- --------- ----------
Total revenue ......................... $1,020,455 $1,144,033 $ 923,804 $ 703,948 $ 715,984
========== ========== ========== ========== ==========
OPERATING PROFIT:
Ocean transportation........................ $ 87,769 $ 97,319 $ 91,194 $ 97,195 $ 109,792
---------- ---------- ---------- ---------- ----------
Property development and management:
Leasing.................................. 23,063 23,163 22,975 21,357 19,953
Sales.................................... 14,497 18,522 18,570 17,720 20,852
Hurricane loss........................... - - - (900) -
---------- ---------- ---------- ---------- ----------
37,560 41,685 41,545 38,177 40,805
---------- ---------- ---------- ---------- ----------
Food products:
Before hurricane loss.................... (27,797) (418) 12,692 (2,272) 16,123
Hurricane loss........................... - - - (23,903) -
---------- ---------- ---------- ---------- ----------
(27,797) (418) 12,692 (26,175) 16,123
---------- ---------- ---------- ---------- ----------
Other....................................... 2,593 3,143 2,357 4,263 1,957
---------- ---------- ---------- ---------- ----------
Total operating profit ................ 100,125 141,729 147,788 113,460 168,677
Interest expense............................ (33,429) (27,702) (28,802) (23,881) (24,575)
General corporate expenses.................. (14,742) (17,396) (18,864) (17,908) (17,798)
---------- ---------- ---------- ---------- ----------
Income from continuing operations
before income taxes ................... $ 51,954 $ 96,631 $ 100,122 $ 71,671 $ 126,304
========== ========== ========== ========== ==========
IDENTIFIABLE ASSETS:
Ocean transportation........................ $ 997,230 $ 853,933 $ 882,335 $ 958,669 $ 944,092
Property development and management......... 297,927 271,073 268,581 258,653 234,955
Food products............................... 395,197 399,717 418,724 135,071 146,925
Other....................................... 92,405 87,362 39,094 38,437 31,587
---------- ---------- ---------- ---------- ----------
Assets of contining operations......... 1,782,759 1,612,085 1,608,734 1,390,830 1,357,559
Discontinued operations - container leasing. - 313,690 296,008 285,805 190,089
---------- ---------- ---------- ---------- ----------
Total assets .......................... $1,782,759 $1,925,775 $1,904,742 $1,676,635 $1,547,648
========== ========== ========== ========== ==========
CAPITAL EXPENDITURES:
Ocean transportation........................ $ 46,872 $ 29,676 $ 53,745 $ 64,333 $ 141,157
Property development and management......... 8,613 21,193 34,772 37,819 34,728
Food products............................... 13,650 18,665 26,637 8,589 17,496
DEPRECIATION AND AMORTIZATION:
Ocean transportation........................ $ 57,619 $ 55,663 $ 55,738 $ 52,829 $ 51,381
Property development and management......... 5,561 5,246 4,860 4,523 4,338
Food products............................... 20,390 21,340 15,974 10,665 10,716
MANAGEMENT'S DISCUSSION AND ANALYSIS
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
CONSOLIDATED EARNINGS
Net income for 1995 was $55,755,000, or $1.23 per share. This included an
$18,000,000, or $0.40 per share, gain on the sale of Matson Leasing Company,
Inc.'s (Matson Leasing) net assets, which occurred in June 1995. Also included
in 1995 net income was $5,336,000, or $0.11 per share, from the partial year
operations of Matson Leasing, offset by a $5,050,000, or $0.11 per share,
charge for the phasing-out of the Company's unprofitable sugar-growing
operations on the island of Kauai and a $2,384,000, or $0.05 per share,
write-down of a California and Hawaiian Sugar Company (C&H) operating asset.
Net income for 1994 was $74,608,000, or $1.62 per share, which included
$10,629,000, or $0.23 per share, from Matson Leasing's full year operating
results.
1995 COMPARED WITH 1994
OCEAN TRANSPORTATION revenue declined by two percent and operating profit
declined by ten percent in 1995 compared with 1994. These declines were due
primarily to decreases of nine percent and eight percent in Hawaii container
volume and automobile carriage, respectively, for 1995, compared with 1994
levels. Both of these declines reflect primarily the continuing weaknesses in
certain sectors of Hawaii's economy, most notably construction and the sales of
automobiles and durable goods. Also, the 1994 results benefited from a strike
by a competitor and the 1995 results were adversely impacted when that
competitor commenced, in mid-1995, an eastbound service from Honolulu to Los
Angeles. Operating profit for 1995, however, benefited from higher shipping
rates and increased interest income.
PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue and operating profit were
approximately the same for 1995 and 1994. Occupancy rates for the Company's
U.S. Mainland properties averaged 97 percent for both years but occupancy
levels for developed Hawaii properties declined slightly to 90 percent in 1995,
from 92 percent in 1994.
PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue of $25,835,000 for 1995 was
57 percent lower than in 1994; however, operating profit declined only 22
percent during the same period. This was mainly due to the mix of property
sales.
The mix of property sales in any year 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 provides a greater
contribution margin than does the sale of developed and commercial property,
due to the low historical-cost basis of the Company's Hawaii land, which
averages approximately $145 per acre. Consequently, property sales revenue
trends and the amount of real estate held for sale in the balance sheets are
not necessarily indicators of future profitability for this segment.
Sales in 1995 included a 5.5 acre parcel and three individual lots in the
Company's 76-acre Maui Business Park, eight developed industrial lots, a
38-acre agricultural-subdivision parcel, 47 residential subdivision and
condominium units and the sales of various undeveloped land parcels. Sales in
1994 included a shopping center in Denver; five developed industrial lots, two
undeveloped acres near the harbor at Kahului, Maui, 40 residential subdivision
and condominium units and various other parcels.
FOOD PRODUCTS revenue decreased 18 percent, due primarily to lower refined
sugar sales volume during a labor strike at C&H that began on September 8, 1995
and ended on October 17, 1995. The segment's operating loss for the year was
$27,797,000, compared with a loss of $418,000 in 1994. The 1995 loss was due
primarily to the C&H strike, a $3,800,000 (pre-tax) write down of certain
operating assets of C&H, higher raw sugar costs, low refined sugar prices, a
pre-tax charge of $8,100,000 for phasing-out the Company's sugar operations on
Kauai, and lower sugar yields at the Company's Maui sugar plantation.
1994 COMPARED WITH 1993
OCEAN TRANSPORTATION revenue increased ten percent in 1994 compared with 1993,
due primarily to increased cargo (in part, a result of a month-long strike in
1994 affecting a competitor), higher rates and new customers served by the
Company's 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 the Pacific Coast Service. Hawaii
container volume and automobile carriage increased four and seven percent,
respectively, in 1994, compared with 1993 levels.
PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue and operating profit
increased slightly in 1994, compared with 1993. In 1994, the occupancy rates
for the Company's U.S. mainland property and Hawaii property portfolios
averaged 97 percent and 92 percent, respectively, compared with 93 percent and
94 percent, respectively, for 1993.
PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue of $60,767,000 during 1994
was nearly double the 1993 revenue of $32,559,000. The fluctuation was due
primarily to the mix of properties sold and the differing margins on the
various types of real-estate transactions. The previously-described 1994 sales
compare with a significantly different mix of 1993 sales, which primarily
included one developed industrial lot, four undeveloped parcels and 101
residential lots.
FOOD PRODUCTS revenue increased 45 percent in 1994 compared with 1993, due
primarily to the full-year effect of the acquisition of C&H. The operating
loss in 1994 of $418,000 represents a substantial decline from an operating
profit of $12,692,000 in 1993, due to poorer plantation yields, higher raw
sugar costs and lower selling prices for refined sugar.
SIGNIFICANT EVENTS IN 1995
DISCONTINUED OPERATIONS: On June 30, 1995, the containers and certain other
assets of Matson Leasing were sold to XTRA Corporation (XTRA), and certain
liabilities were assumed by XTRA, for approximately $362 million. Specifically
excluded from the transaction were Matson Leasing's long-term debt and U.S. tax
obligations. The proceeds from the sale were used principally to repay debt,
to pay tax obligations and to fund the capital needs of the Company's ocean
transportation segment.
PACIFIC ALLIANCE SERVICE: In 1995, the Company and American President
Companies, Inc. announced that their respective shipping subsidiaries had
signed a memorandum of understanding that outlined a 10-year strategic
operating alliance. This alliance includes the purchase, by Matson, of six
containerships and certain assets on Guam from American President Lines, Ltd.
(APL) for approximately $168 million and the sharing of cargo-carrying capacity
of five Matson vessels including four of the vessels acquired from APL. Under
a separate vessel-sharing agreement, Matson will operate and utilize five
vessels on westbound voyages from the U.S. Pacific Coast to Hawaii, Korea,
Japan and Guam and time charter the vessels to APL for return eastbound voyages
from the Far East. The purchase of one vessel occurred in December 1995 and
the remaining vessel purchases occurred in January 1996.
PROFIT IMPROVEMENT INITIATIVES: In September 1995, the Company began
implementing additional cost control initiatives affecting all of its
businesses. Included in these initiatives are the planned sale of an airplane,
the freezing of executive salaries, the elimination of Company-owned executive
automobiles, staff reductions and process improvements. Total Company-wide
reductions among non-bargaining employees, which began in 1995, are expected to
approximate ten percent of the non-bargaining work force. Certain staff
reductions of bargaining-unit positions have also begun. The bargaining-unit
reductions mainly have affected C&H and the Company's Kauai sugar operations.
During 1995, as part of its cost reduction initiatives, the Company relocated
the customer service operations of Matson to Phoenix, Arizona.
FOOD PRODUCTS CONCERNS: Of particular concern to the Company is the 1995
operating loss of its food products segment. The Company is actively working
to return operating results to acceptable levels.
In June 1995, the Company began the closure of its unprofitable sugar planta-
tion on Kauai. This closure resulted in a 1995 pre-tax charge of $8,100,000,
but is expected to improve the future operating profit of the food products
segment by approximately $4 million annually. The principal components of
the closure cost were the write-off of the sugar factory and other sugar-
related fixed assets, the write-off of materials and supplies inventories,
severance costs, and increases in self-insurance medical and workers'
compensation accruals. These charges are partially offset by pension and
post-retirement benefit plan curtailment gains. Approximately 200 employees
will be laid off during the closure process. The final sugarcane harvest for
the Kauai plantation is expected to be completed in September 1996.
Approximately 6,200 acres used for sugar cultivation were leased from others
and will be returned to the lessors at the completion of the sugar harvest.
Most of the Kauai land owned by the Company already has been converted into
coffee production or is being considered for development. Sugar production is
continuing at the Company's much larger Maui plantation.
The Company is also addressing concerns with declining yields at its Maui sugar
plantation. A study of the problem revealed that the declines are temporary
and were caused primarily by water shortages and fertilizer deficiencies.
These matters are being corrected to the extent possible; however, due to the
two-year crop cycle and dry weather on Maui, the yields are not expected to
improve significantly in 1996.
Since the Company's acquisition of C&H in 1993, a number of initiatives have
been undertaken to improve operating margins for the sugar refining operations.
In particular, sugar refining results in 1996 will benefit from a significant
restructuring at C&H which was announced in late 1995. The restructuring
resulted in a 25-percent reduction in the C&H work force at the start of 1996.
The ongoing savings from the work force reduction and the re-engineering of
refining operations are expected to improve the operating results of the
segment by approximately $8 million annually. Also, construction is
continuing, by a third party, of a cogeneration plant adjacent to C&H's primary
refinery. When operational in 1996, the third party-owned plant will provide
steam to the C&H refinery, reducing energy costs by about 25-percent.
Improvements also are being made to the refinery to increase its capacity to
handle imports of lower quality foreign raw sugar.
The ineffective administration of the federal sugar support program, combined
with an excess supply of beet sugar, continues to place pressure on C&H's
refining margins. The government's attempts to prop up market prices by
limiting imports of raw cans sugar failed to do anything but artificially
inflate raw sugar prices. At the same time the continued expansion of the beet
sugar industry depressed refined sugar prices creating negative margins for
cane sugar refineries like C&H.
The prospects for the Company's sugar businesses will be influenced by new farm
legislation which is being considered by Congress. The impact of these
deliberations and resulting legislation on the Company's operations cannot be
predicted at this time. Management believes, however, that the impact could be
significant.
STOCK REPURCHASES: In 1995, the Company repurchased 511,000 shares of its
common stock for an aggregate of $11,580,000. These purchases were made in
accordance with a program, approved by the Board of Directors in December 1993,
to repurchase up to two million shares of the Company's stock. The Company has
purchased a total of 1.2 million shares for $29,296,000 under this program
during the past two years.
FEDERAL MARITIME COMMISSION: In October 1995, revised Federal Maritime
Commission (FMC) guidelines for determining a just and reasonable rate of
return for the ocean transportation business became effective. The changes
to the FMC's guidelines are not expected to have a material impact on the
Company's future operating results. Additional discussion of this matter will
be included in the Company's Annual Report on Form 10-K.
FINANCIAL CONDITION AND LIQUIDITY
Principal liquid resources of continuing operations, which consist of cash and
cash equivalents, trade receivables, sugar inventories and unused lines of
credit, less outstanding commercial paper (backed by lines of credit) and
accrued deposits to the Capital Construction Fund (CCF), totaled $403,288,000
at December 31, 1995, a decrease of $24,722,000, from December 31, 1994. This
decrease was due mainly to a $54,769,000 decrease in unused lines of credit,
partially offset by a $23,163,000 increase in cash and cash equivalents and a
$17,611,000 increase in accounts receivable. The reduction in available lines
of credit and the increase in cash and cash equivalents were primarily the
result of cash available following the sale of Matson Leasing's net assets.
