UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission file number 0-565
ALEXANDER & BALDWIN, INC.
(Exact name of registrant as specified in its charter)
HAWAII 99-0032630
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
822 BISHOP STREET
POST OFFICE BOX 3440, HONOLULU, HAWAII 96801
(Address of principal executive offices and zip code)
808-525-6611
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, WITHOUT PAR VALUE
(Title of Class)
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT FEBRUARY 13, 1998:
44,853,282
AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY NON-AFFILIATES AT FEBRUARY 13,
1998:
$1,117,966,743
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF REGISTRANT'S PROXY STATEMENT DATED MARCH 9, 1998 (PART III OF FORM
10-K).
PORTIONS OF REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1997 (PARTS I, II AND IV OF FORM 10-K).
<PAGE>
TABLE OF CONTENTS
PART I
Page
----
Items 1. & 2. Business and Properties .............................. 1
A. Ocean Transportation ....................................... 2
(1) Freight Services ..................................... 2
(2) Vessels .............................................. 3
(3) Terminals ............................................ 3
(4) Other Services ....................................... 5
(5) Competition .......................................... 6
(6) Labor Relations ...................................... 7
(7) Rate Regulation ...................................... 8
B. Property Development and Management ........................ 8
(1) General .............................................. 8
(2) Planning and Zoning .................................. 9
(3) Residential Projects ................................. 10
(4) Commercial and Industrial Properties ................. 12
C. Food Products .............................................. 16
(1) Production ........................................... 16
(2) Sugar Refining; Marketing of Sugar
and Coffee ........................................... 17
(3) Competition and Sugar Legislation .................... 18
(4) Properties and Water ................................. 21
D. Employees and Labor Relations .............................. 22
E. Energy ..................................................... 24
Item 3. Legal Proceedings .......................................... 25
Item 4. Submission of Matters to a Vote of
Security Holders ........................................... 26
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters ................................ 26
Item 6. Selected Financial Data .................................... 27
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations ................................................. 27
Item 8. Financial Statements and Supplementary Data ................ 27
Item 9. Changes in and Disagreements With
Accountants on Accounting and Financial
Disclosure ................................................. 28
PART III
Item 10. Directors and Executive Officers of
the Registrant ............................................. 28
A. Directors ............................................... 28
B. Executive Officers of the Registrant ....................... 28
Item 11. Executive Compensation ..................................... 30
Item 12. Security Ownership of Certain Beneficial
Owners and Management ...................................... 30
Item 13. Certain Relationships and Related
Transactions ...............................................30
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K .................................... 30
A. Financial Statements ....................................... 30
B. Financial Statement Schedules .............................. 31
C. Exhibits Required by Item 601 of
Regulation S-K ............................................. 31
D. Reports on Form 8-K ........................................ 40
Signatures ....................................................... 41
Independent Auditors' Report ........................................ 43
Schedule I ....................................................... 44
Independent Auditors' Consent ....................................... 48
[Note: Page references refer to printed document rather than
electronic version.]
<PAGE>
ALEXANDER & BALDWIN, INC.
-------------------------
FORM 10-K
---------
ANNUAL REPORT FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1997
PART I
------
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
- ---------------------------------------
Alexander & Baldwin, Inc. ("A&B") is a diversified corporation with most
of its operations centered in Hawaii. It was founded in 1870 and incorporated
in 1900. Ocean transportation operations and related shoreside operations of
A&B are conducted by a wholly-owned subsidiary, Matson Navigation Company, Inc.
("Matson"), and several Matson subsidiaries, all of which are headquartered in
San Francisco. Real property and food products operations are conducted by a
wholly-owned subsidiary of A&B, A&B-Hawaii, Inc. ("ABHI"), and several ABHI
subsidiaries, including California and Hawaiian Sugar Company, Inc. ("C&H"),
all of which are headquartered in Hawaii or California.
The industry segments of A&B are as follows:
A. Ocean Transportation - carrying freight, primarily between various
--------------------
United States Pacific Coast ports, major Hawaii ports and Guam;
providing terminal, stevedoring, tugboat and container equipment
maintenance services in certain of those ports; chartering its
vessels to third parties; and arranging United States Mainland
intermodal transportation.
B. Property Development and Management - developing real property in
-----------------------------------
Hawaii and on the U.S. Mainland; selling residential properties in
Hawaii and on the U.S. Mainland; and managing, leasing, selling and
purchasing commercial/industrial properties in Hawaii and on the U.S.
Mainland.
C. Food Products - growing sugar cane and coffee in Hawaii; producing
-------------
raw sugar, molasses and green coffee; refining raw sugar, and
marketing and distributing refined sugar products, primarily in the
western United States; marketing and distributing roasted coffee and
green coffee; providing sugar and molasses hauling and storage,
general freight and petroleum hauling in Hawaii; and generating and
selling electricity.
For information about the revenue, operating profits and identifiable
assets of A&B's industry segments for the three years ended December 31, 1997,
see "Industry Segment Information" on page 24 of the Alexander & Baldwin, Inc.
1997 Annual Report ("1997 Annual Report"), which information is incorporated
herein by reference.
DESCRIPTION OF BUSINESS AND PROPERTIES
A. OCEAN TRANSPORTATION
--------------------
(1) FREIGHT SERVICES
----------------
Matson's Hawaii Service offers containership freight services
between the ports of Los Angeles, Oakland, Seattle, and the major ports in
Hawaii, which are located on the islands of Oahu, Kauai, Maui and Hawaii.
Roll-on/roll-off service is provided between Los Angeles and the major ports in
Hawaii. Container cargo also is received at and delivered to Portland, Oregon,
and moved overland between Portland and Seattle at no extra charge.
Matson is the principal carrier of ocean cargo between the
United States Pacific Coast and Hawaii. In 1997, Matson carried 149,734
containers (compared with 152,109 in 1996) and 78,641 motor vehicles (compared
with 83,097 in 1996) between those destinations. Principal westbound cargoes
carried by Matson to Hawaii include dry containers of mixed commodities,
refrigerated cargoes, packaged foods, building materials and motor vehicles.
Principal eastbound cargoes carried by Matson from Hawaii include household
goods, canned pineapple, refrigerated containers of fresh pineapple, motor
vehicles and molasses. The preponderance of Matson's Hawaii Service revenue
is derived from the westbound carriage of containerized freight and motor
vehicles.
Matson's Guam Service provides containership freight service
between the United States Pacific Coast and Guam and Micronesia. Matson's Guam
Service is a component of the Pacific Alliance Service, a strategic alliance
established in 1996 by Matson and American President Lines, Ltd. ("APL") to
provide freight service between the United States Pacific Coast and Hawaii,
Guam, Japan, and South Korea. In 1997, Matson carried 19,122 containers
(compared with 15,249 in 1996) and 3,595 automobiles (compared with 3,729 in
1996) in the Guam Service. Modifications to the strategic alliance were
implemented in January 1998 to provide better service and reduce operating
costs. The restructured alliance now utilizes six vessels (three Matson
vessels and three APL vessels) rather than five, in a schedule which provides
service from the United States Pacific Coast to Guam and Micronesia, continuing
through Far East ports, and returning to California.
Matson's Pacific Coast Service provides containership freight
service between Los Angeles, Oakland, Seattle and Vancouver, Canada. In 1997,
Matson carried 39,390 containers (compared with 38,237 in 1996) in the Pacific
Coast Service. The Pacific Coast Service has benefited from the startup, in
August 1997, of a relationship with Canadian National Railway, which enables
Matson to provide the railway and its customers with reliable, fixed-day
service that reduces overall transit time between western Canada and southern
California.
Matson's Mid-Pacific Service offers container and conventional
freight service between the United States Pacific Coast and the ports of
Kwajalein, Ebeye and Majuro in the Republic of the Marshall Islands and
Johnston Island, all via Honolulu.
See "Rate Regulation" below with respect to Matson's freight
rates.
(2) VESSELS
-------
Matson's cargo fleet consists of eleven containerships, four
combination container/trailerships, one roll-on/roll-off barge, two container
barges equipped with cranes which serve the neighbor islands of Hawaii and one
container barge equipped with cranes in the Mid-Pacific Service. These
nineteen vessels represent an investment of approximately $836,800,000 during
the past 28 years. The majority of vessels in the Matson cargo fleet has been
acquired with the assistance of withdrawals from a Capital Construction Fund
established under Section 607 of the Merchant Marine Act, 1936, as amended.
Matson's fleet units are described in the list on the following
page.
As a complement to its fleet, Matson owns approximately 16,800
containers, 9,300 container chassis, 450 auto-frames and miscellaneous other
equipment. Capital expenditures by Matson in 1997 for vessels and equipment
totaled approximately $19,200,000.
<PAGE>
<TABLE>
<CAPTION>
MATSON NAVIGATION COMPANY, INC.
-------------------------------
FLEET - 3/1/98
--------------
Usable Cargo Capacity
-----------------------------------------------------------
Containers Vehicles Molasses
Year Maximum Maximum ------------------------------- -------------- --------
Vessel Official Year Recon- Speed Deadweight Reefer
Name Number Built structed Length (Knots) (Long Tons) 20' 24' 40' Slots TEUs (1) Autos Trailers Short Tons
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Diesel-Powered Ships
- --------------------
R.J. PFEIFFER 979814 1992 713'6" 23.0 27,100 48 171 988 300 2,229 -- -- --
MOKIHANA (2) 655397 1983 860'2" 23.0 30,167 182 312 1,134 408 2,824
MAHIMAHI (2) 653424 1982 860'2" 23.0 30,167 182 312 1,134 408 2,824
MANOA (2) 651627 1982 860'2" 23.0 30,187 182 312 1,134 408 2,824
Steam-Powered Ships
- -------------------
KAUAI 621042 1980 1994 720'5-1/2" 22.5 26,308 458 538 300 1,626 44 2,600
MAUI 591709 1978 1993 720'5-1/2" 22.5 26,623 458 538 300 1,626 2,600
KAIMOKU (3) 573223 1976 1990 790'9" 21.5 14,551 276 310 121 1,020 350 54 --
KAINALU (3) 557149 1974 1990 790'9" 21.5 14,976 276 310 121 1,020 350 54 --
MATSONIA 553090 1973 1987 760'0" 21.5 22,501 683 400 329 1,620 450 56 4,300
LURLINE (3) 549900 1973 1982 826'6" 21.5 22,221 597 345 340 1,476 220 81 2,100
EWA 530140 1972 1978 787'8" 21.0 38,656 294 861 180 2,015
CHIEF GADAO 530138 1971 1978 787'8" 21.0 37,346 230 464 597 274 1,981
LIHUE 530137 1971 1978 787'8" 21.0 38,656 286 276 681 188 1,979
MANULANI 528400 1970 720'5-1/2" 22.5 27,165 537 416 251 1,476 5,300
MANUKAI 524219 1970 720'5-1/2" 22.5 27,107 537 416 251 1,476 5,300
Tugs and Barges
- ---------------
WAIALEALE (4) 978516 1991 345'0" -- 5,621 35 230 45
ISLANDER (5) 933804 1988 372'0" -- 6,837 276 24 70 380 --
MAUNA LOA (5) 676973 1984 350'0" -- 4,658 144 72 84 316 2,100
HALEAKALA (5) 676972 1984 350'0" -- 4,658 144 72 84 316 2,100
MAOI (6) 618705 1980 75'0" 10.0 --
JOE SEVIER (6) 500799 1965 80'0" 10.0 --
- ------------------------------------------------------
(1) "Twenty-foot Equivalent Units" (including trailers). TEU is a standard measure of cargo volume correlated to the volume of a
standard 20-foot dry cargo container.
(2) Time-chartered to APL to February 2006.
(3) Reserve Status
(4) Roll-on/Roll-off Barge
(5) Container Barge
(6) Tug
</TABLE>
<PAGE>
(3) TERMINALS
---------
Matson Terminals, Inc. ("Matson Terminals"), a wholly-owned
subsidiary of Matson, provides container stevedoring, container equipment
maintenance and other terminal services for Matson and other ocean carriers at
the ports of Honolulu, Los Angeles, Oakland and Seattle.
Matson Terminals is among the largest container stevedoring
and terminal operators on the United States Pacific Coast. A total of 858
vessel calls were served at all Matson Terminals container facilities in 1997.
The four terminals operated by Matson Terminals are as follows:
<TABLE>
<CAPTION>
TERMINAL EXPIRATION OF 1997 USABLE
TERMINAL SIZE TERMINAL THROUGHPUT CONTAINER CRANE SHIP
LOCATION (ACRES) LEASE (# CONTAINERS) CRANES (#) OWNERSHIP BERTHS (#)
-------- -------- ------------- -------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Honolulu, HI 108 Sept 2016 390,137 7 Matson 3
Terminals
Los Angeles, CA 95 Jan 1999 232,670 4 Matson 3
Terminals
Oakland, CA 74 Dec 2008 131,893 3 Matson 3
Terminals
Seattle, WA 35 Dec 1999 93,851 3 Port of 2
Seattle
</TABLE>
Matson Terminals has lease agreements with the port authorities
for the use of the publicly-owned container terminal properties at these
locations and does not anticipate any difficulty in renewing such agreements as
they expire or in finding satisfactory alternative premises. In particular,
Matson Terminals anticipates it will reach a satisfactory agreement with the
Port of Los Angeles for the terminal space needed for its southern California
operations. In addition, at the Port of Seattle, Matson Terminals is scheduled
to relocate in the year 2000 to a larger facility, under a 30-year lease with
options to expand from the initial 48 acres up to 85 acres. Besides owning or
leasing the shoreside cranes identified in the above table, Matson Terminals
owns or leases supporting container-handling equipment at its container
facilities and owns all of the maintenance equipment used in providing
container equipment and terminal maintenance services.
Capital expenditures for terminals and equipment totaled
approximately $1,400,000 in 1997.
(4) OTHER SERVICES
-------------
Matson Intermodal System, Inc. ("Matson Intermodal"), a
wholly-owned subsidiary of Matson, is an intermodal marketing company which
arranges North American rail and truck transportation for shippers and
carriers, frequently in conjunction with ocean transportation. Through volume
purchases of rail and motor carrier transportation services, augmented by such
services as shipment tracing and single-vendor invoicing, Matson Intermodal is
able to reduce transportation costs for customers. Matson Intermodal currently
has 11 offices and manages 30 equipment depots across the United States
Mainland.
Matson Services Company, Inc. ("Matson Services"), a
wholly-owned subsidiary of Matson, owns two tugboats, which are employed in
Hawaiian waters under operating agreements to provide harbor assistance for
vessels calling at the islands of Hawaii and Maui.
(5) COMPETITION
-----------
Matson's Hawaii and Guam Services have one major containership
competitor which serves Long Beach, Oakland, Tacoma, Honolulu and Guam. In an
administrative proceeding in 1997, the purpose of which was to determine the
historic service levels to which that competitor would be limited as a condi-
tion to its participation in the Maritime Security Program, the U.S. Maritime
Administration limited the initial annual capacity which the competitor may
offer in the Hawaii trade to 162,378 TEUs (see footnote (1) on page 4 for an
explanation of "TEU"). Other competitors in the Hawaii Service include two
common carrier barge services, unregulated proprietary and contract carriers of
bulk cargoes and air cargo services. Competitors in the Pacific Coast Service
include truck, rail and ocean carrier services.
Matson vessels are operated on schedules which make available
to shippers and consignees regular day-of-the-week sailings from the United
States Pacific Coast and day-of-the-week arrivals in Hawaii. This service is
attractive to customers because it decreases their overall distribution costs.
In addition, Matson competes by offering more comprehensive service to
customers, supported by its scope of equipment and its efficiency and
experience in the handling of containerized cargoes, and by competitive
pricing. Although air freight competition is intense for time-sensitive or
perishable cargoes, historic and projected inroads of such competition in cargo
volume are limited by the amount of cargo space available in passenger aircraft
and by generally higher air freight rates.
The carriage of cargo between the United States Pacific Coast
and Hawaii on foreign-built or foreign-documented vessels is prohibited by
Section 27 of the Merchant Marine Act, 1920, frequently referred to as the
Jones Act. However, foreign-flag vessels carrying cargo to Hawaii from foreign
sources provide indirect competition for Matson's container freight service
between the United States Pacific Coast and Hawaii. Far East countries,
Australia and New Zealand have direct foreign-flag services to Hawaii.
In response to coordinated efforts by various interests to
convince Congress to repeal the Jones Act, in 1995 a coalition of more than 400
businesses and organizations, including Matson, formed the Maritime Cabotage
Task Force to support the retention of the Jones Act and other cabotage laws.
Repeal of the Jones Act would allow all foreign-flag vessel operators, who
would not have to abide by U.S. laws and regulations, to sail between American
ports in direct competition with Matson and other U.S. operators who must
comply with such laws and regulations. The Task Force seeks to inform elected
officials and the public about the economic, national security, commercial,
safety and environmental benefits of the Jones Act and similar cabotage laws.
Bills introduced in Congress in 1997 to repeal the Jones Act received
substantial media attention, but were not voted upon. On the other hand, the
Task Force succeeded in promoting adoption of Concurrent Resolution 65 by the
House of Representatives. The resolution expresses "the sense of the
Congress . . . that the Jones Act and related statutes are critically important
components of our Nation's economic and military security and should be fully
and strongly supported."
Matson Terminals competes with numerous other companies which
perform the same or similar services. The container stevedoring and terminal
services business is extremely competitive. The primary considerations of
ocean carriers, when selecting stevedore and terminal operators, are rates,
quality of service, expertise and reputation. The industry is highly capital-
intensive because of the need for expensive container-handling equipment.
Matson Intermodal competes for freight with a number of large
and small companies engaged in intermodal transportation. Matson Services
competes with several larger operators of tugboats in Hawaiian waters.
(6) LABOR RELATIONS
---------------
The absence of strikes and the availability of labor through
hiring halls are important to maintenance of profitable operations by Matson.
Although Matson's operations have not been disrupted significantly by strikes
in the past 26 years, recent labor disruptions at some United States Pacific
Coast ports by longshore bargaining units of the International Longshore and
Warehouse Union ("ILWU"), which are attributed to dissatisfaction with
collective bargaining agreements negotiated with the Pacific Maritime
Association in 1996, have adversely affected the operations and operating costs
of Matson and other ocean carriers calling at those ports. In addition, a
strike against the Port of Los Angeles by ILWU ship pilots and a severe
shortage of ILWU longshore workers in southern California, both of which
occurred in the second half of 1997, contributed further to these adverse
affects on Matson and other ocean carriers. See "Employees and Labor
Relations" below for a description of labor agreements and certain unfunded
liabilities for multi-employer pension plans to which Matson and Matson
Terminals contribute.
(7) RATE REGULATION
---------------
Matson is subject to the jurisdiction of the Surface
Transportation Board ("Board"), an agency within the U.S. Department of
Transportation, with respect to its domestic rates. The Interstate Commerce
Commission Termination Act of 1995 ("Act") establishes a "Zone of
Reasonableness," as defined in the Act, within which rate adjustments are
deemed reasonable. Rate adjustments outside of the Zone of Reasonableness are
subject to investigation and/or suspension by the Board. In December 1997,
Matson announced it would defer an across-the-board increase in its Hawaii
Service rates in recognition of the weak Hawaii economy.
B. PROPERTY DEVELOPMENT AND MANAGEMENT
-----------------------------------
(1) GENERAL
-------
The property development and management operations of A&B are
conducted by ABHI, a wholly-owned subsidiary headquartered in Honolulu. A&B
and its subsidiaries own approximately 93,000 acres of land, consisting of
approximately 91,000 acres in Hawaii and approximately 2,000 acres elsewhere,
as follows:
LOCATION NO. OF ACRES
-------- ------------
Maui ................................... 69,060
Kauai .................................. 21,910
California ............................. 1,952
Texas .................................. 43
Washington ............................. 24
Nevada ................................. 18
Colorado ............................... 10
Florida ................................ 3
------
TOTAL ................................ 93,020
======
As described more fully in the table below, the bulk of this acreage currently
is used for agricultural and related activities, and includes pasture land
leased to ranchers, watershed and conservation reserves. The balance is used
or planned for development or other urban uses. An additional 3,200 acres on
Maui and Kauai are leased from third parties.
