ALEXANDER & BALDWIN, INC. 1998 ANNUAL REPORT
TABLE OF CONTENTS 1998
CORPORATE PROFILE 1
LETTER TO SHAREHOLDERS 2
REVIEW OF OPERATIONS 6
FINANCIAL REPORT 17
INDUSTRY SEGMENT INFORMATION 19
QUARTERLY RESULTS 42
GENERAL INFORMATION 43
DIRECTORS AND OFFICERS 44
[ON COVER Viewed from 15,000 feet, and looking toward the island of Hawaii,
the sun rises on a new day. Peaking through the clouds are the summits of
Haleakala (foreground), Mauna Loa (left center), Mauna Kea (right center)
and Hualalai (far right).]
FINANCIAL HIGHLIGHTS
1998 1997 CHANGE
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REVENUE $ 1,311,620,000 $ 1,275,445,000 3%
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"CORE" EARNINGS* $ 59,735,000 $ 68,909,000 -13%
PER SHARE $ 1.33 $ 1.53 -13%
NET INCOME $ 25,142,000 $ 81,387,000 -69%
PER SHARE $ 0.56 $ 1.80 -69%
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CASH DIVIDENDS $ 40,323,000 $ 39,789,000 1%
PER SHARE $ 0.90 $ 0.88 2%
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AVERAGE SHARES
OUTSTANDING 44,760,000 45,182,000 -1%
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TOTAL ASSETS $ 1,605,640,000 $ 1,704,798,000 -6%
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SHAREHOLDERS'
EQUITY $ 694,642,000 $ 719,588,000 -3%
PER SHARE $ 15.78 $ 16.03 -2%
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RETURN ON BEGINNING
SHAREHOLDERS' EQUITY 3.5% 11.9% --
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DEBT/DEBT + EQUITY 0.33 0.32 --
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EMPLOYEES 2,331 2,930 -20%
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* "Core" Earnings exclude all one-time benefits and charges.
ALEXANDER & BALDWIN CORPORATE PROFILE
Alexander & Baldwin, Inc. is a diversified corporation with most
of its operations centered in Hawaii. Its principal businesses are:
PROPERTY DEVELOPMENT & MANAGEMENT - Developing real
property, primarily in Hawaii\Selling residential and commercial
property\Managing a portfolio of commercial/industrial properties
OCEAN TRANSPORTATION - Carrying freight, primarily between Pacific
Coast ports, Hawaii ports and Guam\Conducting related shoreside
operations\Arranging domestic intermodal transportation
FOOD PRODUCTS - Growing sugar cane and producing raw
sugar\Growing, marketing and distributing coffee
A&B was founded in 1870 and incorporated in 1900. Alexander &
Baldwin's corporate headquarters are located in Honolulu, Hawaii. Its common
stock is traded on the NASDAQ Stock MarketSM under the symbol ALEX.
OPERATING PROFIT BY SEGMENT
(In Thousands)
93 94 95 96 97 98
$147,788 $141,729 $100,125 $150,883 $147,928 $134,618
LETTER TO SHAREHOLDERS
FELLOW SHAREHOLDERS
Alexander & Baldwin's earnings for 1998 can be summarized in one word -
disappointing. Before discussing 1998, let us assure you that we
are taking actions to improve earnings in 1999 and in future years. A&B has
great potential, and we are committed to realizing it.
1998 PERFORMANCE - The 1998 earnings results should be placed in context.
Before one-time items, earnings per share amounted to $1.33, which was
13-percent below the $1.53 earned in 1997. There was a one-time gain of 28
cents per share in 1997 from an insurance settlement. In 1998, there were
three one-time charges that totaled 77 cents per share. These charges included
the loss on the partial sale of California and Hawaiian Sugar Company, our
sugarcane refiner; the write-down of a real estate project; and the recognition
of a liability for future workers' compensation assessments as a result of a
new accounting directive. But, to reiterate the major issue, earnings from our
core operating businesses did decline 13 percent in 1998.
Matson, which comprises the ocean transportation segment of the Company,
experienced an 18-percent decrease in profit, again excluding one-time items.
The decrease was due to the continued weakness of Hawaii's economy, along with
stiffer competition. The food products segment dropped 21 percent from 1997,
principally because of reduced profitability at C&H. Partially offsetting these
two negatives was a strong 17-percent improvement in our property development
and management business, and a much better performance in the agricultural
portion of our food products segment.
BUSINESS DIRECTION
OCEAN TRANSPORTATION - The first and foremost priority is to increase Matson's
profit. Matson must become more cost-competitive. We took a major step in this
direction last fall by reducing the number of ships serving the Hawaii trade.
Matson has retained its leading position in the Hawaii trade even after cutting
costs by eliminating excess capacity. But this action, in and of itself, is not
sufficient to return Matson to an acceptable level of performance. Other
actions, large and small, either are under way or are under consideration.
SALE OF C&H - As 1998 ended, we accomplished the recapitalization of C&H and
sold a 60-percent equity interest to an investor group that included Citicorp
Venture Capital, Ltd. Divesting a majority interest in C&H was a significant
step, because we will be able to concentrate now on developing more productive
uses for A&B's capital.
[Photo Caption: Maui Marketplace is the retail anchor of A&B's Maui
Business Park development. Ultimately, Maui Business Park will comprise nearly
240 acres. Development of this well-located project still is at an early stage.
To date, a 42-acre portion of the first phase has been completed.]
Among the challenges faced by the Company during 1998 was the announcement in
late July that its Chairman, President and Chief Executive Officer, John C.
Couch, was taking a medical leave of absence. At the request of the A&B Board
of Directors, R. J. Pfeiffer accepted the appointment as A&B Chairman of the
Board, President and Chief Executive Officer. Mr. Pfeiffer previously served as
Chairman at A&B from 1980 to 1995. During the late '70s, the '80s, and early
'90s, Mr. Pfeiffer also served as A&B's President and Chief Executive Officer.
Subsequently, on October 22, 1998, the Board appointed W. Allen Doane President
and Chief Executive Officer, with Mr. Pfeiffer remaining as Chairman of the
Board. At the time of publication of this report, Mr. Couch continues his
treatment.
REAL ESTATE - Our property development and management business continues to
perform strongly in spite of extremely weak conditions in the Hawaii real
estate market. The majority of A&B Properties' earnings are still derived from
Hawaii, and we are pleased with how well this business has performed year-in
and year-out for more than a decade. In 1998, there were $82 million of
property sales and $97 million of acquisitions. These acquisitions comprised
seven properties on the Mainland and in Hawaii. The challenge here is to take
a strong business and to grow it more aggressively. We made progress in this
direction during 1998, and plan continued growth for 1999.
REAL ESTATE ENTITLEMENTS - The Company owns over 90,000 acres in Hawaii. We are
working to increase the value of these substantial holdings by moving land
through Hawaii's complex entitlement process. Note that the Company's Hawaii
landholdings are recorded on the balance sheet at historical cost, which
averages approximately $150 an acre. From the standpoint of potential value
creation, our Maui landholdings of 69,000 acres could not be located better.
Ranked as the number one island travel destination in the world, Maui has a
bright future. We are accelerating our efforts to realize increased value from
the Company's landholdings. Nearly 3,000 acres in Hawaii either are fully
entitled and available for development, or proceeding through the entitlement
process.
AGRIBUSINESS - Recovering from a difficult 1997, Hawaiian Commercial & Sugar
Company, our sugar-growing business on Maui, was able to increase its yields
significantly and lower its unit production costs. This success increases our
confidence that HC&S indeed will have a long-term future as a grower of sugar
cane.
FUTURE VALUE - A&B possesses a number of inherent strengths that we can use to
build future value.
OCEAN TRANSPORTATION - Matson has a strong and stable market position in Hawaii
as a result of its excellent service. Matson carries more than two-thirds of
Hawaii's freight. Its shipping network is almost irreplaceable. The current
economic malaise in Hawaii, however, makes it imperative for Matson to reduce
its cost structure.
REAL ESTATE - Property Development and Management has provided a highly
reliable source of earnings, despite Hawaii's economic problems. There is a
good ability to grow the business and to continue to capitalize on the
Company's highly valuable Hawaii landholdings.
FINANCIAL POSITION - Our financial position is favorable, with a
debt-to-capital ratio of 33 percent and consistently positive free cash flow.
The key will be finding investment opportunities, especially in real estate,
that provide assurance of returns above A&B's cost of capital. We are committed
to making such capital allocations in the interest of our shareholders.
HAWAII - The state and its economy are at a low ebb--a condition compounded by
the recent financial problems in Asia. While no immediate turnaround is
expected, ultimately, we expect that the economy will recover, and A&B's
businesses will benefit as a result.
During 1998, A&B was able to increase its dividend modestly, from 88 cents per
share to 90 cents, and to repurchase almost one million shares of A&B stock.
Seventy percent of these shares were repurchased in the fourth quarter of 1998.
While work continues on the long-term issues, management recognizes that
improvement in performance must be demonstrated in the short term. 1999 will be
a start. As noted at the beginning of this letter, we are committed to taking
the necessary operating and strategic actions to realize the Company's
potential. We cannot wait for the Hawaii economy to improve. When it does,
though, it only will add to the benefits realized from actions the Company
already is taking to improve earnings. We will keep you informed of our
progress.
A&B has employees who are extraordinarily capable, talented and dedicated to
our Company's success. We are convinced that, as a team, we have the
capability to achieve at a much higher level. Going forward, we are confident
that the Company's goals will be realized.
The Board of Directors deserves special acknowledgment this year for its active
and valued role in helping A&B deal with the many challenges it faced. We
extend a warm welcome to Lynn M. Sedway, the newest independent member of the
Board. Her broad experience has added to the Board's strength. We continue to
wish John Couch well on his extended medical leave. We are pleased to report
that his health has improved, and that the prospects for his recovery remain
good.
Finally, we thank you, our shareholders, for your continuing commitment to and
belief in A&B.
/s/ R. J. Pfeiffer /s/ W. Allen Doane
Chairman of the Board President and Chief Executive Officer
February 19, 1999
REAL ESTATE
A&B strives to put its land to the highest and best use that is consistent with
community needs. At year-end 1998, the Company owned a total of about 93,000
acres. Of these, about 1,380 acres were fully zoned for urban use. At least one
step in the value-adding entitlement process has been completed for an
additional 1,600 acres, and about 8,900 acres have long-term urban-use
potential. Most of the remaining acreage will be in agricultural use for many
years.
ENTITLEMENTS - In March 1998, the Maui County Council gave final approval to an
update of the community plan for the Kihei-Makena region. Included in the
update were 650 acres of A&B-owned land at Maalaea designated as a master-
planned community. In 1999, the Company will seek approval to have approxi-
mately 170 acres included in the Wailuku-Kahului Community Plan as light
industrial/commercial property. It also will seek approval for other properties
to be included under residential and industrial designations.
A&B'S LANDHOLDINGS BY CATEGORY
HAWAII MAINLAND TOTAL
-------------------------------- -------- -----
(In acres, rounded) MAUI KAUAI OAHU TOTAL
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Fully Entitled Urban 340 810 40 1,190 190 1,380
Agric./Pasture/Misc. 52,700 8,100 - 60,800 1,900 62,700
Conservation 16,000 13,000 - 29,000 - 29,000
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TOTAL 69,040 21,910 40 90,990 2,090 93,080
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Designated Urban 1,300 300 - 1,600 - 1,600
Urban Potential 5,400 3,500 - 8,900 - 8,900
In October 1998, the State Land Use Commission granted an urban designation to
a 200-unit single-family subdivision on 45 acres at Haliimaile, Maui.
Subsequently, an application for the appropriate zoning change was filed with
the County. A Land Use Commission decision is expected in 1999 on a proposal
for 400 residential units on 110 acres at Spreckelsville, Maui.
Plans to lengthen the runway of Maui's principal airport advanced during 1998,
with approval by the Governor and federal authorities of environmental filings.
The airport is in the immediate vicinity of A&B's Maui Business Park develop-
ment, and is near several other Company landholdings.
The State Land Use Commission also gave an urban designation to an additional
77 acres of A&B's 1,045-acre Kukui'Ula development on Kauai. The project's
urban lands now total 837 acres. This 77-acre portion of the project is
proposed for hotel and time-share development.
SALES AND DEVELOPMENT - In June 1998, the Company sold a 246,000-square-foot
research and office complex in Cupertino, Calif. The proceeds from this large
sale were combined with proceeds from other property sales and reinvested, on a
tax-deferred basis, in a total of six income-producing properties. The six
properties comprised 776,200 square feet of leasable space and were purchased
for $89 million.
[Photo caption: When a product is "virtually irresistible," it will sell well.
Haiku Makai, a large-lot, agricultural subdivision developed by A&B on the
scenic North Shore of Maui, enjoyed high demand and rapid sales in 1998.]
[Photo Caption: Located on the striking leeward coast of Kauai, A&B's
Kukui'Ula project is near Poipu Beach. Construction associated with its first
residential parcel - called Koloa Estates - began in November 1998.]
A&B also acquired a 40-acre, industrial property on Oahu in November 1998 for
$8 million. Construction of the first 23 lots at this property - the Mill Town
Center - commenced in November 1998. Lot sales began early in the first quarter
of 1999.
[Photo caption: Sacramento is sharing in California's rapid economic
expansion. A&B acquired this 98,800-square-foot office building during 1998.]
[Photo caption: During 1998, A&B used tax-deferred funds to acquire six
properties on the U.S. mainland. This attractive 167,500-square-foot office
building, called San Pedro Plaza, located in San Antonio, Texas, is one of the
properties acquired.]
