PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
The condensed financial statements and notes for the third quarter and first
nine months of 1997 are presented below with comparative 1996 financial
statements.
<TABLE>
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Condensed Statements of Income
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue:
Net sales, revenue from services
and rentals $321,869 $328,308 $905,861 $885,363
Interest, dividends and other 4,137 5,521 34,325 15,434
-------- -------- -------- --------
Total revenue 326,006 333,829 940,186 900,797
-------- -------- -------- --------
Costs and Expenses:
Costs of goods sold, services
and rentals 258,414 260,133 740,546 717,074
Selling, general and administrative 26,260 28,111 79,353 81,652
Interest 6,770 8,469 22,515 25,655
Income taxes 12,690 13,991 36,396 28,330
-------- -------- -------- --------
Total costs and expenses 304,134 310,704 878,810 852,711
-------- -------- -------- --------
Net Income $ 21,872 $ 23,125 $ 61,376 $ 48,086
======== ======== ======== ========
Earnings Per Share $ 0.48 $ 0.51 $ 1.36 $ 1.06
======== ======== ======== ========
Dividends Per Share $ 0.22 $ 0.22 $ 0.66 $ 0.66
Average Number of Shares Outstanding 45,135 45,293 45,227 45,298
</TABLE>
<PAGE>
<TABLE>
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Industry Segment Data
(In thousands)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue:
Ocean Transportation $179,106 $168,701 $535,231 $494,124
Property Development and Management:
Leasing 9,320 8,918 28,045 26,891
Sales 4,080 15,299 22,671 22,585
Food Products 132,816 139,518 352,135 354,466
Other 684 1,393 2,104 2,731
-------- -------- -------- --------
Total $326,006 $333,829 $940,186 $900,797
======== ======== ======== ========
Operating Profit:(1)
Ocean Transportation $ 24,405 $ 20,646 $ 81,262 $ 64,907
Property Development and Management:
Leasing 6,105 6,032 18,772 18,217
Sales 1,257 8,673 5,917 11,900
Food Products 11,470 11,848 20,142 13,656
Other 652 1,356 1,986 2,597
-------- -------- -------- --------
Total $ 43,889 $ 48,555 $128,079 $111,277
======== ======== ======== ========
(1) Before interest expense, corporate expenses and income taxes
</TABLE>
<PAGE>
<TABLE>
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Condensed Balance Sheets
(In thousands)
<CAPTION>
September 30 December 31
1997 1996
---- ----
(unaudited) (audited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 14,891 $ 23,824
Accounts and notes receivable, net 204,102 172,266
Inventories 123,305 102,722
Real estate held for sale 13,738 17,383
Deferred income taxes 17,157 17,708
Prepaid expenses and other 11,908 12,114
Accrued deposits to Capital Construction Fund (11,104) (1,656)
---------- ----------
Total current assets 373,997 344,361
---------- ----------
Investments 105,824 91,602
---------- ----------
Real Estate Developments 67,109 70,144
---------- ----------
Property, at cost 1,959,898 1,927,058
Less accumulated depreciation and amortization 923,154 864,002
---------- ----------
Property - net 1,036,744 1,063,056
---------- ----------
Capital Construction Fund 148,095 178,616
---------- ----------
Other Assets 59,520 52,843
---------- ----------
Total $1,791,289 $1,800,622
========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 42,159 $ 44,082
Short-term commercial paper borrowings 65,500 62,000
Accounts payable 54,506 50,496
Other 104,911 86,352
---------- ----------
Total current liabilities 267,076 242,930
---------- ----------
Long-term Liabilities:
Long-term debt 272,393 345,618
Capital lease obligations 2,000 12,039
Post-retirement benefit obligations 116,644 116,047
Other 56,034 48,747
---------- ----------
Total long-term liabilities 447,071 522,451
---------- ----------
Deferred Income Taxes 360,562 350,913
---------- ----------
Shareholders' Equity:
Capital stock 36,914 37,150
Additional capital 48,817 43,377
Unrealized holding gains on securities 56,815 48,205
Retained earnings 586,931 568,969
Cost of treasury stock (12,897) (13,373)