CURRENT USE NO. OF ACRES
----------- ------------
HAWAII
Fully-entitled urban (defined below) ............... 1,170
Agricultural, pasture and
miscellaneous .................................... 60,900
Watershed land/conservation ........................ 28,900
U.S. MAINLAND
California ranch land............................... 1,900
Fully-entitled urban ............................... 150
------
TOTAL .......................................... 93,020
======
ABHI is actively involved in the entire spectrum of land
development, including planning, zoning, financing, constructing, purchasing,
managing and leasing, and selling and exchanging real property.
(2) PLANNING AND ZONING
-------------------
The entitlement process for development of property in Hawaii
is both time-consuming and costly, involving numerous State and County
regulatory approvals. For example, conversion of an agriculturally-zoned
parcel to residential zoning usually requires the following approvals:
- amendment of the County general plan to reflect the desired residential
use;
- approval by the State Land Use Commission to reclassify the parcel from
the "Agricultural" district to the "Urban" district;
- County approval to rezone the property to the precise residential use
desired; and,
- if the parcel is located in the Coastal Zone Management area, the
granting of a Special Management Area Permit by the County Planning Com-
mission.
The entitlement process is complicated by the conditions, restrictions and
exactions that are placed on these approvals, such as the construction of
infrastructure improvements, payment of impact fees, restrictions on the
permitted uses of the land, provision of affordable housing, and/or mandatory
fee sale of portions of the project.
ABHI actively works with regulatory agencies, commissions and
legislative bodies at various levels of government to obtain zoning
reclassification of land to its highest and best use. ABHI designates a parcel
as "fully-entitled" or "fully-zoned" when all necessary government approvals
have been obtained.
As described in more detail below, in 1997 work to obtain
entitlements for urban use focused on (i) the Kukui'ula residential development
on Kauai, (ii) the proposed master-planned community at Pilot Hill Ranch in
California, (iii) obtaining Community Plan designations for various ABHI lands
on Maui, and (iv) obtaining State "Urban" designation for two proposed single-
family subdivisions on Maui.
With regard to item (iii) in the preceding paragraph, ABHI
continues to participate actively in Maui County's decennial update of its
Community Plans, a process that began in 1992. The Community Plans serve to
guide planning and development activity over the next decade. ABHI has
obtained and continues to seek various urban designations for its undeveloped
lands within the following four Community Plans, where most of its Maui lands
are located: Pa'ia-Haiku Community Plan, Kihei-Makena Community Plan,
Wailuku-Kahului Community Plan, and Makawao-Pukalani-Kula ("Upcountry")
Community Plan. The Maui County Council adopted the Pa'ia-Haiku and Upcountry
Community Plans in 1995 and 1996, respectively. Adoption of the remaining two
Community Plans by the County Council is expected in 1998 and 1999.
(3) RESIDENTIAL PROJECTS
--------------------
ABHI is pursuing a number of residential projects in Hawaii
and on the U.S. Mainland, in particular:
(a) KUKUI'ULA. The 1,045-acre Kukui'ula project is envi-
---------
sioned to be a planned residential community on the island of Kauai, comprised
of up to 3,000 dwelling units, as well as an 18-hole golf course, hotels,
commercial areas, schools and parks. Construction of the wastewater treatment
plant, mass grading and drainage, and certain roadway improvements were
completed in 1993. The initial increment of 727 acres currently is available
for development, while the remaining 318 acres are conditionally designated
"Urban," subject to a showing that substantial progress has been made on
providing infrastructure to the initial increment.
Since 1993, construction activity at the Kukui'ula project had
been suspended because of weak economic conditions on Kauai. However, in
December 1997, the County of Kauai Planning Commission granted tentative
subdivision approval for a 32-lot residential subdivision known as "Koloa
Estates," located at the northeast corner of the Kukui'ula project.
Construction plans for this subdivision are being prepared, and it is
anticipated that construction could commence by mid-1998, with sales to follow
the completion of construction in early 1999.
Preliminary planning and design work also has commenced to
complete the entitlement process for the resort component of the project. It
is anticipated that this process will require approximately 18 months, and
will entail action by the State Land Use Commission and the County of Kauai.
(b) ELEELE NANI II. Also on Kauai, only two lots remain
--------------
available for sale at ABHI's Eleele Nani II development, consisting of 146
single-family lots on 27 acres. Sales of two lots closed in 1997.
(c) KU'AU BAYVIEW AT PA'IA. Since the completion and
----------------------
opening of the model complex in April 1996, 69 homes in this 92-lot single-
family subdivision (75% of the total) on Maui have been sold. As of February
1998, five contracts were in escrow. Despite continuing soft market
conditions, Ku'au Bayview has performed well compared to competing projects,
managing to attract buyers without having to reduce prices or provide
across-the-board sales incentives.
(d) KAHULUI IKENA. Since the completion of the 102-unit
-------------
Maui condominium project in June 1995, a total of 69 units have been sold to
date (21 units in 1995, 31 units in 1996, and 17 units in 1997). As of
February 1998, an additional seven units were in escrow.
(e) OTHER MAUI SUBDIVISIONS. Four agricultural subdivisions,
-----------------------
which consist of a minimum lot size of two acres per lot, were in various
stages of design and development in 1997. Final County subdivision approval
was issued in September 1997 for the nine-lot Kauhikoa Hill Ranch subdivision
(located in Haiku), and the sale of one lot closed in December. Site work
construction for the 28-lot Haiku Makai subdivision (also located in Haiku)
commenced in October 1997, and is expected to be substantially completed
in April 1998. Marketing activities began in February 1998, and the first
closings are projected for mid-1998. The construction plans for the 38-lot
Maunaolu subdivision (located in Haliimaile) continue to be processed by the
County, and are expected to receive County approval in the second quarter of
1998. However, construction will not begin until a potable water source has
been secured for the project. Finally, three lots at the 10-acre Ku'au Beach
Estates subdivision (located in Pa'ia) were sold last year, leaving one lot
available for sale.
In addition, ABHI is seeking to obtain State "Urban" designation
for two single-family subdivisions on Maui: (i) an approximately 200-unit
subdivision on 45 acres in Haliimaile, and (ii) an approximately 400-unit
subdivision on 110 acres in Spreckelsville. The latter project also involves
the possible development of nine holes of golf to expand the nearby nine-hole
Maui Country Club golf course into an 18-hole course. Petitions seeking
"Urban" designations for both subdivisions were substantially completed in
1997, and are expected to be filed with the State in the first quarter of 1998.
(f) PILOT HILL RANCH. Pilot Hill Ranch, located in El
----------------
Dorado County, near Sacramento, California, is intended to be developed as an
1,800-acre planned residential community, consisting of approximately 975
single- and multi-family homes, a golf course, parks and 15 acres of commercial
development. A lawsuit filed in 1996 to block implementation of the General
Plan for El Dorado County, which incorporates ABHI's development plan proposals
for the Pilot Hill Ranch project, is still pending.
A Specific Plan for the development of Pilot Hill Ranch
(equivalent to a zoning application) was submitted to the El Dorado County
Planning Department in March 1997. The approval process for a Specific Plan
requires the preparation of an Environmental Impact Report ("EIR"), under the
direction of the Planning Department. Work on the EIR by a consultant under
contract to the County commenced in July 1997, and the administrative draft was
substantially completed in December 1997. It is anticipated that the draft EIR
will be made public by April 1998, and that the acceptance process for the EIR
and the approval process for the Specific Plan can be completed by mid-1998.
(4) COMMERCIAL AND INDUSTRIAL PROPERTIES
------------------------------------
An important source of property revenue is the lease rental
income A&B and its subsidiaries receive from nearly 3.1 million leasable square
feet of industrial and commercial building space, ground leases on 270 acres
for commercial/industrial use, and leases on 11,500 acres for agricultural/
pasture use.
(a) HAWAII COMMERCIAL/INDUSTRIAL PROPERTIES
---------------------------------------
In Hawaii, most of the nearly 850,000 square feet of income-
producing commercial and industrial properties owned by A&B and its sub-
sidiaries are located in the central Kahului/Wailuku area of Maui. They
consist primarily of two shopping centers and four office buildings, as well as
several improved commercial and industrial properties. In 1997, A&B acquired
One Main Plaza, an 85,300-square-foot, six-story office building in downtown
Wailuku, pursuant to a tax-deferred exchange under Section 1031 of the Internal
Revenue Code ("IRC").
The primary Hawaii commercial/industrial properties are as
follows:
LEASABLE AREA
PROPERTY LOCATION TYPE (SQUARE FT.)
-------- -------- ---- -------------
Maui Mall Kahului, Maui Retail shopping 190,800
center
Kahului Shopping Kahului, Maui Retail shopping 108,200
Center center
One Main Plaza Wailuku, Maui Office 85,300
Wakea Business Kahului, Maui Warehouse/Retail 61,500
Center
Kahului Office Kahului, Maui Office 51,700
Building
Kahului Office Kahului, Maui Office 29,800
Center
Apex Building Kahului, Maui Retail 28,000
Stangenwald Building Honolulu, Oahu Office 28,000
In addition to the above-described properties, a number of
other commercial and industrial projects are being developed on Maui and Kauai,
including:
(1) TRIANGLE SQUARE. Marketing continues at this 11-
---------------
acre retail/commercial site in Kahului, Maui. Three lots have been leased so
far, and the Apex Building is currently 95% occupied by retail users. Addi-
tional ground leases and construction are planned for the balance of Triangle
Square, with marketing and leasing activity continuing in 1998.
(2) MAUI BUSINESS PARK. In 1997, the initial phase
------------------
(Phase IA) of the 42-acre Maui Business Park saw the opening of the Maui
Marketplace, a 300,000-square-foot retail center owned by a third party, which
occupies 20.3 acres of Phase IA's 37.4 salable acres. Anchor tenants for the
Maui Marketplace include Eagle Hardware, Office Max, Sports Authority, Bank of
Hawaii, Starbuck's, Burger King and Border's Bookstore and Music. In addition,
13 Maui Business Park lots have been sold or leased so far to various
commercial and retail businesses. These 13 lots, along with Maui Marketplace's
20.3 acres, represent an absorption of 70% of Phase IA's salable acres. There
remain 19 lots available for sale or lease.
The next phase of the Maui Business Park slated for
development is the 34-acre Phase IB. Offsite improvements are now in place,
and onsite improvements will commence as market conditions warrant. Maui
Business Park is planned eventually to comprise a total of four phases,
aggregating about 240 acres, to be developed over the next 20 years.
(3) PORT ALLEN INDUSTRIAL SUBDIVISION. On Kauai, one
---------------------------------
industrial lot remains available for sale.
Overall occupancy for the Hawaii commercial and industrial
properties owned by A&B and its subsidiaries averaged 78% in 1997, compared
with 86% in 1996, reflecting the weak Hawaii economy and the addition of new
properties with large amounts of untenanted space. The performance of the
Hawaii leased property portfolio is expected to continue to be affected in 1998
by weak demand, due to the economy. On Maui, the absorption of new retail
space constructed over the past three years, coupled with the termination of a
major lease at Maui Mall, are expected to result in a lower overall occupancy
rate. A&B is continuing its program of upgrading its Hawaii properties, with
major improvements being completed to the Kahului Office Building and One Main
Plaza.
(b) U.S. MAINLAND COMMERCIAL/INDUSTRIAL PROPERTIES
----------------------------------------------
On the U.S. Mainland, A&B and its subsidiaries own a portfolio
of commercial and industrial properties, acquired primarily by way of tax-
deferred exchanges under IRC Section 1031, comprising a total of approximately
2.24 million square feet of leasable area, as follows:
LEASABLE AREA
PROPERTY LOCATION TYPE (SQUARE FT.)
-------- -------- ---- -------------
Great Southwest Dallas, TX Industrial 901,402
Industrial
10500 Ridgeview Cupertino, CA Research and 246,000
Court development
Valley Freeway Kent, WA Industrial 229,099
Corporate Park
Airport Square Reno, NV Retail 168,071
Moulton Plaza Laguna Hills, CA Retail 133,999
LinPac Building City of Industrial 126,048
Industry, CA
4225 Roosevelt Seattle, WA Office 106,456
Building
Island Village Bainbridge Retail 106,212
Commercial Center Island, WA
Village at Indian Indian Wells, CA Retail 104,589
Wells
Wilshire Shopping Greeley, CO Retail 46,728
Center
Market Square Greeley, CO Retail 43,295
Professional Gainesville, FL Office 24,243
Center
Office Plaza
---------
TOTAL: 2,236,142
=========
A&B took advantage of California's strengthening economy by
selling its Spinnaker II research and development property in Fremont, CA in
May 1997 for $8.4 million. Proceeds from the sale were invested in October
1997, by way of an IRC Section 1031 exchange, in the Village at Indian Wells
shopping center, located in Indian Wells, CA. A&B also finalized a sales
agreement for its 10500 Ridgeview Court property, located in Cupertino, CA.
This sale is scheduled to close in June 1998. The strengthening California
economy also is expected to increase rental rates at Moulton Plaza shopping
center in Laguna Hills, CA, and to assist in the re-tenanting of the LinPac
Building in the City of Industry, CA (lease expired in February 1998).
In March 1997, the Wilshire Shopping Center was acquired in
Greeley, CO. This shopping center is near Market Square, a shopping center
purchased by A&B in 1995. Consistent, above average growth is expected for
this northern Colorado community.
A&B's Seattle-area properties realized significant benefits
from the area's expanding economy. The major tenant at the 4225 Roosevelt
office building renewed its lease for an additional five years with a rent
increase in excess of 50%. Valley Freeway Corporate Park and Island Village
Commercial Center maintained 100% occupancy levels. The Island Village Commer-
cial Center consists of the 97,153-square-foot Island Village Shopping Center,
which A&B has owned since 1990, as well as a nearby 9,059-square-foot office
building acquired in August 1997 with tax-deferred funds. In addition, an
8,400-square-foot retail building is under construction and is expected to be
completed by May 1998.
The Great Southwest Industrial property in Dallas, TX maintained
100% occupancy with the successful lease extensions of several major tenants.
This portfolio of industrial/warehouse properties continues to perform well,
despite the increase in the number of new, speculatively constructed buildings
in the area.
In Reno, NV, the Airport Square shopping center benefited from
the continued economic expansion of the northern Nevada market. Although there
was a significant increase in new retail space in 1997, the majority of the new
developments contained large retail spaces that did not directly compete with
Airport Square's tenant base.
The U.S. Mainland leased property portfolio had an average
overall occupancy rate of 98%, one percent higher than the prior year.
C. FOOD PRODUCTS
-------------
(1) PRODUCTION
----------
A&B has been engaged in activities relating to the production
of cane sugar and molasses in Hawaii since 1870. A&B's food products opera-
tions are conducted by ABHI. ABHI operates a sugar plantation on the island of
Maui, through its Hawaiian Commercial & Sugar Company ("HC&S") division, and a
coffee farm on the island of Kauai, through its Kauai Coffee Company, Inc.
("Kauai Coffee") subsidiary. Kauai Coffee formerly was known as Island Coffee
Company, Inc.
HC&S is Hawaii's largest producer of raw sugar, producing
198,037 tons of raw sugar in 1997, or 55% of the raw sugar produced in Hawaii.
Total Hawaii sugar production, in turn, amounted to approximately five percent
of total United States sugar production. HC&S harvested 17,005 acres of sugar
cane in 1997, compared with 17,183 acres in 1996. Yields averaged 11.6 tons of
sugar per acre in 1997, compared with 11.7 tons per acre in 1996. The average
cost per ton of sugar produced at HC&S, including the cost of power production,
was $446.92 in 1997, compared with $410.31 in 1996. The increase in cost per
ton is attributable in part to decreased sugar production. An aggressive cost
reduction effort, including personnel reductions, has been undertaken, and is
expected to improve performance in 1998. As a by-product of sugar production,
HC&S also produced 77,960 tons of molasses in 1997, compared with 65,525 tons
in 1996.
During 1997, Kauai Coffee had approximately 3,800 acres of
coffee trees under cultivation. The harvest of the 1997 coffee crop is
expected to yield approximately 4.4 million pounds of green coffee, compared
with 2.5 million pounds in 1996.
HC&S and McBryde Sugar Company, Limited ("McBryde"), the parent
company of Kauai Coffee, produce electricity for use by HC&S and Kauai Coffee,
respectively, and for sale to the local electric utility companies. HC&S's
power is produced by burning bagasse (sugarcane fiber), by hydroelectric power
generation and, when necessary, by burning fossil fuels, whereas McBryde
produces power solely by hydroelectric generation. The price for the power
sold by HC&S and McBryde is equal to the utility companies' "avoided cost" of
not producing such power themselves. In addition, HC&S receives a capacity
payment to provide a guaranteed power generation capacity to the local utility.
In 1997, HC&S sold 85,680 megawatt hours ("MWH") of electric power, and McBryde
sold 23,712 MWH. Revenue from the sale of electricity depends on the amount of
power produced and sold, as well as the average price of fuel. (See "Energy"
below.)
Kahului Trucking & Storage, Inc., a subsidiary of ABHI, provides
sugar and molasses hauling and storage, petroleum hauling, mobile equipment
maintenance and repair services, and self-service storage facilities on Maui.
Kauai Commercial Company, Incorporated, another subsidiary of ABHI, provides
similar services on Kauai, as well as general trucking services.
(2) SUGAR REFINING; MARKETING OF SUGAR AND COFFEE
---------------------------------------------
Virtually all of the raw sugar produced in Hawaii is purchased,
refined and marketed by C&H. C&H processes the raw cane sugar into a full line
of refined sugar products for the grocery market, and a full range of
industrial refined sugar products for industrial bakers, confectioners and food
processors. C&H is the leading sugar brand in the western United States.
Marketing of C&H's refined products is conducted by C&H's sales staff and a
network of brokers under exclusive representation agreements. The refined
products are marketed primarily in the western and central United States.
C&H's profit margins remained strong in 1997, as a result of the
comprehensive restructuring implemented in 1996 and stable refined sugar
selling prices in both the retail and industrial markets. A continuation of
appropriate balances between domestic production and consumption of refined
sugar, and between supplies of cane and beet sugar available in the U.S.
domestic market, allowed refined sugar prices to remain stable.
Problems still persist in the manner in which the U.S.
Department of Agriculture administers the domestic sugar support program, to
the continuing detriment of U.S. cane refiners. The program was renewed in
early 1996 with little change. Absent reforms in the administration of the
sugar program, the financial hardships experienced by the cane refining
industry prior to 1996, as a result of the sugar program, could occur again.
Insufficient supplies of raw cane sugar resulting from inadequate administra-
tion of the sugar program, for example, would affect cane refiners adversely.
Consumer sugar sales are seasonal in nature and, as a result,
C&H's financial results are expected to be better in the third and fourth
quarters of each fiscal year, compared with the first two quarters.
C&H has a ten-year supply contract, ending in 2003, with
Hawaiian Sugar & Transportation Cooperative ("HS&TC"), a cooperative consisting
of the major sugarcane growers in Hawaii (including HC&S), for C&H to acquire
substantially all raw sugar produced in Hawaii. There are no minimum supply
guarantees on the part of HS&TC. During 1997, the supply contract with HS&TC
provided 59% of the raw sugar sold by C&H. In recent years, a number of Hawaii
sugarcane growers have exited the business. There is no certainty that the
companies now producing sugar cane in Hawaii will be doing so in the future.
In 1998, C&H will continue to purchase significant amounts of raw sugar from
foreign sources, including Australia, Central and South America, the
Philippines and Taiwan, to supplement its purchases under the supply contract
with HS&TC.
At Kauai Coffee, coffee marketing efforts currently are being
directed toward developing a market for premium-priced, estate-grown Kauai
green coffee. Most of the 1997 coffee crop is being marketed on the U.S.