Receivables increased, due principally to an increase in amounts advanced by
the Company to Hawaii sugarcane growers for the purchase of raw sugar.
Working capital of continuing operations increased to $84,399,000 at December
31, 1995, compared with working capital at December 31, 1994 of $58,392,000.
This was primarily the result of the increase in cash and cash equivalents
following the sale of Matson Leasing's net assets, partially offset by an
increase of $25,000,000 in short-term commercial paper borrowing. The
Company's current ratio of 1.4-to-1 at December 31, 1995 was slightly higher
than the rate of 1.3-to-1 a year earlier.
Net cash provided by operations, before capital expenditures for real estate
developments held for sale and discontinued operations, was $150,550,000 for
1995, compared with $148,876,000 for 1994. Operating cash flows were used
principally for payments of long-term borrowings, deposits into the CCF,
capital expenditures, payment of dividends and stock repurchases.
For 1996, internal cash flows are expected to be sufficient to finance working
capital needs, dividends, capital expenditures and debt service. The Company
maintains several committed and uncommitted borrowing facilities.
OTHER MATTERS
CAPITAL EXPENDITURES: In 1995, cash flows for capital expenditures of
continuing operations were $69,489,000, compared with $61,434,000 in 1994.
Ocean transportation capital expenditures in 1995 of $46,872,000 were primarily
for container and chassis equipment and the acquisition of a container vessel.
Property development and management capital expenditures of $8,613,000 in 1995
were for real-estate developments which will be held for investment purposes
and for improvements to leased properties. Food products capital expenditures
in 1995 of $13,650,000 were primarily for various power generation equipment
for the Maui sugar plantation, factory modifications for C&H and for harvesting
and factory equipment at the Company's sugar and coffee operations. Capital
expenditures approved, but not yet spent, at December 31, 1995 were
$216,971,000. This includes $155,500,000 for the planned purchase of five
vessels which will be used in the Pacific Alliance Service. Of this vessel
purchase, approximately $145,500,000 will be paid for through the CCF.
TAX-DEFERRED EXCHANGES: In 1995, the Company purchased two shopping centers,
one near Reno, Nevada and the other in Greeley, Colorado, using the tax-
deferred proceeds from the 1994 sale of the Company's Denver, Colorado shopping
center. This transaction is reflected in the 1994 Statements of Cash Flows
under the caption "Non-Cash Activities."
ENVIRONMENTAL MATTERS: As with most industrial and land-development companies
of its 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. Management believes that appropriate liabilities have been accrued
for potential environmental costs.
NEW ACCOUNTING PRONOUNCEMENT: In 1995, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation." This Statement will require that,
for years beginning after December 15, 1995, the Company include the value of
stock-based compensation in its financial statements, using the fair value
based method of accounting, or that it disclose the pro forma impact of the
fair value method on its net income and earnings-per-share. The Company
currently accounts for stock-based compensation using the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, the value of stock-based compensation is not included
in the Company's net income. The Company does not plan to adopt the fair value
method for its primary financial statements, but will disclose, as required by
the pronouncement, the pro forma impact of the fair value method in its 1996
financial statements. The pro forma impact of SFAS No. 123 on the Company's
net income or earnings-per-share for 1995 is not currently known.
OUTLOOK FOR 1996: Information about the Company's outlook for 1996 and its
plans to address issues affecting each business unit, is included in the Letter
to Shareholders on pages 2 through 6 and in the business unit discussions
included on pages 8 through 18 of the Annual Report to Shareholders, which
sections are incorporated herein by reference.
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 21).
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/ John C. Couch
- ------------------------
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, 1995 1994 1993
- -------------------------------------------------------------------------------
REVENUE:
Net sales, food products ............... $ 350,613 $ 427,524 $ 281,816
Net sales, property development and other 25,334 59,412 43,764
Transportation and terminal services ... 511,673 473,450 445,442
Rentals and other services ............. 100,423 161,764 135,394
Gain on sale of property and other ..... 10,158 7,474 4,244
Interest ............................... 19,571 11,618 10,487
Dividends .............................. 2,683 2,791 2,657
--------- --------- ---------
Total revenue ........................ 1,020,455 1,144,033 923,804
--------- --------- ---------
COSTS AND EXPENSES:
Cost of goods sold ..................... 340,254 422,444 267,730
Plantation closure ..................... 8,100 - -
Cost of services ....................... 473,757 478,761 426,092
Selling, general and administrative .... 112,961 118,495 101,058
Interest ............................... 37,365 31,427 31,382
Interest capitalized ................... (3,936) (3,725) (2,580)
--------- --------- ---------
Total costs and expenses ............. 968,501 1,047,402 823,682
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES ........................... 51,954 96,631 100,122
INCOME TAXES.............................. 19,535 32,652 41,386
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS......... 32,419 63,979 58,736
DISCONTINUED OPERATIONS:
Income From Operations of Matson
Leasing Company
(Net of income taxes of $3,228 in
1995, $5,975 in 1994 and $4,794
in 1993) ........................... 5,336 10,629 8,253
Gain on Sale of Matson Leasing Company
(Net of income taxes of $8,954) ...... 18,000 - -
--------- --------- --------
NET INCOME................................ $ 55,755 $ 74,608 $ 66,989
========= ========= =========
EARNINGS PER SHARE OF COMMON STOCK:
Continuing Operations .................. $ 0.72 $ 1.39 $ 1.27
Discontinued Operations ................ 0.51 0.23 0.18
--------- --------- ---------
Net Income ............................. $ 1.23 $ 1.62 $ 1.45
========= ========= =========
AVERAGE COMMON SHARES OUTSTANDING......... 45,492 46,059 46,338
See notes to financial statements.
