PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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The condensed financial statements and notes for the second quarter and first
six months of 1997 are presented below with comparative 1996 financial
statements.
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF INCOME
(In thousands except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
Revenue:
Net sales, revenue from services
and rentals $312,800 $303,336 $583,992 $557,055
Interest, dividends and other 5,128 4,656 30,188 9,913
-------- -------- -------- --------
Total revenue 317,928 307,992 614,180 566,968
-------- -------- -------- --------
Costs and Expenses:
Costs of goods sold, services
and rentals 254,341 245,412 482,132 456,941
Selling, general and administrative 26,538 26,228 53,093 53,541
Interest 7,803 8,376 15,745 17,186
Income taxes 10,967 10,206 23,706 14,339
-------- -------- -------- --------
Total costs and expenses 299,649 290,222 574,676 542,007
-------- -------- -------- --------
Net Income $ 18,279 $ 17,770 $ 39,504 $ 4,961
======== ======== ======== ========
Earnings Per Share $ 0.40 $ 0.39 $ 0.87 $ 0.55
======== ======== ======== ========
Dividends Per Share $ 0.22 $ 0.22 $ 0.44 $ 0.44
======== ======== ======== ========
Average Number of Shares Outstanding 45,238 45,295 45,274 45,300
======== ======== ======== ========
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
INDUSTRY SEGMENT DATA
(In thousands)
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
Revenue:
Ocean Transportation $175,005 $173,201 $356,125 $325,423
Property Development and Management:
Leasing 9,609 9,085 18,725 17,973
Sales 14,480 5,125 18,591 7,286
Food Products 118,131 119,908 219,319 214,948
Other 703 673 1,420 1,338
-------- -------- -------- --------
Total $317,928 $307,992 $614,180 $566,968
======== ======== ======== ========
Operating Profit:(1)
Ocean Transportation $ 22,807 $ 26,648 $ 56,857 $ 44,261
Property Development and Management:
Leasing 6,433 6,243 12,667 12,185
Sales 3,080 2,995 4,660 3,227
Food Products 6,553 2,696 8,672 1,808
Other 671 628 1,334 1,241
-------- -------- -------- --------
Total $ 39,544 $ 39,210 $ 84,190 $ 62,722
======== ======== ======== ========
(1)Before interest expense, corporate expenses and income taxes
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(In thousands)
June 30 December 31
1997 1996
---- ----
(unaudited) (audited)
ASSETS
Current Assets:
Cash and cash equivalents $ 32,166 $ 23,824
Accounts and notes receivable, net 189,094 172,266
Inventories 116,868 102,722
Real estate held for sale 14,416 17,383
Deferred income taxes 14,666 17,708
Prepaid expenses and other 9,481 12,114
Accrued deposits to Capital Construction Fund (21,981) (1,656)
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Total current assets 354,710 344,361
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Investments 93,181 91,602
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Real Estate Developments 66,651 70,144
---------- ----------
Property, at cost 1,947,140 1,927,058
Less accumulated depreciation and amortization 904,356 864,002
---------- ----------
Property - net 1,042,784 1,063,056
---------- ----------
Capital Construction Fund 168,993 178,616
---------- ----------
Other Assets 59,675 52,843
---------- ----------
Total $1,785,994 $1,800,622
========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 43,590 $ 44,082
Short-term commercial paper borrowings 48,000 62,000
Accounts payable 54,085 50,496
Other 97,258 86,352
---------- ----------
Total current liabilities 242,933 242,930
---------- ----------
Long-term Liabilities:
Long-term debt 318,489 345,618
Capital lease obligations 7,488 12,039
Post-retirement benefit obligations 116,903 116,047
Other 55,700 48,747
---------- ----------
Total long-term liabilities 498,580 522,451
---------- ----------
Deferred Income Taxes 356,227 350,913
---------- ----------
Shareholders' Equity:
Capital stock 36,969 37,150
Additional capital 46,249 43,377
Unrealized holding gains on securities 47,868 48,205
Retained earnings 570,065 568,969
Cost of treasury stock (12,897) (13,373)
---------- ----------
Total shareholders' equity 688,254 684,328
---------- ----------
Total $1,785,994 $1,800,622
========== ==========
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
June 30
1997 1996
---- ----
(unaudited)
Cash Flows from Operating Activities $ 69,414 $ 51,495
-------- --------
Cash Flows from Investing Activities:
Capital expenditures (17,195) (173,956)
Proceeds from disposal of property,
investments and other assets 268 1,417
Deposits into Capital Construction Fund - (6,016)
Withdrawals from Capital Construction Fund 30,000 145,500
(Increase) reduction in investments (1,926) 1,184
-------- --------
Net cash provided by (used in) investing
activities 11,147 (31,871)
-------- --------
Cash Flows from Financing Activities:
Proceeds from issuances of long-term debt 34,500 26,000
Payments of long-term debt (66,648) (36,161)
Proceeds (payments) of short-term commercial
paper borrowings - net (14,000) 2,000
Proceeds from issuances of capital stock 1,017 173
Repurchases of capital stock (7,155) (1,250)