A&B's HAWAII RESIDENTIAL PROJECT STATUS
TOTAL AVAILABLE SOLD AVAILABLE SOLD AVAILABLE
PROJECT UNITS IN 1997 IN 1997 IN 1998 IN 1998 IN 1999
Ku'au Bayview 92 62 35 27 19 8
Kahului Ikena 102 50 17 33 13 20
Haiku Makai 28 - - 28 25 3
Kauhikoa Hill Ranch 9 9 1 8 6 2
Koloa Estates 30 - - - - 30
At A&B's Maui Business Park, the developer of the 300,000-square-foot Maui
Marketplace Shopping Center purchased the remaining fee interest in the land
underlying the Marketplace in mid-1998. Another large lot nearby was sold
earlier in the year. The 19 remaining lots in phase IA of Maui Business Park,
totaling about 10 net salable acres, continue to be marketed actively.
On Maui, grading, roads and utility installations were completed in May 1998
for Haiku Makai, a 28-lot agricultural subdivision. Haiku Makai enjoyed rapid
sales. Twenty-five of the 28 lots in the project were sold between May and
year-end, at an average sales price of $201,000 per lot. In the 92-lot Ku'au
Bayview single-family development, 84 of the homes had been sold by year-end
1998. The 19 sales in 1998 averaged $240,000 per unit. At the Kahului Ikena
condominium project, 82 of 102 units have been sold. The prices of the 13 units
sold in 1998 averaged $139,000 per unit.
On Kauai, construction began in August 1998 at Koloa Estates, the initial
residential project at Kukui'Ula. There are 30 residential lots and two church
sites in the 28-acre project. Sales are scheduled to begin in May 1999.
PROPERTY MANAGEMENT
MAINLAND PORTFOLIO - At year-end 1998, A&B's portfolio of 16 properties in six
Western states consisted of 2.7 million square feet of leasable space.
Occupancies averaged 91 percent throughout 1998.
HAWAII PORTFOLIO - The Hawaii commercial-property portfolio consisted of
839,000 square feet of leasable space, plus ground leases of 286 acres for
commercial uses and 11,600 acres for agricultural uses. During 1998, lease
rates continued to be very competitive, due to the lackluster Hawaii economy.
Occupancy of the commercial properties averaged 68 percent.
PROPERTY DEVELOPMENT & MANAGEMENT
OUTLOOK - Operating profit from property leasing is forecast to improve in
1999, primarily due to the new leased properties added during 1998. Residential
and commercial developments likely will continue to sell steadily, but slowly,
in 1999. Sales of developed properties deemed to be fully valued also will
continue. The Company will consider accelerating the development of Maui
Business Park in response to interest in potential multi-lot projects at phases
IA and IB of the development. The Company also will continue to pursue
entitlements of land-holdings as well as investment opportunities in income and
development properties.
TRANSPORTATION
HAWAII SERVICE - The core business of Matson Navigation Company, Inc. (Matson)
is its Hawaii service. Last year was the eighth consecutive year of slow
economic growth in Hawaii. During this period, marked declines have occurred in
certain industries - construction foremost among them - that normally provide
Matson with substantial volume. Matson's cargo volume declined in 1998 because
of this economic weakness, and also because of increased competition,
especially from a barge competitor that operated temporarily during the
seasonal peak period for movements of household goods.
To match fleet capacity with cargo volume better, Matson implemented a major
service change in mid-September 1998, reducing the number of vessels serving
Hawaii from eight to six. The change was intended to cut costs without a
corresponding reduction in service quality. Although the number of vessel
arrivals in Honolulu has been reduced from four per week to three, Matson
still has 156 Hawaii round-trip voyages per year - 50 percent more than its
closest competitor.
In recognition of the weak economic conditions in Hawaii, Matson did not take
an across-the-board increase in its Hawaii service rates during 1998. Also,
as bunker fuel prices moderated, an existing fuel surcharge was reduced from
1.75 percent to 1.5 percent, effective January 15, 1998. It was reduced again
to 1.0 percent, effective March 15, and then was eliminated on September 6.
In mid-December 1998, the Company announced that it would increase rates by 2.5
percent, effective February 14, 1999, in order to offset cost increases and to
support necessary capital investments.
GUAM SERVICE - Matson and American President Lines, Ltd. (APL) renegotiated the
terms of their transpacific operating alliance late in 1997, and implemented
the resulting new vessel schedules in January 1998. The new alliance agreement
produced the benefits projected for both Matson and APL, and also resulted in
better service to Guam customers. Matson now offers the only direct service
from the U.S. mainland to Guam, with transit times reduced from 13 to 10 days.
During 1998, Guam's economic growth continued to moderate, affected by many of
the same Asian economic factors that affected Hawaii. Although construction
activity benefited from rebuilding after Typhoon Paka, which struck Guam in
December 1997, the overall amount of cargo declined somewhat in 1998.
HAWAII CARGO VOLUME
1998 1997 1996
Freight (Units) 143,400 149,700 152,100
Automobiles 73,700 78,600 83,100
HAWAII SERVICE
FREIGHT (units)
93 94 95 96 97 98
171,600 173,300 157,200 152,100 149,700 143,400
[Photo caption: A "Day in the Life" of the Matson fleet. S.S. Lurline is shown
inbound to Honolulu, with Diamond Head in the background. The ship carries a
vast array of cargo, from highly perishable food products to automobiles.]
HAWAII SERVICE
AUTOMOBILES
93 94 95 96 97 98
109,400 116,600 107,100 83,100 78,600 73,700
[Photo caption: Guam is another island community served by Matson. In early
1998, a change in Matson's operating alliance with APL allowed the start of
direct, non-stop service to Guam from the U.S. West Coast.]
[Photo caption: Trade growth and solid customer service have combined to
propel Matson Intermodal's volume and revenue higher. Nationwide overland
transportation needs of outside customers and of Matson are fulfilled
economically and efficiently by this Matson subsidiary.]
[Photo caption: Matson's newest business is Matson Logistics Solutions. Its
role is to handle highly specialized transportation needs, such as this
observatory mirror destined for a new telescope atop Mauna Kea.]
PACIFIC COAST SERVICE (PCS) - During 1998, Matson's West Coast shuttle vessel
made 51 voyages, connecting the ports of Los Angeles, Seattle and Vancouver,
B.C. Customer support for the five-year-old service continues to grow. However,
the number of empty containers moved, to reposition them for transpacific ocean
carriers, declined substantially - the direct result of changes in trade flows
to and from Asia. The PCS made a modest contribution to Matson's profitability
during 1998.
MID-PACIFIC SERVICE - Matson's container-barge service to Johnston Island,
Majuro, Ebeye and Kwajalein experienced modestly lower volume in 1998 than in
1997. Lower freight rates also unfavorably affected the results for this
service.
MATSON INTERMODAL SYSTEM, INC. - Management of the transportation function
continues to gain greater recognition for its role in adding value, especially
in businesses where reliability and immediate response are critical competitive
factors. Matson has capitalized on this trend through Matson Intermodal, its
overland transportation subsidiary. In 1998, Matson Intermodal's annual revenue
exceeded $100 million and it was named one of the top 10 intermodal marketing
companies in the U.S. Matson Intermodal manages overland transportation for
Matson's shipping customers, as well as for more than a dozen ocean shipping
companies. As Matson increases its participation in the U.S. domestic shipping
trades, substantial opportunities are expected to arise for Matson Intermodal
and Matson to serve the same customers with a greater variety of services.
MATSON LOGISTICS SOLUTIONS, INC. - Matson's newest subsidiary, Matson Logistics
Solutions, Inc. was formed in early 1998 to provide project logistics,
construction logistics and supply-chain-management services to customers.
MATSON TERMINALS, INC. (MTI) - MTI is the stevedore for Matson and outside
customers at Matson-operated container terminals. In 1998, as part of a
Companywide effort to increase productivity and lower costs, Matson's container
terminal in Oakland, Calif. converted its primary method of container handling
from straddle carriers to yard tractors.
TRANSPORTATION OUTLOOK - The performance of this segment is expected to improve
in 1999, as the operation of a smaller fleet and other initiatives reduce costs
in the Hawaii service. Labor contracts with the longshore union on the Pacific
Coast expire at midyear. The employer group, of which Matson is a member,
anticipates that negotiations will be concluded without any work stoppage.
Results in 1999 also will benefit from the revised alliance with APL and from
the charter of two previously idle vessels in a new service from Florida to
Puerto Rico. During 1998, Matson concluded that, with appropriate maintenance
and selective improvements, its present fleet would be suitable for at least 10
more years of service. Capital investments, therefore, should be relatively
modest in 1999.
FOOD PRODUCTS
RAW SUGAR PRODUCTION - Hawaiian Commercial & Sugar Company (HC&S), located on
Maui, is Hawaii's largest producer of raw cane sugar, with 61 percent of the
state's 1998 crop. HC&S made significant progress during 1998, increasing raw
sugar yields and lowering unit costs. Changes in farming and factory practices
improved raw sugar yields from a disappointing 11.6 tons sugar per acre in 1997
to 12.7 in 1998. Total production - 216,200 tons of raw sugar - was the second
highest this decade. Contributing to the lower costs was a January 1998
reorganization that eliminated about six percent of HC&S's nearly 1,000
employees.
COFFEE PRODUCTION AND MARKETING - Kauai Coffee Company, Inc. is the largest
coffee grower in the United States, producing over half of the coffee grown in
Hawaii. Green (unroasted) coffee production in 1998 was about four million
pounds, down somewhat from 1997's record harvest. The reduced output was due to
scheduled pruning of maturing coffee trees and normal biennial yield
fluctuation. Kauai Coffee continues to broaden its customer base by emphasizing
product quality and building consumer awareness of Kauai's distinctiveness as a
coffee-producing region. Although coffee operations do not yet contribute to
operating profit, the results are improving steadily.
POWER, TRUCKING - The Company's hydroelectric plants on Maui and Kauai, as well
as cogeneration units at its sugar mills on Maui, continue to generate surplus
electricity, which is sold to the local public utilities. During 1998, a total
of 95,000 megawatt-hours (MWH) were sold, compared with 109,000 MWH in 1997.
The reduction was due to increased use of electric power by the Company to
irrigate its crops during periods of low rainfall, and to the catastrophic
failure of a generating unit. The Company also has trucking operations on both
Maui and Kauai that support its agricultural operations and serve independent
customers in each community.
SUGAR REFINING AND MARKETING - California and Hawaiian Sugar Company, Inc.
(C&H), the only raw cane sugar refiner in the western United States, produces
about eight percent of the national supply of refined sugar.
Through most of 1998, margins in the cane sugar refining industry were lower
than in 1997. Supplies of beet sugar were higher during the year, and supplies
of raw cane sugar were relatively scarce, due to a low sugar import quota. On
the positive side, at mid-year 1998, two principal labor contracts were
renegotiated successfully for five-year terms without any work interruption.
In December 1998, the Company recapitalized C&H and sold approximately 60
percent of its equity to an investor group that included Citicorp Venture
Capital, Ltd. In 1999 and thereafter, the pretax income of A&B's remaining
equity investment in C&H will be reported as an investment in an affiliate,
under the heading "Food Products."
FOOD PRODUCTS OUTLOOK - Because of the recent improvements in yields and
costs, HC&S should continue to make a greater contribution to consolidated
results in 1999 and thereafter. Kauai Coffee should continue its progress
toward profitability. Even without the contribution from C&H, food products
still represents a business with about $100 million in annual sales and
operating margins between five and seven percent. A&B's share of total C&H
results will reflect its lower ownership, but total C&H results are projected
to improve modestly over those of 1998.
[Photo caption: If you cannot come to Kauai, and you don't use
www.kauaicoffee.com, then one of the best ways to buy Kauai Coffee is at
Trader Joe's.]
[Photo caption: It's a long way from the field to the sugar bowl. The trip
begins when these 37,000 lush, green acres are harvested and the sugar cane
is milled in one of HC&S's two factories.]
FINANCIAL REPORT
Independent Auditors' Report 18
Industry Segment Information 19
Eleven-Year Summary of Selected Financial Data 20
Management's Discussion and Analysis 22
Statements of Income 26
Statements of Cash Flows 27
Balance Sheets 28
Statements of Shareholders' Equity 30
Notes to Financial Statements 31
Quarterly Results 42
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 control systems, and related policies and
procedures designed to provide reasonable assurance that assets are safe-
guarded, 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 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 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 18).
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 their work in
discharging their respective responsibilities and to assure their independent
and free access to the Committee.
/s/ R. J. Pfeiffer /s/ W. Allen Doane
R. J. Pfeiffer W. Allen Doane
Chairman of the Board President and Chief Executive Officer
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, 1998 and 1997, and the related state-
ments of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1998 (pages 19 and 26 to 41). 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles.