STATEMENTS OF CASH FLOWS (In thousands)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Year Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATIONS:
Income from continuing operations................. $ 32,419 $ 63,979 $ 58,736
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation ................................... 85,127 84,037 78,318
Plantation closure ............................. 8,100 - -
Loss (gain) on disposal of property,
investments and other assets ................... 226 (5,700) (292)
Changes in assets and liabilities:
Accounts and notes receivable .................. (14,411) 1,245 (2,666)
Inventories .................................... 2,640 1,111 14,496
Prepaid expenses and other assets............... 6,153 26,328 10,038
Accounts and income taxes payable............... (3,898) (7,859) (4,604)
Deferred income taxes payable .................. 42,965 1,412 14,662
Other liabilities .............................. (8,771) (15,677) (13,783)
Capital expenditures for real estate
developments held for sale...................... (19,734) (6,817) (1,703)
Discontinued leasing operations................... (59,160) 44,702 39,675
--------- --------- ---------
Net cash provided by operations............... 71,656 186,761 192,877
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property................. (63,908) (48,791) (109,315)
Capital expenditures for real estate
developments held for investment................ (5,581) (12,643) (12,875)
Acquisition of California and Hawaiian
Sugar Company, Inc. ............................ - - (62,564)
Receipts from disposal of income producing
property, investments and other assets.......... 362,501 1,447 10,182
Deposits into Capital Construction Fund........... (136,484) (8,900) -
Withdrawals from Capital Construction Fund........ 999 9,383 87,495
Increase in investments .......................... (1,518) (32) (1,108)
Discontinued leasing operations:
Capital expenditures ........................... (30,061) (33,932) (30,274)
Other........................................... 900 1,045 795
--------- --------- ---------
Net cash provided by (used in)
investing activities ....................... 126,848 (92,423) (117,664)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of long-term
debt........................................... 40,000 31,000 89,500
Payments of long-term liabilities................. (189,764) (84,314) (112,651)
Proceeds (payments) of short-term
commercial paper borrowings - net.............. 25,000 (6,000) -
Repurchases of capital stock...................... (11,580) (17,717) -
Proceeds from issuances of capital stock.......... 468 122 288
Dividends paid ................................... (40,035) (40,563) (40,777)
--------- --------- ---------
Net cash used in financing activities......... (175,911) (117,472) (63,640)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. 22,593 (23,134) 11,573
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR:
Continuing operations............................. 8,987 32,295 20,827
Discontinued leasing operations................... 570 396 291
--------- --------- ---------
TOTAL CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR.................................. 9,557 32,691 21,118
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR:
Continuing operations............................. 32,150 8,987 32,295
Discontinued leasing operations................... - 570 396
--------- --------- ---------
TOTAL CASH AND CASH EQUIVALENTS AT END
OF YEAR............................................ $ 32,150 $ 9,557 $ 32,691
========= ========= =========
OTHER CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized......... $ 41,277 $ 44,064 $ 43,682
Income taxes paid, net of refunds................. 53,014 18,391 15,123
NON-CASH ACTIVITIES - Tax-deferred property exchanges - 22,200 -
See notes to financial statements.
BALANCE SHEETS--
(In thousands, except per-share amounts)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
December 31, 1995 1994
- -----------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents .......................... $ 32,150 $ 8,987
Accounts and notes receivable:
Trade, less allowances of $5,479 and $6,449 ...... 110,697 110,881
Other ............................................ 36,070 18,275
Inventories:
Sugar and coffee ................................. 47,604 52,648
Materials and supplies ........................... 38,502 38,029
Real estate held for sale .......................... 23,550 4,014
Deferred income taxes .............................. 11,439 15,366
Prepaid expenses and other assets .................. 13,413 14,068
Accrued deposits to Capital Construction Fund ...... (6,233) (550)
--------- ---------
Total current assets ........................... 307,192 261,718
--------- ---------
INVESTMENTS........................................... 82,246 64,913
--------- ---------
REAL ESTATE DEVELOPMENTS.............................. 56,104 66,371
--------- ---------
PROPERTY:
Land .............................................. 60,101 52,202
Buildings .......................................... 202,769 190,852
Vessels ............................................ 657,238 651,435
Machinery and equipment ............................ 660,499 656,425
Water, power and sewer systems ..................... 82,208 86,254
Other property improvements ........................ 91,091 83,222
--------- ---------
Total .......................................... 1,753,906 1,720,390
Less accumulated depreciation and amortization ..... 780,392 744,718
--------- ---------
Property/net ................................... 973,514 975,672
--------- ---------
CAPITAL CONSTRUCTION FUND............................. 317,212 176,044
--------- ---------
NET ASSETS OF DISCONTINUED OPERATIONS................. - 313,690
--------- ---------
OTHER ASSETS--NET..................................... 46,491 67,367
--------- ---------
Total $1,782,759 $1,925,775
========== ==========
See notes to financial statements.
December 31, 1995 1994
- ---------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt .................. $ 24,794 $ 27,239
Current portion of capital lease obligations ....... 11,061 7,938
Short-term commercial paper borrowings ............. 83,000 58,000
Accounts payable ................................... 30,916 35,505
Payrolls and vacation pay .......................... 19,891 19,847
Uninsured claims ................................... 13,076 12,110
Post-retirement benefit obligations/current portion. 5,118 6,582
Taxes other than income ............................ 6,099 5,390
Accrued interest payable ........................... 4,478 4,611
Promotional programs ............................... 1,099 4,563
Accrued and other liabilities ...................... 23,261 21,541
---------- ----------
Total current liabilities ...................... 222,793 203,326
---------- ----------
LONG-TERM LIABILITIES:
Long-term debt ..................................... 380,389 519,605
Capital lease obligations .......................... 24,186 35,274
Post-retirement benefit obligations ................ 118,472 116,610
Pension obligations ................................ 13,345 21,933
Uninsured claims ................................... 11,182 12,337
Other .............................................. 32,335 34,115
---------- ----------
Total long-term liabilities .................... 579,909 739,874
---------- ----------
DEFERRED INCOME TAXES................................. 330,379 349,961
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Capital stock/common stock without par value;
authorized, 150,000 shares ($.75 stated value
per share); outstanding, 45,280 shares in 1995
and 45,691 shares in 1994......................... 37,133 37,493
Additional capital ................................. 40,138 38,862
Unrealized holding gains on securities ............. 39,830 29,073
Retained earnings .................................. 546,394 541,910
Cost of treasury stock ............................. (13,817) (14,724)
---------- ----------
Total shareholders' equity ..................... 649,678 632,614
---------- ----------
Total .......................................... $1,782,759 $1,925,775
========== ==========
STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per-share amounts)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Three Years Ended December 31, 1995
=======================================================================================================================
Capital Stock
------------------------------------------
Issued In Treasury
---------------------- -----------------
Unrealized
Additional Holding Retained
Shares Stated Value Shares Cost Capital Gains Earnings
------ ------------ ------ ---- ---------- --------- ---------
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
CHANGES IN 1995:
Shares repurchased and retired.... (511) (383) (11,196)
Stock options exercised........... 24 18 669
Acquired in payment of options.... (2) (1) (40)
Issued--incentive plan............ 8 6 (70) 907 607
Unrealized holding gains on
securities..................... 10,757
Net income................. 55,755
Cash dividends -- $.88 per share.. (40,035)
------ -------- ----- -------- -------- ------- --------
BALANCE, DECEMBER 31, 1995........... 49,510 $ 37,133 4,230 $(13,817) $ 40,138 $39,830 $546,394
====== ======== ===== ======== ======== ======= ========
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 leg commences. This method of
accounting does not differ materially from other acceptable accounting methods.
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.