---------- ----------
Total shareholders' equity 716,580 684,328
---------- ----------
Total $1,791,289 $1,800,622
========== ==========
</TABLE>
<PAGE>
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Condensed Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Cash Flows from Operating Activities $ 103,908 $ 90,026
---------- ----------
Cash Flows from Investing Activities:
Capital expenditures (32,262) (181,137)
Proceeds from disposal of property,
investments and other assets 475 10,749
Deposits into Capital Construction Fund (10,000) (8,323)
Withdrawals from Capital Construction Fund 50,000 145,500
Increase in investments (2,221) -
Reduction in investments 1,798 1,184
---------- ----------
Net cash provided by (used in) investing
activities 7,790 (32,027)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from issuances of long-term debt 34,500 43,000
Payments of long-term debt (119,680) (70,762)
Proceeds (payments) of short-term commercial
paper borrowings - net 3,500 (9,500)
Proceeds from issuances of capital stock 1,645 473
Repurchases of capital stock (10,721) (1,250)
Dividends paid (29,875) (29,901)
---------- ----------
Net cash used in financing activities (120,631) (67,940)
---------- ----------
Net Decrease in Cash and Cash Equivalents $ (8,933) $ (9,941)
========== ==========
Other Cash Flow Information:
Interest paid, net of amounts capitalized $ 23,961 $ 26,633
Income taxes paid, net of refunds 11,731 17,018
Other Non-Cash Information:
Net accrued deposits (withdrawals) to Capital
Construction Fund 9,448 (44)
Depreciation 67,198 66,577
Tax-deferred property exchanges 9,589 12,325
Increase in unrealized holding gains 8,610 2,865
</TABLE>
<PAGE>
Financial Notes
(Unaudited)
(a) The condensed balance sheet as of September 30, 1997, the condensed
statements of income and industry segment data for the three months
and nine months ended September 30, 1997 and 1996, and the condensed
statements of cash flows for the nine months ended September 30, 1997
and 1996 are unaudited. Because of the nature of the Company's
operations, the results for interim periods are not necessarily
indicative of results to be expected for the year, but in the opinion
of management, all material adjustments necessary for the fair
presentation of interim period results have been included in the
interim financial statements.
(b) Estimated effective annual income tax rates differ from statutory
rates, primarily due to the dividends-received deductions and various
tax credits.
(c) Statement of Financial Accounting Standards No. 128, "Earnings Per
Share," is effective for financial statements for both interim and
annual periods ending after December 15, 1997. The Statement will
not have a material impact on the Company's computation and
presentation of earnings per share.
(d) Certain amounts have been reclassified to conform with the current year
presentation.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- ---------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------
OPERATING RESULTS
Net income for the third quarter of 1997 was $21,872,000, or $0.48 per
share. Net income for the comparable period of 1996 was $23,125,000, or $0.51
per share. Revenue for the third quarter of 1997 was $326,006,000, compared
with revenue of $333,829,000 in the third quarter of 1996.
Net income for the first nine months of 1997 was $61,376,000, or $1.36
per share, versus $48,086,000, or $1.06 per share, in 1996. Results for the
first nine months of 1997 included $12,478,000, or $0.28 per share, resulting
from the favorable settlement of protracted litigation related to an insurance
claim. Net income for the same period in 1996 included a special charter
payment that contributed $3,545,000, or $0.08 per share, to income. Excluding
these unusual items, nine-month 1997 net income rose about 10 percent. Revenue
for the first nine months of 1997 was $940,186,000, compared with revenue of
$900,797,000 a year earlier. Excluding the unusual items, nine-month 1997
revenue rose three percent.