As discussed in Note 3 to the financial statements, in 1998 the Company changed
its method of accounting for assessments from a second injury workers'
compensation fund.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Honolulu, Hawaii
January 28, 1999
INDUSTRY SEGMENT INFORMATION (In thousands)
For the Year 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
REVENUE:
Ocean transportation $ 722,744 $ 692,689 $ 661,586 $ 593,807 $ 604,754
Property development and management:
Leasing 37,955 37,148 35,916 34,073 33,387
Sales 82,382 35,916 31,909 25,835 60,767
Food products 465,661 486,912 506,909 377,082 441,209
Other 2,878 2,815 3,490 2,796 3,916
- --------------------------------------------------------------------------------------------------------
Total revenue $1,311,620 $1,255,480 $1,239,810 $1,033,593 $1,144,033
========================================================================================================
OPERATING PROFIT:
Ocean transportation $ 66,298 $ 80,385 $ 81,618 $ 87,769 $ 97,319
Property development and management:
Leasing 22,634 24,559 23,875 23,063 23,163
Sales 21,663 13,262 15,307 14,497 18,522
Food products 21,327 27,083 26,863 (27,797) (418)
Other 2,696 2,639 3,220 2,593 3,143
- --------------------------------------------------------------------------------------------------------
Total operating profit 134,618 147,928 150,883 100,125 141,729
Insurance settlement -- 19,965 -- -- --
Write-down of real estate assets (20,216) -- -- -- --
Loss on partial sale of subsidiary (19,756) -- -- -- --
Interest expense, net (24,799) (28,936) (34,081) (33,429) (27,702)
General corporate expenses (14,552) (11,745) (12,769) (14,742) (17,396)
- --------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes and
accounting change $ 55,295 $ 127,212 $ 104,033 $ 51,954 $ 96,631
========================================================================================================
IDENTIFIABLE ASSETS:
Ocean transportation $ 898,277 $ 930,636 $1,005,741 $ 997,230 $ 853,933
Property development and management 338,090 317,622 312,829 297,927 271,073
Food products 261,712 382,109 386,986 413,675 399,717
Other 107,561 74,431 90,559 92,405 87,362
- --------------------------------------------------------------------------------------------------------
Assets of continuing operations 1,605,640 1,704,798 1,796,115 1,801,237 1,612,085
Discontinued operations -
container leasing -- -- -- -- 313,690
- --------------------------------------------------------------------------------------------------------
Total assets $1,605,640 $1,704,798 $1,796,115 $1,801,237 $1,925,775
========================================================================================================
CAPITAL EXPENDITURES:
Ocean transportation $ 60,403 $ 20,828 $ 171,110 $ 46,872 $ 29,676
Property development and management* 118,552 30,790 7,275 48,890 15,709
Food products 18,237 18,806 12,058 13,650 18,665
DEPRECIATION AND AMORTIZATION:
Ocean transportation $ 61,543 $ 62,192 $ 62,055 $ 57,619 $ 55,663
Property development and management 6,357 6,281 6,214 5,561 5,246
Food products 20,086 19,538 20,144 20,390 21,340
*Including tax-deferred property purchases.
See Notes 2 and 4 for discussion of the partial sale of California
and Hawaiian Sugar Company, Inc. and the write-down of real estate
assets in 1998.
Eleven-Year Summary of Selected Financial Data
(Dollars and shares in thousands, except per-share amounts)
Alexander & Baldwin Inc. and Subsidiaries
1998 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
Annual Operations:
Net sales and other operating revenue $1,311,620 $1,275,445 $1,239,810 $1,033,593 $1,144,033 $ 923,804
Deduct:
Cost of goods sold and operating expenses 1,143,026 1,030,739 1,012,745 863,083 935,663 716,562
Depreciation and amortization 88,500 88,558 88,951 85,127 84,037 78,318
Interest expense 24,799 28,936 34,081 33,429 27,702 28,802
Income taxes 24,352 45,825 38,748 19,535 32,652 41,386
---------- ---------- ---------- ---------- ---------- ----------
Income from continuing operations 30,943 81,387 65,285 32,419 63,979 58,736
Income (loss) from discontinued operations - - - 23,336 10,629 8,253
Cumulative effect of change
in accounting principle (5,801) - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Net income $ 25,142 $ 81,387 $ 65,285 $ 55,755 $ 74,608 $ 66,989
========== ========== ========== ========== ========== ==========
Comprehensive income $ 33,327 $ 88,326 $ 73,660 $ 66,512 $ 70,031 -
========== ========== ========== ========== ========== ==========
Basic and diluted Earnings per Share
from continuing operations $0.69 $1.80 $1.44 $0.72 $1.39 $1.27
Return on beginning equity 3.5% 11.9% 10.0% 8.8% 12.7% 12.0%
Cash dividends per share $ 0.90 $ 0.88 $ 0.88 $ 0.88 $ 0.88 $ 0.88
Average number of shares outstanding 44,760 45,182 45,303 45,492 46,059 46,338
Gross profit percentage 17.4% 20.6% 20.0% 20.2% 21.2% 24.9%
Effective income tax rate 45.4% 36.0% 37.3% 37.6% 33.8% 41.3%
Market price range per share:
High $ 31.125 $ 29.375 $ 29.250 $ 25.500 $ 28.250 $ 28.000
Low 18.813 24.375 22.500 20.500 21.250 22.500
Close 23.250 27.313 25.000 23.000 22.250 26.750
At Year End:
Shareholders of record 5,125 5,481 5,881 6,357 6,729 7,056
Shares outstanding 44,028 44,881 45,339 45,280 45,691 46,404
Shareholders' equity $ 694,642 $ 719,588 $ 684,328 $ 649,678 $ 632,614 $ 587,006
Per-share 15.78 16.03 15.09 14.35 13.85 12.65
Total assets 1,605,640 1,704,798 1,796,115 1,801,237 1,925,775 1,904,742
Working capital 67,113 114,806 95,579 84,399 58,392 64,884
Cash and cash equivalents 86,818 21,623 23,824 32,150 8,987 32,295
Real estate developments-noncurrent 57,690 68,056 70,144 56,104 66,371 54,919
Investments 159,068 102,813 91,602 82,246 64,913 17,449
Capital Construction Fund 143,303 148,610 178,616 317,212 176,044 175,194
Long-term debt and capital lease obligations-
noncurrent 255,766 292,885 357,657 404,575 554,879 620,885
Current ratio 1.4 to 1 1.7 to 1 1.4 to 1 1.4 to 1 1.3 to 1 1.3 to 1
Capital stock price/earnings
ratio at December 31 41.5 to 1 15.2 to 1 17.4 to 1 18.7 to 1 13.7 to 1 18.5 to 1
All share and per-share amounts reflect the 2-for-1 stock split in 1988.
Eleven-Year Summary of Selected Financial Data, Continued
(Dollars and shares in thousands, except per-share amounts)
Alexander & Baldwin Inc. and Subsidiaries
1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ----------
Annual Operations:
Net sales and other operating revenue $ 703,948 $ 715,984 $ 747,550 $ 845,936 $ 701,908
Deduct:
Cost of goods sold and operating expenses 538,627 497,106 491,241 458,677 447,703
Depreciation and amortization 69,769 67,999 60,995 53,822 47,531
Interest expense 23,881 24,575 29,602 26,965 27,406
Income taxes 19,044 42,359 58,820 107,461 61,535
---------- ---------- ---------- ---------- ----------
Income from continuing operations 52,627 83,945 106,892 199,011 117,733
Income (loss) from discontinued operations 7,878 4,861 1,075 (310) -
Cumulative effect of change
in accounting principle (41,551) - - - -
---------- ---------- ---------- ---------- ----------
Net income $ 18,954 $ 88,806 $ 107,967 $ 198,701 $ 117,733
========== ========== ========== ========== ==========
Comprehensive income - - - - -
========== ========== ========== ========== ==========
Basic and diluted Earnings per Share
from continuing operations $1.14 $1.82 $2.32 $4.30 $2.35
Return on beginning equity 3.3% 16.7% 23.5% 45.2% 31.7%
Cash dividends per share $ 0.88 $ 0.88 $ 0.86 $ 0.80 $ 0.77
Average number of shares outstanding 46,294 46,213 46,133 46,326 50,079
Gross profit percentage 29.1% 31.9% 36.0% 48.5% 38.8%
Effective income tax rate 26.6% 33.5% 35.5% 35.1% 34.3%
Market price range per share:
High $ 30.500 $ 29.500 $ 38.000 $ 39.500 $ 36.750
Low 21.500 21.000 19.000 31.250 20.875
Close 24.750 28.250 22.250 37.500 31.500
At Year End:
Shareholders of record 7,507 7,749 7,860 7,650 7,201
Shares outstanding 46,333 46,229 46,201 46,096 50,099
Shareholders' equity $ 559,099 $ 578,669 $ 530,298 $ 459,712 $ 439,729
Per-share 12.07 12.52 11.48 9.97 8.78
Total assets 1,676,635 1,547,648 1,364,165 1,141,671 1,070,483
Working capital 40,013 23,195 55,340 33,906 35,974
Cash and cash equivalents 20,827 18,675 47,351 23,389 22,794
Real estate developments-noncurrent 50,977 36,362 14,156 - -
Investments 28,733 24,535 23,679 10,558 113,626
Capital Construction Fund 264,435 271,874 266,256 285,515 276,625
Long-term debt and capital lease obligations-
noncurrent 609,776 521,996 402,243 292,195 275,021
Current ratio 1.4 to 1 1.2 to 1 1.5 to 1 1.4 to 1 1.4 to 1
Capital stock price/earnings
ratio at December 31 60.4 to 1 14.7 to 1 9.5 to 1 8.7 to 1 13.4 to 1
All share and per-share amounts reflect the 2-for-1 stock split in 1988.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
CONSOLIDATED EARNINGS
Net income in 1998 was $25,142,000, or $0.56 per share, versus $81,387,000, or
$1.80 per share, in 1997. Net income in 1998 was reduced by three one-time
factors. First, the recapitalization and partial sale of a subsidiary,
California and Hawaiian Sugar Company, Inc. (C&H) resulted in a $15,955,000, or
$0.36 per share, after-tax loss. Second, changes in development plans for the
1,045-acre Kukui'Ula real estate project on Kauai, resulting from extended weak
real estate market conditions, led to a $12,837,000, or $0.29 per share, after-
tax charge, to reduce the carrying value of certain assets associated with that
project. Third, the cumulative effect of a required accounting change, related
to longshore labor second injury workers' compensation funds, resulted in an
after-tax charge of $5,801,000, or $0.13 per share. In contrast, net income in
1997 included an after-tax benefit of $12,478,000, or $0.28 per share,
resulting from the favorable settlement of protracted litigation related to an
insurance claim for earthquake damage to port facilities. Before all of these
one-time factors, the Company's earnings per share in 1998 was $1.33, versus
$1.53 in 1997, a decrease of 13 percent.
1998 COMPARED WITH 1997
OCEAN TRANSPORTATION revenue of $722,744,000 for 1998 increased four percent
compared with 1997; however, operating profit of $66,298,000 decreased 18
percent.
Matson Navigation Company's (Matson) Hawaii service revenue declined by nearly
$29 million in 1998. The revenue decline primarily reflected lower container
volume and lower average revenue per container. Matson's total Hawaii
container volume, at 143,400 units in 1998, was four-percent lower than 1997
container volume of 149,700 units. This follows a three-year trend of
declining container volume, from 173,300 units in 1994, to 157,200 in 1995 and
152,100 in 1996. Although 1994 volume was significantly enhanced due to a
competitor's work stoppage, the continuing decline in both container average
revenue yield and volume resulted primarily from continuing weakness in the
Hawaii economy, combined with competitive pressures. While a significant
portion of the container decline has been due to a nearly 40-percent
contraction in recent years of Hawaii's construction industry, other types of
cargo have been affected as well. A barge competitor, that operated
temporarily during the summer months in 1998, had an adverse impact on
household goods volumes and rates.
Operating expenses rose in 1998, reflecting primarily a decline in terminal
productivity and higher labor costs. The master agreement between stevedoring
companies, including Matson, and labor, represented by the International
Longshore and Warehouse Union, expires at mid-year in 1999. Negotiations
leading up to a new agreement are expected to focus on increasing productivity.
Fuel expenses declined significantly in 1998 as the average price paid for fuel
dropped to approximately $12 per barrel from $16.70 per barrel in 1997.
The unfavorable trends in operating margins in the Hawaii service continue to
be of concern to the Company. Late in 1998, Matson reduced the number of ships
serving the Hawaii trade from eight to six vessels, to better balance the
capacity offered with the demand for cargo space. Matson still remains the
service leader to Hawaii. In addition, Matson chartered two idle
vessels to a new joint venture operating between Florida and Puerto Rico; a
venture in which Matson has a 27.5-percent equity interest. Matson is
currently evaluating other ways in which it can reduce its operating costs
while maintaining a high level of service to shippers.
Matson announced a 2.5-percent increase in Hawaii service rates effective in
February 1999. Matson did not take any general rate increases in 1998.
Increases in revenue from Matson's Guam and intermodal services and from the
American President Lines, Ltd. (APL) Alliance more than offset the revenue
decline from the Hawaii service. These increases were led by a restructuring
of the APL Alliance charter agreements and increased intermodal revenue.
PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue of $37,955,000 for 1998
rose two percent compared with 1997; however, operating profit of $22,634,000
for 1998 decreased eight percent compared with 1997. The decrease was due
primarily to lower occupancy rates, especially in the Hawaii market. Occupancy
rates for the Mainland properties averaged 91 percent in 1998, versus 98
percent in 1997. The lower Mainland average rate primarily reflected a shift
in the composition of the portfolio toward more multi-tenant properties,
following the sale of a large, single-tenant property in 1998. Occupancy
levels for the Hawaii properties averaged 68 percent in 1998, versus 78 percent
in 1997. The lower Hawaii average rate reflected ongoing weak economic
conditions in Hawaii as well as low occupancy rates for properties acquired
during 1997.
PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue of $82,382,000 for 1998
considerably exceeded the $35,916,000 in sales recorded in 1997. Operating
profit from property sales in 1998 of $21,663,000 was 63-percent higher than
the $13,262,000 achieved in 1997. The increases resulted from the sales of a
large single-tenant research and office complex in Cupertino, California for
$51,500,000 and of the Company's remaining interest in a 14-acre parcel at Maui
Business Park. Other significant sales in 1998 included five developed
business parcels and 64 residential properties. Sales in 1997 included four
leased parcels in Maui Business Park, an undeveloped 24-acre residential
parcel, several developed and undeveloped business parcels, an industrial
warehouse in California and 59 residential units. Sales totaling $67,258,000
in 1998 were completed on a tax-deferred basis compared with 1997 tax-deferred
sales of $17,388,000. Purchases, utilizing proceeds from tax-deferred sales,
totaled $85,896,000 and $22,170,000 for 1998 and 1997, respectively.
The mix of property transactions 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
sales of undeveloped land and subdivision lots generally provide a greater
contribution margin than the sales 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, historical property sales and the
amount of real estate held for sale currently on the balance sheets do not
necessarily indicate future profitability trends for this segment. Because the
Company sells a significant amount of property on a tax-deferred basis, the
proceeds of which must be reinvested in similar property within time periods
specified by the Internal Revenue Code, property sales may not necessarily be
indicative of cash flows.