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 as Real Estate Developments on the balance sheet. When
construction is complete, the costs are reclassified either as Property or as
Real Estate Held For Sale, based upon the Company's intent to sell the
completed asset or to hold it as an investment. 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 and coffee
inventory, are 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
disposals 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 intangible assets. These assets are being amortized using
the straight-line method over periods not exceeding 30 years.
OTHER LONG-TERM LIABILITIES: Other long-term liabilities include the Company's
estimate of the liability for uninsured claims and self insurance, and reserves
for dry-docking, pensions and other liabilities not expected to be paid within
the next year.
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
statement and income tax bases of assets and liabilities.
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. Real
estate is carried at the lower of cost or net realizable value. Net realizable
values are generally determined using the expected market value for the
property less sales costs. For residential units and lots held for sale,
market value is determined by reference to the sales of similar property,
market studies, tax assessments and discounted cash flows. For commercial
property, market value is determined using recent comparable sales, tax
assessments and cash flow analysis. A large portion of the Company's real
estate is undeveloped land located in Hawaii. This land has a cost basis which
averages $145 per acre, a value which is much lower than market 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.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Future actual amounts could differ from those estimates.
RECLASSIFICATIONS: Certain amounts in the 1994 and 1993 financial statements
have been reclassified to conform with the 1995 presentation.
RESTATEMENTS: The financial statements for all periods presented have been
restated to reflect the sale of certain net assets of the Company's container
leasing segment as described in Note 4.
2. EMPLOYEE BENEFIT PLANS
Total contributions to the multi-employer pension plans covering personnel in
shoreside and seagoing bargaining units were $5,903,000 in 1995, $8,216,000 in
1994 and $8,626,000 in 1993. 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.
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 $6,437,000 for various plan years
ended December 1995 and 1994, and July 1995, 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 pension cost (benefit) and components for 1995, 1994 and 1993, of
single-employer defined benefit pension plans, which cover substantially all
other employees, were as follows:
1995 1994 1993
---- ---- ----
(In thousands)
Service cost--benefits earned during
the year............................... $ 6,210 $ 7,317 $ 5,907
Interest cost on projected benefit
obligation............................. 21,785 20,542 17,584
Actual return on plan assets.............. (26,361) (24,122) (18,776)
Net amortization and deferral............. (2,054) (1,221) (2,514)
Curtailments and terminations ............ (1,761) 1,300 2,117
-------- -------- --------
Net pension cost (benefit)................ $ (2,181) $ 3,816 $ 4,318
======== ======== ========
The funded status of the single-employer plans at December 31, 1995 and 1994
was as follows:
1995 1994
----------- -----------------------
Assets Assets Accumulated
Exceed Exceed Benefits
Accumulated Accumulated Exceed
Benefits Benefits Assets
-------- ----------- ------
(In thousands)
Actuarial present value of benefit
obligation:
Vested benefits .................. $ 241,422 $ 122,153 $ 112,925
Non-vested benefits .............. 9,881 3,830 4,297
--------- --------- ---------
Accumulated benefit obligation.... 251,303 125,983 117,222
Additional amounts related to
projected compensation levels..... 34,276 22,927 11,277
--------- --------- ---------
Projected benefit obligation ..... 285,579 148,910 128,499
Plan assets at fair value............ 348,208 178,118 104,867
--------- --------- ---------
Deficiency (excess) of plan assets
over projected benefit obligation. (62,629) (29,208) 23,632
Prior service costs to be recognized
in future years .................. (3,739) (2,121) (1,656)
Unrecognized actuarial net gain
(loss)............................ 75,759 27,468 (1,227)
Unrecognized net asset at
January 1, 1987 (being amortized
over periods of 4 to 15 years) ... 3,954 4,660 385
--------- --------- ---------
Accrued pension liability............ $ 13,345 $ 799 $ 21,134
========= ========= =========
For 1995 and 1994, the projected benefit obligation was determined using a
discount rate of 8% and assumed increases in future compensation levels of 5%.
The expected long-term rate of return on assets was 9% for 1995 and 8 1/4% for
1994. The assets of the plans consist principally of listed stocks and bonds.
Contributions are determined annually for each plan by the Company's pension
administrative committee, based upon the actuarially determined minimum
required contribution under ERISA and the maximum deductible contribution
allowed for tax purposes. For the plans covering employees who are members
of collective bargaining units, the benefit formulas are determined according
to the collective bargaining agreements, either using career average pay as
the base or a flat dollar amount per year of service. The benefit formulas
for the remaining defined benefit plans are based on final average pay.
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 $8,680,000 and $7,661,000 at December
31, 1995 and 1994, respectively.
3. 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 to which
will revert to a subsidiary in 2002. Principal operating leases cover office
and terminal facilities for periods which expire between 1996 and 2026.
Management expects that in the normal course of business, most operating leases
will be renewed or replaced by other similar leases.
Rental expense under operating leases totaled $46,680,000, $48,169,000, and
$43,270,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
Contingent rents and income from sublease rents were not significant.
Assets recorded under capital lease obligations and included in property at
December 31, 1995 and 1994 were as follows:
1995 1994
---- ----
(In thousands)
Vessel ............................................. $ 55,253 $55,253
Machinery and equipment............................. 42,688 42,870
-------- -------
Total............................................ 97,941 98,123
Less accumulated amortization....................... 84,813 74,674
-------- -------
Property under capital leases--net ................. $ 13,128 $23,449
======== =======
Future minimum payments under all leases and the present value of minimum
capital lease payments as of December 31, 1995 were as follows:
Capital Operating
Leases Leases
------ ------
(In thousands)
1996................................................ $ 14,759 $15,960
1997................................................ 15,026 14,590
1998................................................ 10,703 14,837
1999................................................ 609 14,834
2000................................................ 576 12,868
Thereafter.......................................... 1,063 114,072
-------- -------
Total minimum lease payments........................ 42,736 $187,161
========
Less amount representing interest................... 7,489
--------
Present value of future minimum payments............ 35,247
Less current portion................................ 11,061
--------
Long-term obligations at December 31, 1995.......... $ 24,186
========
A subsidiary is obligated to pay terminal facility rent equal to the principal
and interest on Special Facility Revenue Bonds issued by the Department of
Transportation of the State of Hawaii. Interest on the bonds is payable semi-
annually and principal, in the amount of $16,500,000 is due in 2013. An
accrued liability of $7,170,000 and $6,626,000 at December 31, 1995 and 1994,
respectively, included in other long-term liabilities, provides for a pro-rata
portion of the principal due on these bonds.