Dividends paid (19,933) (19,930)
-------- --------
Net cash used in financing activities (72,219) (29,168)
-------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents $ 8,342 $ (9,544)
======== ========
Other Cash Flow Information:
Interest paid, net of amounts capitalized $ 16,728 $ 17,421
Income taxes paid, net of refunds 8,652 4,804
Other Non-Cash Information:
Net accrued deposits (withdrawals) to Capital
Construction Fund 20,325 (368)
Depreciation 45,543 44,299
Tax-deferred property exchanges 9,589 2,825
Decrease in unrealized holding gains (337) (1,031)
FINANCIAL NOTES
(Unaudited)
(a) The condensed balance sheet as of June 30, 1997, the condensed statements
of income for the three months and six months ended June 30, 1997 and
1996, and the condensed statements of cash flows for the six months ended
June 30, 1997 and 1996 are unaudited. Because of the nature of the
Company's operations, the results for interim periods are not necessarily
indicative of results to be expected for the year, but in the opinion of
management, all material adjustments necessary for the fair presentation
of interim period results have been included in the interim financial
statements.
(b) Estimated effective annual income tax rates differ from statutory rates,
primarily due to the dividends-received deductions and various tax
credits.
(c) Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
is effective for financial statements for both interim and annual periods
ending after December 15, 1997. The Statement will not have a material
impact on the Company's computation and presentation of earnings per
share.
(d) Certain amounts have been reclassified to conform with current year
presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
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OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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OPERATING RESULTS
Net income for the second quarter of 1997 was $18,279,000, or $0.40 per
share. Net income for the comparable period of 1996 was $17,770,000, or $0.39
per share.
Net income for the first half of 1997 was $39,504,000, or $0.87 per share,
versus $24,961,000, or $0.55 per share, in 1996. Net income in the first half
of 1997 included $12,478,000, or $0.28 per share, resulting from the favorable
settlement of protracted litigation related to an insurance claim. Excluding
this settlement, first half 1997 net income rose eight percent.
FINANCIAL CONDITION AND LIQUIDITY
The Company's principal liquid resources, comprising cash and cash
equivalents, receivables, sugar and coffee inventories and unused lines of
credit, less accrued deposits to the Capital Construction Fund (CCF), totaled
$529.1 million at June 30, 1997, an increase of $16.2 million from December 31,
1996. This increase was due primarily to an increase in receivables, higher
sugar and coffee inventories and higher cash balances, partially offset by an
increase in accrued deposits to the CCF. Receivables increased $16.8 million,
due primarily to a gradual increase in government receivables at Matson
Navigation Company, Inc. (Matson) and increased sales by California and
Hawaiian Sugar Company, Inc. (C&H). Sugar and coffee inventories increased
$11.3 million, due to seasonal production at the Company's Maui sugar
plantation, partially offset by a decrease in raw sugar tonnage carried in
inventory at C&H. The $8.3 million increase in cash and cash equivalents was
primarily the result of Matson's receipt of the insurance-litigation proceeds.
Accrued deposits to the CCF increased $20.3 million.
Working capital was $111.8 million at June 30, 1997, an increase of $10.3
million from the amount at the end of 1996. This increase was due primarily to
the previously described increases in receivables, sugar and coffee inventories
and higher cash balances, partially offset by the increase in accrued deposits
to the CCF.
RESULTS OF SEGMENT OPERATIONS -
SECOND QUARTER 1997 COMPARED WITH THE SECOND QUARTER 1996
OCEAN TRANSPORTATION revenue of $175.0 million for the second quarter of 1997
was one-percent higher than the 1996 second quarter revenue. Operating profit
of $22.8 million for the second quarter of 1997 declined, however, by 14
percent. This decrease was primarily the result of lower shipments of autos
and containers to and from Hawaii and higher operating costs at Matson's
container terminals. Partially offsetting these factors were higher cargo
volume in the Guam, Pacific Coast and Mid-Pacific services, and slightly higher
revenue rates in the Hawaii service. Matson's second-quarter 1997 Hawaii
container volume declined two percent from that of the 1996 second quarter.
Hawaii automobile volume declined 17 percent.
PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue of $9.6 million for the
second quarter of 1997 was six-percent higher than the second quarter 1996
revenue, and operating profit of $6.4 million was three-percent greater than in
the comparable 1996 period. These increases were the result of properties
added to the portfolio in 1996 and early 1997 and increased rental rates,
offset, in part, by the absence of income from appreciated properties that had
been sold.
PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue was $14.5 million, up
significantly from the $5.1 million in sales recorded in the second quarter of
1996. However, operating profit from property sales this quarter was $3.1
million, virtually the same as last year's second quarter amount. The margin
difference between these periods was due to differences in the mix and book
values of the properties sold. Sales in the second quarter of 1997 included an
industrial warehouse in California, and three developed business lots and
sixteen residential properties on Maui. Sales in the second quarter of 1996
included one developed income property, one developed business lot and seven
residential properties.
The mix of property sales in any quarter 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 sales of undeveloped land and subdivision lots generally provide
greater contribution margins than sales of developed and commercial property,
due to the low historical-cost basis of the Company's Hawaii land.
Consequently, property sales revenue trends and the amount of real estate
available for sale are not necessarily indicators of future profitability for
this segment.
FOOD PRODUCTS revenue of $118.1 million for the second quarter of 1997 was one-
percent lower than the revenue reported for the comparable period of 1996. The
second quarter operating profit of $6.6 million, however, represented a
significant improvement from the $2.7 million operating profit in the same
period in 1996. This increase was primarily the result of a higher refiner's
margin at C&H, combined with ongoing cost reduction initiatives.
RESULTS OF SEGMENT OPERATIONS -
FIRST SIX MONTHS OF 1997 COMPARED WITH THE FIRST SIX MONTHS OF 1996
OCEAN TRANSPORTATION revenue of $356.1 million for the first half of 1997 rose
nine percent, primarily due to the insurance settlement. Excluding the
insurance settlement, which contributed about $20.0 million, and a one-time
charter payment in the first quarter of 1996, which contributed $5.6 million,
first-half operating profit of $36.9 million declined four percent, due to the
same reasons as the second-quarter decrease. For the first half, Matson's
total Hawaii container volume was three-percent lower and its total automobile
volume was five-percent lower.
PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue of $18.7 million for the
first half of 1997 was four-percent greater than the results in the comparable
1996 period. Operating profit of $12.7 million was four-percent higher than in
the first half of 1996. This increase was due to the same reasons as the
second quarter increase. The additional leased properties in the first half of
1997 included two office buildings in Hawaii (Honolulu, Oahu and Wailuku, Maui)
and a retail center in Greeley, Colorado. The leased-property portfolio
benefited from continuing high occupancy levels for Mainland properties, where
year-to-date occupancy rates averaged 98 percent for both half-year periods.
Occupancy levels for Hawaii properties averaged 78 percent, versus 88 percent
last year. The decrease was due primarily to recently acquired properties that
have relatively low occupancy rates.
PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue of $18.6 million in the
first half of 1997 compared with $7.3 million recorded in the first half of
1996. Operating profit of $4.7 million from property sales in the first half
was more than 40-percent higher than that of the first half of 1996. Among the
first half 1997 sales were a one-acre developed lot and an industrial warehouse
in California which, combined, contributed $3.0 million to operating profit,
plus 27 residential and 3 developed business lot sales. Sales in the
comparable period of 1996 included one developed business lot and 19 resi-
dential properties. The net proceeds from the developed lot and the California
industrial warehouse sold in the first half of 1997 will be treated as tax-
deferred exchanges. One tax-deferred sale was completed in the comparable
period of 1996.
FOOD PRODUCTS revenue of $219.3 million for the first half of 1997 was two-
percent higher than the revenue reported for the comparable period of 1996.
Operating profit of $8.7 million for the first half of 1997 compared with $1.8
million during the comparable period of 1996. This increase was due to the
same reasons as the second-quarter improvement.
OTHER MATTERS
INSURANCE LITIGATION: On February 13, 1997, Matson received a favorable cash
settlement of $33,650,000 for a contested insurance claim in connection with
repairing port facilities damaged by a 1989 earthquake. As noted previously,
this settlement resulted in additional net income of $12,478,000 in the first
half of 1997.
LEGISLATION: Under the Federal Agriculture Improvement and Reform Act (FAIR),
signed into law in 1996, an initial import quota of 1,874,000 short tons of raw
sugar was established. This tonnage will increase or decrease by specified
amounts, at scheduled intervals, based upon changes in sugar supply, demand and
inventories. During the first half of 1997, the import quota was increased by
440,000 short tons, to its current level of 2,314,000 short tons. The U.S.
Department of Agriculture monitors this program and may, at its discretion,
alter the sugar import quota in order to ensure that supplies of raw sugar are
adequate to meet demand for refined sugar.
On July 26th, the U.S. House of Representatives voted down the Miller-Schumer
amendment which proposed to phase out the non-recourse language in the sugar
program under FAIR.