Mainland and in Asia as green (unroasted) coffee. Kauai Coffee has a supply
agreement with Nestle Beverage Company, ending with the 1997 crop, pursuant to
which Nestle Beverage Company purchases 25% of Kauai Coffee's annual green
coffee production. Sales of green coffee from the 1997 crop to Nestle are
proceeding, and there are no plans to extend or renew the supply agreement.
In addition to the sale of green coffee, Kauai Coffee produces and sells a
roasted, packaged coffee product in Hawaii under the "Kauai Coffee" trademark.
(3) COMPETITION AND SUGAR LEGISLATION
---------------------------------
Hawaiian sugar growers produce more sugar per acre than other
major producing areas of the world, but that advantage is partially offset by
Hawaii's high labor costs and the distance to the U.S. Mainland market. C&H's
refined sugar is marketed primarily west of Chicago. This is also the largest
beet sugar growing and processing area and, as a result, the only market area
in the United States which produces more sugar than it consumes. Sugar from
sugar beets is the greatest source of competition for C&H.
The overall U.S. sweetener market continues to grow. In 1997,
domestic consumption of caloric sweeteners comprised the following:
Refined sugar . . . . . . . 43%
High fructose corn syrup. . 40%
Other corn sweeteners . . . 16%
Other . . . . . . . . . . . 1%
----
TOTAL 100%
====
The use of non-caloric (artificial) sweeteners accounts for a relatively small
percentage of the domestic sweetener market. Although the use of high fructose
corn syrup and artificial sweeteners is expected to continue to grow, such in-
creased use is not expected to affect sugar markets significantly in the near
future.
Worldwide, most sugar is consumed in the country of origin.
Only about a quarter of world sugar is involved in international trade. A much
smaller amount is traded at the world sugar market price (the other sugar
involved in international trade is traded at negotiated prices under bilateral
trade agreements). Due to protective legislation, raw cane sugar prices in the
U.S. generally are substantially higher than the world price, and the amount of
foreign sugar allowed into the U.S. under import quotas is regulated by the
U.S. government. Such foreign sugar sells at U.S. domestic prices. As a
result, the world sugar price does not have material relevance to U.S. sugar
producers and refiners.
The U.S. Congress historically has sought, through legislation,
to assure a reliable domestic supply of sugar at stable and reasonable prices.
Congress's most recent renewal of protective legislation for domestic sugar is
provided by the Federal Agriculture Improvement and Reform Act, which was
signed into law in the first quarter of 1996 (the "1996 Act"). The 1996 Act
provides a sugar loan program for the 1996 through 2002 crops, with a loan rate
(support price) of 18 cents per pound for raw sugar. When the import quota is
1.5 million tons or less, the loans are recourse, meaning the producer is
liable for any losses the government incurs in remarketing any sugar forfeited
by the producer. When the import quota is greater than 1.5 million tons, the
loans are non-recourse, but in the event of forfeiture the producer must pay a
one-cent-per-pound penalty for the sugar forfeited to the government. The 1996
Act also eliminated marketing allotments, thereby removing the means of
limiting domestic production. The 1.25-million-ton minimum import quota set
under the General Agreement on Tariff and Trade ("GATT") is retained in the
1996 Act.
The loan rate represents the value of sugar given as collateral
for government price-support loans. The government is required to administer
the sugar program at no net cost, and this is accomplished by adjusting fees
and quotas for imported sugar to maintain the domestic price at a level that
prevents producers from defaulting on loans. The target price established by
the government is known as the market stabilization price and is based on the
loan rate plus transportation costs, interest and an incentive factor. The
market stabilization price was 21.8 cents per pound in 1988-89 and 21.9 cents
per pound in 1990-91. No market stabilization price has been announced since
1990-91. The actual U.S. domestic sugar price (measured by the closing price
of the quoted spot contract) averaged 21.62 cents per pound in 1993, 22.03
cents per pound in 1994, 23.03 cents per pound in 1995 (reaching a high of
25.00 cents per pound in June and July), 22.36 cents per pound in 1996, and
21.94 cents per pound in 1997. The abnormally high average raw sugar price in
1995 was due to flaws in the existing federal sugar legislation and in the
administration of the U.S. sugar program. The foregoing average prices are
based on the average daily New York Contract #14 price for domestic raw sugar.
A chronological chart of these prices is shown below.
[The printed document includes a graph of the prices; the data points for this
graph are shown below.]
U.S. Raw Sugar Prices
(New York Contract #14)
(Average cents per pound)
1995 1996 1997
---- ---- ----
January 22.66 22.39 21.88
February 22.67 22.58 21.87
March 22.46 22.57 21.81
April 22.78 22.59 21.73
May 23.10 22.59 21.70
June 23.50 22.49 21.63
July 24.47 21.80 22.04
August 23.37 22.35 22.26
September 23.21 22.38 22.30
October 22.92 22.36 22.25
November 22.60 22.12 21.90
December 22.70 22.10 21.89
Under the long-term raw sugar supply agreement between C&H and
HS&TC, the participating growers sell their raw sugar to C&H at a price equal
to the No. 14 Contract settlement price, less a discount and less costs of
sugar vessel discharge and stevedoring. This price becomes a cost to C&H and,
after deducting the marketing, operating, distribution, transportation and
interest costs of HS&TC, reflects the gross revenue to the Hawaii sugar
growers, including HC&S. The No. 14 price is established by, among other
things, the supply of and demand for all forms of domestically-produced
sweeteners, government policies regarding the U.S. sugar import quota, and
potential changes in international trade programs which might affect the U.S.
sugar program.
Liberalized international trade agreements, such as the GATT,
include provisions relating to agriculture, but these agreements will not
affect the U.S. sugar or sweetener industries materially. A "side" agreement
that modified the North American Free Trade Agreement ("NAFTA") alleviated some
of the cane refiners' and sugar producers' concerns over NAFTA provisions which
could have allowed Mexico to export large quantities of sugar to the U.S.
starting in four years. Under the side agreement, if Mexico is projected to be
a net surplus producer of sugar, i.e., its production of sugar is expected to
exceed its consumption of both sugar and high fructose corn syrup, then it is
limited to 25,000 tons of sugar exports, in any form, to the U.S. This export
ceiling increases to 250,000 tons of sugar in the year 2000, and is eliminated
in the year 2007.
(4) PROPERTIES AND WATER
--------------------
C&H's refining operations are located at Crockett, California.
The Crockett refinery is one of the largest in the world, and is the only cane
sugar refinery on the U.S. West Coast. It is ideally located next to a deep-
water port, a major rail line and an interstate highway. The refinery and
administrative offices occupy a complex of buildings that contains approxi-
mately 1,310,000 square feet and is located on approximately 55 acres. C&H
leases approximately 42 acres from the California State Lands Commission under
long-term ground leases, and owns the remaining area. The Lease Agreement with
the State of California covering the main refinery and wharf facilities expires
in 2022, and the Lease Agreement covering the area where the secondary
wastewater treatment facility is located expires in 2024.
The HC&S sugar plantation, the largest in Hawaii, consists of
approximately 41,000 acres of land, including 2,000 acres leased from the State
of Hawaii and 1,300 acres under lease from private parties. Approximately
36,700 acres are under cultivation, and the balance either is used for
contributory purposes, such as roads and plant sites, or is not suitable for
cultivation.
McBryde owns approximately 9,500 acres of land on Kauai, of
which approximately 2,400 acres are used for watershed and other conservation
uses, approximately 4,000 acres are used by Kauai Coffee, and the remaining
acreage is leased to various agriculture enterprises for cultivation of a
variety of crops and for pasturage.
Large quantities of water are necessary to grow sugar cane and
coffee. Because of the importance of water, access to water, reliable sources
of supply and efficient irrigation systems are crucial for the successful
growing of sugar cane and coffee. A&B's plantations use a "drip" irrigation
system that distributes water to the roots through small holes in plastic
tubes. A total of 35,686 acres, 97% of HC&S's cane lands, currently are drip
irrigated. All of Kauai Coffee's fields are drip irrigated.
ABHI owns 16,000 acres of watershed lands on Maui which supply a
portion of the irrigation water used by HC&S. ABHI also held four water
licenses to 38,000 acres owned by the State of Hawaii, which over the years
supplied approximately one-third of the irrigation water used by HC&S. The
last of these water license agreements expired in 1986, and all four agreements
have been extended as revocable permits that are renewable annually. The State
Board of Land and Natural Resources has indicated its intention to replace
these four permits with long-term licenses. The issuance of such licenses
currently is pending a hearing before the Board.
D. EMPLOYEES AND LABOR RELATIONS
-----------------------------
As of December 31, 1997, A&B and its subsidiaries had approximately
2,930 regular full-time employees. About 1,099 regular full-time employees
were engaged in the growing of sugar cane and coffee and the production of raw
sugar and green coffee, 529 were engaged in the refining and marketing of
sugar, 1,086 were engaged in ocean transportation, 42 were engaged in property
development and management, and the balance was in administration and
miscellaneous operations. Approximately 61% were covered by collective
bargaining agreements with unions.
As of December 31, 1997, Matson and its subsidiaries had approxi-
mately 1,086 regular full-time employees, 344 seagoing employees and 368 casual
employees. Approximately 37% of the regular full-time employees, all of the
seagoing employees and all of the casual employees were covered by collective
bargaining agreements. The casual employees are U.S. Pacific Coast longshore
workers who are employed through hiring halls and are not full-time employees
of either Matson or Matson Terminals.
Bargaining unit employees of Matson and Matson Terminals, other than
seagoing employees, are represented by 10 different unions, and Matson and
Matson Terminals are parties to 95 separate collective bargaining agreements.
Matson's seagoing employees are represented by six unions. Matson and Matson
Terminals are members of the Pacific Maritime Association ("PMA"), and Matson
Terminals also is a member of the Hawaii Stevedoring Industry Committee and the
Hawaii Employers Council, through which organizations various collective
bargaining agreements are negotiated. Matson also is a member of the Maritime
Service Committee ("MSC"), which engages in collective bargaining with three
unions representing licensed deck, engineer, and radio officers for Matson
vessels.
Historically, collective bargaining with the longshore and seagoing
unions has been complex and difficult. However, Matson and Matson Terminals
consider their respective relations with the International Longshore and
Warehouse Union ("ILWU"), other unions, and their non-union employees generally
to be satisfactory.
During 1997, collective bargaining agreements with two Hawaii units
of the ILWU and two Oakland units of the International Brotherhood of Teamsters
were renewed for three-year terms, retroactive to 1996. The collective
bargaining agreement with the Los Angeles International Association of
Machinists, covering mechanics at Los Angeles, was extended for two years, from
1999 to 2001. A collective bargaining agreement with the Los Angeles office
clerical employees, represented by the ILWU, was entered into for a one-year
term. In February 1998, negotiations were completed on a supplemental agree-
ment to the ILWU Pacific Coast agreement, which covers vessel planners employed
by Matson and other companies in Los Angeles.
Collective bargaining agreements with the American Radio
Association, the United Brotherhood of Carpenters and Joiners of America in
Oakland, and the ILWU office clerical union in Los Angeles are expected to be
renewed in 1998 without service interruption.
In January 1997, the Acting Regional Director of the National Labor
Relations Board ("NLRB"), in response to the ILWU's petition requesting that it
be certified as the bargaining agent for employees who plan and supervise the
loading of ships at Seattle, ruled that these Seattle employees are supervisors
who are not subject to the National Labor Relations Act. The union's appeal of
that ruling to the NLRB in Washington, D.C. is pending.
Matson contributed during 1997 to multi-employer pension plans for
vessel crews. If Matson were to withdraw from or significantly reduce its
obligation to contribute to one of the plans, Matson would review and evaluate
data, actuarial assumptions, calculations and other factors used in determining
its withdrawal liability, if any, and, in the event of material disagreement
with such determination, would pursue the various means available to it under
federal law for the adjustment or removal of its withdrawal liability. Matson
Terminals participates in a multi-employer pension plan for its Hawaii
longshore employees. For a discussion of withdrawal liabilities under the
Hawaii longshore and seagoing plans, see Note 5 to A&B's financial statements
on page 35 of the 1997 Annual Report, which Note is incorporated herein by
reference.
Matson pays, through Matson Terminals on the basis of cargo tons
carried, and Matson Terminals contributes as a direct employer, to a
multi-employer pension plan for Pacific Coast longshore workers. Under special
withdrawal liability rules in the plan, Matson Terminals could cease United
States Pacific Coast cargo handling operations permanently and stop making
contributions to the plan, without any withdrawal liability.
Bargaining unit employees of HC&S are covered by two collective bar-
gaining agreements with the ILWU. These agreements have been renegotiated and
expire January 31, 2000. The collective bargaining agreements covering the
three ILWU bargaining units at Kahului Trucking & Storage, Inc. have been
renegotiated, with two expiring June 30, 1999 and the third expiring March 31,
2001. The two collective bargaining agreements with Kauai Commercial Company,
Incorporated employees represented by the ILWU are in the process of being
renegotiated. The collective bargaining agreement with the ILWU for the
production unit employees of Kauai Coffee expires January 31, 1999.
The bargaining unit employees of C&H at Crockett, California are
represented by the Sugar Workers Union and the ILWU. Contracts covering these
employees extend through May 31, 1998. Negotiations for new contracts are
expected to commence soon.
E. ENERGY
------
Matson and Matson Terminals purchase residual fuel oil, lubricants,
gasoline and diesel fuel for their operations. Residual fuel oil is by far
Matson's largest energy-related expense. In 1997, Matson vessels consumed
approximately 2.8 million barrels of residual fuel oil, compared with
2.25 million barrels in 1996.
Residual fuel oil prices started 1997 at $125.00 per metric ton and
ended the year at $86.00 per metric ton. A high of $125.90 per metric ton
occurred in January, and a low of $84.50 per metric ton occurred in December.
Sufficient fuel for Matson's requirements is expected to be available in 1998.
As is the practice with sugar plantations throughout Hawaii, HC&S
uses bagasse, the residual fiber of the sugarcane plant, as a fuel to generate
steam for the production of most of the electrical power for sugar milling and
irrigation pumping operations. In addition to bagasse, supplemental fuel is
required to produce power, principally for pumping irrigation water during the
factory shutdown period when bagasse is not being produced. No. 6 (heavy) oil
and coal are the primary supplemental fuels used by HC&S. Since 1992, when
suppliers of oil to HC&S discontinued regular heavy oil shipments as a result
of unlimited liability concerns arising from federal and state environmental
laws, heavy oil has been provided to HC&S on a space-available basis. In 1997,
HC&S produced 228,279 MWH of electric power and sold 85,680 MWH, compared with
239,498 MWH produced and 82,447 MWH sold in 1996. HC&S's oil use increased to
215,389 barrels in 1997 from the 189,938 barrels used in 1996. Coal use for
power generation also increased, from 42,534 short tons in 1996 to 50,946 short
tons in 1997. The increased use of oil and coal was due primarily to a
reduction in the quality (in terms of fuel value) of the bagasse and an
increase in the steam energy requirements for raw sugar production.
In 1997, McBryde produced 34,676 MWH of hydroelectric power, compared
with 33,723 MWH of hydroelectric power produced in 1996. Power sales in 1997
amounted to 23,712 MWH, compared with 25,227 MWH sold in 1996. The 1996 figure
included steam-generated power that was produced by McBryde during the last
year of operation of its sugar plantation. McBryde's steam-power generation
ceased with the closing of its sugar operations in 1996.
C&H relies primarily on steam to power its Crockett refinery.
Natural gas and electricity also are used, to a lesser extent, for refinery
operations. C&H obtains its steam from a 240 MW cogeneration plant, located
adjacent to its refinery, that was placed into operation by a third party in
May 1996. Pursuant to an agreement between C&H and the third party that
expires in 2026, C&H purchases the steam at prices that reflect a discount to
the prevailing market price for natural gas, thereby reducing C&H's total
energy costs. The cogeneration plant also allowed C&H to shut down its own,
less efficient, steam-generating plant, thereby avoiding certain material
capital improvements to that plant. In 1997, C&H purchased 23,654,519 therms
of steam from the cogeneration plant, compared with 19,181,420 therms of steam
in 1996.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
See "Business and Properties - Ocean Transportation - Rate Regulation"
above for a discussion of rate and other regulatory matters in which Matson is
routinely involved.
In February 1992, Pan Ocean Shipping Co., Ltd. ("Pan Ocean") served on
Matson an amended complaint alleging that a Matson vessel negligently dis-
charged contaminated ballast water into Los Angeles harbor on January 9, 1991.
Pan Ocean admits that a vessel owned and operated by Pan Ocean discharged fuel
oil into Los Angeles harbor on January 8, 1991. Pan Ocean is seeking contri-
bution and indemnification for the in-harbor clean-up charges, which it alleged
to be between $16,000,000 and $19,000,000. On April 12, 1993, Pan Ocean
amended its complaint to allege fraud and seek unspecified punitive damages.
The parties have stipulated to binding arbitration before a Special Master
appointed by the United States District Court for the Central District of
California. The Special Master's findings will be incorporated into a judgment
by the United States District Court, which judgment may be appealed to the
Ninth Circuit Court of Appeals only on the issues of punitive damages and
misconduct of the Special Master. Arbitration hearings, which commenced
January 13, 1994, are ongoing. Management continues to believe, after consul-
tation with legal counsel and given the Protection and Indemnity coverage under
Matson's insurance policy in effect at the time of the alleged conduct, that
any ultimate liability in connection with this action will not have a material
adverse effect on Matson's financial condition.
A&B and its subsidiaries are parties to, or may be contingently liable in
connection with, other legal actions arising in the normal conduct of their
businesses, the outcomes of which, in the opinion of management after consulta-
tion with counsel, would not have a material adverse effect on A&B's financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
For the information about executive officers of A&B required to be
included in this Part I, see paragraph B of "Directors and Executive Officers
of the Registrant" in Part III below, which is incorporated into Part I by
reference.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
This information is contained in the sections captioned "Common Stock"
and "Dividends" on the inside back cover of the 1997 Annual Report, which
sections are incorporated herein by reference.
At February 13, 1998, there were 5,431 record holders of A&B common
stock. In addition, Cede & Co., which appears as a single record holder,
represents the holdings of thousands of beneficial owners of A&B common stock.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
Information for the years 1987 through 1997 is contained in the
comparative table captioned "Eleven-Year Summary of Selected Financial Data" on
pages 22 and 23 of the 1997 Annual Report, which information is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
A&B's financial statements, including the results of operations discussed
herein, are based on the historical-cost method of accounting, in accordance
with generally accepted accounting principles. If estimated current costs of
property and inventory were applied to reflect the effects of inflation on
A&B's businesses, total assets would be higher and net income lower than shown
by the historical-cost financial statements. However, 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. Investments in marketable
securities are stated in the financial statements at market values, in
accordance with Statement of Financial Accounting Standards No. 115. Certain
investments held in the Capital Construction Fund at amortized cost exceeded
their fair values at December 31, 1997 and 1996. This matter is described more
fully in Note 4 on pages 34 and 35 of the 1997 Annual Report, which Note is
incorporated herein by reference.
Additional information applicable to this Item 7 is contained in the
section captioned "Management's Discussion and Analysis" on pages 25 through 27
of the 1997 Annual Report, which section is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
This information is contained in the financial statements and
accompanying notes on pages 28 through 40 of the 1997 Annual Report, the
Independent Auditors' Report on page 21 of the 1997 Annual Report, the Industry
Segment Information for the years ended December 31, 1997, 1996 and 1995
appearing on page 24 of the 1997 Annual Report and incorporated into the
financial statements by Note 12 thereto, and the section captioned "Quarterly
Results (Unaudited)" on page 41 of the 1997 Annual Report, all of which are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ---------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
Not applicable.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
A. DIRECTORS
---------
For information about the directors of A&B, see the section captioned
"Election of Directors" on pages 2 and 3 of A&B's proxy statement dated March
9, 1998 ("A&B's 1998 Proxy Statement"), which section is incorporated herein by
reference.
B. EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The name of each executive officer of A&B (in alphabetical order),
age (in parentheses) as of March 31, 1998, and present and prior positions with
A&B and business experience for the past five years are given below.