THE COMPANY AS LESSOR: Various Company subsidiaries lease land, buildings and
land improvements under operating leases. The historical cost of and
accumulated depreciation on leased property at December 31, 1995 and 1994 were
as follows:
1995 1994
---- ----
(In thousands)
Leased property..................................... $246,609 $210,217
Less accumulated amortization....................... 37,555 32,567
-------- --------
Property under operating leases--net................ $209,054 $177,650
======== ========
Total rental income under these operating leases for the three years ended
December 31, 1995 was as follows:
1995 1994 1993
---- ---- ----
(In thousands)
Minimum rentals........................... $28,164 $ 31,792 $30,968
Contingent rentals (based on sales
volume)................................. 880 1,515 1,111
------- -------- -------
Total.................................. $29,044 $ 33,307 $32,079
======= ======== =======
Future minimum rental income on non-cancelable leases at December 31, 1995 was
as follows:
Operating
Leases
------------
(In thousands)
1996...................................... $ 31,551
1997...................................... 26,689
1998...................................... 18,930
1999...................................... 15,169
2000 ..................................... 12,324
Thereafter................................ 159,912
---------
Total .................................. $ 264,575
=========
4. DISCONTINUED OPERATIONS
In June 1995, the Company sold the net assets of its container leasing
subsidiary, Matson Leasing Company, Inc., for $361.7 million in cash, and
realized an after-tax gain of $18 million. Specifically excluded from the sale
were long-term debt and U. S. tax obligations of the business.
Summary operating results of discontinued operations, excluding the above gain,
were as follows:
1995 1994 1993
---- ---- ----
(In thousands)
Net sales ............................ $ 35,251 $63,060 $ 55,544
-------- ------- --------
Gross profit .......................... $ 14,762 $24,499 $ 20,500
-------- ------- --------
Earnings before income taxes .......... $ 8,564 $16,604 $ 13,047
Income taxes .......................... 3,228 5,975 4,794
-------- ------- --------
Net earnings from discontinued
operations............................. $ 5,336 $10,629 $ 8,253
======== ======= ========
The components of net assets of discontinued operations included in the
Consolidated Balance Sheet at December 31, 1994 were as follows (in
thousands):
Current assets ........................ $ 14,829
Containers and equipment, net ......... 305,874
Current liabilities ................... (1,505)
Other long-term liabilities ........... (5,508)
--------
Net assets ............................ $313,690
========
5. INCOME TAXES
The income tax expense for the three years ended December 31, 1995 consisted of
the following:
1995 1994 1993
---- ---- ----
(In thousands)
Current:
Federal................................ $(23,833) $ 29,796 $23,894
State.................................. 403 1,444 2,830
------- -------- -------
Total ............................... (23,430) 31,240 26,724
Deferred.................................. 42,965 1,412 14,662
------- -------- -------
Income tax expense ....................... $19,535 $ 32,652 $41,386
======= ======== =======
Total income tax expense for the three years ended December 31, 1995 differs
from amounts computed by applying the statutory Federal rate to pre-tax income,
for the following reasons:
1995 1994 1993
---- ---- ----
(In thousands)
Computed income tax expense............... $18,184 $ 33,821 $35,043
Increase (decrease) resulting from:
Tax rate increases..................... - - 6,963
State tax on income, less applicable
Federal tax 326 1,332 1,999
Fair market value over cost of donations - (2,138) -
Low-income housing credits............. (1,224) (1,219) (1,214)
Other-net.............................. 2,249 856 (1,405)
------- -------- -------
Income tax expense ................. $19,535 $ 32,652 $41,386
======= ======== =======
The tax effects of temporary differences that give rise to significant portions
of the net deferred tax liability at December 31, 1995 and 1994 were as
follows:
1995 1994
---- ----
(In thousands)
Deposits to the CCF................................. $252,348 $201,963
Tax-deferred gains on real estate transactions...... 69,317 68,488
Accelerated depreciation............................ 44,136 111,253
Unrealized holding gains on securities.............. 23,664 17,273
Post-retirement benefits............................ (47,813) (45,209)
Alternative minimum tax benefits.................... (14,264) (6,531)
Insurance reserves.................................. (6,766) (1,759)
Capitalized leases.................................. (957) 2,409
Other-net........................................... (725) (13,292)
-------- -------
Total............................................ $318,940 $334,595
======== ========
The Internal Revenue Service (IRS) has completed its audits of the Company's
tax returns through 1988 and, with one exception, has settled all issues raised
during such audits. No settlement had a 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 a deduction for tax purposes.
The IRS has commenced an audit of the tax returns for 1989 through 1991.
Management believes that the ultimate resolution of any adjustment resulting
from the 1987, 1988 and the current audits will not have a material effect on
the Company's financial position or results of operations.
6. 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.
The net periodic cost for post-retirement health care and life insurance
benefits during 1995, 1994 and 1993 included the following:
1995 1994 1993
---- ---- ----
(In thousands)
Service cost........................... $ 1,512 $ 2,149 $ 1,524
Interest cost.......................... 7,031 7,825 4,742
Net amortization....................... (1,524) (216)
Curtailment gain....................... (2,045) - -
-------- ------- --------
Post-retirement benefit cost........... $ 4,974 $ 9,758 $ 6,266
======== ======= ========
The unfunded accumulated post-retirement benefit obligation at December 31,
1995 and 1994 is summarized below:
1995 1994
---- ----
(In thousands)
Accumulated post-retirement benefit
obligation:
Retirees ............................... $56,606 $ 64,619
Fully-eligible active plan participants 9,073 10,577
Other active plan participants ......... 25,373 30,359
Unrecognized prior service cost ........ 5,676 3,215
Unrecognized net gain .................. 26,862 14,422
------- --------
Total ................................ 123,590 123,192
Current obligation........................ 5,118 6,582
------- --------
Non-current obligation.................... $118,472 $116,610
======== ========
For 1995 and 1994, the weighted average discount rate used in determining the
accumulated post-retirement benefit obligation was 8%, and the assumed health
care cost trend rate used in measuring the accumulated post-retirement benefit
obligation was 10% 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, 1995 and 1994
would have increased by approximately $10,405,000 and $12,235,000,
respectively, and the net periodic post-retirement benefit cost for 1995 and
1994 would have increased by approximately $1,190,000 and $2,153,000,
respectively.
7. INVESTMENTS
At December 31, 1995 and 1994, 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 stated at quoted
market values. The unrealized holding gain on these securities, net of
deferred income taxes, has been recorded as a separate component of
shareholders' equity.
The components of the net unrealized holding gains at December 31, 1995 and
1994 were as follows:
1995 1994
---- ----
(In thousands)
Market value.............................. $73,460 $ 56,312
Less historical cost ..................... 9,966 9,966
------- --------
Unrealized holding gain .................. 63,494 46,346
Less deferred income taxes ............... 23,664 17,273
------- --------
Net unrealized holding gain .............. $39,830 $ 29,073
======= ========
The investments in limited partnership interests and purchase money mortgages
are recorded at cost, which approximated market values, of $8,786,000 and
$8,601,000 at December 31, 1995 and 1994, respectively. The purchase money
mortgages are intended to be held to maturity. The value of the underlying
investments of the limited partnership interests are assessed annually and are
approximately equal to the original cost.