TAX-DEFERRED EXCHANGES: In the first half of 1997, the Company sold two
parcels of land for $9,589,000. The proceeds from these sales are reflected in
the Condensed Statements of Cash Flows under the caption "Other Non-Cash
Information" and are expected to be reinvested in 1997 on a tax-deferred basis.
SHARE REPURCHASES: During the first half of 1997, the Company repurchased
approximately 273,000 shares of its common stock for an aggregate of $7,155,000
($26.22 per share, on average).
ENVIRONMENTAL MATTERS: As with most industrial and land-development companies
of its size, the Company'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 works proactively to identify potential environmental
concerns. Management believes that appropriate liabilities have been accrued
for environmental matters.
ECONOMIC CONDITIONS: The outlook for Hawaii's economy is only modestly
encouraging. Near-term forecasts anticipate about one-percent real growth in
1997, with continued modest inflation. Growth in Hawaii's visitor industry is
unfavorably affected by the strengthening of the U.S. dollar versus the
Japanese yen, which raises the cost of U.S. travel to Japanese visitors.
The stronger yen, as well as higher hotel room rates, are contributing to
shorter average lengths of stay. The construction industry showed some
improvement in 1996; however, the job count continued to decline in 1997.
Waikiki hotel renovation and reconstruction activity is anticipated with the
scheduled opening of the Waikiki convention center in 1998 and retraction of a
previous building moratorium. In addition, several large retail projects in
Waikiki have been announced recently. Still, the Company has no basis to
expect that Hawaii's economy will provide a significant boost to earnings in
1997.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company, from time to time, may make or may have made certain forward-
looking statements, whether orally or in writing, such as forecasts and
projections of the Company's future performance or statements of management's
plans and objectives. Such forward-looking statements may be contained in,
among other things, Securities and Exchange Commission (SEC) filings, such as
the Form 10-Q, press releases made by the Company and oral statements made by
the officers of the Company. Except for historical information contained in
these written or oral communications, such communications contain forward-
looking statements. These forward-looking statements involve a number of risks
and uncertainties that could cause actual results to differ materially from
those projected in the statements, including, but not limited to: (1) economic
conditions in Hawaii and elsewhere; (2) market demand; (3) competitive factors
and pricing pressures in the Company's primary markets; (4) legislative and
regulatory environment at the federal, state and local levels; (5) dependence
on raw sugar suppliers and other third-party suppliers; (6) fuel prices; and
(7) other risk factors described elsewhere in these communications and from
time to time in the Company's filings with the SEC.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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At the Annual Meeting of Shareholders of the Company held on April 24, 1997,
the Company's shareholders voted in favor of: (i) the election of nine
directors to the Company's Board of Directors, and (ii) the election of
Deloitte & Touche LLP as the Company's independent auditors. The number of
votes for, against or withheld, as well as the number of abstentions and broker
non-votes, as to each matter voted upon at the annual Meeting of Shareholders,
were as follows:
(i) Election of Directors For Withheld
--- --------
Michael J. Chun 41,773,411 292,384
John C. Couch 41,773,393 292,402
Leo E. Denlea, Jr. 41,777,509 288,286
Walter A. Dods, Jr. 41,772,745 293,050
Charles G. King 41,764,500 301,295
Carson R. McKissick 41,779,048 286,747
C. Bradley Mulholland 41,777,587 288,208
Maryanna G. Shaw 41,762,860 302,935
Charles M. Stockholm 41,777,358 288,437
(ii) Election of For Against Abstain
--- ------- -------
Auditors
41,760,534 170,403 134,858
There were no broker non-votes at the Annual Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits
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10. Material contracts.
10.b.(xxxi) Amendment No. 1 to the A&B Excess Benefits Plan,
effective July 1, 1997.
10.b.(xxxii) Amendment No. 1 to the Alexander & Baldwin, Inc.
Deferred Compensation Plan, effective July 1, 1997.
11. Statement re computation of per share earnings.
27. Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALEXANDER & BALDWIN, INC.
---------------------------------
(Registrant)
Date: August 11, 1997 /s/ Glenn Rogers
Glenn R. Rogers
Executive Vice President and
Chief Financial Officer
Date: August 11, 1997 /s/ Thomas A. Wellman
Thomas A. Wellman
Controller
EXHIBIT INDEX
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10. Material contracts.
10.b.(xxxi) Amendment No. 1 to the A&B Excess Benefits Plan, effective
July 1, 1997.
10.b.(xxxii) Amendment No. 1 to the Alexander & Baldwin, Inc. Deferred
Compensation Plan, effective July 1, 1997.
11. Statement re computation of per share earnings.
27. Financial Data Schedule.