Generally, the term of office of executive officers is at the
pleasure of the Board of Directors. For a discussion of compliance with
Section 16(a) of the Securities Exchange Act of 1934 by A&B's directors and
executive officers, see the subsection captioned "Section 16(a) Beneficial
Ownership Reporting Compliance" on page 7 of A&B's 1998 Proxy Statement, which
subsection is incorporated herein by reference. For a discussion of severance
agreements between A&B and certain of A&B's executive officers, see the sub-
section captioned "Severance Agreements" on pages 13 and 14 of A&B's 1998 Proxy
Statement, which subsection is incorporated herein by reference.
Meredith J. Ching (41)
- ----------------------
Vice President (Government & Community Relations) of A&B, 10/92-present;
Vice President of ABHI (Government & Community Relations), 10/92-present; first
joined A&B or a subsidiary in 1982.
John C. Couch (58)
- ------------------
Chairman of the Board (4/95-present), Chief Executive Officer (4/92-
present) and President (4/91-present) of A&B; Chairman of the Boards (4/95-
present) of ABHI and Matson; Chief Executive Officer (4/89-12/96) and President
(4/89-4/95) of ABHI; previously held various executive officer positions with
A&B and Matson; first joined A&B or a subsidiary in 1976.
W. Allen Doane (50)
- -------------------
Director of ABHI, 4/97-present; Chief Executive Officer of ABHI, 1/97-
present; President of ABHI, 4/95-present; Chief Operating Officer of ABHI,
4/91-12/96; Executive Vice President of ABHI, 4/91-4/95; first joined A&B or a
subsidiary in 1991.
Raymond J. Donohue (61)
- -----------------------
Senior Vice President of Matson, 4/86-present; Chief Financial Officer of
Matson, 2/81-present; first joined Matson in 1980.
John B. Kelley (52)
- -------------------
Vice President (Investor Relations) of A&B, 1/95-present; Vice President
(Corporate Planning & Development, Investor Relations) of A&B, 10/92-12/94;
Vice President (Community & Investor Relations) of A&B, 2/91-10/92; Vice
President of ABHI, 9/89-present; first joined A&B or a subsidiary in 1979.
Miles B. King (50)
- ------------------
Vice President and Chief Administrative Officer of A&B, 4/93-present;
Senior Vice President (Industrial Relations) of ABHI, 4/93-present; Senior Vice
President (Human Resources) of Matson, 10/92-present; first joined A&B or a
subsidiary in 1992.
David G. Koncelik (56)
- ----------------------
Senior Vice President of ABHI, 1/94-present; President and Chief
Executive Officer of C&H, 1/94-present; Executive Vice President and Chief
Operating Officer of C&H, 1/91-12/93; Chief Financial Officer of C&H, 12/88-
12/93; first joined C&H in 1988.
Michael J. Marks (59)
- ---------------------
Vice President, General Counsel and Secretary of A&B, 4/89-present;
Senior Vice President and General Counsel of ABHI, 4/89-present; first joined
A&B or a subsidiary in 1975.
C. Bradley Mulholland (56)
- --------------------------
President of Matson, 5/90-present; Chief Executive Officer of Matson,
4/92-present; Chief Operating Officer of Matson, 7/89-4/92; Director of A&B,
4/91-present; Director of Matson, 7/89-present; Director of ABHI, 4/91-present;
first joined Matson in 1965.
Glenn R. Rogers (54)
- --------------------
Executive Vice President of A&B, 7/97-present; Vice President of A&B,
4/93-7/97; Chief Financial Officer and Treasurer of A&B, 4/93-present; Senior
Vice President, Chief Financial Officer and Treasurer of ABHI, 1/96-present;
first joined A&B or a subsidiary in 1975.
Robert K. Sasaki (57)
- ---------------------
Vice President of A&B, 7/90-present; Senior Vice President (Properties)
of ABHI, 4/89-present; first joined A&B or a subsidiary in 1965.
Thomas A. Wellman (39)
- ----------------------
Controller of A&B, 1/96-present; Assistant Controller of A&B, 4/93-1/96;
Vice President of ABHI, 1/96-present; Controller of ABHI, 11/91-present; first
joined A&B or a subsidiary in 1989.
Judith A. Williams (54)
- -----------------------
Vice President (Corporate Planning) of A&B, 8/96-present and 10/87-4/89;
Vice President of ABHI, 4/89-present; first joined A&B in 1979.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
See the section captioned "Executive Compensation" on pages 8 through 14
of A&B's 1998 Proxy Statement, which section is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
See the section titled "Security Ownership of Certain Shareholders" and
the subsection titled "Security Ownership of Directors and Executive Officers"
on pages 5 and 6, and on pages 6 and 7, respectively, of A&B's 1998 Proxy
Statement, which section and subsection are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
See the section titled "Compensation Committee Interlocks and Insider
Participation" on page 16 of A&B's 1998 Proxy Statement, which section is
incorporated herein by reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
A. FINANCIAL STATEMENTS
--------------------
Financial Statements of Alexander & Baldwin, Inc. and Subsidiaries
and Independent Auditors' Report (incorporated by reference to the pages of
the 1997 Annual Report shown in parentheses below):
Balance Sheets, December 31, 1997 and 1996
(pages 30 and 31).
Statements of Income for the years ended
December 31, 1997, 1996 and 1995 (page 28).
Statements of Shareholders' Equity for the
years ended December 31, 1997, 1996 and
1995 (page 32).
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 (page 29).
Notes to Financial Statements (pages 33 through
40 and page 24 to the extent incorporated by
Note 12).
Independent Auditors' Report (page 21).
B. FINANCIAL STATEMENT SCHEDULES
-----------------------------
Financial Schedules of Alexander & Baldwin, Inc. and Subsidiaries as
required by Rule 5-04 of Regulation S-X (filed herewith):
I - Condensed Financial Information of
Registrant - Balance Sheets, December 31,
1997 and 1996; Statements of Income and
Cash Flows for the years ended December 31,
1997, 1996 and 1995; Notes to Condensed
Financial Statements.
NOTE: All other schedules are omitted because of the absence of the conditions
under which they are required or because the information called for is included
in the financial statements or notes thereto.
C. EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
-----------------------------------------------
Exhibits not filed herewith are incorporated by reference to the
exhibit number and previous filing shown in parentheses. All previous exhibits
were filed with the Securities and Exchange Commission in Washington, D.C.
Exhibits filed pursuant to the Securities Exchange Act of 1934 were filed under
file number 0-565. Shareholders may obtain copies of exhibits for a copying
and handling charge of $0.15 a page by writing to Michael J. Marks, Vice
President, General Counsel and Secretary, Alexander & Baldwin, Inc., P. O. Box
3440, Honolulu, Hawaii 96801.
3. Articles of incorporation and bylaws.
3.a. Restated Articles of Association of A&B, as restated effective
May 5, 1986, together with Amendments dated April 28, 1988 and April 26,
1990 (Exhibits 3.a.(iii) and (iv) to A&B's Form 10-Q for the quarter ended
March 31, 1990).
3.b. Bylaws of A&B as amended effective October 24, 1991
(Exhibit 3.b.(i) to A&B's Form 10-Q for the quarter ended September 30,
1991).
4. Instruments defining rights of security holders, including indentures.
4.a. Equity.
4.a. Rights Agreement, dated as of December 8, 1988 between Alexander &
Baldwin, Inc. and Manufacturers Hanover Trust Company, Press Release of
Alexander & Baldwin, Inc. and Form of Letter to Shareholders of Alexander
& Baldwin, Inc. (Exhibits 4, 28(a) and 28(b) to A&B's Form 8-K dated
December 13, 1988).
4.b. Debt.
4.b. (i) Second Amended and Restated Revolving Credit and Term Loan
Agreement, effective as of December 31, 1996, among Alexander & Baldwin,
Inc. and A&B-Hawaii, Inc. and First Hawaiian Bank, Bank of America
National Trust & Savings Association, Credit Lyonnais Los Angeles Branch,
Bank of Hawaii and The Union Bank of California, N.A. (Exhibit 4.b to
A&B's Form 10-K for the year ended December 31, 1996).
(ii) First Amendment to Second Amended and Restated Revolving
Credit and Term Loan Agreement, effective as of December 10, 1997, among
Alexander & Baldwin, Inc. and A&B-Hawaii, Inc. and First Hawaiian Bank,
Bank of America National Trust & Savings Association, Credit Lyonnais Los
Angeles Branch, Bank of Hawaii, The Union Bank of California, N.A. and The
Bank of New York.
10. Material contracts.
10.a. (i) Purchase and Exchange Agreement, by and between Wailea
Development Company, Inc. and Wailea Resort Company, Ltd., dated as of
January 15, 1989; Letters of Guaranty of Alexander & Baldwin, Inc. and
Shinwa Golf Kabushiki Kaisha, respectively, dated as of January 15, 1989;
Press Release of Alexander & Baldwin, Inc., dated February 10, 1989; and
Pro Forma Financial Information relative to the transaction (Ex-
hibits 10.b.(vii)(a) through 10.b.(vii)(e) to A&B's Form 8-K dated
February 10, 1989).
(ii) Contract for the Construction of One Containership by and
between Matson Navigation Company, Inc. and National Steel and Ship-
building Company, dated January 31, 1990 (Exhibit 10.b.(vii) to A&B's Form
10-K for the year ended December 31, 1989).
(iii) Issuing and Paying Agent Agreement between Matson Navigation
Company, Inc. and Security Pacific National Trust (New York), with respect
to Matson Navigation Company, Inc.'s $150 million commercial
paper program dated September 18, 1992 (Exhibit 10.b.1.(xxviii) to A&B's
Form 10-Q for the quarter ended September 30, 1992).
(iv) Note Agreement among Alexander & Baldwin, Inc. and A&B-Hawaii,
Inc. and The Prudential Insurance Company of America, effective as of
December 20, 1990 (Exhibit 10.b.(ix) to A&B's Form 10-K for the year
ended December 31, 1990).
(v) Note Agreement among Alexander & Baldwin, Inc. and A&B-Hawaii,
Inc. and The Prudential Insurance Company of America, dated as of June 4,
1993 (Exhibit 10.a.(xiii) to A&B's Form 8-K dated June 4, 1993).
(vi) Amendment dated as of May 20, 1994 to the Note Agreements
among Alexander & Baldwin, Inc., A&B-Hawaii, Inc. and The Prudential
Insurance Company of America, dated as of December 20, 1990 and June 4,
1993 (Exhibit 10.a.(xviv) to A&B's Form 10-Q for the quarter ended June
30, 1994).
(vii) Amendment dated January 23, 1995 to the Note Agreement among
Alexander & Baldwin, Inc. and A&B-Hawaii, Inc. and The Prudential
Insurance Company of America, effective as of December 20, 1990 (Exhibit
10.a.(xvi) to A&B's Form 10-K for the year ended December 31, 1994).
(viii) Amendment dated as of June 30, 1995 to the Note Agreements,
among Alexander & Baldwin, Inc., A&B-Hawaii, Inc. and The Prudential
Insurance Company of America, dated as of December 20, 1990 and June 4,
1993 (Exhibit 10.a.(xxvii) to A&B's Form 10-Q for the quarter ended
June 30, 1995).
(ix) Amendment dated as of November 29, 1995 to the Note
Agreements among Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and The
Prudential Insurance Company of America, dated as of December 20, 1990 and
June 4, 1993 (Exhibit 10.a.(xvii) to A&B's Form 10-K for the year ended
December 31, 1995).
(x) General Lease between the State of California and California
and Hawaiian Sugar Company, dated September 24, 1992 (Exhibit 10.a.(xiv)
to A&B's Form 10-Q for the quarter ended June 30, 1993).
(xi) Amendment to Lease and Reservation of Easements, between the
State of California and California and Hawaiian Sugar Company, dated as of
July 29, 1993 (Exhibit 10.a.(xv) to A&B's Form 10-Q for the quarter ended
September 30, 1993).
(xii)(a) Commercial Paper Dealer Agreement between California and
Hawaiian Sugar Company and First Chicago Capital Markets, Inc., dated
April 22, 1991, with respect to California and Hawaiian Sugar Company's
$100 million revolving credit facility (Exhibit 10.a.(xviii) to A&B's
Form 10-K for the year ended December 31, 1993).
(xii)(b) Depositary Agreement between California and Hawaiian Sugar
Company and The First National Bank of Chicago, dated as of April 6, 1989
(Exhibit 10.a.(xix)(b) to A&B's Form 10-K for the year ended December 31,
1994).
(xiii) Amendment dated as of February 10, 1995, to Depositary
Agreement between California and Hawaiian Sugar Company and The First
National Bank of Chicago, dated as of April 6, 1989 (Exhibit 10.a.(xx) to
A&B's Form 10-K for the year ended December 31, 1994).
(xiv) Revolving Credit Agreement between Alexander & Baldwin,
Inc., A&B-Hawaii, Inc., and First Hawaiian Bank, dated December 30, 1993
(Exhibit 10.a.(xx) to A&B's Form 10-Q for the quarter ended September 30,
1994).
(xv) Amendment dated August 31, 1994 to the Revolving Credit
Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and First
Hawaiian Bank dated December 30, 1993 (Exhibit 10.a.(xxi) to A&B's
Form 10-Q for the quarter ended September 30, 1994).
(xvi) Second Amendment dated March 29, 1995 to the Revolving
Credit Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and
First Hawaiian Bank, dated December 30, 1993 (Exhibit 10.a.(xxiii) to
A&B's Form 10-Q for the quarter ended March 31, 1995).
(xvii) Third Amendment dated November 30, 1995 to the Revolving
Credit Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and
First Hawaiian Bank, dated December 30, 1993 (Exhibit 10.a.(xvii) to A&B's
Form 10-K for the year ended December 31, 1996).
(xviii) Fourth Amendment dated November 25, 1996 to the Revolving
Credit Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and
First Hawaiian Bank, dated December 30, 1993 (Exhibit 10.a.(xviii) to
A&B's Form 10-K for the year ended December 31, 1996).
(xix) Fifth Amendment dated November 28, 1997 to the Revolving
Credit Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and
First Hawaiian Bank, dated December 30, 1993.
(xx) Asset Purchase Agreement among XTRA, Inc., Matson Navigation
Company, Inc. and Matson Leasing Company, Inc., dated June 30, 1995
(Exhibit 10.a.(xxiv) to A&B's Form 8-K dated June 30, 1995).
(xxi) Revised pro forma financial information relative to the
Asset Purchase Agreement among XTRA, Inc., Matson Navigation Company, Inc.
and Matson Leasing Company, Inc., dated June 30, 1995 (Exhibit 10.a.(xxv)
to A&B's Form 8-K/A dated June 30, 1995).
(xxii) Balance sheets as of December 31, 1993 and 1994 and Statements
of Income and Statements of Cash Flows for the years ended December 31,
1992, 1993 and 1994, relative to the Asset Purchase Agreement among XTRA,
Inc., Matson Navigation Company, Inc. and Matson Leasing Company, Inc.,
dated June 30, 1995 (Exhibit 10.a.(xxvi) to A&B's Form 8-K/A dated June
30, 1995).
(xxiii) Commercial Paper Dealer Agreement among California and
Hawaiian Sugar Company, Inc., Alexander & Baldwin, Inc., A&B-Hawaii, Inc.
and Goldman Sachs Money Markets, L.P. dated June 20, 1995, with respect to
California and Hawaiian Sugar Company, Inc.'s $100 million revolving
credit facility (Exhibit 10.a.(xxvi) to A&B's Form 10-Q for the quarter
ended June 30, 1995).
(xxiv) Note Agreement between Matson Leasing Company, Inc. and The
Prudential Insurance Company of America, dated as of June 28, 1991
(Exhibit 10.b.(x) to A&B's Form 10-Q for the quarter ended June 30, 1991).
(xxv) Amendment dated March 11, 1992 to the Note Agreement between
Matson Leasing Company, Inc. and The Prudential Insurance Company of
America, dated as of June 28, 1991 (Exhibit 10.a.(vii) to A&B's Form 10-K
for the year ended December 31, 1992).
(xxvi) Second Amendment dated as of August 31, 1993 to the Note
Agreement between Matson Leasing Company, Inc. and The Prudential
Insurance Company of America, dated as of June 28, 1991 (Exhibit
10.a.(viii) to A&B's Form 10-K for the year ended December 31, 1993).
(xxvii) Note Agreement between Matson Leasing Company, Inc. and The
Prudential Insurance Company of America, dated as of March 11, 1992
(Exhibit 10.a.(x) to A&B's Form 10-Q for the quarter ended March 31,
1992).
(xxviii) First Amendment dated as of August 1, 1993 to the Note
Agreement between Matson Leasing Company, Inc. and The Prudential
Insurance Company of America, dated as of March 11, 1992 (Exhibit
10.a.(xi) to A&B's Form 10-K for the year ended December 31, 1993).
(xxix)(a) Assignment and Assumption Agreement dated as of June 30, 1995,
among Matson Leasing Company, Inc., Matson Navigation Company, Inc. and
The Prudential Insurance Company of America, with respect to the Note
Agreements between Matson Leasing Company, Inc. and The Prudential
Insurance Company of America dated as of June 28, 1991 and March 11, 1992
(Exhibit 10.a.(xxviii)(a) to A&B's Form 10-Q for the quarter ended June
30, 1995).
(xxix)(b) Consent and Amendment Agreement dated as of June 30, 1995,
among Matson Leasing Company, Inc., Matson Navigation Company, Inc. and
The Prudential Insurance Company of America, with respect to the Note
Agreements between Matson Leasing Company, Inc. and The Prudential
Insurance Company of America dated as of June 28, 1991 and March 11, 1992
(Exhibit 10.a.(xxviii)(b) to A&B's Form 10-Q for the quarter ended June
30, 1995).
(xxx) Agreement to Implement the Execution and Closing of Vessel
Purchase, Purchase of Guam Assets and Alliance Slot Hire Agreement between
Matson Navigation Company, Inc. and American President Lines, Ltd., dated
as of September 22, 1995 (Exhibit 10.a.(xxix) to A&B's Form 10-Q for the
quarter ended September 30, 1995).
(xxxi) Amendments Nos. 1 through 7, dated as of October 10, 1995,
October 30, 1995, November 30, 1995, December 8, 1995, December 15, 1995,
January 31, 1996 and February 8, 1996, respectively, to the Agreement to
Implement the Execution and Closing of Vessel Purchase, Purchase of Guam
Assets and Alliance Slot Hire Agreement between Matson Navigation Company,
Inc., and American President Lines, Ltd., dated as of September 22, 1995
(Exhibit 10.a.(xxx) to A&B's Form 10-K for the year ended December 31,
1995).
(xxxii) Vessel Purchase Agreement between Matson Navigation Company,
Inc., and American President Lines, Ltd., dated December 20, 1995
(Exhibit 10.a.(xxxi) to A&B's Form 10-K for the year ended December 31,
1995).
(xxxiii) Amendment No. 1 dated December 28, 1995 to the Vessel
Purchase Agreement between Matson Navigation Company, Inc., and American
President Lines, Ltd., dated December 20, 1995 (Exhibit 10.a.(xxxii) to
A&B's Form 10-K for the year ended December 31, 1995).
(xxxiv) Private Shelf Agreement between Alexander & Baldwin, Inc.,
A&B-Hawaii, Inc., and Prudential Insurance Company of America, dated as of
August 2, 1996 (Exhibit 10.a.(xxxiii) to A&B's Form 10-Q for the quarter
ended September 30, 1996).
*10.b.1. (i) Alexander & Baldwin, Inc. Restricted Stock Bonus Plan, as
restated effective April 28, 1988 (Exhibit 10.c.1.(xi) to A&B's Form 10-Q
for the quarter ended June 30, 1988).
(ii) Amendment No. 1 to the Alexander & Baldwin, Inc. Restricted
Stock Bonus Plan, effective December 11, 1997.
(iii) Alexander & Baldwin, Inc. 1983 Stock Option Plan
(Exhibit 10.c.1.(vii) to A&B's Form 10-K for the year ended December 31,
1982).
