FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
--------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 0-565
-----
ALEXANDER & BALDWIN, INC.
-------------------------
(Exact name of registrant as specified in its charter)
HAWAII 99-0032630
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. BOX 3440, HONOLULU, HAWAII 96801
822 BISHOP STREET, HONOLULU, HAWAII 96813
----------------------------------- -----
(Address of principal executive (Zip Code)
offices)
(808) 525-6611
--------------
(Registrant's telephone number, including area code)
N/A
---
(Former name, former address and former
fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Number of shares of common stock outstanding as of March 31, 1998: 44,861,162
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
The condensed financial statements and notes for the first quarter of 1998 are
presented below.
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF INCOME
(In thousands except per share amounts)
Three Months Ended
March 31
1998 1997
---- ----
(unaudited)
Revenue:
Net sales, revenue from services and rentals $284,267 $271,192
Interest, dividends and other 7,140 25,060
-------- --------
Total revenue 291,407 296,252
-------- --------
Costs and Expenses:
Costs of goods sold, services and rentals 237,208 228,034
Selling, general and administrative 26,081 26,312
Interest 6,080 7,942
Income taxes 8,264 12,739
-------- --------
Total costs and expenses 277,633 275,027
-------- --------
Net Income $ 13,774 $ 21,225
======== ========
Basic and Diluted Earnings Per Share $ 0.31 $ 0.47
Dividends Per Share $ 0.225 $ 0.220
Average Number of Shares Outstanding 44,842 45,311
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
INDUSTRY SEGMENT DATA
(In thousands)
Three Months Ended
March 31
1998 1997
---- ----
(unaudited)
Revenue:
Ocean Transportation $178,800 $181,120
Property Development and Management:
Leasing 9,235 9,116
Sales 7,781 4,111
Food Products 94,874 101,188
Other 717 717
-------- --------
Total Revenue $291,407 $296,252
======== ========
Operating Profit:
Ocean Transportation $ 17,370 $ 34,050
Property Development and Management:
Leasing 5,899 6,234
Sales 4,642 1,580
Food Products 2,998 2,443
Other 678 663
-------- --------
Total Operating Profit $ 31,587 $ 44,970
======== ========
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(In thousands)
March 31 December 31
1998 1997
---- ----
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 11,045 $ 21,623
Accounts and notes receivable, net 158,991 176,165
Inventories 85,549 69,209
Real estate held for sale 10,766 12,563
Deferred income taxes 9,936 9,404
Prepaid expenses and other assets 10,417 9,977
Accrued deposits to Capital Construction Fund (10,000) (10,000)
---------- ----------
Total current assets 276,704 288,941
---------- ----------
Investments 102,636 102,813
---------- ----------
Real Estate Developments 69,549 68,056
---------- ----------
Property, at cost 2,001,271 1,975,023
Less accumulated depreciation and amortization 959,950 938,508
---------- ----------
Property - net 1,041,321 1,036,515
---------- ----------
Capital Construction Fund 148,610 148,610
---------- ----------
Other Assets 66,508 59,863
---------- ----------
Total $1,705,328 $1,704,798
========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 30,600 $ 34,485
Short-term commercial paper borrowings 28,000 17,000
Accounts payable 37,145 46,835
Other 79,181 75,815
---------- ----------
Total current liabilities 174,926 174,135
---------- ----------
Long-term Liabilities:
Long-term debt 296,498 290,885
Capital lease obligations 1,500 2,000
Post-retirement benefit obligations 111,875 112,125
Other 39,891 46,311
---------- ----------
Total long-term liabilities 449,764 451,321
---------- ----------
Deferred Income Taxes 358,753 359,754
---------- ----------
Shareholders' Equity:
Capital stock 36,723 36,769
Additional capital 50,749 49,437
Unrealized holding gains on securities 54,355 55,144
Retained earnings 592,609 591,135
Cost of treasury stock (12,551) (12,897)
---------- ----------
Total shareholders' equity 721,885 719,588
---------- ----------
Total $1,705,328 $1,704,798
========== ==========
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
March 31
1998 1997
---- ----