FINANCIAL CONDITION AND LIQUIDITY
The Company's principal liquid resources, comprising cash and cash
equivalents, receivables, sugar and coffee inventories and unused lines of
credit, less accrued deposits to the Capital Construction Fund (CCF), totaled
$551.5 million at September 30, 1997, an increase of $38.5 million from
December 31, 1996. This increase was due primarily to an increase in
receivables, higher sugar and coffee inventories and higher unused lines of
credit, partially offset by an increase in accrued deposits to the CCF and a
decrease in cash and cash equivalents. Receivables increased $31.8 million,
due primarily to an increase in government and other receivables at Matson
Navigation Company, Inc. (Matson) and increased sales by California and
Hawaiian Sugar Company, Inc. (C&H). Sugar and coffee inventories increased
$22.1 million, due to seasonal production at the Company's Maui sugar
plantation and an increase in raw and refined sugar carried in inventory at
C&H. Accrued deposits to the CCF increased $9.4 million. The $8.9 million
decrease in cash and cash equivalents was primarily the result of debt
repayments.
Working capital was $106.9 million at September 30, 1997, an increase of
$5.5 million from the amount at the end of 1996. This increase was due
primarily to increases in receivables, accounts payable, and sugar and coffee
inventories, partially offset by the increase in accrued deposits to the CCF
and lower cash balances.
RESULTS OF SEGMENT OPERATIONS -
THIRD QUARTER 1997 COMPARED WITH THE THIRD QUARTER 1996
OCEAN TRANSPORTATION revenue of $179.1 million for the third quarter of 1997
was six-percent higher than the 1996 third-quarter revenue. Operating profit
of $24.4 million rose 18 percent over the third quarter of 1996, primarily the
result of higher revenue in the Hawaii and Guam services, and improved cargo-
handling productivity. Total third-quarter 1997 Hawaii container and
automobile volumes were virtually unchanged from the 1996 third-quarter levels.
PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue of $9.3 million for the
third quarter of 1997 was five-percent higher than in the third quarter of 1996
and operating profit of $6.1 million was one-percent higher than in
the comparable period of 1996. These increases were the result of properties
added to the portfolio in 1996 and early 1997 and increased rental rates,
offset, in part, by the absence of income from properties that had been sold.
PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue of $4.1 million was
significantly lower than the $15.3 million recorded in the third quarter of
1996. Operating profit from property sales this quarter was $1.3 million,
versus $8.7 million a year earlier. Sales in the third quarter of 1997
included an undeveloped 29-acre parcel for a county landfill expansion, one
developed business lot and 13 residential properties on Maui. Sales in the
third quarter of 1996 included a seven-acre parcel on Maui leased to
Kmart, another smaller developed business lot and 25 residential properties.
The mix of property sales in any quarter can be diverse. These sales can
include property sold under threat of condemnation, developed residential real
estate, commercial properties, developable subdivision lots and undeveloped
land. The sales of undeveloped land and subdivision lots generally provide
greater contribution margins than sales of developed and commercial property,
due to the low historical-cost basis of the Company's Hawaii land.
Consequently, property sales revenue trends and the amount of real estate
available for sale are not necessarily indicators of future profitability for
this segment.
FOOD PRODUCTS revenue of $132.8 million for the third quarter of 1997 was five-
percent lower than the revenue reported for the comparable period of 1996.
Operating profit decreased three percent to $11.5 million in the third quarter
of 1997, from $11.8 million in the same period in 1996. The decrease was
primarily due to reduced Hawaii agribusiness results, partially offset by
improved results at C&H, the Company's West Coast sugar refinery operation.
RESULTS OF SEGMENT OPERATIONS -
FIRST NINE MONTHS OF 1997 COMPARED WITH THE FIRST NINE MONTHS OF 1996
OCEAN TRANSPORTATION revenue of $535.2 million, for the first nine months of
1997, rose eight percent and operating profit of $81.3 million rose 25 percent.
However, excluding the insurance settlement, which contributed $20.0 million on
a pretax basis, and a one-time charter payment in the first quarter of 1996,
which contributed $5.6 million, nine-months operating profit for the ocean
transportation segment rose just three percent. For the first nine months,
Matson's total Hawaii container volume was down two percent and its total
automobile volume was down three percent.
PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue of $28 million, for the
first nine months of 1997, was four-percent greater than the results in the
comparable 1996 period. Nine-months 1997 property leasing operating profit of
$18.8 million was three-percent higher than in the nine months of 1996. This
increase was due to the same reasons as the third quarter increase. The
additional leased properties in the first nine months of 1997 included two
office buildings in Hawaii (Honolulu, Oahu and Wailuku, Maui) and a retail
center in Greeley, Colorado. The leased-property portfolio benefited from
continuing high occupancy levels for Mainland properties, where 1997 year-to-
date occupancy rates averaged 98 percent, versus 97 percent for the same period
in 1996. Occupancy levels for Hawaii properties averaged 78 percent, versus 87
percent last year. The decrease this year was due primarily to the recently
acquired office buildings in Hawaii that have relatively low occupancy rates
and to the continued weak economy in Hawaii. For the first nine months of
1997, the Hawaii property contributed slightly more than half of total property
leasing revenue.
PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue of $22.7 million, for the
first nine months of 1997, was virtually the same as the $22.6 million in sales
recorded in the nine months of 1996. Operating profit from property sales in
the first nine months of $5.9 million, however, was about half the $11.9
million in 1996, due primarily to the mix of properties sold. Nine-month sales
in 1997 included an undeveloped 29-acre parcel, a one-acre developed lot, an
industrial warehouse in California, 40 residential and four developed business
lot sales. Sales in the comparable period of 1996 included the seven-acre
developed lot leased to Kmart, a developed business property, two improved
business lots and 44 residential properties.
FOOD PRODUCTS revenue of $352.1 million, for the first nine months of 1997, was
one-percent lower than the revenue reported for the comparable period of 1996.
For the nine months of 1997, however, operating profit of $20.1 million was 47-
percent higher than the $13.7 million earned in the same period last year.
Sugar refining results improved substantially over 1996, primarily due to lower
raw sugar costs. However, Hawaii agribusiness results were considerably lower
than in 1996, reflecting lower sugar production caused by adverse weather
conditions and lower yields.
OTHER MATTERS
INSURANCE LITIGATION: On February 13, 1997, Matson received a cash settlement
of $33,650,000 for a contested insurance claim in connection with repairing
port facilities damaged by a 1989 earthquake. As noted previously, this
settlement resulted in additional net income of $12,478,000 in the first
nine months of 1997.
SUGAR QUOTA PROGRAM: On September 19, 1997, the Secretary of Agriculture
established, under the Federal Agriculture Improvement and Reform (FAIR) Act
and in accordance with the Harmonized Tariff Schedule (HTS), the aggregate
quantity of sugars and syrups that can be imported into the United States.
The maximum import quantity for fiscal year 1998 was set at 1,800,000 metric
tons raw value (MTRV). Of the 1.8 million MTRV, 1.2 million MTRV is
immediately available. The remaining 600,000 MTRV will be made incrementally
available during the first five months of 1998 if the "stocks-to-use" ratio,
as published in the 1998 World Agricultural Supply and Demand, is not greater
than 15.5 percent.
TAX-DEFERRED EXCHANGES: In the first nine months of 1997, the Company sold two
parcels of land for $9,589,000. The proceeds from these sales are reflected in
the Condensed Statements of Cash Flows under the caption "Other Non-Cash
Information" and were reinvested in 1997 on a tax-deferred basis. In October
1997, the Company purchased a 105,000 square foot shopping center, The Village
at Indian Wells, located near Palm Desert, California, for $13 million, using
the proceeds from previous tax-deferred transactions.
SHARE REPURCHASES: During the first nine months of 1997, the Company
repurchased approximately 407,000 shares of its common stock, for an aggregate
of $10,722,000 ($26.34 per share, on average).
ENVIRONMENTAL MATTERS: As with most industrial and land-development companies
of its size, the Company's operations have certain risks, which could result in
expenditures for environmental remediation. The Company believes that it is in
compliance, in all material respects, with applicable environmental laws and
regulations, and works proactively to identify potential environmental
concerns. Management believes that appropriate liabilities have been accrued
for environmental matters.