See Note 11 for a discussion of market values of investments in the Capital
Construction Fund.
8. LONG-TERM DEBT, CREDIT AGREEMENTS
At December 31, 1995 and 1994, long-term debt consisted of the following:
1995 1994
---- ----
(In thousands)
Commercial paper, 5.83% - 6.19% due 1996.. $ 246,437 $ 304,301
Bank revolving credit loans (1995 high
6.88%, low 5.99%) due after 1995........ 40,000 52,500
Term loans:
7.19%, payable through 2007 ............ 75,000 75,000
8%, payable through 2000 . ............. 47,500 50,000
9.05%, payable through 1999 ............ 27,201 32,611
9%, payable through 1999 .. ............ 21,176 50,000
9.8%, payable through 2004 ............. 18,750 20,833
7.65%, payable through 2001 ............ 10,000 10,000
11.78%, payable through 1997 ........... 1,269 1,848
Mortgage loans, collateralized by land
and buildings:
11%, repaid in 1995 .................... - 3,046
12.5%, repaid in 1995 .................. - 2,724
Other, repaid in 1995 .................. - 281
Limited partnership subscription notes,
no interest, payable through 1996 ...... 850 1,700
--------- ---------
Total .................................. 488,183 604,844
Less current portion ................... 24,794 27,239
Commercial paper classified as current . 83,000 58,000
--------- ---------
Long-term debt ......................... $ 380,389 $ 519,605
========= =========
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, 1997, 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, 1995 and 1994, $10,000,000 and $20,000,000, respectively,
were outstanding under this agreement.
The Company and a subsidiary have an uncommitted $45,000,000 short-term
revolving credit agreement with a commercial bank. The agreement extends to
November 30, 1996, but may be canceled by the bank at any time. At December
31, 1995 and 1994, $17,000,000 and $12,500,000, 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, 1995 and 1994, $13,000,000 and $20,000,000,
respectively, were outstanding under this agreement.
During 1995, a subsidiary entered into a $50,000,000 one-year Revolving Credit
Agreement to replace two previous credit facilities. Up to $25,000,000 of this
agreement serves as a commercial paper liquidity back-up line, with the balance
available for general corporate funds. At December 31, 1995, there were no
amounts outstanding under this agreement.
COMMERCIAL PAPER: At December 31, 1995 there were two commercial paper
programs. The first program was used by a subsidiary to finance the
construction of a vessel, which was delivered in 1992. At December 31, 1995,
$149,437,000 of commercial paper notes was outstanding under this program.
Maturities ranged from 4 to 39 days. The borrowings outstanding under this
program are classified as long-term, because 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 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, 1995,
$97,000,000 of commercial paper notes was outstanding under this program.
Maturities ranged from 11 to 23 days. The interest cost and certain fees on
the borrowings relating to sugar inventory advances to growers are reimbursed
by the growers. At December 31, 1995, $31,378,000 was outstanding as advances
to growers under this program. Of the total commercial paper borrowing
outstanding at December 31, 1995, $83,000,000 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 by the Company.
In 1995, the Company repaid the outstanding commercial paper notes of a third
program which had been used to finance container purchases of the discontinued
container leasing business.
LONG-TERM DEBT MATURITIES: At December 31, 1995, maturities and planned
prepayments of all long-term debt during the next five years totaled
$24,794,000 for 1996, $31,967,000 for 1997, $24,453,000 for 1998, $32,616,000
for 1999 and $19,584,000 for 2000.
9. 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 1995, 527,800
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, 1995, a total of 171,000 options have been granted under the plan,
3,000 options have been canceled and no options have been exercised.
Changes in shares under all option plans, for the three years ended December
31, 1995, were as follows:
Price Range
Shares Per Share
------ ---------
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............ 2,444,032 17.375-37.875
1995: Granted............................. 551,800 21.750-22.500
Exercised........................... (23,550) 17.375-24.750
Canceled............................ (385,531) 24.250-36.250
--------
Outstanding, December 31
(2,045,051 exercisable) .......... 2,586,751 $17.375-37.875
=========
Options outstanding at December 31, 1995 include 60,166 shares that carry stock
appreciation rights which expire in 1997. 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.
10. RELATED PARTY TRANSACTIONS, COMMITMENTS AND CONTINGENCIES
At December 31, 1995, the Company and its subsidiaries had an unspent balance
of total appropriations for capital expenditures of approximately $216,971,000.
However, there is no contractual obligation to spend this entire amount. Of
this amount, $155,500,000 is for the purchase of vessels described in Note 12.
A subsidiary has arranged for standby letters of credit of approximately
$13,800,000, necessary to qualify as a self-insurer for state and federal
workers' compensation liabilities.
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 which 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 $158,284,000 and
$271,212,000 under the contract during 1995 and 1994, 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 8). Such
advances are determined by the estimated raw sugar market prices. Amounts due
to HSTC are credited against outstanding advances to HSTC upon delivery of raw
sugar to the subsidiary's refineries.
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 or results of operations.
11. 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 of
December 31, 1995, the oldest CCF deposits date from 1987. Management believes
that all amounts deposited in the CCF at the end of 1995 will be used or
committed for qualified purposes prior to the expiration of the 25-year period.
Under the terms of the CCF agreement, the subsidiary may designate certain
qualified earnings as `accrued deposits'' or may designate, as obligations of
the CCF, qualified withdrawals to reimburse qualified expenditures initially
made with operating funds. Such accrued deposits to and withdrawals from the
CCF are reflected on the balance sheet either as an obligation of the Company's
current assets or as a receivable from the CCF.
As discussed in Note 7, in 1994 the Company adopted the provisions of SFAS No.
115. The Company 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 Company's intention to hold these investments
to maturity.
At December 31, 1995 and 1994, the balances on deposit in the CCF are
summarized in Table 1.
TABLE 1 (In thousands)
1995 1994
------------------------------------ -----------------------------------
AMORTIZED UNREALIZED Amortized Unrealized
COST FAIR VALUE GAIN (LOSS) Cost Fair Value Loss
---- ---------- ----------- --------- ---------- ----------
Mortgage-backed securities......... $ 95,156 $ 91,132 $ (4,024) $ 108,247 $ 96,678 $(11,569)
Cash and cash equivalents.......... 215,823 215,856 33 64,263 64,263 -
Treasury notes..................... - - - 2,984 2,984 -
Accrued deposits................... 6,233 6,233 - 550 550 -
-------- -------- -------- --------- -------- --------
Total.............................. $317,212 $313,221 $ (3,991) $ 176,044 $164,475 $(11,569)
======== ======== ======== ========= ======== ========
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.