(unaudited)
Cash Flows from Operating Activities $ 17,104 $ 30,650
-------- --------
Cash Flows from Investing Activities:
Capital expenditures (27,838) (8,044)
Proceeds from disposal of property,
investments and other assets 2 86
Deposits into Capital Construction Fund - (2,908)
Increase in investments, net (468) (1,797)
-------- --------
Net cash used in investing activities (28,304) (12,663)
-------- --------
Cash Flows from Financing Activities:
Proceeds from issuances of long-term debt 11,500 34,500
Payments of long-term debt (10,079) (16,672)
Proceeds of short-term commercial paper
borrowings, net 11,000 9,000
Proceeds from issuances of capital stock 543 363
Repurchases of capital stock (2,250) (3,169)
Dividends paid (10,092) (9,974)
-------- --------
Net cash provided by financing activities 622 14,048
-------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents $(10,578) $ 32,035
======== ========
Other Cash Flow Information:
Interest paid, net of amounts capitalized $ 7,103 $ 7,892
Income taxes paid, net of refunds 4,311 1,076
Other Non-Cash Information:
Accrued deposits to Capital Construction
Fund, net - 19,903
Depreciation 21,951 22,729
Tax-deferred property exchange 4,279 1,558
Change in unrealized holding gains (789) (3,819)
FINANCIAL NOTES
(Unaudited)
(a) The condensed balance sheet as of March 31, 1998 and the condensed
statements of income and the condensed statements of cash flows for the
three months ended March 31, 1998 and 1997 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 deduction and various tax credits.
(c) The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share," and SFAS No. 130, "Reporting Comprehensive
Income," during the year ended December 31,1997.
In accordance with SFAS No. 128, the Company renamed its Primary Earnings
per Share (EPS) to Basic EPS and disclosed its Diluted EPS. Due to the
immaterial impact of the potential exercise of the Company's stock
options, Basic and Diluted EPS are the same amount.
In accordance with SFAS No. 130, the Company must disclose total non-owner
changes in shareholders' equity. For the Company, this consists of net
income plus unrealized holding gains on securities. On this basis,
comprehensive income for the first quarter of 1998 and 1997 totaled $13
million and $17 million, respectively.
(d) 1997 first quarter results for ocean transportation include $20 million,
pre-tax, from the settlement of a lawsuit that involved insurance claims
for earthquake damage to port facilities in 1989.
(e) Certain amounts have been reclassified to conform with the current year's
presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- ----------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------
FIRST QUARTER EVENTS:
OPERATING RESULTS: Net income for the first quarter of 1998 was $13,774,000,
or $0.31 per share. Net income for the comparable period of 1997 was
$21,225,000, or $0.47 per share, including $12,361,000, or $0.27 per share,
from the settlement of long-standing insurance litigation. Excluding this
settlement, after-tax income rose 55 percent compared with the first quarter of
1997.
FINANCIAL CONDITION AND LIQUIDITY
The Company's principal liquid resources, which consist of cash and cash
equivalents, receivables, sugar and coffee inventories and unused lines of
credit, less accrued deposits to the Capital Construction Fund (CCF), totaled
$476,459,000 at March 31, 1998, a decrease of $7,217,000 from December 31,
1997. The decrease was due primarily to lower receivables and cash balances,
partially offset by increased sugar and coffee inventories and a slightly
higher amount available under lines of credit. There was no change in accrued
deposits to the CCF. Receivables decreased $17,174,000; this decrease was
mostly at Matson Navigation Company, Inc. ("Matson"). Cash and cash equi-
valents decreased by $10,578,000, due primarily to normal expenditures for
container equipment, debt repayments and operating cash requirements. Sugar
and coffee inventories increased $17,535,000, due principally to higher sugar
production costs carried in inventory in the first quarter of 1998 and higher
levels of refined sugar inventory. Amounts available under lines of credit
increased just $3,000,000 in the first quarter of 1998.