FOOD PRODUCTS revenue of $465,661,000 in 1998 was four-percent lower than the
1997 revenue of $486,912,000. Operating profit of $21,327,000 in 1998 was 21-
percent lower than the $27,083,000 earned in 1997. Several factors contributed
to these lower results. Refined sugar prices declined in 1998 as a result of a
large beet sugar crop. The average per-ton cost to purchase raw sugar was
about the same in 1998 as it was in 1997, but refining and direct operating
expenses increased. While the volume of refined sugar sales increased slightly
in 1998, the mix of sales resulted in a lower margin than last year. The
continued low cane sugar import quota made it difficult for C&H to purchase raw
sugar at attractive prices. Additionally, a majority interest in C&H was sold
on December 24, 1998, resulting in one less week of operations as a consoli-
dated business than in 1997. The combined impact of these items reduced
operating profit by approximately $13,000,000.
Results from Hawaiian Commercial & Sugar Company (HC&S), the Company's Maui
sugarcane plantation, showed significant improvement in 1998. Changes in
cultivation and ripening processes for a recently introduced cane-sugar variety
occurred during the year, increasing sugar yields to 216,200 tons in 1998 from
198,000 tons a year earlier. The higher sugar production, combined with cost
reduction efforts, resulted in an 18-percent margin improvement, partially
offsetting the lower operating profit from C&H. During 1998, HC&S wrote off
several abandoned and obsolete items of equipment, which had a total carrying
cost of approximately $4,500,000, and also recognized a $3,000,000 involuntary
conversion gain, due to insurance proceeds received in settlement of an insured
turbine generator failure which occurred earlier in the year.
1997 COMPARED WITH 1996
OCEAN TRANSPORTATION revenue of $692,689,000 for 1997 increased five percent
and operating profit of $80,385,000 for 1997 decreased two percent, compared
with 1996. Excluding a one-time vessel charter hire, which contributed
$5,634,000 to 1996 results, operating profit for the ocean transportation
segment rose six percent. Hawaii service container and automobile volumes
were two- and five-percent lower, respectively, due to weak economic
conditions in Hawaii. Terminal labor costs increased by six percent in 1997
compared with 1996.
PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue and operating profit rose
three percent compared with 1996. The leased-property portfolio benefited from
continuing high occupancy levels for Mainland properties. Occupancy rates in
1997 averaged 98 percent for the Mainland portfolio, versus 97 percent in 1996.
Occupancy levels for the Company's Hawaii-leased real estate portfolio averaged
78 percent in 1997, versus 86 percent in 1996. That decrease was due primarily
to properties acquired in early 1997 that had relatively low occupancy rates
and to the weak Hawaii economy.
PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue of $35,916,000 for 1997 was
13-percent higher than in 1996; however, operating profit decreased 13 percent
for 1997 compared with 1996. Sales in 1997 included four leased parcels in
Maui Business Park, an undeveloped 24-acre residential parcel, several
developed and undeveloped business parcels, an industrial warehouse in
California and 59 esidential properties. Significant sales in 1996 included
two leased parcels, a 66-acre unimproved parcel to a Maui utility, four lots
in the Company's Maui Business Park and 73 residential properties.
FOOD PRODUCTS revenue of $486,912,000 in 1997 was four-percent lower than the
1996 revenue of $506,909,000. Operating profit of $27,083,000 in 1997,
however, was one-percent higher than the operating profit of $26,863,000 for
the prior year. Improved sugar refining margins were offset substantially by
the effects of lower sugar yields at the Company's Maui plantation.
During most of 1997, margins in the cane sugar refining industry benefited from
relatively low supplies of beet sugar. However, margins tightened late in the
year, following projections for a larger sugar beet crop and lower refined beet
sugar prices.
FINANCIAL CONDITION AND LIQUIDITY
The Company's principal liquid resources, comprising cash and cash equivalents,
receivables, inventories and unused lines of credit, less accrued deposits to
the Capital Construction Fund (CCF), totaled $365,393,000 at December 31, 1998,
a decrease of $143,783,000 from December 31, 1997. This decrease was due
primarily to lower amounts available under lines of credit, lower receivables,
and lower inventories, partially offset by increased cash and a decrease in
accrued deposits to the CCF. Amounts available under lines of credit decreased
$130,999,000, primarily due to a decrease in credit facilities, resulting from
the partial sale of C&H and the expiration of a $35 million unused credit
facility. The decreases in receivables and inventories were mostly due to the
C&H transaction. Cash increased $65,195,000, primarily due to the cash
receipts from the C&H transaction, which had not yet been fully used to repay
debt at year-end. Accrued deposits to the CCF decreased $930,000.
Working capital was $67,113,000 at December 31, 1998, a decrease of $47,693,000
from the amount at the end of 1997. This was primarily due to decreases in
inventories and accounts receivable and an increase in short-term debt,
partially offset by a decrease in accounts payable. The C&H transaction was
the primary reason for these changes. At December 31, 1997, C&H provided
working capital of approximately $31,327,000.
Net cash provided by operations, before capital expenditures for real estate
developments held for sale, was $137,244,000 and $187,505,000 for 1998 and
1997, respectively. Net operating cash flows were used principally for
capital expenditures, payments of debt, dividends, repurchases of capital
stock and deposits into the CCF. Withdrawals from the CCF in 1998 were used to
purchase a leased vessel and to invest in a joint venture shipping operation.
(See Note 2 to the Company's financial statements.)
In 1998, capital additions were $197,633,000, compared with $70,666,000 in
1997. Ocean transportation capital additions in 1998 of $60,403,000 were
primarily for the acquisition of container and terminal equipment and the
purchase of a vessel which previously was leased by Matson. Property develop-
ment and management capital additions in 1998 of $118,552,000, which included
the reinvestment of tax-deferred sales proceeds, were for real estate develop-
ments held for investment purposes and for improvements to leased properties.
Food products capital additions in 1998 of $18,237,000 were primarily for sugar
refinery modifications, power generation, and harvesting and factory equipment
for sugar plantation and coffee orchard operations.
Capital expenditures approved, but not yet spent, were $60,294,000 at December
31, 1998. These expenditures are primarily for container equipment, real
estate developments held for investment purposes, improvements to leased
properties, Year-2000 computer remediation, and irrigation, factory and power
generation equipment for the Company's sugar-growing operations. For 1999,
internal cash flows and short-term borrowing facilities are expected to be
sufficient to finance working capital needs, dividends, capital expenditures
and debt service.
OTHER MATTERS
NEW ACCOUNTING STANDARD: In 1998, the Company adopted the American Institute
of Certified Public Accountants Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments." This
standard required that the Company accrue the present value of future
assessments from a United States Department of Labor second injury workers'
compensation fund as a liability. Previously, the annual assessments were
charged to expense in the year paid. The after-tax, cumulative effect of the
change in accounting method was a reduction of 1998 net income by $5,801,000,
or $0.13 per share. (See Note 3 to the Company's financial statements.)
C&H RECAPITALIZATION AND PARTIAL SALE: On December 24, 1998, the Company
recapitalized and sold a majority of its equity in C&H, recognizing a loss of
$19,756,000. The after-tax impact of the loss on 1998 net income was
$15,955,000, or $0.36 per share. C&H is included in the consolidated results
of the Company up to the date of sale. Effective December 24, 1998, the
Company began accounting for its investment in C&H under the equity method.
(See Note 2 to the Company's financial statements.)
WRITE-DOWN OF REAL ESTATE ASSETS: In 1998, the Company changed the strategic
direction of its Kukui'Ula real estate development project on Kauai. As a
result, the Company determined that the total present capitalized investment
could not be recovered through future cash flows and, accordingly, reduced the
carrying value by $20,216,000. The after-tax impact to 1998 net income of this
write-down was $12,837,000, or $0.29 per share. (See Note 4 to the Company's
financial statements.)
INSURANCE LITIGATION: In 1997, Matson received $33,650,000 in settlement of
litigation involving a contested insurance claim for earthquake damage to port
facilities in 1989. After recovering repair and litigation costs of
approximately $13,650,000, the Company recorded, in 1997, $9,700,000 of
interest revenue and $10,300,000 of other revenue. The after-tax impact of the
settlement on 1997 net income was $12,478,000, or $0.28 per share.
TAX-DEFERRED REAL ESTATE EXCHANGES: In 1998, the Company sold eight parcels of
land for $67,258,000. Proceeds of $85,896,000 were reinvested in 1998 on a
tax-deferred basis from sales completed in 1998 and earlier years. The
proceeds from these sales and amounts reinvested are reflected in the State-
ments of Cash Flows under the caption "Non-cash Activities." The purchases of
real estate using tax-deferred monies are included in capital expenditures on
the Industry Segment Information (page 19).
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.
OUTLOOK: Information about the Company's outlook for 1999 and its plans to
address issues affecting primary business units is included in the Letter to
Shareholders on pages 2 through 5 and in the business unit discussions included
on pages 6 through 15 of the Annual Report to Shareholders, which sections are
incorporated herein by reference.
YEAR-2000 INFORMATION AND READINESS DISCLOSURE ACT OF 1998
In 1995, the Company and its subsidiaries commenced 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. Programs that recognize "00" as a date other
than "2000" might result in data errors or system problems if not corrected
before December 31, 1999. Not all systems used by the Company and its subsi-
diaries are sensitive to this issue.
The work related to primary systems and applications, which have the greatest
risk of adversely affecting operations, is substantially complete as of 1998
year-end. The Company and its subsidiaries are currently testing the corrected
systems for undetected program errors. In addition, the Company and its
subsidiaries are continuing work on correcting secondary support applications,
embedded systems and applications at smaller business units to ensure that they
will be Year-2000 compliant before the end of 1999. The Company and its
subsidiaries are working with primary vendors, customers, lenders, suppliers
and other appropriate third parties to assess their compliance efforts and the
potential risks to the Company and its subsidiaries in the event that they are
not Year-2000 compliant. Contingency plans for potential significant problems
that may occur in the Year-2000 will be completed by the end of 1999.
Staffing for the remaining Year-2000 work is expected to be adequate. Work on
this project has not affected other systems-related activities adversely. The
implementation plans, which consist of upgrading, modifying or replacing
various systems, are expected to cost approximately $6,000,000 to $8,000,000.
At the end of 1998, the Company and its subsidiaries had expended approximately
$3,600,000 for this work.
The Year-2000 risk to the Company and its subsidiaries is substantially the
same as that of other companies in the same industries. The Company and its
subsidiaries believe that their systems and applications necessary to operate
and manage their businesses will be replaced, modified or upgraded successfully
in advance of the year 2000.
Despite the preparations being taken by the Company and its subsidiaries, the
Year-2000 issue presents risks and uncertainties. In the most reasonably
likely worst case scenario, there could be temporary disruptions in customer
services (including ocean transportation) and product deliveries, temporary
billing and collection delays, and temporary delays in payrolls and vendor
payments. The Company believes that a worse case scenario is not likely;
however, if it did occur, it could have a material adverse effect on the
Company's results of operations, liquidity and financial condition.
Although there can be no absolute assurance that the Company and its
subsidiaries will be successful in identifying and avoiding all possible
problems, the Company and its subsidiaries continue to identify and address
potential negative consequences which may result from not being Year-2000
ready. In particular, there can be no assurance that the Company will not be
affected adversely by the failure of a vendor, customer, or other third party
to address the Year-2000 issue adequately. However, in the context of the
uncertainties inherent in dealing with the Year-2000 issue, the Company
believes, based on available information, that the impact of the Year-2000
issue and its associated costs will not have a material impact on the results
of operations, liquidity and financial condition.
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-K, 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 environments 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
third-party suppliers; (6) fuel prices; (7) labor relations; (8) the ability to
locate and correct or replace, on a timely basis, all relevant computer codes
prior to the Year-2000; and (9) other risk factors described elsewhere in these
communications and from time to time in the Company's filings with the SEC.
STATEMENTS OF INCOME (In thousands, except per-share amounts)
Year Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------------
REVENUE:
Ocean transportation $ 708,735 $ 678,319 $ 645,499
Property development and management 119,304 72,226 67,035
Food products 464,625 482,799 504,858
Interest 11,278 23,131 15,085
Gain on sale of property and other 4,800 16,119 4,577
Dividends 2,878 2,851 2,756
- ---------------------------------------------------------------------------------
Total revenue 1,311,620 1,275,445 1,239,810
- ---------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of goods and services 1,083,836 1,011,718 988,721
Selling, general and administrative 107,718 107,579 112,975
Write-down of real estate assets 20,216 -- --
Loss on partial sale of subsidiary 19,756 -- --
Interest 24,799 28,936 34,081
- ---------------------------------------------------------------------------------
Total costs and expenses 1,256,325 1,148,233 1,135,777
- ---------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING METHOD 55,295 127,212 104,033
Income Taxes 24,352 45,825 38,748
- ---------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING METHOD 30,943 81,387 65,285
Cumulative Effect of Change in Accounting
Method for Insurance-related Assessments
(net of income taxes of $3,481) (5,801) -- --
- ---------------------------------------------------------------------------------
NET INCOME 25,142 81,387 65,285
Unrealized holding gains on securities
(Net of income taxes of $5,337 in 1998,
$3,977 in 1997 and $3,961 in 1996) 8,185 6,939 8,375
- ---------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 33,327 $ 88,326 $ 73,660
BASIC AND DILUTED EARNINGS PER SHARE OF
COMMON STOCK:
Before cumulative effect of accounting
change $ 0.69 $ 1.80 $ 1.44
Accounting change (0.13) - -
- ---------------------------------------------------------------------------------
Net Income $ 0.56 $ 1.80 $ 1.44
=================================================================================
AVERAGE COMMON SHARES OUTSTANDING 44,760 45,182 45,303
See notes to financial statements.