At the end of 1995, the fair value of the Company's investments in MBS is less
than amortized cost, due to interest rate sensitivity inherent in the fair
value determination of such securities. While an unrealized market loss
exists, the Company intends to hold these investments to maturity, which ranges
from 1996 through 2024. The MBS have a weighted average life of approximately
six years, based on information currently available to the Company. The
Company earned $7,655,000 in 1995, $8,292,000 in 1994, and $7,218,000 in 1993
on its investments in MBS.
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 1996.
During 1995 and 1994, there were no sales of securities classified as "held-to-
maturity" included in the CCF.
12. SUBSEQUENT EVENT - VESSEL ACQUISITION
In January 1996, the Company purchased five container ships from American
President Lines, Ltd. (APL) for $155,500,000, of which $145,500,000 was
financed by qualified withdrawals from the CCF.
The Company intends to use four of these container ships and one existing fleet
unit in a joint service with APL, between the United States West Coast and
Hawaii, Korea, Japan and Guam. The Company will have the full reach of the
vessels on each westbound voyage from the United States West Coast to Hawaii,
Guam, Japan and Korea. APL will take each vessel on time charter in Korea and
redeliver the vessel at the end of its eastbound voyage on the United States
West Coast. APL will reimburse the Company for vessel operating costs incurred
while under time charter to APL. The Company expects to commence the joint
service with APL in February 1996.
13. INDUSTRY SEGMENTS
Industry segment information for 1995, 1994 and 1993, on page 24, 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.
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.
As discussed in Note 4, the net assets of the container leasing segment were
sold in 1995.
Alexander & Baldwin, Inc.
Directors
MICHAEL J. CHUN (52)*
President, The Kamehameha Schools
(educational institution)
JOHN C. COUCH (56)
Chairman of the Board, President and
Chief Executive Officer,
Alexander & Baldwin, Inc.
Chairman of the Board and
Chief Executive Officer,
A&B-Hawaii, Inc.
Chairman of the Board,
Matson Navigation Company, Inc.
LEO E. DENLEA JR. (64)*
Chairman of the Board, President
and Chief Executive Officer,
Farmers Group, Inc. (insurance)
WALTER A. DODS JR. (54)*
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 (50)**
President, King Auto Center
(automobile dealership)
CARSON R. McKISSICK (63)*
Managing Director,
The Corporate Development Company
(financial advisory services)
C. BRADLEY MULHOLLAND (54)
President and Chief Executive Officer,
Matson Navigation Company, Inc.
ROBERT G. REED III (68)**
Independent business consultant
MARYANNA G. SHAW (57)*
Private investor
CHARLES M. STOCKHOLM (63)**
Managing Director,
Trust Company of the West
(investment management services)
R. J. PFEIFFER (76)
Chairman Emeritus of the Board,
Alexander & Baldwin, Inc.
Chairman Emeritus of the Board,
A&B-Hawaii, Inc.
Chairman Emeritus of the Board,
Matson Navigation Company, Inc.
Advisory Director
ALEXANDER C. WATERHOUSE (84)
Vice Chairman, Waterhouse Properties, Inc.
(private investments)
Alexander & Baldwin, Inc.
Officers
JOHN C. COUCH (56)
Chairman of the Board, President and
Chief Executive Officer
MEREDITH J. CHING (39)
Vice President
(Government and Community Relations)
G. STEPHEN HOLADAY (51)
Vice President and Controller
JOHN B. KELLEY (50)
Vice President (Investor Relations)
MILES B. KING (48)
Vice President and Chief Administrative Officer
MICHAEL J. MARKS (57)
Vice President, General Counsel and Secretary
GLENN R. ROGERS (52)
Vice President, Chief Financial Officer
and Treasurer
ROBERT K. SASAKI (55)
Vice President (Properties)
A&B-Hawaii, Inc.
Officers
JOHN C. COUCH (56)
Chairman of the Board and
Chief Executive Officer
W. ALLEN DOANE (48)
President and Chief Operating Officer
RICHARD F. CAMERON (63)
Senior Vice President (Agribusiness)
G. STEPHEN HOLADAY (51)
Senior Vice President,
Chief Financial Officer and Treasurer
MILES B. KING (48)
Senior Vice President (Industrial Relations)
DAVID G. KONCELIK (54)
Senior Vice President (President and
Chief Executive Officer, California and
Hawaiian Sugar Company, Inc.)
MICHAEL J. MARKS (57)
Senior Vice President and General Counsel
ROBERT K. SASAKI (55)
Senior Vice President (Properties)
NORBERT M. BUELSING (45)
Vice President (Property Management)
MEREDITH J. CHING (39)
Vice President
(Government and Community Relations)
KEITH A. GOTO (52)
Vice President (Labor Relations)
JOHN B. KELLEY (50)
Vice President
STANLEY M. KURIYAMA (42)
Vice President
(Land Planning & Entitlements)
JUDITH A. WILLIAMS (52)
Vice President
(Corporate Planning & Development)
ALYSON J. NAKAMURA (30)
Secretary
THOMAS A. WELLMAN (37)
Controller
Matson Navigation Company, Inc.
Officers
JOHN C. COUCH (56)
Chairman of the Board
C. BRADLEY MULHOLLAND (54)
President and Chief Executive Officer
RAYMOND J. DONOHUE (59)
Senior Vice President and
Chief Financial Officer
MILES B. KING (48)
Senior Vice President (Human Resources)
GARY J. NORTH (51)
Senior Vice President (Operations)
(President and Chief Operating Officer,
Matson Terminals, Inc.)
KEVIN C. O'ROURKE (49)
Senior Vice President and General Counsel
PAUL E. STEVENS (43)
Senior Vice President (Marketing)
RICHARD S. BLISS (57)
Vice President (Area Manager, Hawaii)
ROBERT L. DAWDY (51)
Vice President (West Coast Operations)
BRANTON B. DREYFUS (42)
Vice President
(Area Manager, Southern California)
JOHN C. GOSLING (59)
Vice President (Engineering)
PHILIP M. GRILL (48)
Vice President (Government Relations)
DALE B. HENDLER (42)
Vice President (Information Services)
MERLE A. K. KELAI (64)
Vice President (Community Relations and
Government Affairs)
RONALD H. ROTHMAN (54)
Vice President (Industrial Relations)
MICHAEL J. MARKS (57)
Secretary
TIMOTHY H. REID (49)
Treasurer
JOSEPH A. PALAZZOLO (47)
Controller
* Audit Committee Members
** Compensation and Stock Option
Committee Members
All ages as of March 31, 1996
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 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 25, 1996.
Investor Information
Shareholders having questions about A&B are encouraged to write to John C.
Couch, Chairman of the Board, 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 Agent & Registrar
CHEMICAL MELLON
SHAREHOLDER SERVICES, L.L.C.
San Francisco, California
For questions regarding stock certificates or dividends, representatives of the
Transfer Agent may be reached at 1-800-356-2017, between 8a.m. and 8p.m.
Eastern Time.
Auditors
DELOITTE & TOUCHE LLP
Honolulu, Hawaii