ECONOMIC CONDITIONS: Near-term, the economy of Hawaii continues to grow
slowly on an inflation-adjusted basis. Inflation, at just under one percent,
however, is considerably below the national rate. Recent economic forecasts
anticipate real growth in Gross State Product of less than one percent for 1997
and of about one percent for 1998. That outlook is based on a leveling off in
the rate of job losses and anticipation of a modest recovery in the job count
in 1998, a one-percent improvement in forecast visitor arrivals in 1998 and an
end of the cyclical construction-industry decline. One potentially positive
factor for the longer-term is a set of recommendations for economic
revitalization made recently by a high-level task force formed by Hawaii's
governor and legislative leaders. These recommendations include proposals
for far-reaching tax and regulatory changes. Although the recommendations
would have to be adopted by the legislature in its 1998 term, they are
supported by a broad constituency of government, business and labor leaders.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company, from time to time, may make or may have made certain forward-
looking statements, whether orally or in writing, such as forecasts and
projections of the Company's future performance or statements of management's
plans and objectives. Such forward-looking statements may be contained in,
among other things, Securities and Exchange Commission (SEC) filings, such as
the Form 10-Q, press releases made by the Company and oral statements made by
the officers of the Company. Except for historical information contained in
these written or oral communications, such communications contain forward-
looking statements. These forward-looking statements involve a number of risks
and uncertainties that could cause actual results to differ materially from
those projected in the statements, including, but not limited to: (1) economic
conditions in Hawaii and elsewhere; (2) market demand; (3) competitive factors
and pricing pressures in the Company's primary markets; (4) legislative and
regulatory environment at the federal, state and local levels, such as
government rate regulations, government administration of the U.S. sugar
program, and retention of cabotage laws; (5) dependence on raw sugar suppliers
and other third-party suppliers; (6) fuel prices; (7) labor relations and
(8) other risk factors described elsewhere in these communications and from
time to time in the Company's filings with the SEC.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits
--------
11. Statement re computation of per share earnings.
27. Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALEXANDER & BALDWIN, INC.
---------------------------------
(Registrant)
Date: November 12,1997 /s/ Glenn Rogers
Glenn R. Rogers
Executive Vice President and
Chief Financial Officer
Date: November 12, 1997 /s/ Thomas A. Wellman
Thomas A. Wellman
Controller
<PAGE>
EXHIBIT INDEX
11. Statement re computation of per share earnings.
27. Financial Data Schedule.
<TABLE>
EXHIBIT 11
ALEXANDER & BALDWIN, INC.
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
Primary Earnings Per Share
- --------------------------
Net income $ 21,872 $ 23,125 $ 61,376 $ 48,086
======== ======== ======== ========
Average number of shares outstanding 45,135 45,293 45,227 45,298
======== ======== ======== ========
Primary earnings per share $ 0.48 $ 0.51 $ 1.36 $ 1.06
======== ======== ======== ========
Fully Diluted Earnings Per Share
- --------------------------------
Net income $ 21,872 $ 23,125 $ 61,376 $ 48,086
======== ======== ======== ========
Average number of shares outstanding 45,135 45,293 45,227 45,298
Effect of assumed exercise of
outstanding stock options 124 75 121 59
-------- -------- -------- --------
Average number of shares outstanding
after assumed exercise of
outstanding stock options 45,259 45,368 45,348 45,357
======== ======== ======== ========
Fully diluted earnings per share $ 0.48 $ 0.51 $ 1.35 $ 1.06
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
condensed balance sheet as of September 30, 1997 and the condensed statement
of income for the nine months ended September 30, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 793
<SECURITIES> 14,100
<RECEIVABLES> 211,083
<ALLOWANCES> 6,983
<INVENTORY> 123,305
<CURRENT-ASSETS> 373,997
<PP&E> 1,959,898
<DEPRECIATION> 923,154
<TOTAL-ASSETS> 1,791,289
<CURRENT-LIABILITIES> 267,076
<BONDS> 272,393
0
0
<COMMON> 36,914
<OTHER-SE> 679,666
<TOTAL-LIABILITY-AND-EQUITY> 1,791,289
<SALES> 905,861
<TOTAL-REVENUES> 940,186
<CGS> 740,546
<TOTAL-COSTS> 740,546
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,515
<INCOME-PRETAX> 97,772
<INCOME-TAX> 36,396
<INCOME-CONTINUING> 61,376
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,376
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.35
</TABLE>