(iv) Amendment No. 1 to the Alexander & Baldwin, Inc. 1983 Stock
Option Plan, effective December 14, 1983 (Exhibit 10.c.1.(viii) to A&B's
Form 10-K for the year ended December 31, 1983).
(v) Amendment No. 2 to the Alexander & Baldwin, Inc. 1983 Stock
Option Plan, effective January 1, 1987 (Exhibit 10.c.1.(xii) to A&B's
Form 10-K for the year ended December 31, 1986).
(vi) Amendment No. 3 to the Alexander & Baldwin, Inc. 1983 Stock
Option Plan (Exhibit 10.b.1.(xxv) to A&B's Form 10-Q for the quarter ended
June 30, 1992).
(vii) Alexander & Baldwin, Inc. 1989 Stock Option/ Stock Incentive
Plan (Exhibit 10.c.1.(ix) to A&B's Form 10-K for the year ended
December 31, 1988).
(viii) Amendment No. 1 to the Alexander & Baldwin, Inc. 1989 Stock
Option/Stock Incentive Plan (Exhibit 10.b.1.(xxvi) to A&B's Form 10-Q for
the quarter ended June 30, 1992).
______________
* All exhibits listed under 10.b.1. are management contracts or compensatory
plans or arrangements.
(ix) Amendment No. 2 to the Alexander & Baldwin, Inc. 1989 Stock
Option/Stock Incentive Plan, effective as of January 27, 1994
(Exhibit 10.b.1.(iv) to A&B's Form 10-Q for the quarter ended March 31,
1994).
(x) Amendment No. 3 to the Alexander & Baldwin, Inc. 1989 Stock
Option/Stock Incentive Plan, effective as of October 27, 1994
(Exhibit 10.b.1.(ix) to A&B's Form 10-K for the year ended December 31,
1994).
(xi) Alexander & Baldwin, Inc. 1989 Non-Employee Director Stock
Option Plan (Exhibit 10.c.1.(x) to A&B's Form 10-K for the year ended
December 31, 1988).
(xii) Amendment No. 1 to the Alexander & Baldwin, Inc. 1989 Non-
Employee Director Stock Option Plan (Exhibit 10.b.1.(xxiv) to A&B's Form
10-K for the year ended December 31, 1991).
(xiii) Amendment No. 2 to the Alexander & Baldwin, Inc. 1989 Non-
Employee Director Stock Option Plan (Exhibit 10.b.1.(xxvii) to A&B's Form
10-Q for the quarter ended June 30, 1992).
(xiv) Second Amended and Restated Employment Agreement between
Alexander & Baldwin, Inc. and R. J. Pfeiffer, effective as of October 25,
1990 (Ex-hibit 10.c.1.(xiii) to A&B's Form 10-K for the year ended
December 31, 1990).
(xv) A&B Deferred Compensation Plan for Outside Directors
(Exhibit 10.c.1.(xviii) to A&B's Form 10-K for the year ended December 31,
1985).
(xvi) Amendment No. 1 to A&B Deferred Compensation Plan for
Outside Directors, effective October 27, 1988 (Exhibit 10.c.1.(xxix) to
A&B's Form 10-Q for the quarter ended September 30, 1988).
(xvii) A&B Life Insurance Plan for Outside Directors
(Exhibit 10.c.1.(xix) to A&B's Form 10-K for the year ended December 31,
1985).
(xviii) A&B Excess Benefits Plan, Amended and Restated effective
February 1, 1995 (Exhibit 10.b.1.(xx) to A&B's Form 10-K for the year
ended December 31, 1994).
(xix) Amendment No. 1 to the A&B Excess Benefits Plan, dated
June 26, 1997 (Exhibit 10.b.1.(xxxi) to A&B's Form 10-Q for the quarter
ended June 30, 1997).
(xx) Amendment No. 2 to the A&B Excess Benefits Plan, dated
December 10, 1997.
(xxi) A&B Executive Survivor/Retirement Benefit Plan, Amended and
Restated Effective July 1, 1991 (Exhibit 10.b.1.(xvii) to A&B's Form 10-K
for the year ended December 31, 1992).
(xxii) Amendment No. 1 to and Restatement of the A&B Executive
Survivor/Retirement Benefit Plan, effective February 1, 1995
(Exhibit 10.b.1.(xxii) to A&B's Form 10-K for the year ended December 31,
1994).
(xxiii) A&B 1985 Supplemental Executive Retirement Plan, Amended and
Restated Effective July 1, 1991 (Exhibit 10.b.1.(xviii) to A&B's Form 10-K
for the year ended December 31, 1992).
(xxiv) Amendment No. 1 to and Restatement of the A&B 1985 Supple-
mental Executive Retirement Plan, effective February 1, 1995 (Exhibit
10.b.1.(xxiv) to A&B's Form 10-K for the year ended December 31, 1994).
(xxv) A&B Retirement Plan for Outside Directors, Amended and
Restated Effective October 24, 1991 (Exhibit 10.b.1.(xix) to A&B's
Form 10-K for the year ended December 31, 1992).
(xxvi) Amendment No. 1 to and Restatement of the A&B Retirement
Plan for Outside Directors, effective February 1, 1995
(Exhibit 10.b.1.(xxvi) to A&B's Form 10-K for the year ended December 31,
1994).
(xxvii) Form of Severance Agreement entered into with certain
executive officers, as amended and restated effective August 22, 1991
(Exhibit 10.c.1.(xxiv) to A&B's Form 10-Q for the quarter ended
September 30, 1991).
(xxviii) Alexander & Baldwin, Inc. One-Year Performance Improvement
Incentive Plan, as restated effective October 22, 1992
(Exhibit 10.b.1.(xxi) to A&B's Form 10-K for the year ended December 31,
1992).
(xxix) Alexander & Baldwin, Inc. Three-Year Performance Improvement
Incentive Plan, as restated effective October 22, 1992
(Exhibit 10.b.1.(xxii) to A&B's Form 10-K for the year ended December 31,
1992).
(xxx) Alexander & Baldwin, Inc. Deferred Compensation Plan
effective August 25, 1994 (Exhi-bit 10.b.1.(xxv) to A&B's Form 10-Q for
the quarter ended September 30, 1994).
(xxxi) Amendment No. 1 to the Alexander & Baldwin, Inc. Deferred
Compensation Plan, effective July 1, 1997 (Exhibit 10.b.1.(xxxii) to A&B's
Form 10-Q for the quarter ended June 30, 1997).
11. Statement re computation of per share earnings.
13. Annual report to security holders.
13. Alexander & Baldwin, Inc. 1997 Annual Report.
21. Subsidiaries.
21. Alexander & Baldwin, Inc. Subsidiaries as of February 28, 1998.
23. Consent of Deloitte & Touche LLP dated March 27, 1998 (included as last
page of A&B's Form 10-K for the year ended December 31, 1997).
27. Financial data schedule.
D. REPORTS ON FORM 8-K
-------------------
No reports were filed during the quarter ended December 31, 1997.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ALEXANDER & BALDWIN, INC.
(Registrant)
Date: March 27, 1998 By /s/ John C. Couch
--------------------
John C. Couch
Chairman of the Board,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ John C. Couch Chairman of the March 27, 1998
- -------------------------
John C. Couch Board, President
and Chief Execu-
tive Officer and
Director
/s/ Glenn R. Rogers Executive March 27, 1998
- -------------------------
Glenn R. Rogers Vice President,
Chief Financial
Officer and
Treasurer
/s/ Thomas A. Wellman Controller March 27, 1998
- -------------------------
Thomas A. Wellman
/s/ Michael J. Chun Director March 27, 1998
- -------------------------
Michael J. Chun
/s/ Leo E. Denlea, Jr. Director March 27, 1998
- -------------------------
Leo E. Denlea, Jr.
/s/ Walter A. Dods, Jr. Director March 27, 1998
- -------------------------
Walter A. Dods, Jr.
/s/ Charles G. King Director March 27, 1998
- -------------------------
Charles G. King
/s/ Carson R. McKissick Director March 27, 1998
- -------------------------
Carson R. McKissick
/s/ C. Bradley Mulholland Director March 27, 1998
- -------------------------
C. Bradley Mulholland
/s/ Maryanna G. Shaw Director March 27, 1998
- -------------------------
Maryanna G. Shaw
/s/ Charles M. Stockholm Director March 27, 1998
- -------------------------
Charles M. Stockholm
<PAGE>
INDEPENDENT AUDITORS' REPORT
Alexander & Baldwin, Inc.:
We have audited the financial statements of Alexander & Baldwin, Inc. and its
subsidiaries as of December 31, 1997 and 1996, and for each of the three years
in the period ended December 31, 1997, and have issued our report thereon dated
January 22, 1998; such financial statements and report are included in your
1997 Annual Report to Shareholders and are incorporated herein by reference.
Our audits also included the financial statement schedules of Alexander &
Baldwin, Inc. and its subsidiaries, listed in Item 14.B. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ Deloitte & Touche LLP
January 22, 1998
<PAGE>
<TABLE> SCHEDULE I
ALEXANDER & BALDWIN, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ALEXANDER & BALDWIN, INC. (Parent Company)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(In thousands)
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Income tax receivable $ 2,480 $ 18,292
Accounts and notes receivable, net 760 1,909
Prepaid expenses and other 1,090 1,050
--------- ---------
Total current assets 4,330 21,251
--------- ---------
Investments:
Subsidiaries consolidated, at equity 619,963 592,691
Other 101,624 90,796
--------- ---------
Total investments 721,587 683,487
--------- ---------
Property, at cost 91,873 78,581
Less accumulated depreciation and amortization 10,629 9,610
--------- ---------
Property -- net 81,244 68,971
--------- ---------
Other Assets 701 10,324
--------- ---------
Total $ 807,862 $ 784,033
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank overdraft $ 936 $ 16
Accounts payable 359 239
Other 4,123 3,829
--------- ---------
Total current liabilities 5,418 4,084
--------- ---------
Long-term Liabilities 6,355 5,740
--------- ---------
Due to Subsidiaries 22,306 40,477
--------- ---------
Deferred Income Taxes 54,195 49,404
--------- ---------
Commitments and Contingencies
Shareholders' Equity:
Capital stock 36,769 37,150
Additional capital 49,437 43,377
Unrealized holding gains on securities 55,144 48,205
Retained earnings 591,135 568,969
Cost of treasury stock (12,897) (13,373)
--------- ---------
Total shareholders' equity 719,588 684,328
--------- ---------
Total $ 807,862 $ 784,033
========= =========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
ALEXANDER & BALDWIN, INC. (Parent Company)
CONDENSED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(In thousands)
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue:
Net sales, revenue from services and rentals $ 17,784 $ 18,449 $ 10,287
Interest, dividends and other 4,510 3,961 3,798
--------- --------- ---------
Total revenue 22,294 22,410 14,085
--------- --------- ---------
Costs and Expenses:
Cost of goods sold, services and rentals 10,013 4,331 2,946
Selling, general and administrative 7,055 7,331 9,111
Interest and other 872 1,019 1,604
Income taxes 239 3,008 427
--------- --------- ---------
Total costs and expenses 18,179 15,689 14,088
--------- --------- ---------
Income (Loss) Before Equity in Net Income
of Subsidiaries Consolidated 4,115 6,721 (3)
Equity in Net Income From Continuing Operations
of Subsidiaries Consolidated 77,272 58,564 32,422
Equity in Net Income From Discontinued Operations
of Subsidiaries Consolidated - - 23,336*
--------- --------- ---------
Net Income $ 81,387 $ 65,285 $ 55,755
========= ========= =========
</TABLE>
*Includes an after-tax gain of $18 million on the sale of the net assets of
Matson Leasing Company, Inc.
See accompanying notes.
<PAGE>
<TABLE>
ALEXANDER & BALDWIN, INC. (Parent Company)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(In thousands)
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operations $ 25,495 $ (5,892) $ (9,405)
-------- -------- --------
Cash Flows from Investing Activities:
Capital expenditures (4,002) (353) (678)
Proceeds from sale (purchase) of
investments - 10,182 (1,514)
Dividends received from subsidiaries 50,000 50,000 70,000
-------- -------- --------
Net cash provided by investing activities 45,998 59,829 67,808
-------- -------- --------
Cash Flows from Financing Activities:
Decrease in due to subsidiaries (18,171) (13,328) (357)
Payments of long-term debt - (850) (6,892)
Proceeds from issuances of capital stock 2,132 1,291 468
Repurchases of capital stock (16,585) (1,250) (11,580)
Dividends paid (39,789) (39,860) (40,035)
-------- -------- --------
Net cash used in financing activities (72,413) (53,997) (58,396)
-------- -------- --------
Cash and Cash Equivalents:
Net increase (decrease) for the year (920) (60) 7
Balance, beginning of year (16) 44 37
-------- -------- --------
Balance, end of year $ (936) $ (16) $ 44
======== ======== ========
Other Cash Flow Information:
Interest paid, net of amounts capitalized $ 197 $ 152 $ 479
Income taxes paid, net of refunds 29,775 26,360 53,014
Other Non-cash Information:
Depreciation 1,019 2,604 3,049
</TABLE>
See accompanying notes.
<PAGE>
ALEXANDER & BALDWIN, INC. (Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
- ---------------------------------------
(a) ORGANIZATION AND OPERATIONS
Alexander & Baldwin, Inc. is the parent company of A&B-Hawaii, Inc. (ABHI) and
Matson Navigation Company, Inc. (Matson). ABHI has principal business
operations of Food Products and Property Development and Management. Matson
has principal business operations of Ocean Transportation and until June 1995,
of Container Leasing. The net assets of Matson Leasing Company, Inc., the
Company's container leasing subsidiary, were sold in June 1995 for $361.7
million in cash. Accordingly, the operating results and the gain on sale of
the container leasing segment have been separately reported.
(b) LONG-TERM LIABILITIES
At December 31, 1997 and 1996, long-term liabilities of $6,355,000 and
$5,740,000, respectively, consisted principally of deferred compensation and
executive benefit plans.
(c) COMMITMENTS AND CONTINGENCIES
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.
At December 31, 1997, the Company did not have any significant firm
commitments.
(d) CASH DIVIDENDS FROM AFFILIATES
Cash dividends from a consolidated subsidiary were $50,000,000 in each of 1997
and 1996 and $70,000,000 in 1995.
EXHIBIT 4.b.(ii)
FIRST AMENDMENT TO
SECOND AMENDED AND RESTATED
REVOLVING CREDIT AND TERM LOAN AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT
AND TERM LOAN AGREEMENT (this "Agreement") is made effective as of the tenth
day of December, 1997, by and among ALEXANDER & BALDWIN, INC.,
a Hawaii corporation (the "Parent"), a Hawaii corporation, A&B-HAWAII, INC., a
Hawaii corporation ("A&B-Hawaii") (the Parent and A&B-Hawaii are hereinafter
referred to jointly and severally as the "Borrowers" and individually as a
"Borrower"), the banks (herein called, individually, a "Bank" and,
collectively, the "Banks") from time to time party to that certain Second
Amended and Restated Revolving Credit and Term Loan Agreement, dated as of
December 31, 1996, (the "Credit Agreement") and FIRST HAWAIIAN BANK, a Hawaii
corporation, as agent for the Banks (the "Agent").
I. BACKGROUND.
----------
A. All capitalized terms used herein shall have the meanings set forth in
the Credit Agreement except as otherwise expressly provided herein.
B. The Banks other than The Bank of New York extended a revolving credit
facility with a term loan feature to the Borrowers pursuant to the terms and
conditions of the Credit Agreement.
C. The Banks which shall have a Commitment hereunder from and after the
date hereof are set forth on Schedule I attached hereto and Credit Lyonnais Los
Angeles Branch shall not have any Commitment hereunder from and after the date
hereof.
D. The parties hereto intend that any outstanding Eurodollar Loan(s) and
CD Loan(s) be repaid and/or reallocated in such a manner as to avoid prepayment
before the expiration of their current Eurodollar Interest Period and CD
Interest Period, as applicable, and that after repayment of any outstanding
Loans from Credit Lyonnais Los Angeles Branch that Credit Lyonnais Los Angeles
Branch shall not be a party to the Credit Agreement or be a "Bank" thereunder.
E. The parties hereto have agreed to amend the Credit Agreement to (i)
extend the Revolving Termination Date, (ii) reallocate the Revolving
Commitments of the Banks as set forth on Schedule I attached hereto, and (iii)
amend Section 7.4 of the Credit Agreement as set forth herein.
F. The Banks are willing to so amend the Credit Agreement in accordance
with the terms and conditions of this Agreement.
II. AGREEMENTS.
----------
In consideration of the mutual covenants set forth herein, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
A. Termination Date. The definition of "Termination Date" in Subsection
---------------- ----------------
9.1 of the Credit Agreement is hereby deleted in its entirety and replaced with
the following:
"Termination Date": shall mean November 30, 1999, or the
----------------
date to which such date is extended from time to time as provided in
Section 1.1B hereof.
B. Schedule I. Schedule I to the Credit Agreement is hereby deleted and
----------
replaced with Schedule I attached hereto. From and after the date hereof,
Credit Lyonnais Los Angeles Branch shall not have any Commitment under the
Credit Agreement.
C. Issuance of Revolving Credit Notes; and Issuance of Rider. On the
---------------------------------------------------------
date hereof, and as a condition to the effectiveness of this Agreement, (i) the
Borrowers shall issue a Revolving Credit Note, dated the date hereof, in the
form of Exhibit A hereto, in the amount of twenty million dollars
($20,000,000.00) to The Bank of New York; and (ii) Borrowers shall issue a
Third Rider to Revolving Credit Note, dated the date hereof, in the form of
Exhibit B hereto, to Union Bank of California.
D. Reallocation of Existing Loans and Repayment of Credit Lyonnais Los
-------------------------------------------------------------------
Angeles Branch.
- --------------
1. If on the date hereof there shall be any outstanding Term Loans or
Prime Loans, on the date hereof with respect to each such Loan, as conditions
to the effectiveness of this Agreement:
(a) Not later than 8:00 am, Hawaii time, the Agent shall advise each
Bank of such Bank's Proportional Share of such outstanding Loans determined in
accordance with the Commitments set forth on Schedule I attached hereto (the
"Revised Proportional Share") and the amount by which such Bank's Revised
Proportional Share exceeds or is less than such Bank's Proportional Share
determined in accordance with the Commitments set forth on Schedule I to the
Credit Agreement (the "Former Proportional Share").
(b) To the extent that any Bank's Revised Proportional Share exceeds
such Bank's Former Proportional Share, such Bank shall, not later than
10:00 am, Hawaii time, provide to the Agent at its office specified in Section
12.4 of the Credit Agreement, immediately available funds in Dollars such
amount together with any accrued but unpaid interest on such amount determined
in accordance the Credit Agreement.
(c) To the extent that any Bank's Former Proportional Share exceeds
such Bank's Revised Proportional Share, the Agent shall, not later than 12:00
noon, Hawaii time, provide to such Bank immediately available funds in Dollars
in such amount together with any accrued but unpaid interest on such amount
determined in accordance the Credit Agreement.
(d) The Agent shall, not later than 12:00 noon, Hawaii time, provide
to Credit Lyonnais Los Angeles Branch, the outstanding principal amount of its
Proportional Share of such Loan(s) with immediately available funds in Dollars
together with any accrued but unpaid interest on such amount determined in
accordance the Credit Agreement.
2. If on the date hereof there shall be any outstanding CD Loans or
Eurodollar Loans, each such outstanding CD Loan and Eurodollar Loan shall
remain in effect until the expiration date(s) of the current related Eurodollar
Interest Period(s) or CD Interest Period(s), as applicable. If the Borrowers
have elected pursuant to Section 1.7 B. of the Credit Agreement to extend such
Loan(s), such outstanding Loan(s) shall be reallocated and repaid in the manner
specified in subsections (a) through (d) below. Any such Loan(s) converted to
a Prime Loan pursuant to said Section 1.7 B. shall be reallocated and repaid in
the manner specified in Subsections (a) through (d) of Section II. D. 1.,
above, on the last day of the relevant CD Interest Period or Eurodollar
Interest Period.