STATEMENTS OF CASH FLOWS (In thousands)
Year Ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATIONS:
Net Income $ 25,142 $ 81,387 $ 65,285
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 88,500 88,558 88,951
Write-down of real estate assets 20,216 -- --
Reversal of plantation closure reserve -- (990) (4,624)
Equity in loss of affiliate 276 -- --
Loss on partial sale of subsidiary 19,756 -- --
Gain on disposal of assets (10,259) (872) (1,686)
Accounting change for insurance-related
assessments 5,801 -- --
Changes in assets and liabilities:
Accounts and notes receivable 7,859 (5,532) (5,225)
Inventories 4,605 24,276 (16,616)
Pension assets or obligations (10,663) (4,843) (9,694)
Prepaid expenses and other assets (9,213) 1,973 103
Accounts and income taxes payable 5,345 (672) 7,062
Deferred income taxes payable (8,248) 13,168 10,420
Other liabilities (1,873) (8,948) 15,825
Capital expenditures for real estate
developments held for sale (1,972) (5,636) (16,799)
- --------------------------------------------------------------------------------------
Net cash provided by operations 135,272 181,869 133,002
- --------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property (98,510) (45,598) (185,142)
Capital expenditures for real estate developments
held for investment (13,227) (2,898) (2,579)
Receipts from disposal of income producing
property, investments and other assets 4,818 728 10,897
Proceeds from recapitalization of subsidiary 83,841 -- --
Proceeds from partial sale of subsidiary 14,940 -- --
Deposits into Capital Construction Fund (10,000) (11,656) (11,481)
Withdrawals from Capital Construction Fund 14,377 50,000 145,500
Reduction (increase) in investments - net (7,745) (822) 1,184
- --------------------------------------------------------------------------------------
Net cash used in investing activities (11,506) (10,246) (41,621)
- --------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 30,000 34,500 43,000
Payments of long-term debt (68,985) (109,082) (81,888)
Proceeds (payments) from short-term
borrowings - net 40,000 (45,000) (21,000)
Repurchases of capital stock (20,838) (16,585) (1,250)
Proceeds from issuance of capital stock 1,575 2,132 1,291
Dividends paid (40,323) (39,789) (39,860)
- --------------------------------------------------------------------------------------
Net cash used in financing activities (58,571) (173,824) (99,707)
- --------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) for the year 65,195 (2,201) (8,326)
Balance, beginning of year 21,623 23,824 32,150
- --------------------------------------------------------------------------------------
Balance, end of year $ 86,818 $ 21,623 $ 23,824
======================================================================================
OTHER CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 26,890 $ 30,956 $ 36,472
Income taxes paid, net of refunds 34,672 29,775 26,360
NON-CASH ACTIVITIES:
-- Tax-deferred property sales 67,258 17,388 12,325
-- Tax-deferred property purchases 85,896 22,170 3,134
-- Securities retained in connection with
partial sale of subsidiary 34,960 -- --
See notes to financial statements.
BALANCE SHEETS
(In thousands, except per-share amounts)
December 31, 1998 1997
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 86,818 $ 21,623
Accounts and notes receivable:
Trade, less allowances of $6,272 and $18,005 114,885 152,098
Other 14,923 24,067
Inventories:
Sugar and coffee 6,336 38,888
Materials and supplies 13,436 30,321
Real estate held for sale 8,535 12,563
Deferred income taxes 9,524 9,404
Prepaid expenses and other assets 9,407 9,977
Accrued deposits to Capital Construction Fund (9,070) (10,000)
- ---------------------------------------------------------------------------------
Total current assets 254,794 288,941
- ---------------------------------------------------------------------------------
INVESTMENTS 159,068 102,813
- ---------------------------------------------------------------------------------
REAL ESTATE DEVELOPMENTS 57,690 68,056
- ---------------------------------------------------------------------------------
PROPERTY:
Land 77,272 66,161
Buildings 213,713 218,116
Vessels 757,730 815,805
Machinery and equipment 565,577 697,095
Water, power and sewer systems 80,601 83,334
Other property improvements 92,531 94,512
- ---------------------------------------------------------------------------------
Total 1,787,424 1,975,023
Less accumulated depreciation and amortization 837,704 938,508
- ---------------------------------------------------------------------------------
Property - net 949,720 1,036,515
- ---------------------------------------------------------------------------------
CAPITAL CONSTRUCTION FUND 143,303 148,610
- ---------------------------------------------------------------------------------
PENSION ASSETS 24,212 1,192
- ---------------------------------------------------------------------------------
OTHER ASSETS - NET 16,853 58,671
- ---------------------------------------------------------------------------------
Total $1,605,640 $1,704,798
=================================================================================
See notes to financial statements.
1998 1997
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 45,533 $ 24,453
Current portion of capital lease obligations -- 10,032
Short-term commercial paper borrowings 42,000 17,000
Accounts payable 37,781 46,835
Payrolls and vacation pay 14,935 20,561
Uninsured claims 13,398 15,265
Post-retirement benefit obligations - current portion 3,115 5,164
Taxes other than income 4,096 4,551
Accrued and other liabilities 26,823 30,274
- ---------------------------------------------------------------------------------
Total current liabilities 187,681 174,135
- ---------------------------------------------------------------------------------
LONG-TERM LIABILITIES:
Long-term debt 255,766 290,885
Capital lease obligations -- 2,000
Post-retirement benefit obligations 61,929 112,125
Uninsured claims 18,180 9,249
Other 34,413 37,062
- ---------------------------------------------------------------------------------
Total long-term liabilities 370,288 451,321
- ---------------------------------------------------------------------------------
DEFERRED INCOME TAXES 353,029 359,754
- ---------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Capital stock - common stock without par value;
authorized, 150,000 shares ($.75 stated value
per share); outstanding, 44,028 shares in 1998
and 44,881 shares in 1997 36,098 36,769
Additional capital 51,946 49,437
Unrealized holding gains on securities 63,329 55,144
Retained earnings 555,820 591,135
Cost of treasury stock (12,551) (12,897)
- ---------------------------------------------------------------------------------
Total shareholders' equity 694,642 719,588
- ---------------------------------------------------------------------------------
Total $1,605,640 $1,704,798
=================================================================================
STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands, except per-share amounts)
Three Years Ended December 31, 1998
- ---------------------------------------------------------------------------------------------------------------
Capital Stock
-----------------------------------------
Issued In Treasury
--------------------- -----------------
Unrealized
Additional Holding Retained
Shares Stated Value Shares Cost Capital Gains Earnings
- ---------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 49,510 $37,133 4,230 $(13,817) $40,138 $39,830 $546,394
CHANGES IN 1996:
Shares repurchased and retired (50) (38) (1,213)
Stock options exercised 125 94 2,690
Acquired in payment of options (59) (44) (1,637)
Issued -- incentive plans 7 5 (36) 444 549
Unrealized holding gains on
securities 8,375
Net income 65,285
Cash dividends -- $.88 per share (39,860)
- ---------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 49,533 37,150 4,194 (13,373) 43,377 48,205 568,969
CHANGES IN 1997:
Shares repurchased and retired (624) (468) (16,117)
Stock options exercised 234 175 5,098
Acquired in payment of options (123) (92) (3,315)
Issued -- incentive plans 6 4 (49) 476 962
Unrealized holding gains on
securities 6,939
Net income 81,387
Cash dividends -- $.88 per share (39,789)
- ---------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 49,026 36,769 4,145 (12,897) 49,437 55,144 591,135
CHANGES IN 1998:
Shares repurchased and retired (969) (727) (20,111)
Stock options exercised 68 51 1,558
Acquired in payment of options (1) (1) (23)
Issued -- incentive plans 8 6 (41) 346 951
Unrealized holding gains on
securities 8,185
Net income 25,142
Cash dividends -- $.90 per share (40,323)
- ---------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 48,132 $36,098 4,104 $(12,551) $51,946 $63,329 $555,820
===============================================================================================================
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
ALEXANDER & BALDWIN, INC.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of Alexander & Baldwin, Inc. and all wholly-owned subsidiaries, after
elimination of significant intercompany amounts. Investments in 20 to 50
percent owned companies are accounted for using the equity method.
COMPREHENSIVE INCOME: Comprehensive Income includes changes from either
recognized transactions or other economic events, excluding capital stock
transactions, which impact Shareholders' Equity. For the Company, the only
difference between Net Income and Comprehensive Income is the unrealized
holding gains on securities available for sale. Comprehensive Income is not
used in the calculation of Earnings per Share.
BASIC AND DILUTED EARNINGS PER SHARE OF COMMON STOCK: Basic Earnings per Share
is determined by dividing Net Income by the weighted-average common shares
outstanding during the year. The impact on earnings per share of the Company's
stock options is immaterial; consequently, Diluted Earnings per Share is the
same amount as Basic Earnings per Share.
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 Sheets. When
construction is complete, the costs are reclassified either as Real Estate Held
for Sale or Property, 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 orchards are capitalized during the development
period and depreciated over the estimated productive lives. 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 products,
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. Interest expense is shown net of capitalized interest on the
Statements of Income, because the amounts are not significant.
DEPRECIATION: Depreciation is computed using the straight-line method.
Depreciation expense includes amortization of assets under capital leases.
Estimated useful lives of property are as follows:
Buildings 10 to 50 years
Vessels 10 to 40 years
Marine containers 15 years
Machinery and equipment 3 to 35 years
Utility systems and other depreciable property 5 to 60 years
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: 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 fair value. Fair 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 cash flows. For commercial property, market value is
determined using recent comparable sales, tax assessments and cash flows. A
large portion of the Company's real estate is undeveloped land located in
Hawaii. This land has a cost basis which averages approximately $150 per acre,
a value which is much lower than fair value.
FUTURES CONTRACTS: Realized and unrealized gains and losses on commodity
futures contract hedges are recorded in inventory and subsequently charged to
cost of sales when the related inventory is sold. 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 estimated reasonably.
YEAR-2000 COSTS: Computer and related costs necessary to prepare for the Year-
2000 date change are treated as an operating expense in the year incurred
unless a computer system is being replaced for operating reasons as well as for
Year-2000 compliance, in which case the costs are capitalized. The annual
amounts charged to expense were not significant. (See Management's Discussion
and Analysis, unaudited, for additional information.)
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 dates of the financial
statements and the reported amounts of revenue and expenses during the
reporting periods. Future actual amounts could differ from those estimates.
RECLASSIFICATIONS: Certain amounts in the 1997 and 1996 financial statements
have been reclassified to conform with the 1998 presentation.
2. INVESTMENTS AND PARTIAL SALE OF SUBSIDIARY
At December 31, 1998 and 1997, investments consisted principally of marketable
equity securities, equity in affiliated companies, limited partnership
interests and purchase-money mortgages, as follows (in thousands):
1998 1997
- -----------------------------------------------------------------------
Marketable equity securities $ 110,119 $ 96,597
Equity in affiliated companies 42,568 --
Limited partnership interests,
purchase-money mortgages and other 6,381 6,216
- -----------------------------------------------------------------------
Total Investments $ 159,068 $ 102,813
=======================================================================
MARKETABLE EQUITY SECURITIES: The marketable equity securities are classified
as "available for sale" and are stated at quoted market values. The unrealized
holding gains on these securities, net of deferred income taxes, have been
recorded as a separate component of Shareholders' Equity.
The components of the net unrealized holding gains at December 31, 1998 and
1997 were as follows (in thousands):
1998 1997
- -----------------------------------------------------------------------
Market value $ 110,119 $ 96,597
Less historical cost 9,851 9,851
- -----------------------------------------------------------------------
Unrealized holding gains 100,268 86,746
Less deferred income taxes 36,939 31,602
- -----------------------------------------------------------------------
Net unrealized holding gains $ 63,329 $ 55,144
=======================================================================
EQUITY IN AFFILIATED COMPANIES: On December 24, 1998, the Company recognized a
loss of $19,756,000 for the partial sale of its sugar refining and marketing
unit, California and Hawaiian Sugar Company, Inc. (C&H) and the sale of a
majority of its equity in that company. The Company received approximately
$45,000,000 in cash, after the repayment of certain C&H indebtedness,
$25,000,000 in senior preferred stock, $9,600,000 in junior preferred stock,
and retained an approximately 36 percent common stock interest in the
recapitalized C&H. The Company holds all of C&H's senior preferred stock and
40 percent of C&H's junior preferred stock. The carrying amounts of these
investments approximated their fair values at December 31, 1998. C&H is
included in the consolidated results of the Company up to the date of the sale.
Effective December 24, 1998, the Company began accounting for its investment in
C&H under the equity method. The equity in earnings of C&H for the last seven
days of 1998 was not significant. Condensed balance sheet information for C&H
as of December 31, 1998 was as follows (in thousands):
1998
- --------------------------------------------------
Assets:
Current $ 77,109
Property and other 139,191
- --------------------------------------------------
Total $ 216,300
==================================================
Liabilities
Current $ 36,092
Long-term debt and other 123,845
Shareholders' equity, including
preferred stock 56,363
- --------------------------------------------------
Total $ 216,300
==================================================
In September 1998, the Company invested approximately $7,284,000 in a joint
venture which carries cargo between Florida and Puerto Rico, in which the
Company has a 27.5-percent interest. The Company charters two of its ships to
that venture.
LIMITED PARTNERSHIP INTERESTS AND PURCHASE-MONEY MORTGAGES: The investments in
limited partnership interests and purchase-money mortgages are recorded at
cost, which approximated market values at December 31, 1998 and 1997. The
purchase-money mortgages are intended to be held to maturity. The value of the
underlying investments of the limited partnership interests is assessed
annually.
See Note 5 for a discussion of market values of investments in the Capital
Construction Fund.