Working capital was $101,778,000 at March 31, 1998, a decrease of
$13,028,000 from the amount at the end of 1997. This decrease was due
primarily to the decreases in receivables and cash balances, partially offset
by the increase in inventories.
RESULTS OF SEGMENT OPERATIONS -
FIRST QUARTER 1998 COMPARED WITH THE FIRST QUARTER 1997
OCEAN TRANSPORTATION revenue of $178,800,000 for the first quarter of 1998 was
one-percent less than the 1997 first-quarter revenue. Operating profit in the
first quarter of 1998 decreased by $16,680,000 to $17,370,000, primarily
because the first quarter 1997 results included $19,937,000 (pretax) for the
insurance settlement. Excluding that factor, 1998 first quarter operating
profit was $3,257,000 higher than in the first quarter of 1997, an improvement
of 23 percent. This increase was primarily the result of a small improvement
in Hawaii service revenue and the start of a revised operating alliance with
American President Lines, Ltd. Matson's first-quarter 1998 Hawaii service
container volume was two-percent higher than in the 1997 first quarter, while
automobile volume was two-percent lower.
PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue of $9,235,000 for the
first quarter of 1998 was one-percent higher than the first quarter 1997
revenue, and operating profit of $5,899,000 was five-percent lower than the
1997 first-quarter amount. The reduction primarily reflected the weak Hawaii
economy, a lower lease rate on one property and the net effect of acquisitions
and sales of various income properties. First quarter 1998 occupancy levels
for Mainland properties averaged 96 percent, versus 99 percent in the first
quarter of 1997. Occupancy levels for Hawaii properties averaged 65 percent in
the first quarter of 1998, versus 82 percent in the comparable period of 1997.
That decrease was due primarily to a temporary vacancy related to a former
Woolworth tenancy and properties acquired recently at favorable prices that
have relatively low occupancy rates.
PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue of $7,781,000 in the first
quarter of 1998 compared with $4,111,000 in the comparable period of 1997.
Operating profit from property sales in the first quarter of 1998 was
$4,642,000, versus $1,580,000 in the same period in 1997. Sales in the first
quarter of 1998 included three business parcels and nine residential
properties. Sales in the first quarter of 1997 included one developed business
lot and 11 residential properties. Three of the 1998 and one of the 1997 sales
were completed on a tax-deferred basis.
The mix of property sales in any year can be diverse. 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 $150 per acre. Consequently, property sales revenue
trends and the amount of real estate held for sale on the condensed balance
sheets are not necessarily indicative of future profitability for this segment.
FOOD PRODUCTS revenue of $94,874,000 for the first quarter of 1998 was six-
percent lower than the revenue reported for the comparable period of 1997.
However, operating profit was $2,998,000 for the first quarter of 1998, versus
$2,443,000 a year earlier. Hawaii agribusiness results were higher for both
sugar production and coffee. Refined sugar sales and refiners' margins were
lower at California and Hawaiian Sugar Company, Inc., due to greater supplies
of refined beet and cane sugar in the domestic market.
OTHER
INSURANCE LITIGATION: Matson received a favorable cash settlement of
$33,650,000 on February 13, 1997 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 $12,361,000 in
the first quarter of 1997.
LEGISLATION: In September 1997, the Secretary of Agriculture established,
under the Federal Agriculture Improvement and Reform Act and in accordance with
the Harmonized Tariff Schedule, the aggregate quantity of sugars and syrups
that can be imported into the United States. The maximum import quantity for
fiscal year 1998 was set at 1,800,000 metric tons raw value (mtrv), with an
initial release of 1,200,000 mtrv and the remaining 600,000 mtrv to be released
in 200,000 mtrv increments in January, March, and May, if, in those months, the
stocks-to-use ratio, as published in the World Agricultural Supply and Demand
Estimate (WASDE), is not greater than 15.5 percent. In January 1998, the WASDE
stocks-to-use ratio was 15.7 percent and, as a result, the first 1998 increment
was cancelled. In March 1998, the WASDE stocks-to-use ratio was 14.5 percent.