(a) Not later than 8:00 am, Hawaii time, on the second Business
Domestic Day or Eurodollar Business Day, as applicable, prior to the last day
of the relevant CD Interest Period or Eurodollar Interest Period, the Agent
shall advise each Bank of such Bank's Revised Proportional Share of such
outstanding Loan and the amount by which such Bank's Revised Proportional Share
exceeds or is less than such Bank's Former Proportional Share.
(b) To the extent that any Bank's Revised Proportional Share exceeds
such Bank's Former Proportional Share, such Bank shall, not later than
10:00 am, Hawaii time, on the last day of such CD Interest Period or Eurodollar
Interest Period provide to the Agent at its office specified in Section 12.4 of
the Credit Agreement, immediately available funds in Dollars such amount
together with any accrued but unpaid interest on such amount determined in
accordance the Credit Agreement.
(c) To the extent that any Bank's Former Proportional Share exceeds
such Bank's Revised Proportional Share, the Agent shall, not later than 12:00
noon, Hawaii time, on the last day of such CD Interest Period or Eurodollar
Interest Period, provide to such Bank immediately available funds in Dollars in
such amount together with any accrued but unpaid interest on such amount
determined in accordance the Credit Agreement.
(d) The Agent shall, not later than 12:00 noon, Hawaii time, on the
last day of such CD Interest Period or Eurodollar Interest Period, provide to
Credit Lyonnais Los Angeles Branch, the outstanding principal amount of its
Proportional Share of such Loan(s) with immediately available funds in Dollars
together with any accrued but unpaid interest on such amount determined in
accordance the Credit Agreement.
3. On the date on which Credit Lyonnais Los Angeles Branch shall have
received repayment in full of all Loans made by Credit Lyonnais Los Angeles
Branch and any other amounts payable to or on account of Credit Lyonnais Los
Angeles Branch, Credit Lyonnais Los Angeles Branch shall cease to be a party to
the Credit Agreement, shall cease for all purposes to be a Bank hereunder and
Credit Lyonnais Los Angeles Branch shall return to the Agent for cancellation
by the Borrowers the Revolving Credit Note, dated December 29, 1992, in the
amount of twenty-five million dollars ($25,000,000.00);
E. Sale of Assets. Section 7.4 of the Credit Agreement is hereby
--------------
deleted in its entirety and replaced with the following:
Section 7.4 Sale of Assets. Each Borrower agrees that it
--------------
will not, and Parent agrees that it will not permit Matson or any
Subsidiary of Matson to, sell the accounts, contract rights
or receivables pertaining to its business or sell, lease,
abandon or otherwise dispose of, directly or indirectly, its
assets or any portion thereof except in the ordinary course
of business; provided, however, that the Borrowers, Matson
-------- -------
or any Subsidiary of Matson may discontinue or sell the operations of
any division of its business (other than discontinuing or
selling the Borrowers' HC&S division substantially in its
entirety), or otherwise may dispose of any operation, right,
privilege or property, if management shall deem the same
advisable in the interest of the business of such Borrower
and of Matson and Matson's Subsidiaries, subject to the
provisions of Section 7.5 hereof, and subject to the further
provisions that, (i) in any fiscal year, the aggregate value
of all such dispositions not in the ordinary course of
business shall not exceed twenty percent (20%) of
Consolidated Total Assets, and (ii) from and after September
30, 1996, the aggregate value of all such dispositions not
in the ordinary course of business shall not exceed three
hundred sixty million dollars ($360,000,000), provided that
--------
at any time such assets disposed of since the beginning of the most
recently ended fiscal year shall not have contributed more
than an average of twenty percent (20%) of Parent's
Consolidated Net Income during the two most recently ended
fiscal years and, provided further that the proceeds of any
---------------
such dispositions in excess of one hundred million dollars
($100,000,000) after September 30, 1996 shall be applied to
the repayment of Funded Indebtedness. Sales of assets from
the Borrowers' property management and development
activities, and sales of marketable securities owned by the
Parent and that are not securities issued by a Subsidiary
shall be deemed within the ordinary course of business.
Nothing in this Section 7.4 shall restrict any transfer of
any assets from A&B-Hawaii to the Parent at any time or from
time to time.
F. Notices. Section 12.4 of the Credit Agreement is hereby amended to
-------
add to the phrase "The Banks: At the addresses indicated on the signature
---------
pages below" the following:
"or, if modified, on the signature pages of any amendment or supplement
hereto."
G. Confirmation of Warranties and Covenants; No Event of Default. All of
-------------------------------------------------------------
the continuing warranties of the Borrowers contained in the Credit Agreement,
are hereby confirmed and reaffirmed by the Borrowers as being true, valid and
correct as of the date of this Agreement. The Borrowers represent and warrant
that no Event of Default exists as of the date of this Agreement.
H. No Defenses. The Borrowers acknowledge that the neither of them has
-----------
any offsets, counterclaims, deductions, or defenses to payment or performance
of its duties and obligations under the Credit Agreement.
I. Full Force and Effect. The provisions of the Credit Agreement are
---------------------
hereby amended to conform with this Agreement, and in the event of any conflict
between the provisions of this Agreement and the provisions of the Credit
Agreement, the provisions of this Agreement shall control; but in all other
respects, the provisions of the Credit Agreement shall continue in full force
and effect.
J. Rights of the Banks. This Agreement is made on the express condition
-------------------
that nothing contained herein shall in any way be construed as affecting,
impairing, or waiving any rights of the Banks under the Credit Agreement.
K. Bind and Inure. This Agreement shall be binding upon and inure to the
--------------
benefit of the Banks, the Borrowers and their respective successors and
assigns.
L. Applicable Law; Severability. This Agreement shall be governed by and
----------------------------
interpreted in accordance with the laws of the State of California. If any
provision of this Agreement is held to be invalid or unenforceable, the
validity or enforceability of the other provisions shall remain unaffected.
M. Paragraph Headings. The headings of paragraphs in this Agreement are
------------------
inserted only for convenience and shall in no way define, describe, or limit
the scope or intent of any provision of this Agreement.
N. Counterparts. The parties to this Agreement agree that this Agreement
------------
may be executed in counterparts, each of which shall be deemed an original, and
said counterparts shall together constitute one and the same agreement, binding
all of the parties hereto, notwithstanding all of the parties are not signatory
to the original or the same counterparts. In making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart. For all purposes, including, without limitation, recordation and
delivery of this Agreement, duplicate unexecuted and unacknowledged pages of
the counterparts may be discarded and the remaining pages assembled as one
document.
[REST OF PAGE LEFT INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ALEXANDER & BALDWIN, INC. FIRST HAWAIIAN BANK
By /s/ Thomas A. Wellman By /s/ Adolph F. Chang
-------------------------------- -------------------------------
Its Controller & Asst. Treasurer Its Vice President
As a "Bank" and as "Agent"
By /s/ G. R. Rogers
--------------------------------
Its Exec. VP, CFO & Treasurer BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
A&B-HAWAII, INC. By /s/ James P. Johnson
-------------------------------
By /s/ Thomas A. Wellman Its Managing Director
--------------------------------
Its VP, Controller & Asst. Treasurer As a "Bank" and as "Co-Agent"
By /s/ G. R. Rogers THE UNION BANK OF CALIFORNIA,N.A.
--------------------------------
Its Senior VP, CFO & Treasurer
By /s/ John C. Lee
"Borrowers" -------------------------------
Its Assistant Vice President
As a "Bank"
CREDIT LYONNAIS
LOS ANGELES BRANCH
BANK OF HAWAII
By /s/ Dianne M. Scott
-------------------------------- By /s/ Robert M. Wheeler, III
Its Vice President and Manager -------------------------------
Its Vice President
As a "Departing Bank"
As a "Bank"
THE BANK OF NEW YORK
By /s/ Elizabeth T. Ying
-------------------------------
Its Vice President
As a "Bank"
The Bank of New York
10990 Wilshire Boulevard
Suite 1125
Los Angeles, CA 90024
Attn: Ms. Elizabeth T. Ying
Vice President
Telephone: (310) 996-8661
Facsimile: (310) 996-8667
<PAGE>
SCHEDULE I
Commitments
-----------
First Hawaiian Bank $ 45,000,000
Bank of America National
Trust and Savings Association 45,000,000
Bank of Hawaii 30,000,000
The Union Bank of California, N.A. 15,000,000
The Bank of New York 20,000,000
------------
TOTAL $155,000,000
<PAGE>
EXHIBIT A
REVOLVING CREDIT NOTE
$20,000,000 San Francisco, California
--------------, 1997
ALEXANDER & BALDWIN, INC., a Hawaii corporation and A&B-HAWAII,
INC., a Hawaii corporation (hereafter referred to jointly and severally as the
"Borrowers"), FOR VALUE RECEIVED, hereby jointly and severally promise to pay
to the order of THE BANK OF NEW YORK (the "Payee") at the offices of First
Hawaiian Bank, a Hawaii corporation located at 999 Bishop Street, Honolulu,
Hawaii, the principal sum of Twenty Million Dollars ($20,000,000), on the
Termination Date (as defined in the Agreement referred to below) in lawful
money of the United States of America and in immediately available funds.
The Borrowers jointly and severally promise also to pay interest on
the unpaid principal amount thereof in like money and funds at said office from
the date hereof until paid at the rates per annum which will be determined in
accordance with the provisions of Article I and Article II of the Second
Amended and Restated Revolving Credit and Term Loan Agreement (the "Agreement")
effective as of December 31, 1996, among the Borrowers, the Payee and the other
banks party thereto, said interest to be payable at the times provided for in
the Agreement.
This Note is one of the Notes referred to in the Agreement and is
entitled to the benefits thereof. This Note is subject to prepayment, in whole
or in part, as specified in the Agreement. In case an Event of Default, as
defined in the Agreement, shall occur and shall be continuing, the principal of
and accrued interest on this Note may become due and payable in the manner and
with the effect provided in the Agreement.
The Borrowers hereby waive presentment, demand, protest or notice
of any kind in connection with this Note.
This Note shall be governed by and construed in accordance with the
laws of the State of California.
ALEXANDER & BALDWIN, INC.
By
---------------------------------------
Its
By
---------------------------------------
Its
A&B-HAWAII, INC.
By
---------------------------------------
Its
By
---------------------------------------
Its
<PAGE>
EXHIBIT B
THIRD RIDER TO REVOLVING CREDIT NOTE
(UNION BANK OF CALIFORNIA)
This Third Rider to Revolving Credit Note, dated as of ,
, -----------
1997, by and between Alexander & Baldwin, Inc., a Hawaii corporation, A&B-
Hawaii, Inc., a Hawaii corporation (jointly and severally, the "Borrowers"),
and Union Bank of California, N.A. (formally, The Bank of California, N.A., the
"Bank") amends and is to be attached to the Revolving Credit Note dated
April 1, 1989 in the original principal amount of $20,000,000 issued by the
Borrowers in favor of the Bank (the "Revolving Credit Note"), which Revolving
Credit Note was amended by the First Rider to Revolving Credit Note dated
November 26, 1991 and as further amended by the Second Rider to Revolving
Credit Note dated December 29, 1992.
The Borrowers and Bank hereby agree as follows:
1. Amendment. The number "10,000,000" in each instance it appears
---------
in the Revolving Credit Note, as amended, shall be increased to "15,000,000,"
and the words "Ten Million Dollars" shall be changed to "Fifteen Million
Dollars."
2. Continuation. Except as expressly amended hereby, the
------------
Revolving Credit Note, as amended, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Third Rider as
of the date first written above.
ALEXANDER & BALDWIN, INC.,
a Hawaii corporation
By
---------------------------------------
Its
By
---------------------------------------
Its
A&B-HAWAII, INC.,
a Hawaii corporation
By
---------------------------------------
Its
By
---------------------------------------
Its
UNION BANK OF CALIFORNIA, N.A.,
By John C. Lee
---------------------------------------
Its Assistant Vice President
EXHIBIT 10.a.(xix)
FIFTH AMENDMENT TO GRID NOTE
----------------------------
THIS AMENDMENT TO GRID NOTE executed this 28 day of November, 1997,
and effective as of the first day of December 1997, by and between ALEXANDER &
BALDWIN, INC., a Hawaii corporation, and A&B-HAWAII, INC., a Hawaii corpor-
ation, hereinafter collectively called the "Maker", and FIRST HAWAIIAN BANK,
a Hawaii corporation, hereinafter called the "Bank";
W I T N E S S E T H T H A T:
-----------------------------
WHEREAS, the Bank has extended to the Maker that certain uncommitted line
of credit facility in the principal amount not to exceed FORTY MILLION AND
NO/100 DOLLARS ($40,000,000.00) which line of credit is evidenced by that
certain Grid Note (the "Note") dated December 30, 1993, with a final maturity
of said Note being November 30, 1994; and
WHEREAS, the Maker and the Bank subsequently entered into that certain
Amendment to Grid Note dated August 31, 1994, whereby the Note was increased to
SIXTY FIVE MILLION AND NO/100 DOLLARS ($65,000,000.00), and was extended to
November 30, 1995; and
WHEREAS, the Maker and the Bank subsequently entered into that Second
Amendment to Grid Note dated March 29, 1995, whereby the Note was decreased to
FORTY-FIVE MILLION AND NO/100 DOLLARS ($45,000,000.00), and Section 4 of the
Note, entitled "Limitation." was deleted in its entirety and replaced; and
----------
WHEREAS, the Maker and the Bank subsequently entered into that Third
Amendment to Grid Note dated November 17, 1995, whereby the Note was extended
to November 30, 1996; and
WHEREAS, the Maker and the Bank subsequently entered into that Fourth
Amendment to Grid Note dated November 25, 1996, whereby the Note was extended
to November 30, 1997; and
WHEREAS, the Maker and the Bank desire to further amend the Note as
hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Maker and the Bank agree as follows:
THE NOTE, AS AMENDED, SHALL BE AND HEREBY IS FURTHER AMENDED TO PROVIDE
THAT ALL UNPAID PRINCIPAL AND ACCRUED BUT UNPAID INTEREST SHALL BE DUE AND
PAYABLE ON NOVEMBER 30, 1998, UNLESS SOONER DUE AS OTHERWISE PROVIDED IN THE
NOTE, AS AMENDED.
In all other respects, the Note, as amended, shall remain unmodified and
in full force and effect, and the Maker hereby reaffirms all of its obligations
under the Note, as previously amended, and as amended hereby. Without limiting
the generality of the foregoing, the Maker hereby expressly acknowledges and
agrees that, as of the date of this FIFTH AMENDMENT TO GRID NOTE, the Maker has
no offsets, claims or defenses whatsoever against the Bank or against any of
the Maker's obligations under the Note, as previously amended, and as amended
hereby.
IN WITNESS WHEREOF, this Fifth Amendment to Grid Note is executed by the
undersigned parties as of this 28 day of November, 1997.
ALEXANDER & BALDWIN, INC., FIRST HAWAIIAN BANK,
a Hawaii Corporation a Hawaii Corporation
By /s/ Thomas A. Wellman By /s/ Adolph F. Chang
---------------------- ---------------------------
Its Controller & Asst. Treasurer Its Vice President
By /s/ John B. Kelley
----------------------
Its Vice President
A&B-HAWAII, INC.,
a Hawaii Corporation
By /s/ Thomas A. Wellman
----------------------
Its Vice President, Controller & Asst. Treasurer
By /s/ John B. Kelley
----------------------
Its Vice President
EXHIBIT 10.b.1.(ii)
ALEXANDER & BALDWIN, INC.
RESTRICTED STOCK BONUS PLAN
Amendment No. 1
---------------
The Alexander & Baldwin, Inc. Restricted Stock Bonus Plan, restated
effective April 28, 1988 (the "Plan"), is hereby amended, effective December
11, 1997, as follows:
1. Section III.A. is hereby replaced in its entirety with the
following:
"A. The maximum number of shares of Common Stock issuable under
this Plan shall not exceed 1,040,000 shares (as adjusted through, and
including an additional 500,000 shares of Common Stock made available
on, December 11, 1997), subject to adjustment under paragraph B below.
Shares of Common Stock shall be made available for issuance under this
Plan solely and exclusively from Common Stock reacquired by the
Company and held as treasury shares."
2. Except as modified by this Amendment No. 1, all terms and provisions
of the Plan shall continue in full force and effect.
IN WITNESS WHEREOF, Alexander & Baldwin, Inc. has caused this Amendment to
be executed on its behalf by its duly authorized officers this 11th day of
December, 1997.
ALEXANDER & BALDWIN, INC.
By /s/ Miles B. King
Its Vice President
By /s/ Alyson J. Nakamura
Its Assistant Secretary
EXHIBIT 10.b.1.(xx)
A&B EXCESS BENEFITS PLAN
Amendment No. 2
--------------
The A&B Excess Benefits Plan, as amended and restated effective February
1, 1995, is hereby amended, effective January 1, 1994, as follows:
1. Appendix B is hereby replaced in its entirety with the new Appendix B
attached hereto.
2. Except as modified by this Amendment, all terms and provisions of the
A&B Excess Benefits Plan shall continue in full force and effect.
IN WITNESS WHEREOF, Alexander & Baldwin, Inc. has caused its authorized
officers to affix the corporate name and seal hereto this 10th day of December
1997.
ALEXANDER & BALDWIN, INC.
By /s/ Miles B. King
Its Vice President
By /s/ Alyson J. Nakamura
Its Assistant Secretary
<PAGE>
<TABLE>
<CAPTION>
APPENDIX B
Participant's Name Fixed Spouse's Name
- ---------------------------- Date of Monthly Variable -------------------------- Date of Monthly
First MI Last Birth Benefit* Units First MI Last Birth Benefit**
- ----- -- ---- ------- -------- -------- ----- -- ---- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Paul A. Cooper 7/15/05 437.67 None
Edwin R. Duncan 4/08/20 396.36 Jean K. Duncan 4/02/19 66 2/3%
Harry J. Fitzgerald 10/26/19 358.58 Kathryn T. Fitzgerald 5/16/26 50%
Donald W. Hare 5/14/19 748.20 Dorothy P. Hare 5/21/19 66 2/3%
Lawrence A. Lindsay 2/25/25 786.04 Rita A. Lindsay 4/05/25 66 2/3%
Neil L. Pennington 5/12/23 613.16 Frances M. Pennington 5/28/25 66 2/3%
Frederick W. Schwer 4/26/19 228.40 Christine W. Schwer 8/14/18 66 2/3%
Lawson U. Williams 1/01/19 350.33 Mildred A. Williams 7/03/20 66 2/3%
Emmett V. Donovan (d) 11/06/18 304.05 June Donovan 6/10/22 66 2/3%
Edward F. Harder (d) 1/07/19 605.28 Bette Harder 3/02/20 66 2/3%
Robert O. Nagle (Note 1) 2/10/29 1333.50 658.85 Louise H. Nagle 2/06/28 100%
Robert O. Nagle (Note 2) 2/10/29 222.53 658.85 Louise H. Nagle 2/06/28 100%
Harold R. Somerset 9/25/35 801.30 190.69 Jean M. Somerset 10/26/36 66 2/3%
William H. Stewart 9/01/29 156.51 Margaret C. Stewart 5/23/29 66 2/3%
Deferred Vested Participant
- ---------------------------
Raymond L. Knecht 4/19/48 48.43
</TABLE>
* The fixed monthly benefit payable plus the current value of the variable
units are payable to the participant during the participant's lifetime
except if payment option is a 66-2/3% (last survivor). In such case, if
either participant or spouse dies, the survivor will receive 66-2/3% of
the fixed monthly benefit or the current value of the variable units.
The current value of the variable units shall be determined in the same
way such value is determined under the provisions of the C and H Pension
Plan for Salaried Employees.
** The monthly benefit equal to the percentage shown multiplied times the
participant's monthly benefit is payable to the spouse named above after
the death of the participant during the spouse's lifetime.
(d) Deceased.
Note 1: The preceding footnotes notwithstanding, this benefit shall not be
payable to Mr. Nagle or his surviving spouse on or after March 1, 1994.