3. CHANGE IN ACCOUNTING METHOD FOR INSURANCE- RELATED ASSESSMENTS
The Company self-insures a portion of its federal workers' compensation
liability. As such, the Company utilizes the U.S. Department of Labor (DOL)
second injury fund, as authorized by Section 8(f) of the U.S. Longshore and
Harborworkers' Act. Under this Act, the DOL annually assesses self-insurers
for their share of the related cost. Through 1997 these assessments were
recorded as expense in the year the amounts were assessed and paid. Effective
January 1, 1998, the Company adopted the provisions of the American Institute
of Certified Public Accountants Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments." This
statement requires that the Company record as a liability, the expected cost of
future assessments relating to existing compensation claims made prior to the
end of the current fiscal year. In adopting this statement, the Company
recorded a one-time, non-cash charge to earnings of $9,282,000 ($5,801,000 net
of income tax, $0.13 per share), representing the cumulative effect of the
accounting change as of the beginning of the year. The discount rate used in
estimating the liability was 5.43%. On an undiscounted basis, the liability
was approximately $13,869,000 as of December 31, 1998. The effect of the
change on operating costs was not significant for the current or prior years.
4. WRITE-DOWN OF REAL ESTATE ASSETS
During 1998, the Company changed the strategic direction of its 1,045 acre
Kukui'Ula real estate development, from a single master-planned residential
community to a series of individual subdivisions with fewer units, as a result
of continued weaknesses in the State's and Kauai's economy and real estate
markets. As a result, the Company determined that its investment in a waste
water treatment plant (WWTP) could not be recovered through the WWTP's future
cash flows; accordingly, the costs of the WWTP were reduced by $15,900,000 to
the plant's fair value, which was based on the present value of estimated
future cash flows. Under the original higher-density Kukui'Ula development
plan, the cost of the WWTP would have been recoverable from its future cash
flows. The changes in the development plan also resulted in the write-off of
$4,316,000 for design and study costs which were determined to have no future
economic benefit. The remaining carrying cost of the Kukui'Ula project is
approximately $29,650,000 and, based on current development plans, the Company
has determined that this amount is recoverable from the project's future cash
flows.
5. 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 Federal income tax deductions in the
year made; however, they 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 a preference item for calculating Federal
alternative minimum taxable income. Deposits not committed for qualified
purposes within 25 years from the date of deposit, will be treated as non-
qualified withdrawals over the subsequent five years. As of year-end, the
oldest CCF deposits date from 1994. Management believes that all amounts on
deposit in the CCF at the end of 1998 will be used or committed for qualified
purposes prior to the expiration of the applicable 25-year periods.
TABLE 1 (In thousands)
- ------------------------------------------------------------------- ----------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------
Amortized Fair Unrealized Amortized Fair Unrealized
Cost Value Gain Cost Value Loss
- ---------------------------------------------------------------------------------------------------------
Mortgage-backed securities $ 52,606 $ 53,108 $ 502 $ 69,451 $ 68,738 $ (713)
Cash and cash equivalents 81,627 81,627 -- 69,159 69,159 -
Accrued deposits 9,070 9,070 -- 10,000 10,000 -
- ---------------------------------------------------------------------------------------------------------
Total $143,303 $143,805 $ 502 $148,610 $147,897 $ (713)
=========================================================================================================
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 Sheets either as obligations of the Company's
current assets or as receivables from the CCF.
The Company has classified its investments in the CCF as "held-to-maturity"
and, accordingly, has not reflected temporary unrealized market gains and
losses on 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, 1998 and 1997, the balances on deposit in the CCF are
summarized in Table 1.
Fair value of the mortgage-backed securities was determined by an outside
investment management company based on experience trading identical or
substantially similar securities. No central exchange exists for these
securities; they are traded over-the-counter. The Company earned $4,514,000 in
1998, $5,897,000 in 1997 and $6,838,000 in 1996 on its investments in mortgage-
backed securities. The fair values of other CCF investments are based on
quoted market prices. These other investments mature in 1999. There were no
sales of securities classified as "held-to-maturity" during 1998 or 1997.
6. EMPLOYEE BENEFIT PLANS
The Company has funded single-employer defined benefit pension plans which
cover substantially all non-bargaining unit employees.
In addition, 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 status of the funded defined benefit pension plans and the unfunded
accumulated post-retirement benefit plans at December 31, 1998, 1997 and 1996
is shown in Table 2 (page 36).
The net periodic benefit cost for the defined benefit pension plans and the
post-retirement health care and life insurance benefit plans during 1998, 1997
and 1996 is summarized in Table 3 (page 36).
As described in Note 2, the Company sold a majority of its interest in C&H
during 1998. The impact of this transaction on the benefit obligation and the
plan assets is noted in Table 2. At the time of the transaction, C&H had
recorded in its financial statements net obligations of $12,300,000 and
$46,500,000 for its pension and post-retirement benefit plans, respectively.
The assumptions used to determine the components of the net periodic benefit
cost were as follows:
Pension Benefits Other Post-retirement Benefits
--------------------------- ------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------
Discount rate 6.75% 7.25% 7.50% 6.75% 7.25% 7.50%
Expected return on
plan assets 9.00% 9.00% 9.00% - - -
Rate of compensation
increase 4.25% 4.25% 4.50% 4.25% 4.25% 4.50%
For post-retirement benefit measurement purposes, a 10-percent annual rate of
increase in the per capita cost of covered health care benefits was assumed
through 2001. The rate was assumed to decrease to 5-percent for 2002 and
remain at that level thereafter. For 1998 and 1997, gains and losses of the
post-retirement benefit plans were amortized over five years. For 1996 and
previous years, gains and losses for the post-retirement benefit plans were
amortized using the minimum method allowed by Statement of Financial Accounting
Standards (SFAS) No. 106, "Employer's Accounting for Post-retirement Benefits
other than Pensions." This change did not significantly affect financial
results.
If the assumed health care cost trend rate were increased or decreased by one
percentage point, the accumulated post-retirement benefit obligation, as of
December 31, 1998, 1997 and 1996, and the net periodic post-retirement benefit
cost for 1998, 1997 and 1996, would have increased or decreased as follows (in
thousands):
Other Post-retirement Benefits
One Percentage Point
--------------------------------------------------------------
Decrease Increase
----------------------------- -----------------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------
Effect on total of service and
interest cost components $ (583) $(1,016) $(1,052) $ 689 $ 1,172 $ 1,208
Effect on post-retirement
benefit obligation $(4,387) $(9,786) $(9,833) $ 5,157 $11,113 $11,105
The assets of the defined benefit pension plans consist principally of listed
stocks and bonds. Gains and losses are amortized using the minimum method
allowed by SFAS No. 87, "Employer's Accounting for Pensions." Contributions
are determined annually for each plan by the Company's pension administrative
committee, based upon the actuarially determined minimum required contribution
under the Employee Retirement Income Security Act of 1974, as amended, (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 agree-
ments, 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 obligation, included with other non-current liabilities, relating to these
unfunded plans, totaled $11,860,000 and $10,654,000 at December 31, 1998 and
1997, respectively. The annual expense associated with the non-qualified plans
was not significant.
Total contributions to the multi-employer pension plans covering personnel in
shoreside and seagoing bargaining units were $5,633,000 in 1998, $5,828,000 in
1997 and $5,552,000 in 1996. Union collective bargaining agreements provide
that total employer contributions during the terms of the agreements must be
sufficient to meet the normal costs and amortization payments required to be
funded during those periods. Contributions are generally based on union labor
paid or cargo volume. 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 ERISA and are paying premiums to the Pension Benefit Guarantee
Corporation (PBGC). The statutes provide that an employer who 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 Pacific Coast
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 $809,000 as of December
31, 1998, 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.
Table 2 (In thousands)
Pension Benefits Other Post-retirement Benefits
----------------------------------- -----------------------------------
1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at
beginning of year $ 354,883 $ 326,095 $ 285,579 $ 91,112 $ 93,596 $ 91,052
Service cost 7,182 6,692 6,326 1,154 1,310 1,351
Interest cost 25,024 23,807 23,295 5,474 6,250 6,605
Plan participants' contributions -- -- -- 1,615 1,635 1,851
Actuarial (gain) loss 20,682 16,567 30,512 (8,482) (4,198) 3,425
Sale of subsidiary (158,758) -- -- (29,615) -- --
Acquisition -- -- 303 -- -- --
Benefits paid (22,631) (21,687) (20,736) (6,326) (6,933) (7,147)
Amendments 3,191 2,997 417 366 (548) (1,066)
Curtailments -- -- -- -- -- (2,475)
Special or contractual
termination benefits -- 412 399 -- -- --
- -------------------------------------------------------------------------------------------------------------
Benefit obligation at
end of year 229,573 354,883 326,095 55,298 91,112 93,596
- -------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of year 443,249 380,909 348,208 -- -- --
Actual return on plan assets 72,646 84,027 47,980 -- -- --
Acquisition -- -- 303 -- -- --
Sale of subsidiary (154,997) -- -- -- -- --
Employer contribution -- -- 5,154 -- -- --
Benefits paid (22,631) (21,687) (20,736) -- -- --
- -------------------------------------------------------------------------------------------------------------
Fair value of plan assets
at end of year 338,267 443,249 380,909 -- -- --
- -------------------------------------------------------------------------------------------------------------
Plan assets less benefit
obligation 108,694 88,366 54,814 (55,298) (91,112) (93,596)
Unrecognized net actuarial gain (88,373) (91,012) (59,119) (10,104) (22,353) (24,518)
Unrecognized transition asset (876) (1,869) (2,864) -- -- --
Unrecognized prior
service cost (benefit) 4,767 5,707 3,518 358 (3,824) (3,643)
- -------------------------------------------------------------------------------------------------------------
Accrued asset (obligation) $ 24,212 $ 1,192 $ (3,651) $ (65,044) $(117,289) $(121,757)
=============================================================================================================
_____________________________________________________________________________________________________________
Table 3 (In thousands)
Pension Benefits Other Post-retirement Benefits
----------------------------------- -----------------------------------
1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost $ 7,182 $ 6,692 $ 6,326 $ 1,154 $ 1,310 $ 1,351
Interest cost 25,024 23,807 23,295 5,474 6,250 6,605
Expected return on plan
assets (38,862) (33,309) (30,557) -- -- --
Recognition of net gain (4,128) (2,258) (2,284) (7,221) (6,315) (1,598)
Amortization of prior
service cost 1,105 808 550 (359) (368) (419)
Amortization of unrecognized
transition asset (992) (996) (1,090) -- -- --
Recognition of settlement gain -- -- -- -- -- (2,475)
Recognition of curtailment gain -- -- (1,178) -- -- --
- -------------------------------------------------------------------------------------------------------------
Net periodic benefit
cost/(income) $ (10,671) $ (5,256) $ (4,938) $ (952) $ 877 $ 3,464
=============================================================================================================
Cost of termination benefits
recognized $ -- $ 412 $ 399 -- -- --
=============================================================================================================
7. LONG-TERM DEBT, CREDIT AGREEMENTS
At December 31, 1998 and 1997, long-term debt consisted of the following (in
thousands):
1998 1997
- --------------------------------------------------------------------
Commercial paper, 1998 high 6%, low 5.05% $ 141,766 $ 130,852
Bank variable rate loans, due after 1998,
1998 high 6.2%, low 5.2% 78,500 41,500
Term loans:
7.18%, payable through 2007 67,500 67,500
8%, payable through 2000 17,500 27,500
7.43%, payable through 2007 15,000 15,000
7.65%, payable through 2001 10,000 10,000
9.05%, payable through 1999 7,739 14,815
9%, payable through 1999 5,294 10,588
9.8%, payable through 2004 -- 14,583
- --------------------------------------------------------------------
Total 343,299 332,338
Less current portion 45,533 24,453
Commercial paper classified as current 42,000 17,000
- --------------------------------------------------------------------
Long-term debt $ 255,766 $ 290,885
====================================================================
COMMERCIAL PAPER: At December 31, 1998, there were two commercial paper
programs. The first program was used by a subsidiary to finance the
construction of a vessel. At December 31, 1998, $99,766,000 of commercial
paper notes was outstanding under this program. Maturities ranged from 7 to
25 days. The borrowings outstanding under this program are classified as long
- -term, because the subsidiary intends to continue the program and, eventually,
to repay the borrowings with qualified withdrawals from the Capital
Construction Fund.
The second commercial paper program, which was used by C&H, before the partial
sale of that business (see Note 2), to fund the purchases of raw sugar
inventory and to provide working capital for sugar refining and marketing
operations, was terminated on January 19, 1999 as a result of the partial sale
of C&H. At December 31, 1998, $42,000,000 of commercial paper notes was
outstanding under this program, all of which was classified as current.
Maturities ranged from 6 to 19 days. The interest cost and certain fees on the
borrowings relating to sugar inventory advances to growers were reimbursed by
the growers. The commercial paper was supported by an $85,000,000 backup
revolving credit facility with four commercial banks, which also was terminated
in January 1999.
VARIABLE RATE LOANS: The Company has a revolving credit and term loan
agreement with four commercial banks, whereby it may borrow up to $140,000,000,
under revolving loans to November 30, 2000, at varying rates of interest. Any
revolving loan outstanding on that date may be converted into a term loan,
which would be payable in 12 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, 1998 and
1997, $50,000,000 and $25,000,000, respectively, were outstanding under this
agreement.
The Company has an uncommitted $45,000,000 short-term revolving credit
agreement with a commercial bank. The agreement extends to November 30, 1999,
but may be canceled by the bank or the Company at any time. At December 31,
1998 and 1997, $3,500,000 and $11,500,000, respectively, were outstanding under
this agreement.
The Company has an uncommitted $25,000,000 revolving credit agreement with a
commercial bank. The agreement extends to September 8, 2000. At December 31,
1998 and 1997, $10,000,000 and $5,000,000, respectively, were outstanding under
this agreement.