As a result, the second 1998 increment was released and the maximum import
quantity for fiscal year 1998 is still at 1,600,000 mtrv. The approved import
quantity is now 1,400,000 mtrv and the final increment of 200,000 mtrv will be
cancelled or released in May 1998.
TAX-DEFERRED REAL ESTATE EXCHANGES: In the first quarter of 1998, the Company
sold five parcels of land on Maui for $4,279,000 (net reinvestment proceeds).
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 on a tax-deferred basis.
SHARE REPURCHASES: During the first quarter of 1998, the Company repurchased
85,000 shares of its common stock for an aggregate of $2,250,000 (average of
$26.47 per share).
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: Very low real growth continues to be the immediate outlook
for Hawaii's economy. No catalyst for better performance appears evident. The
state's important visitor industry is expected to benefit from increasing
westbound arrivals, due to the continuing strong economic performance of the
U.S. mainland states and resulting expectations of strong 1998 summer vacation
travel and spending. Although Asia's financial turmoil is a concern, the most
immediate and direct effect on Hawaii is likely to be realized through the
volatility in currency exchange. If the yen weakens further, as many expect,
eastbound visitors will spend less and shorten the lengths of their stays in
Hawaii, likely reducing tourism expenditures. The net effect of a favorable
westbound visitor outlook and an unfavorable eastbound one is for modest growth
in total expenditures, at best. Separately, passage by the Hawaii state
legislature of key initiatives to support economic revitalization remains
uncertain.
YEAR 2000: Beginning in 1996, the Company initiated an evaluation of its
computer systems and applications to prepare for the Year 2000. Following this
evaluation, implementation plans for all business segments were prepared and
are currently being executed. Areas which have the greatest risk of impacting
operations are being corrected first; however, all work related to primary
systems and applications is expected to be completed substantially by the end
of 1998. Many of the primary systems are already Year 2000 compliant. The
plans consist of upgrading, modifying or replacing various systems for
approximately $6,000,000 to $8,000,000. The costs incurred in connection with
the Year 2000 compliance are being treated as an operating expense unless a
system is being replaced for operating reasons as well as Year 2000 compliance,
in which case costs are being capitalized. The Company believes that its
systems and applications necessary to operate and manage its businesses will be
replaced, modified or upgraded in advance of the Year 2000 and that the related
costs will not have a material impact on the operations, cash flows, financial
condition or segment results of future periods.
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 Forms 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, such as
government rate regulations, land-use regulations, government administration of
the U.S. sugar program, and retention of cabotage laws; (5) dependence on raw
sugar suppliers and other third-party suppliers; (6) fuel prices; (7) labor
relations; and (8) 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 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits
10. Material contracts.
10.b.1.(xxxii) Alexander & Baldwin, Inc. 1998 Stock
Option/Stock Incentive Plan.
10.b.1.(xxxiii) Alexander & Baldwin, Inc. 1998 Non-Employee
Director Stock Option Plan.
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: May 14, 1998 /s/ Glenn R. Rogers
---------------------------
Glenn R. Rogers
Executive Vice President and Chief
Financial Officer
Date: May 14, 1998 /s/ Thomas A. Wellman
---------------------------
Thomas A. Wellman
Controller
EXHIBIT INDEX
-------------
10. Material contracts.
10.b.1.(xxxii) Alexander & Baldwin, Inc. 1998 Stock Option/Stock
Incentive Plan.
10.b.1.(xxxiii) Alexander & Baldwin, Inc. 1998 Non-Employee Director
Stock Option Plan.
11. Statement re computation of per share earnings.
27. Financial Data Schedule.