Note 2: The preceding footnotes notwithstanding, this benefit shall only be
payable to Mr. Nagle or his surviving spouse on or after March 1, 1994.
<PAGE>
<TABLE>
EXHIBIT 11
ALEXANDER & BALDWIN, INC.
COMPUTATION OF EARNINGS PER SHARE
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(In thousands, except per share amounts)
<CAPTION>
1997 1996 1995
---- ---- ----
Basic Earnings Per Share
- ------------------------
<S> <C> <C> <C>
Income from continuing operations $ 81,387 $ 65,285 $ 32,419
Income from discontinued operations - - 23,336
--------- --------- ---------
Net income $ 81,387 $ 65,285 $ 55,755
========= ========= =========
Average number of shares outstanding 45,182 45,303 45,492
========= ========= =========
Basic earnings per share from
continuing operations $ 1.80 $ 1.44 $ 0.72
Basic earnings per share from
discontinued operations - - 0.51
--------- --------- ---------
Basic earnings per share $ 1.80 $ 1.44 $ 1.23
========= ========= =========
Diluted Earnings Per Share
- --------------------------
Income from continuing operations $ 81,387 $ 65,285 $ 32,419
Income from discontinued operations - - 23,336
--------- ---------- ---------
Net income $ 81,387 $ 65,285 $ 55,755
========= ========= =========
Average number of shares outstanding 45,182 45,303 45,492
Effect of assumed exercise of
outstanding stock options 127 72 25
--------- --------- ---------
Average number of shares outstanding
after assumed exercise of
outstanding stock options 45,309 45,375 45,517
========= ========= =========
Diluted earnings per share from
continuing operations $ 1.80 $ 1.44 $ 0.72
Diluted earnings per share from
discontinued operations - - 0.51
--------- --------- ---------
Diluted earnings per share $ 1.80 $ 1.44 $ 1.23
========= ========= =========
</TABLE>
EXHIBIT 13
Alexander & Baldwin, Inc. 1997 Annual Report Hawaii and Beyond
"Hawaii has always presented special challenges, as well as unique
opportunities, for those wishing to do business here. Over time, but especially
in today's increasingly dynamic global economy, the arena in which Hawaii
competes is becoming larger, and the standards it must meet are being raised
constantly by competitors we don't even know...
[Photo caption: On the cover: A&B's operations, in Hawaii and beyond, are
symbolized by the intense beauty of the Hawaiian Islands and the Pacific Ocean,
as seen from a NASA satellite. Hawaii's islands are unique, geographically
remote and remain at the center of A&B's increasingly diversified business
portfolio. Photo courtesy of NASA.]
[Photo caption: Facing page: Providing for a new type of visitor, the stunning
new Hawaii Convention Center is in "soft opening" status early in 1998. With
200,000 square feet of exhibit space, this state-of-the-art center leads the
renewal of Waikiki, the heart of Hawaii's visitor industry.]
<PAGE>
Managing a diverse portfolio of outstanding properties on the Mainland, adding
new shipping routes in the Pacific, selling high-quality, branded sugar
products throughout the Western states and premium estate-grown coffee in Japan
and on the Mainland - A&B is stretching beyond its Hawaii roots for earnings
growth and diversity."
John C. Couch
Chairman of the Board,
President and Chief Executive Officer
Alexander & Baldwin, Inc.
[Photo caption: Selective real estate investment beyond Hawaii's shores is
illustrated by the Island Village Shopping Center, in Bainbridge Island, Wash.
With the Northwest economy growing steadily, this and other Company
investments in the area continue to increase in value.]
<PAGE>
CORPORATE PROFILE
Contents
Corporate Profile 4
Financial Highlights 4
Letter to Shareholders 5
Review of Operations 10
Financial Report 21
Quarterly Results 41
General Information 41
Directors and Officers 42
Alexander & Baldwin, Inc. is a diversified corporation with most of its
operations centered on Hawaii. Its principal businesses are:
OCEAN TRANSPORTATION
Carrying freight, primarily between Pacific Coast ports, Hawaii ports and Guam
Conducting related shoreside operations
Arranging domestic intermodal transportation
PROPERTY DEVELOPMENT & MANAGEMENT
Developing real property, primarily in Hawaii
Selling residential and commercial property
Managing a portfolio of commercial properties
FOOD PRODUCTS
Growing sugar cane and producing raw sugar
Refining raw sugar, marketing and distributing refined sugar products
Growing, marketing and distributing coffee
Alexander & Baldwin was founded in 1870 and incorporated in 1900. A&B's
corporate headquarters are located in Honolulu, Hawaii. Its common stock is
traded on the NASDAQ Stock MarketSM under the symbol ALEX.
Financial Highlights
1997 1996 Change
Revenue $1,275,445,000 $1,239,810,000 3%
Net Income $ 81,387,000 $ 65,285,000 25%
Per Share $ 1.80 $ 1.44 25%
Cash Dividends $ 39,789,000 $ 39,860,000 -0.2%
Per Share $ 0.88 $ 0.88 -
Average Shares Outstanding 45,182,000 45,303,000 -0.3%
Total Assets $1,704,798,000 $1,796,115,000 -5%
Shareholders' Equity $ 719,588,000 $ 684,328,000 5%
Per Share $ 16.03 $ 15.09 6%
Return on Beginning
Shareholders' Equity 11.9% 10.0% -
Current Ratio 1.7 to 1 1.4 to 1 -
Debt/Debt + Equity 0.32 to 1 0.40 to 1 -
Employees 2,930 2,960 -1%
A&B OPERATING PROFIT BY SEGMENT (In thousands)
Reference: Industry Segment Information (pg. 24)
1992 $113,460
1993 $147,788
1994 $141,729
1995 $100,125
1996 $150,883
1997 $167,893
<PAGE>
LETTER TO SHAREHOLDERS
SHARES OUTSTANDING
(At year-end, in thousands)
1992 46,333
1993 46,404
1994 45,691
1995 45,280
1996 45,339
1997 44,881
[Photo caption: John C. Couch, Chairman of the Board, President and Chief
Executive Officer, Alexander & Baldwin, Inc.]
A&B did well in 1997. We made significant progress in a number of areas,
although overall profitability levels still fell short of our goals. Total
sales grew to a record level. Net income was the highest in six years.
Shareholders' equity rose to a new high and total debt was reduced to the
lowest level in eight years. The Company paid out 49 percent of its earnings
in dividends, and continued the share repurchase program that has resulted in
the retirement of 2 million shares since it began four years ago.
The persistent weakness of the Hawaii economy-the primary market for our major
business segments-again proved to be a major obstacle to greater success.
Nevertheless, we continued to benefit from the strategy of building on the
strengths of our core businesses and expanding those businesses beyond Hawaii.
That increasing geographic diversification contributed significantly to the
success we did achieve.
There were few surprises in 1997. It was the seventh consecutive year in which
there was little or no growth in the Hawaii economy. That stagnation only
reinforced our commitment to continue seeking expansion opportunities beyond
the State. The strength of our core ocean transportation, real estate and food
products businesses has permitted us to edge out into other markets over the
past few years. By so doing, we have broadened our revenue base and enhanced
the Company's earnings potential. In 1997, nearly 60 percent of total revenue
was generated by business activities outside Hawaii. Those activities included
the operations of various A&B subsidiaries which provide Guam and Pacific Coast
shipping services, stevedoring and marine terminal services in U.S. West Coast
ports, and domestic intermodal transportation services. They also include the
Company's income property portfolio, and sugar refining and distribution
activities on the Mainland.
1997 Financial Results Good - Boosted by Insurance Settlement
NET INCOME
EARNINGS PER SHARE
1992 $0.41
1993 $1.45
1994 $1.62
1995 $1.23
1996 $1.44
1997 $1.80
TOTAL DEBT
(In thousands)
1990 $423,783
1991 $543,701
1992 $635,690
1993 $713,789
1994 $654,682
1995 $523,430
1996 $463,739
1997 $344,370
Even without a welcome financial boost from an insurance settlement, the
Company's earnings from continuing operations were the highest in six years.
The favorable settlement related to an insurance claim for damage to a marine
container terminal in Oakland, Calif., during the 1989 Loma Prieta earthquake.
Including reimbursed costs, interest and punitive damages, it added $20.0
million to 1997 pretax income.
Including the settlement, A&B's 1997 net income was $81.4 million, an increase
of $16.1 million, or 25 percent, from 1996's reported net income of $65.3
million. Earnings per share were $1.80 versus $1.44 in 1996.
Excluding the insurance settlement and three other beneficial, but unusual,
one-time factors, 1997 net income would be $68.3 million, which is an increase
of $9.5 million, or 16 percent, above the $58.8 million in comparable earnings
for 1996. Specifically, on an after-tax basis, the insurance settlement added
$12.5 million, or $0.28 per share in 1997. In 1996, a special charter payment
for certain vessels contributed $3.5 million, or $0.08 per share. Net income in
both 1997 and 1996 benefited from reversals of portions of a financial reserve
that was set up to cover the costs of closing a sugar plantation. (Actual
closing costs were less than expected.) These reserve reversals boosted 1997
income by $0.6 million, or $0.01 per share, and 1996 results by $2.9 million,
or $0.06 per share.
At the end of 1997, A&B's ratio of debt to total capital was 32 percent, versus
40 percent a year earlier. Cash and securities held at year-end exceeded $250
million. This improved capital structure and financial strength greatly
enhances the Company's capability to meet future investment needs.
In 1997, a net total debt repayment of $119.6 million was made. A&B's "free"
cash flow, i.e., cash flow from operations less cash used for investing, was
$133.4 million. That cash, plus $38.3 million from the Capital Construction
Fund, was used to reduce the debt, to pay out $39.8 million in dividends and to
repurchase $16.6 million in stock.
The annual dividend rate was $0.88 per share during 1997. Since the end of the
year, however, the Board raised it to $0.90 per share, or $0.225 a quarter,
effective the first quarter of 1998.
Business Segment Highlights
Foremost among the notable accomplishments of the year was the success of
Matson Navigation Company, Inc.'s (Matson's) trans-Pacific shipping alliance
with American President Lines, Ltd. (APL). The alliance completed its first
full year of operation in 1997 by exceeding forecast earnings. Started early in
1996, this alliance initially involved five ships serving the U.S. West Coast,
Hawaii, Guam and the Far East.
During 1997, there were discussions about how the alliance might be
restructured to provide better service and even better results. Agreement
subsequently was reached with APL on a new alliance structure, which will
improve Matson's competitive position in the Guam market and reduce its
operating costs. The new alliance, involving three Matson ships and three APL
ships, will serve ports in Mexico, the U.S. West Coast, Guam and the Far East.
The transition to the new fleet alignment began in January 1998.
Other Matson achievements included the continued strong growth of its inter-
modal (overland) transportation services subsidiary, Matson Intermodal System,
Inc., which increased revenue 29 percent to $96.7 million. Also, in Matson's
Pacific Coast service, the volume of loaded commercial containers carried
increased more than 50 percent. Operating between Los Angeles, Seattle and
Vancouver, B.C., this three-year-old service continues to gain additional
support from shippers seeking an alternative to rail and truck movement along
the West Coast.
Somewhat offsetting those successes were extraordinary difficulties which
continued to be encountered in West Coast ports because of labor shortages,
poor productivity due to lingering contract disputes, and congestion caused by
the Union Pacific Railroad Company's problems in Southern California. As a
result of all of these factors, cargo handling costs rose 10-15 percent above
normal levels. As the year drew to a close, industry and Company efforts to
resolve the problems began to produce better results. Improved performance is
expected in all ports during 1998.
To deal with similar issues more effectively over the long term, Matson is
planning the development of new, larger and more efficient marine terminals in
Los Angeles and Seattle, and is significantly restructuring its operations in
Oakland.
Another factor affecting Matson during the year, of course, was the lackluster
Hawaii economy, particularly the depressed construction industry, which
precluded any growth in cargo volume in Matson's core Hawaii service.
A&B-Hawaii, Inc.'s property development and management operations continued to
be strong and made a solid contribution in 1997. Again, the geographic
diversity of the Company's income properties (three million square feet under
lease in six Western states) proved beneficial. The robust Mainland economy
kept occupancy levels high, raised property values and produced some attractive
sales opportunities. An industrial property in Fremont, Calif., was sold in May
and a sale is pending on at least one other California property. All of these
sales proceeds were reinvested in other income properties to expand our
portfolio in Hawaii and on the Mainland. For example, the Company acquired a
regional shopping center in Indian Wells, Calif., early in the year in a tax-
deferred exchange under IRC Section 1031. And in Hawaii, where the soft office
market is producing excellent purchase opportunities, we acquired two small
office buildings at attractive prices. At the same time, the market for new
commercial space on Maui remained active but highly selective. Several
existing, as well as newly developed, commercial properties were sold by the
Company at favorable prices. Finally, residential property sales on Maui
proceeded at a good pace in spite of the weak economy.
During the year, we examined the possibility of establishing a real estate
investment trust, or REIT, for our income properties, but concluded that the
disadvantages outweighed the advantages at this time. The close relationship
(operational and financial) between the Company's development and leasing
activities, and the size, location and mix of our income properties, were all
factors we considered in reaching this conclusion. We intend to continue to
grow the Company's property development and leasing business in the years
ahead. To the extent a REIT structure remains an available and appropriate
option for the Company, it will be reexamined periodically.
The year's results were decidedly more mixed for our food products business
segment. California and Hawaiian Sugar Company, Inc. (C&H), our West Coast
sugar refinery, had another good year, benefiting from favorable market condi-
tions and from its new, lower-cost structure. Unfortunately, market conditions
in 1998 do not now appear as promising as they were in 1996-97.
We continue to explore possible strategic alliances for C&H that would enhance
its long-term potential. In today's rapidly changing domestic sweetener market,
alliances with other firms in the industry offer growth opportunities not now
available to C&H alone.
C&H's 1997 success was almost completely offset by extremely disappointing
results at our 37,000-acre Maui sugar plantation. Problems with a new sugarcane
variety depressed yields per acre to the point that the plantation lost money
for the first time in many years. Total production was slightly below 200,000
tons, about eight-percent below target levels. Steps now being taken should
improve that situation in the next year or two, when total annual production
again should reach 210,000-220,000 tons.
[Photo caption: After harvest, sugar cane travels on a plantation road network
to HC&S' two mills in 65-ton haulers, like this one. Bulk raw sugar then is
shipped to C&H for refining into more familiar sugar products.]
The Company's other crop, coffee grown on Kauai, did much better. Kauai Coffee
Company, Inc. produced a record harvest exceeding four million pounds, up more
than 70 percent from the prior year. That total was nearly 60 percent of the
coffee grown in the State. Increased sales in Japan and increasing support from
Mainland roasters for this new estate-grown Hawaiian coffee bode well for its
future. A new visitors' center, now under construction at our 4,000-acre
plantation on Kauai, will enhance consumer-marketing efforts when it opens this
summer.
Hawaii's Economy
STATE OF HAWAII % CHANGE IN
REAL GROSS STATE PRODUCT
1985 4.8
1986 5.4
1987 3.6
1988 5.9
1989 4.8
1990 3.4
1991 -0.4
1992 0.9
1993 0.4
1994 0.0
1995 0.5
1996 0.9
1997 0.9
While the Company continues to grow beyond Hawaii, its core business operations
remain focused on the Islands. We, therefore, are concerned about the State's
lackluster economy and the prospects for its revitalization.
Largely propelled by external events, Hawaii's economy grew at the spectacular
rate of four percent per year, on an inflation-adjusted basis, for the 30 years
following statehood in 1959. For complex reasons, little or no growth has
occurred since then. The State remains a special place, but its extraordinary
economic success during those 30 years and its remoteness did not prepare it
well to compete effectively in today's more demanding and increasingly
interconnected global economy.
Although Hawaii remains remote, it no longer is isolated from economic events
around the world. The State's lack of competitiveness in a number of areas has
contributed to its economic stagnation. For example, Hawaii has the highest
cost of doing business of all 50 states and its state and local tax burden is
one of the heaviest in the country. Excessive regulation and duplication of
services by state and county governments are other concerns. Unfortunately,
it has taken seven years of dismal economic news for many in the community to
realize that "business as usual" has been leading the State nowhere.
Last fall, the Governor formed an Economic Revitalization Task Force of leaders
from a broad cross section of the community. Over several months, the Task
Force developed recommendations for consideration by the State Legislature this
winter. Bold initiatives, ranging from substantial tax cuts to more autonomy
for the University of Hawaii, were advanced and are now being debated in the
State House and Senate. The prospects for success of these initiatives remain
uncertain, but many now believe significant change is required and that it is
time to act. Hopefully, the vigorous debate now taking place will produce some
meaningful change. I have the privilege of serving on the Governor's Task Force
and continue to work with other A&B employees and community leaders to advocate
changes that will help serve as catalysts for renewed economic growth.
At this point, however, little, if any, growth is forecast for the State's
economy in 1998. Looking ahead, we do not yet know precisely what impact the
economic troubles in Asia will have on Hawaii, but clearly they will not be
favorable.
On the other hand, there are some positive developments to point to. To cite a
few, sales of existing homes were up last year; the new Hawaii Convention
Center will open formally in June 1998 with a backlog of more than 50 bookings;
plans are being developed for lengthening the airport runways on Maui and Kauai
(to permit more direct flights to and from the Mainland and abroad); domestic
airlines have announced additional flights to the Islands; several major
government and private construction projects have been announced; and
Continental Airlines has agreed to locate a new regional maintenance facility
in Honolulu. In addition, the strength of the Mainland economy should help
boost the number of westbound visitors to the Islands.
Acknowledgements
A&B's 127th year presented its share of challenges. In spite of the adversity
faced during the year, the Company grew and became stronger financially. It is
now better positioned than ever to deal with the challenges ahead and better
prepared to take advantage of opportunities as we continue to grow with and
beyond Hawaii.
As has been the case at other times in the past, the skill, dedication and hard
work of Company employees kept us moving forward. I am proud of their
accomplishments, and gratefully acknowledge their many contributions to our
continued success.
I also would like to thank the Board of Directors and shareholders for their
continued encouragement and support. Imua!*
/s/ John C. Couch
John C. Couch
Chairman of the Board,
President and Chief Executive Officer
February 20, 1998
* Imua is a Hawaiian word meaning to progress, to go forward.
[Photo caption: The M.V. Mokihana is one of the large, modern vessels
purchased by Matson in 1996 in connection with its strategic alliance with
American President Lines.]
<PAGE>
REVIEW OF OPERATIONS
[Photo caption: Facing page: Residential living on Maui's North Shore is
exemplified by the 92-lot Ku'au Bayview development.]
[Photo caption: Condominium living in Maui. Kahului Ikena is a 102-unit A&B
development near Maui Community College and the commercial and government
centers of Maui.]
Alexander & Baldwin, Inc. (A&B) has two principal subsidiaries, A&B-Hawaii,
Inc. (ABHI) and Matson Navigation Company, Inc. (Matson). ABHI has operations
in property development and management, Hawaii agribusiness and food products.
Property Development And Management
In total, A&B owns about 93,000 acres of land. Value is added to these
landholdings through the process of gaining entitlements for urban use. About
1,320 of the 93,000 acres are fully zoned for urban use. The Company has
completed at least one step in the entitlement process for an additional 2,800
acres in Hawaii and on the Mainland, and has about 9,700 more acres with
foreseeable urban-use potential. Up-to-date information on specific projects is
available on A&B Properties' Internet home page, www.abprop.com.
Whether it is for watershed, cultivation of crops, lease or development, the
Company strives to put its land to the highest and best use, consistent with
community needs. Most of the acreage in Hawaii will be in agricultural use for
many years.