The Company has a $50,000,000 one-year revolving credit agreement with a two-
year term option. At December 31, 1998, $15,000,000 was outstanding. No
amounts were outstanding under this agreement at December 31, 1997.
The Company has an uncommitted $15,000,000 revolving credit agreement with a
commercial bank. The Agreement extends to November 28, 2000. At December 31,
1998 and 1997, there were no amounts outstanding under this agreement.
In 1998, the Company entered into a $25,000,000 one-year revolving credit
agreement with a commercial bank which serves as a commercial paper liquidity
back-up line. At December 31, 1998, no amounts were outstanding under this
agreement.
LONG-TERM DEBT MATURITIES: At December 31, 1998, maturities and planned
prepayments of all long-term debt during the next five years totaled
$45,533,000 for 1999, $17,500,000 for 2000, $15,000,000 for 2001, $7,500,000
for 2002 and $7,500,000 for 2003.
8. LEASES
THE COMPANY AS LESSEE: Principal operating leases include office and terminal
facilities leased for periods which expire between 1999 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 $45,519,000, $45,560,000 and
$45,559,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
There were no assets recorded under capital leases at December 31, 1998.
Assets recorded under capital lease obligations which were included in property
at December 31, 1997 were as follows (in thousands):
1997
- ---------------------------------------------------------------
Vessel $ 55,253
Machinery and equipment 42,039
- ---------------------------------------------------------------
Total 97,292
Less accumulated amortization 95,866
- ---------------------------------------------------------------
Property under capital leases--net $ 1,426
===============================================================
Future minimum payments under operating leases as of December 31, 1998 were as
follows (in thousands):
Operating
Leases
- ---------------------------------------------------------------
1999 $ 25,025
2000 14,595
2001 11,799
2002 11,952
2003 11,919
Thereafter 79,386
- ---------------------------------------------------------------
Total minimum lease payments $ 154,676
===============================================================
The Company 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 $8,800,000 and $8,257,000 at December 31, 1998 and 1997,
respectively, included in other long-term liabilities, provides for a pro-rata
portion of the principal due on these bonds.
THE COMPANY AS LESSOR: The Company leases land, buildings, land improvements,
and vessels under operating leases. Five vessels were leased under new
agreements commencing in 1998. The historical cost of and accumulated
depreciation on leased property at December 31, 1998 and 1997 were as follows
(in thousands):
1998 1997
- --------------------------------------------------------------------------
Leased property $530,967 $267,569
Less accumulated amortization 113,358 47,253
- --------------------------------------------------------------------------
Property under operating leases--net $417,609 $220,316
==========================================================================
Total rental income under these operating leases for the three years ended
December 31, 1998 was as follows (in thousands):
1998 1997 1996
- --------------------------------------------------------------------------
Minimum rentals $ 79,268 $ 35,535 $ 34,556
Contingent rentals (based on sales volume) 1,079 1,048 1,232
- --------------------------------------------------------------------------
Total $ 80,347 $ 36,583 $ 35,788
==========================================================================
Future minimum rental income on non-cancelable leases at December 31, 1998 was
as follows (in thousands):
Operating
Leases
- -------------------------------------------------------
1999 $ 83,149
2000 79,513
2001 77,961
2002 75,349
2003 71,343
Thereafter 229,763
- ------------------------------------------------------
Total $ 617,078
======================================================
9. INCOME TAXES
The income tax expense for the three years ended December 31, 1998 consisted of
the following (in thousands):
1998 1997 1996
- --------------------------------------------------------------------------
Current:
Federal $ 28,877 $30,181 $ 23,549
State 3,723 2,476 4,779
- --------------------------------------------------------------------------
Total 32,600 32,657 28,328
Deferred (8,248) 13,168 10,420
- --------------------------------------------------------------------------
Income tax expense $ 24,352 $45,825 $ 38,748
==========================================================================
Total income tax expense for the three years ended December 31, 1998 differs
from amounts computed by applying the statutory Federal rate to pre-tax income
for the following reasons (in thousands):
1998 1997 1996
- ---------------------------------------------------------------------------
Computed income tax expense $ 19,353 $ 44,525 $ 36,412
State tax on income, less applicable
Federal tax 1,824 3,732 2,605
Low-income housing credits (1,204) (1,214) (1,219)
Fair market value over cost of donations -- (1,306) (11)
Bases differences in net assets acquired 3,114 -- --
Other-net 1,265 88 961
- ---------------------------------------------------------------------------
Income tax expense $ 24,352 $ 45,825 $ 38,748
===========================================================================
The tax effects of temporary differences that give rise to significant portions
of the net deferred tax liability at December 31, 1998 and 1997 were as follows
(in thousands):
1998 1997
- --------------------------------------------------------------------------
Accelerated depreciation $144,537 $178,570
Capital Construction Fund 102,741 104,408
Tax-deferred gains on real estate transactions 85,181 77,784
Unrealized holding gains on securities 36,939 31,602
Post-retirement benefits (27,027) (48,014)
Insurance reserves (10,771) (6,907)
Other-net 11,905 12,907
- --------------------------------------------------------------------------
Total $343,505 $350,350
==========================================================================
The Internal Revenue Service (IRS) has completed its audits of the Company's
tax returns through 1995 and, with the exception of the valuation of three land
donations, has settled all substantive issues raised during the audits. No
settlement has had a material effect on the Company's financial position or
results of operations. The IRS has commenced an audit of the Company's tax
returns for 1996 and 1997. Management believes that the ultimate resolution of
the outstanding audit issues and other matters which may result from the
current audits will not have a material effect on the Company's financial
position or results of operations.
10. CAPITAL STOCK AND STOCK OPTIONS
EMPLOYEE STOCK OPTION PLANS: During 1998, the Company had two stock option
plans under which key employees were granted options to purchase shares of the
Company's common stock.
Under the 1998 Plan, approved at the 1998 Annual Meeting of Shareholders,
option prices may not be less than the fair market value of the Company's
common stock on the dates of grant, and the options become exercisable over
periods determined, at the dates of grant, by the committee that administers
the plan. Payments for options exercised may be made in cash or in shares of
the Company's stock. If an option to purchase shares is exercised within five
years of the date of grant and if payment is made in shares of the Company's
stock, the option holder may receive, under a reload feature, a new stock
option grant for the number of shares equal to that surrendered, with an option
price not less than the greater of the fair market value of the Company's stock
on the date of exercise or one and one-half times the original option price.
During 1998, options to purchase 100,000 shares were granted. At December 31,
1998, these were the only options outstanding under the 1998 Plan.
The 1989 Plan is substantially the same as the 1998 Plan, except that each
option generally becomes exercisable in-full one year after the date granted.
The 1989 Plan terminated in January 1999, but options granted through 1998
remain exercisable. During 1998, options to purchase 485,400 shares were
granted, no reload options to purchase shares were granted, options to purchase
65,850 shares were exercised, and options to purchase 17,950 shares were
canceled. At December 31, 1998, options to purchase 3,263,438 shares were
outstanding under the 1989 Plan.
The 1998 and 1989 Plans also permit the 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 plans. The number of
incentive shares issued during 1998 or outstanding at the end of the year was
not material.
A third plan, the 1983 Plan, terminated in 1993, but options to purchase shares
previously granted under the 1983 Plan are still exercisable. At December 31,
1998, options to purchase 161,200 shares were outstanding under this plan.
These options expire in January 1999.
DIRECTOR STOCK OPTION PLANS: The Company also has two Directors' stock option
plans. Under the 1998 Directors' Plan, 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 fair market value of the shares on
the date of grant. Each option to purchase shares becomes exercisable six
months after the date granted. At December 31, 1998, no options to purchase
shares had been granted under this plan.
The 1989 Directors' Plan is substantially the same as the 1998 Directors' Plan.
This plan terminated in January 1999, but options granted through termination
remain exercisable. During 1998, options to purchase 21,000 shares were
granted and no options to purchase shares were exercised or canceled. At
December 31, 1998, options to purchase 204,000 shares were outstanding under
the 1989 Directors' Plan.
Changes in shares under all option plans, for the three years ended December
31, 1998, were as follows:
Price Range
Shares Per Share
- -----------------------------------------------------------------------
1995 Outstanding, December 31 2,586,751 $17.375-37.875
1996: Granted 495,264 21.750-32.625
Exercised (125,188) 17.375-24.750
Canceled (15,800) 24.250-36.250
- -----------------------------------------------------------------------
Outstanding, December 31 2,941,027 17.375-37.875
1997: Granted 586,212 25.100-34.875
Exercised (263,351) 17.375-24.750
Canceled (57,850) 24.750-37.875
- -----------------------------------------------------------------------
Outstanding, December 31 3,206,038 21.750-37.875
1998: Granted 606,400 22.750-29.769
Exercised (65,850) 21.750-27.000
Canceled (17,950) 26.250-34.000
- -----------------------------------------------------------------------
OUTSTANDING, DECEMBER 31 3,728,638 $21.750-37.875
EXERCISABLE, DECEMBER 31 3,143,238 $21.750-37.875
=======================================================================
ACCOUNTING METHOD FOR STOCK-BASED COMPENSATION: The Company applies Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related Interpretations, in accounting for its stock-based compensation
plans. Accordingly, no compensation cost is recognized in the Company's income
statement for stock option plans at the time grants are awarded. If the
compensation costs for the stock option grants had been determined consistent
with SFAS No. 123, "Accounting for Stock-based Compensation," the after-tax
cost for grants made in 1998, 1997 and 1996 would have been approximately
$2,015,000, $1,800,000 and $900,000, respectively. Earnings per share for
1998, 1997 and 1996 would have declined by $0.05, $0.04 and $0.02,
respectively.
SHAREHOLDER RIGHTS PLAN: 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.
SHARE REPURCHASES: During 1998, the Company purchased and retired 969,200
shares of its stock, at an average per-share price of $21.50. During 1997, the
Company purchased and retired 624,050 shares, at an average per-share price of
$26.58.
11. RELATED PARTY TRANSACTIONS, COMMITMENTS AND CONTINGENCIES
At December 31, 1998, the Company and its subsidiaries had an unspent balance
of total appropriations for capital expenditures of approximately $60,294,000.
However, there is no contractual obligation to spend this entire amount.
The Company has arranged for standby letters of credit of approximately
$14,100,000, necessary to qualify as a self-insurer for state and federal
workers' compensation liabilities. In addition, the Company guarantees a
letter of credit of $10,432,000 for workers' compensation claims incurred by
C&H employees, under a now-closed self insurance plan, prior to December 24,
1998 (see Note 2). The Company would only be called upon to honor this
guarantee in the event of C&H's insolvency. The Company also has
approximately $3,600,000 of letters of credit outstanding for normal operating
matters.
C&H, in which A&B has a 36 percent common stock interest, is party to a long-
term sugar supply contract with Hawaiian Sugar & Transportation Cooperative
(HSTC), a raw sugar marketing and transportation cooperative owned by the
Company and by two other Hawaii sugar growers. Under the terms of this
contract, C&H 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. Prior to the partial sale of
C&H, it made purchases of raw sugar totaling $141,018,000, $126,629,000 and
$190,188,000 under the contract during 1998, 1997 and 1996, respectively.
A subsidiary has guaranteed obligations of up to $13 million of a joint venture
shipping operation (see Note 2) in which it has a 27.5-percent interest.
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.
12. INDUSTRY SEGMENTS
Industry segment information for 1998, 1997 and 1996, on page 19, is
incorporated herein by reference.
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," during the fourth quarter of 1998. SFAS No. 131
established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision-making group, in deciding how to allocate
resources and in assessing performance. The Company's chief operating
decision-making group is made up of the president and lead executives of each
of the Company's segments. The lead executive for each operating segment
manages the profitability and cash flow of each respective segment's various
product or service lines and businesses. The operating segments are managed
separately because each operating segment represents a strategic business unit
that offers different products or services and serves different markets.
The Company's reportable operating segments include Ocean Transportation,
Property Development and Management and Food Products. The Ocean Trans-
portation segment carries freight between various United States and Canadian
West Coast, Hawaii and other Pacific ports, and provides terminal and cargo
logistics services. The Property Development and Management segment develops,
manages and sells residential, commercial and industrial properties. The Food
Products segment grows and processes raw sugar and molasses; invests in a
sugar refining and marketing business (see Note 2); grows, mills and markets
coffee; and generates and sells electricity.
The accounting policies of the operating segments are the same as those
described in the summary of significant policies. Reportable segments are
measured based on operating profit, exclusive of non-operating or unusual
transactions, interest expense, general corporate expenses and income taxes.
PARENT COMPANY, PRINCIPAL SUBSIDIARIES AND AFFILIATES1
Alexander & Baldwin, Inc. Honolulu, Hawaii
A&B-Hawaii, Inc. (Honolulu, Hawaii)
Division:
Hawaiian Commercial & Sugar Company Puunene, Maui
Subsidiaries:
A&B Development Company (California) San Francisco
A&B Properties, Inc. Honolulu
East Maui Irrigation Compnay, Limited Puunene, Maui
McBryde Sugar Company, Limited Eleele, Kauai
Subsidiary:
Kauai Coffee Company, Inc. Eleele, Kauai
Kahului Trucking & Storage, Inc. Kahului, Maui
Kauai Commercial Company, Incorporated Puhi, Kauai
Matson Navigation Company, Inc. (San Francisco, California)
Subsidiaries:
Matson Intermodal System, Inc. San Francisco
Matson Services Company, Inc. San Francisco
Matson Terminals, Inc. San Francisco
Matson Logistics Solution, Inc. San Francisco
Hawaiian Sugar & Transportation Cooperative2 Puunene, Maui
C&H Sugar Company, Inc.3 Crockett, California
_______________________________
1 Wholly owned unless otherwise indicated
2 A cooperative owned with other Hawaii sugar companies
3 An affiliated company, approximately 40% owned by A&B
Quarterly Results (Unaudited)
Segment results by quarter for 1998 and 1997 are listed below (in thousands, except per-share amounts):
1998 1997
----------------------------------------- -----------------------------------------
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
- ------------------------------------------------------------------------------------------------------------------------
Revenue:
Ocean Transportation $181,618 $180,202 $182,124 $178,800 $177,423 $179,106 $174,977 $161,183
Property Development
& Management:
Leasing 9,946 9,576 9,198 9,235 9,103 9,320 9,609 9,116
Sales 7,563 6,246 60,792 7,781 13,245 4,080 14,480 4,111
Food Products 128,173 129,620 112,994 94,874 134,777 132,816 118,131 101,188
Other 726 718 717 717 711 684 703 717
- ------------------------------------------------------------------------------------------------------------------------
Total Revenue $328,026 $326,362 $365,825 $291,407 $335,259 $326,006 $317,900 $276,315
========================================================================================================================
Operating Profit:
Ocean Transportation $ 15,941 $ 16,200 $ 16,787 $ 17,370 $ 19,088 $ 24,405 $ 22,779 $ 14,113
Property Development
& Management:
Leasing 5,360 5,786 5,589 5,899 5,787 6,105 6,433 6,234
Sales 1,394 1,633 13,994 4,642 7,345 1,257 3,080 1,580
Food Products 7,725 7,557 3,047 2,998 5,913 11,778 6,949 2,443
Other 691 642 685 678 653 652 671 663
- ------------------------------------------------------------------------------------------------------------------------
Total Operating Profit 31,111 31,818 40,102 31,587 38,786 44,197 39,912 25,033
Kukui'Ula Write-Down* (20,216) -- -- -- -- -- -- --
Loss on Partial Sale of C&H* (19,756) -- -- -- -- -- -- --
Benefit of Insurance Settlement -- -- -- -- -- -- 28 19,937
Interest Expense (6,197) (6,229) (6,293) (6,080) (6,421) (6,770) (7,803) (7,942)
General Corporate Expenses (4,085) (3,539) (3,459) (3,469) (2,925) (2,865) (2,891) (3,064)
- ------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income
Taxes and Accounting Change (19,143) 22,050 30,350 22,038 29,440 34,562 29,246 33,964
Income Taxes 3,562 (8,270) (11,380) (8,264) (9,429) (12,690) (10,967) (12,739)
Cumulative Effect of Change in
Accounting Method** -- -- -- (5,801) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $(15,581) $ 13,780 $ 18,970 $ 7,973 $ 20,011 $ 21,872 $ 18,279 $ 21,225
========================================================================================================================
Basic and Diluted
Earnings (Loss) Per Share $ (0.35) $ 0.31 $ 0.42 $ 0.18 $ 0.45 $ 0.48 $ 0.40 $ 0.47
========================================================================================================================
* See Notes 2 and 4 for discussion of the partial sale of California and Hawaiian Sugar Company, Inc.
and the write-down of real estate assets in 1998.
**See Note 3 regarding accounting change adopted in fourth quarter of 1998.
Certain amounts have been reclassified to conform with the current presentation.
BOARD OF DIRECTORS
Members of the Board of Directors, including one advisory director,
beneficially own approximately 7 percent of A&B shares.
At the Annual Meeting of Shareholders on April 23, 1998, shareholders elected a
total of nine directors, all of whom were nominated by the Board. Reelected
were Michael J. Chun, John C. Couch, Leo E. Denlea, Jr., Walter A. Dods, Jr.,
Charles G. King, Carson R. McKissick, C. Bradley Mulholland, Maryanna G. Shaw
and Charles M. Stockholm. Alexander C. Waterhouse continues to serve as an
advisory director at the pleasure of the Board.
On June 25, 1998, Lynn M. Sedway, a recognized authority on urban and real
estate economics, was appointed to the Board of Directors of A&B, ABHI and
Matson.
R. J. Pfeiffer, Chairman of the Board from 1980 to 1995 and a director from
1978 to 1995, held the honorary position of Chairman Emeritus from 1995 until
July 27, 1998.
MANAGEMENT, ORGANIZATION
On July 27, 1998, the Company announced that John C. Couch, Chairman of the
Board, President and Chief Executive Officer since April 1995, was beginning
an extended leave of absence to undergo medical treatment. At the request of
the Board, R. J. Pfeiffer assumed Mr. Couch's duties.
On October 22, 1998, the Board named W. Allen Doane President and Chief
Executive Officer of A&B, and appointed him to the Boards of both A&B and
Matson. On December 10, 1998, Mr. Doane also was appointed Vice Chairman of
Matson. Mr. Pfeiffer remains Chairman of the Boards of A&B, ABHI and Matson.
C. Bradley Mulholland, President and Chief Executive Officer of Matson, was
named an Executive Vice President of A&B, effective August 27, 1998.
A number of organization changes were made, effective February 1, 1999.
Stanley M. Kuriyama, a Vice President of ABHI, was named a Vice President of
A&B and Executive Vice President of ABHI. Alyson J. Nakamura, Secretary of
ABHI, was named Secretary of A&B. Norbert M. Buelsing, a Vice President of
ABHI, was named a Senior Vice President of ABHI. Judith A. Williams, a Vice
President of A&B and ABHI, was named a Vice President of Matson.
David G. Koncelik, President and Chief Executive Officer of C&H, resigned his
title of Senior Vice President of ABHI in the course of the recapitalization
of C&H, effective December 25, 1998.
CREDIT RATINGS
As discussed in Note 7 to the financial statements, Matson had outstanding
commercial paper notes totaling $99.8 million at December 31, 1998. The Matson
notes are rated A-1, P-1 and D-1 by Standard & Poor's, Moody's and Duff &
Phelps, respectively. Standard & Poor's rates Matson's senior debt as A-.
STOCK INDEXES
The stock of A&B is included in the Dow Jones Transportation Index, the Dow
Jones Composite Index, the Dow Jones Marine Transportation Index and the
S&P MidCap 400 Index.
DIRECTORS AND OFFICERS
ALEXANDER & BALDWIN, INC.
DIRECTORS
MICHAEL J. CHUN (55)**
President, The Kamehameha Schools
(educational institution)
JOHN C. COUCH (59)
Former Chairman of the Board, President
and Chief Executive Officer,
Alexander & Baldwin, Inc.
Former Chairman of the Board
A&B-Hawaii, Inc.
Former Chairman of the Board,
Matson Navigation Company, Inc.
LEO E. DENLEA, JR. (67)**
Retired Chairman of the Board, President
and Chief Executive Officer,
Farmers Group, Inc. (insurance)
W. ALLEN DOANE (51)
President and Chief Executive Officer,
Alexander & Baldwin, Inc.
President and Chief Executive Officer,
A&B-Hawaii, Inc.
Vice Chairman,
Matson Navigation Company, Inc.
WALTER A. DODS, JR. (57)*
Chairman of the Board and
Chief Executive Officer,
BancWest Corporation
Chairman of the Board and
Chief Executive Officer,
First Hawaiian Bank (banking)
CHARLES G. KING (53)**
President, King Auto Center
(automobile dealership)
CARSON R. MCKISSICK (66)*
Managing Director,
The Corporate Development Company
(financial advisory services)
C. BRADLEY MULHOLLAND (57)
Executive Vice President,
Alexander & Baldwin, Inc.
President and Chief Executive Officer,
Matson Navigation Company, Inc.
R. J. PFEIFFER (79)
Chairman of the Board,
Alexander & Baldwin, Inc.
Chairman of the Board,
A&B-Hawaii, Inc.
Chairman of the Board,
Matson Navigation Company, Inc.
LYNN M. SEDWAY (57)*
President and Chief Executive Officer,
Sedway Group
(real estate consulting)
MARYANNA G. SHAW (60)*
Private investor
CHARLES M. STOCKHOLM (66)**
Managing Director,
Trust Company of the West
(investment management services)
Advisory Director
ALEXANDER C. WATERHOUSE (87)
Vice Chairman,
Waterhouse Properties, Inc.
(private investments)
* Audit Committee Members
** Compensation and Stock Option Committee Members
ALEXANDER & BALDWIN, INC.
OFFICERS
R. J. PFEIFFER (79)
Chairman of the Board
W. ALLEN DOANE (51)
President and Chief Executive Officer
C. BRADLEY MULHOLLAND (57)
Executive Vice President
GLENN R. ROGERS (55)
Executive Vice President, Chief
Financial Officer and Treasurer
MEREDITH J. CHING (42)
Vice President
(Government & Community Relations)
JOHN B. KELLEY (53)
Vice President (Investor Relations)
MILES B. KING (51)
Vice President and Chief Administrative
Officer
MICHAEL J. MARKS (60)
Vice President, General Counsel and
Secretary
ROBERT K. SASAKI (58)
Vice President (Properties)
JUDITH A. WILLIAMS (55)
Vice President
(Corporate Planning & Development)
THOMAS A. WELLMAN (40)
Controller
A&B-HAWAII, INC.
OFFICERS
R. J. PFEIFFER (79)
Chairman of the Board
W. ALLEN DOANE (51)
President and Chief Executive Officer
G. STEPHEN HOLADAY (54)
Senior Vice President
(Plantation General Manager, HC&S)
MILES B. KING (51)
Senior Vice President (Industrial Relations)
MICHAEL J. MARKS (60)
Senior Vice President and General Counsel
GLENN R. ROGERS (55)
Senior Vice President,
Chief Financial Officer and Treasurer
ROBERT K. SASAKI (58)
Senior Vice President (Properties)
NORBERT M. BUELSING (48)
Vice President (Property Management)
MEREDITH J. CHING (42)
Vice President
(Government & Community Relations)
JOHN F. GASHER (65)
Vice President
(Human Resources Development)
KEITH A. GOTO (55)
Vice President (Labor Relations)
JOHN B. KELLEY (53)
Vice President
STANLEY M. KURIYAMA (45)
Vice President
(Land Planning & Entitlements)
THOMAS A. WELLMAN (40)
Vice President and Controller
JUDITH A. WILLIAMS (55)
Vice President
(Corporate Planning & Development)
ALYSON J. NAKAMURA (33)
Secretary
MATSON NAVIGATION COMPANY, INC.
OFFICERS
R. J. PFEIFFER (79)
Chairman of the Board
W. ALLEN DOANE (51)
Vice Chairman of the Board
C. BRADLEY MULHOLLAND (57)
President and Chief Executive Officer
RAYMOND J. DONOHUE (62)
Senior Vice President and
Chief Financial Officer
MILES B. KING (51)
Senior Vice President (Human Resources)
GARY J. NORTH (54)
Senior Vice President (Operations)
(President and Chief Operating Officer,
Matson Terminals, Inc.)
KEVIN C. O'ROURKE (52)
Senior Vice President and General Counsel
PAUL E. STEVENS (46)
Senior Vice President (Marketing)
RICHARD S. BLISS (60)
Vice President
(Area Manager, Pacific Northwest)
ROBERT L. DAWDY (54)
Vice President (West Coast Operations)
BRANTON B. DREYFUS (45)
Vice President (Area Manager, Hawaii)
RONALD J. FOREST (43)
Vice President
(Area Manager, Southern California)
PHILIP M. GRILL (51)
Vice President (Government Relations)
DALE B. HENDLER (45)
Vice President
(Area Manager, Northern California)
MERLE A. K. KELAI (67)
Vice President (Community Relations and
Government Affairs)
MICHAEL J. MARKS (60)
Secretary
TIMOTHY H. REID (52)
Treasurer
JOSEPH A. PALAZZOLO (50)
Controller
All positions as of December 31, 1998
All ages as of March 31, 1999
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 22, 1999.
INVESTOR INFORMATION
Shareholders having questions about A&B are encouraged to write to W. Allen
Doane, 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
E-mail: invrel@alexanderbaldwin.com
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
CHASEMELLON SHAREHOLDER
SERVICES
San Francisco, California and Ridgefield Park, New Jersey
For questions regarding stock certificates, dividends, or other transfer-
related matters, representatives of the Transfer Agent may be reached at
1-800-356-2017 between 9 a.m. and 7 p.m., Eastern Time. Correspondence may
be sent to: P.O. Box 3315, So. Hackensack, NJ 07606.
AUDITORS
DELOITTE & TOUCHE LLP
Honolulu, Hawaii
COMMON STOCK
A&B 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 109,380 shares a
day in 1998, compared with 68,734 shares a day in 1997 and 67,425 in 1996.
Currently, 16 firms make a market in ALEX.
High and low sales prices per share, by quarter, for 1998 and 1997 were:
Quarter 1998 1997
- ----------------------------------------------------------
First $ 30-3/4 - 25 $ 29-3/8 - 24-1/2
Second 31-1/8 - 25-7/8 27-3/4 - 24-3/8
Third 29-7/8 - 19-3/4 28-1/8 - 25-3/8
Fourth 23-1/4 - 18-13/16 28-1/4 - 26
DIVIDENDS
The Company has paid cash dividends in every quarter since 1903. The most
recent increase in the quarterly dividend rate was effective in the first
quarter of 1998, from 22 cents a share to 22.5 cents. In 1998, total dividend
payments to shareholders were $40.3 million.
The following dividend schedule for 1999 has been set, subject to final
approval by the A&B Board of Directors:
Quarterly Declaration Record Payment
Dividend Date Date Date
- -----------------------------------------------------------
First Jan. 28 Feb. 12 March 4
Second April 22 May 6 June 3
Third June 24 Aug. 5 Sept. 2
Fourth Oct. 28 Nov. 10 Dec. 2
ALEXANDER & BALDWIN, INC.
822 BISHOP STREET HONOLULU, HI 96813-3924
P. O. BOX 3440 HONOLULU, HI 96801-3440
TELEPHONE: 808-525-6611 FAX: 808-525-6652
WEBSITE: www.alexanderbaldwin.com