A&B'S LANDHOLDINGS, BY CATEGORY
Hawaii
----------------------------
(In acres) Maui Kauai Total Mainland Total
- ---------------------------------------------------------------------------
Fully Entitled Urban 360 810 1,170 150 1,320
Agric./Pasture/Misc. 52,800 8,100 60,900 1,900 62,800
Conservation 15,900 13,000 28,900 - 28,900
- ---------------------------------------------------------------------------
Total 69,060 21,910 90,970 2,050 93,020
Designated Urban 700 300 1,000 1,800 2,800
Urban Potential 6,200 3,500 9,700 - 9,700
Entitlements
The lengthy and complex process of gaining entitlements is the necessary first
step in developing land. In 1997, A&B requested that 650 acres at Maalaea be
designated as the site of a master-planned community in Maui County's 10-year
update of the community plan for the Kihei-Makena area. The project received
preliminary approval from the Maui County Council in December 1997, and final
Council action is expected in the first half of 1998. The Company also sought
to have included in the Wailuku-Kahului Community Plan 160 acres intended for
industrial/commercial use in Phases II through IV of Maui Business Park.
Urban designations are being pursued before the State Land Use Commission for
two proposed single-family residential subdivision projects on Maui: 200 units
on 45 acres at Haliimaile and 400 units on 110 acres at Spreckelsville.
Kukui'ula is a 1,000-acre long-term, master-planned residential project on
Kauai that has been idle because of soft market conditions. Plans for an
initial 32-unit subdivision were advanced in 1997 and construction may begin
in the second quarter of 1998.
Pilot Hill Ranch is an 1,800-acre planned community in El Dorado County,
Calif., about 40 miles northeast of Sacramento. During 1997, the Company
submitted a Specific Plan, the equivalent of a zoning application, and
consultants completed a draft Environmental Impact Report. Public hearings are
likely by mid-1998.
Development
Three new large-lot agricultural subdivisions on Maui made progress in 1997.
Kauhikoa Hill Ranch, a nine-lot project, was delayed temporarily by water-
source issues. By year-end, however, sales had commenced. Roads and utility
services are currently under construction at the 28-lot Haiku Makai project
and sales will begin shortly. The County of Maui is reviewing construction
plans for the 38-lot Maunaolu project, but development probably will not take
place until after 1998.
Sales
During 1997, the pace of new residential, and commercial, real estate sales in
Hawaii continued to be restrained by a weak economy. Prices softened due to
competitive conditions. On the Mainland, strong economic conditions created
active markets for high-quality commercial properties.
At A&B's Maui Business Park, a 300,000-square-foot retail center, Maui
Marketplace, held its grand opening in October 1997. During 1997, the developer
of Maui Marketplace purchased a portion of the land underlying the Marketplace
and has an option to complete the acquisition of the remaining land in
mid-1998. Three additional leased lots also were sold. The transactions in 1997
involved a total of about eight acres and generated more than $5 million in
gross margin. The 19 remaining lots in Phase I A of Maui Business Park, which
total about 11 acres, continue to be marketed actively. Ultimately, Maui
Business Park will encompass about 240 acres immediately adjacent to Maui's
principal airport.
As shown in the table below, 65 of the homes in the 92-lot Ku'au Bayview
single-family development were sold by year-end 1997. The sales in 1997
averaged $242,000 per unit. Also, since sales began in mid-1995, 69 of 102
units in the Kahului Ikena condominium project have been sold. The prices of
the 17 units sold in 1997 averaged $131,000 per unit.
<TABLE>
<CAPTION>
RESIDENTIAL PROPERTIES
Total Available Sold/Leased Available Sold/Leased Available
Project Units in 1996 in 1996 in 1997 in 1997 in 1998
<S> <C> <C> <C> <C> <C> <C>
Ku'au Bayview 92 92 30 62 35 27
Kahului Ikena 102 81 31 50 17 33
Kauhikoa Hill Ranch 9 0 0 9 1 8
Ku'au Beach Estates 4 0 0 4 3 1
</TABLE>
Property Management
Hawaii Portfolio The Hawaii commercial-property portfolio consists of 848,400
square feet of improved leasable space, plus 84 acres leased for commercial
uses and 11,730 acres leased for agricultural uses. During 1997, lease rates
continued to be very competitive, due to the sluggish Hawaii economy and
continuing pressure on local retailers caused by the recent market entry of
larger discounters. Occupancy of the commercial properties averaged 78 percent
in 1997, in part due to recently acquired properties with relatively high
present vacancies.
In March 1997, One Main Plaza, an 85,000-square-foot office building in
Wailuku, Maui, was purchased at below-replacement cost. Although its present
occupancy rate reflects Hawaii's soft economic conditions, the building's
quality, location and tenant mix give it good upside potential.
Mainland Portfolio A&B's portfolio of 12 properties in five Western states
consists of 2.21 million square feet of leasable space. Occupancies averaged 98
percent throughout 1997.
In May 1997, a 98,000-square-foot warehouse and office complex was sold. The
proceeds were reinvested, on a tax-deferred basis, in the Village at Indian
Wells, Calif., a retail center with 104,600 square feet of leasable space.
Other tax-deferred funds were invested in the 46,000-square-foot Wilshire
Shopping Center in Greeley, Colo., and in a two-story office building near the
A&B-owned Island Village Shopping Center in Bainbridge Island, Wash.
[Photo caption: Facing page: Sugar - A&B's roots are deep in Hawaii. Here's
how sugarcane products begin. Green, lush and inherently sweet, cane grows on
37,000 acres at HC&S on Maui. A mechanical cutter for harvesting "seed" cane
is in the field.]
[Photo caption: A more familiar form of sugar - cubes of refined sugar -
represents A&B's refining and marketing subsidiary, C&H, in Crockett, Calif.
With the only cane refinery in the Western states, C&H is the leading branded
sugar in the West.]
[Photo caption: Estate-grown, Kauai Coffee is A&B's newest crop. Marketing and
sales efforts aim eastward and westward beyond Hawaii - with customers in Japan
and on the U.S. mainland.]
Property Management & Development Outlook
Property Leasing operating profit likely will change little in 1998, due to
continuing soft economic conditions in Hawaii. In Property Sales, residential
and commercial developments are expected to continue to sell steadily, but
slowly, in 1998. In the Mainland's present active commercial market, purchase
offers for Company-owned properties will be considered on a case-by-case basis.
Such offers present opportunities to create value and add to income, as is the
case with the pending sale of a 246,000-square-foot office/research complex in
Cupertino, Calif.
Agribusiness And Food Products
[Photo caption: Facing page: Big, fast, on schedule. A Matson C-9 vessel, M.V.
Manoa, inbound under the Golden Gate. Carrying a vast portion of Hawaii's
day-to-day consumer needs, Hawaii service vessels make "just-in-time" inventory
practical on islands 2,000 miles or more from major production centers.]
Raw Sugar Production
Hawaiian Commercial & Sugar Company (HC&S) on Maui is the largest producer of
raw cane sugar in Hawaii, with 55 percent of the State crop in 1997. During the
year, however, sugar production at HC&S was reduced by cultivation and
processing problems associated with a new variety of sugar cane. The experience
gained in 1997 and a reexamination of agricultural practices have led to
appropriate changes that should result in much-improved yields in the next few
years. To ensure that HC&S remains competitive with other sweetener producers,
the Company also is continuing its efforts to reduce costs in all aspects of
plantation operations.
AGRIBUSINESS STATISTICS
1997 1996 1995
---- ---- ----
Raw sugar produced (tons)
HC&S 198,000 201,000 198,000
McBryde - 20,000 24,000
--------- --------- ---------
Total 198,000 221,000 222,000
========= ========= =========
Green coffee produced (pounds) 4,300,000 2,430,000 1,770,000
Cultivated acreage
Sugar 36,700 40,400 40,400
Coffee 3,800 4,000 4,000
Coffee
Kauai Coffee Company, Inc., the largest grower of coffee in the United States,
produced more than four million pounds in 1997. Production was more than 70
percent higher than the previous record crop in 1996. The Company achieved
added success in 1997 in marketing this high-quality, estate-grown coffee to
customers both in the United States and in Japan. Although Kauai Coffee does
not yet contribute to operating profit, its results are improving steadily.
Power, Trucking
The Company's hydroelectric plants on Maui and Kauai, as well as its sugar
mills on Maui, continue to generate surplus electricity, which is sold to the
local public utilities. During 1997, 109,000 megawatt-hours were sold,
approximately the same volume as in 1996. The Company also has small trucking
operations on both Maui and Kauai that support the agricultural operations and
serve independent customers in each community.
Sugar Refining and Marketing
California and Hawaiian Sugar Company, Inc. (C&H) is the only sugarcane refiner
in the western United States and produces about eight percent of the national
supply of refined sugar. Through most of 1997, margins in the cane sugar
refining industry benefited from relatively lower supplies of beet sugar.
Although administration of the U.S. sugar import quotas kept raw cane sugar
prices high on an absolute basis, prices were somewhat lower than in 1996.
Operations at C&H also continued to benefit from lower costs, due to its
restructuring two years ago and selected capital investments.
In the fourth quarter of 1997, refined sugar prices began to weaken in response
to forecasts of greater sugar beet production in 1998, higher inventories of
refined sugar, a lower consumption growth rate and new cane refining capacity
that is anticipated to start up in Florida early in 1998. The U.S. Department
of Agriculture also has set lower levels of raw sugar imports, which will
increase the cost of the raw sugar purchased by C&H. Capping the change in
outlook were strategic realignments and consolidations, which increased concen-
tration in the industry by reducing the number of domestic sweetener suppliers.
Given all these factors, it is unlikely that C&H can sustain in 1998 the level
of performance that it attained during 1996 and 1997. Additionally, the two
principal labor contracts at C&H expire May 31, 1998. While negotiations are
expected to prove difficult, management is optimistic that a new contract can
be ratified without a work stoppage.
Food Products Outlook
During 1998-99, production results at HC&S should improve and cost-reduction
efforts should contribute to better results. The coffee operations are expected
to edge closer to profitability as a result of greater production, higher
quality and increased market awareness. Sugar refining results are likely to be
lower, but are expected to remain positive.
Matson has operations in ocean shipping, marine container terminals and
domestic intermodal transportation.
[Photo caption: Matson has built upon the assets of its core Hawaii service
also to serve shipping customers in mid-Pacific Islands, in Asia and on the
Pacific Coast.]
HAWAII SERVICE
FREIGHT (UNITS)
1992 177,900
1993 171,600
1994 173,300
1995 157,200
1996 152,100
1997 149,700
HAWAII SERVICE
AUTOMOBILES
1992 110,600
1993 109,400
1994 116,600
1995 107,100
1996 83,100
1997 78,600
Ocean Shipping And Intermodal Transportation
Hawaii Service
The core business of Matson Navigation Company, Inc. (Matson) is its Hawaii
service. Matson is the leading carrier of containerized cargo and automobiles
between the U.S. Pacific Coast and the Islands. During 1997, continuing slow
economic growth and declines in construction activity in Hawaii slightly
reduced the cargo carried. Longshore productivity problems, which had affected
costs in 1996 and early 1997, were being resolved. Other labor issues, however,
delayed a return to normal productivity and adversely affected shipping
schedules and costs. These issues were: a strike by harbor pilots in Los
Angeles, the Union Pacific Railroad's problems and a shortage of longshore
workers in Southern California. In addition, a shipboard fire forced Matson to
take a vessel out of service temporarily, which also disrupted schedules and
raised costs.
HAWAII CARGO VOLUME
1997 1996 1995
---- ---- ----
Freight (units) 149,700 152,100 157,200
Automobiles 78,600 83,100 107,100
In December 1997, Matson announced that it would defer an across-the-board
increase in Hawaii service rates, in recognition of the weak economic
conditions in Hawaii. Also, an existing fuel surcharge was reduced from 1.75
percent to 1.5 percent, effective January 15, 1998.
Guam Service
1997 was the first full year of Matson's service to Guam under the Company's
alliance with American President Lines, Ltd. (APL). Customers' acceptance of
the service continued to be good, and although Guam's economic growth
moderated, cargo volume was higher than in 1996.
On December 17, 1997, Typhoon Paka hit Guam with exceptionally high winds.
Although the damage to homes and other structures was extensive, shipping
services resumed shortly after the storm passed.
Matson and APL renegotiated the terms of their alliance late in 1997 and
implemented new vessel schedules (reflected in the map on the facing page) in
January 1998. The new alliance agreement is expected to produce substantial
benefits for both Matson and APL and will result in better service for Guam
customers.
The new alliance also will contribute to lower cargo-handling costs, higher
terminal productivity and improved vessel schedule reliability.
[Photo caption: Matson's "hub" is the Sand Island Terminal in Honolulu, one of
the world's busiest container terminals. Sand Island is the destination for
Oahu-bound cargo, the transshipment point for Neighbor Island and mid-Pacific
cargo, and the point of departure for Hawaii's products.]
[Photo caption: At Matson's bustling Seattle container terminal, cargo moves
both to Hawaii and on the Pacific Coast shuttle. This innovative coastwise
service is changing decades-old transportation patterns and challenging the
dominance of trucks and rails for time-sensitive cargo.]
Pacific Coast Service
Matson's West Coast shuttle service enjoyed steady growth in the volume of full
commercial containers carried during 1997. This increase was partially offset
by a reduction in the volume of empty containers carried for repositioning.
Rates are higher, however, for full containers. Also, the same labor issues in
Southern California that affected the Hawaii service negatively affected costs.
In August 1997, a new relationship with Canadian National Railway was
announced. This will increase the volume of southbound cargo. Profitability in
the Pacific Coast service continues to improve.
Mid-Pacific Service
Matson's container-barge service to Johnston Island, Kwajalein, Majuro and
Ebeye enjoyed higher volume in 1997 than in 1996. A high level of construction
activity in the first half of the year contributed to the increase. Following
extended negotiations with the U.S. Department of Defense, rates for military
cargo to Kwajalein were reduced in July 1997.
Matson Intermodal System, Inc. (MIS)
Continued growth in volume helped MIS to modestly increase its 1997
contribution to operating profit. During its 10 years in business, MIS has
benefited from the continuing trend among companies in many industries to
outsource transportation management. Annual MIS revenue is nearing $100
million.
Early in 1998, Matson created a new subsidiary, Matson Logistics Solutions,
Inc., to respond to customers' needs for more comprehensive transportation
services.
Matson Terminals, Inc. (MTI)
MTI is the stevedore for Matson and outside customers at Matson-operated
container terminals. During 1997, longshore productivity continued to be a
problem for all terminals on the West Coast. Late in the year, transportation
congestion in Southern California due to problems in the rail industry, plus
shortages of longshore labor in Southern California ports, added to costs just
as productivity trends began to improve. Increased registration of new long-
shore workers and industry training programs were leading to improvements by
early 1998. In Matson's terminals, productivity should continue to improve, due
in part to planned changes in container-handling techniques at its Oakland,
Calif., terminal. The reconfiguration of the Guam service also will reduce
congestion in Matson's terminals by transferring much of the West Coast cargo
handling for that service to APL's terminals.
Ocean Transportation Outlook
1998 results are expected to benefit modestly from higher Hawaii and coastwise
freight, improved cargo-handling productivity, the restructured operating
alliance with APL and greater intermodal volume. These improvements, however,
will not be sufficient to offset the effect of the 1997 insurance settlement
(which contributed $20.0 million to operating profit), reductions in other
cargo categories and expected higher costs. During 1998, an important project
for Matson will be to continue to develop plans for the orderly renewal of its
fleet. Based on the current fleet age and expected service needs, the Company
may begin replacing its fleet within the next five years.
<PAGE>
FINANCIAL REPORT
21 Independent Auditors' Report
22 Eleven-Year Summary of Selected Financial Data
24 Industry Segment Information
25 Management's Discussion and Analysis
28 Statements of Income
29 Statements of Cash Flows
30 Balance Sheets
32 Statements of Shareholders' Equity
33 Notes to Financial Statements
41 Quarterly Results
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, 1997 and 1996, and the related
statements of income, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997 (pages 24 and 28 to 40).
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, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Honolulu, Hawaii
January 22, 1998
<PAGE>
<TABLE>
Eleven-Year Summary of Selected Financial Data
(Dollars and shares in thousands, except per-share amounts)
Alexander & Baldwin Inc. and Subsidiaries
<CAPTION>
1997 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Annual Operations:
Net sales and other operating revenue $1,275,445 $1,239,810 $1,033,593 $1,144,033 $ 923,804 $ 703,948
Deduct:
Cost of goods sold and operating expenses 1,119,297 1,101,696 948,210 1,019,700 794,880 583,593
Interest expense 28,936 34,081 33,429 27,702 28,802 23,881
Hurricane loss - - - - - 24,803
Income taxes 45,825 38,748 19,535 32,652 41,386 19,044
---------- ---------- ---------- ---------- ---------- ----------
Income from continuing operations 81,387 65,285 32,419 63,979 58,736 52,627
Income (loss) from discontinued operations - - 23,336 10,629 8,253 7,878
Cumulative effect of change
in accounting principle - - - - - (41,551)
---------- ---------- ---------- ---------- ---------- ----------
Net income $ 81,387 $ 65,285 $ 55,755 $ 74,608 $ 66,989 $ 18,954
========== ========== ========== ========== ========== ==========
Comprehensive income $ 88,326 $ 73,660 $ 66,512 $ 70,031 - -
========== ========== ========== ========== ========== ==========
Basic and Diluted Earnings per Share:
Income from continuing operations $1.80 $1.44 $0.72 $1.39 $1.27 $1.14
Income (loss) from discontinued operations - - 0.51 0.23 0.18 0.17
Cumulative effect of change
in accounting principle - - - - - (0.90)
---------- ---------- ---------- ---------- ---------- ----------
Net income $1.80 $1.44 $1.23 $1.62 $1.45 $0.41
========== ========== ========== ========== ========== ==========
Return on beginning equity 11.9% 10.0% 8.8% 12.7% 12.0% 3.3%
Cash dividends per share $ 0.88 $ 0.88 $ 0.88 $ 0.88 $ 0.88 $ 0.88
Average number of shares outstanding 45,182 45,303 45,492 46,059 46,338 46,294
Gross profit percentage 20.6% 20.0% 20.2% 21.2% 24.9% 29.1%
Effective income tax rate 36.0% 37.3% 37.6% 33.8% 41.3% 26.6%
Market price range per share:
High $ 29.375 $ 29.250 $ 25.500 $ 28.250 $ 28.000 $ 30.500
Low 24.375 22.500 20.500 21.250 22.500 21.500
Close 27.313 25.000 23.000 22.250 26.750 24.750
At Year End:
Shareholders of record 5,481 5,881 6,357 6,729 7,056 7,507
Shares outstanding 44,881 45,339 45,280 45,691 46,404 46,333
Shareholders' equity $ 719,588 $ 684,328 $ 649,678 $ 632,614 $ 587,006 $ 559,099
Per-share 16.03 15.09 14.35 13.85 12.65 12.07
Total assets 1,704,798 1,796,115 1,801,237 1,925,775 1,904,742 1,676,635
Working capital 114,806 95,579 84,399 58,392 64,884 40,013
Cash and cash equivalents 21,623 23,824 32,150 8,987 32,295 20,827
Property-net 1,036,515 1,061,190 973,514 975,672 1,032,983 888,621
Real estate developments-noncurrent 68,056 70,144 56,104 66,371 54,919 50,977
Long-term debt-noncurrent 290,885 345,618 380,389 519,605 576,390 549,960
Capital lease obligations-noncurrent 2,000 12,039 24,186 35,274 44,495 59,816
Current ratio 1.7 to 1 1.4 to 1 1.4 to 1 1.3 to 1 1.3 to 1 1.4 to 1
Capital stock price/earnings
ratio at December 31 15.2 to 1 17.4 to 1 18.7 to 1 13.7 to 1 18.5 to 1 60.4 to 1
All share and per-share amounts reflect the 2-for-1 stock split in 1988.
</TABLE>
<TABLE>
Eleven-Year Summary of Selected Financial Data, Continued
(Dollars and shares in thousands, except per-share amounts)
Alexander & Baldwin Inc. and Subsidiaries
<CAPTION>
1991 1990 1989 1988 1987
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Annual Operations:
Net sales and other operating revenue $ 715,984 $ 747,550 $ 845,936 $ 701,908 $ 655,276
Deduct:
Cost of goods sold and operating expenses 565,105 552,236 512,499 495,234 470,928
Interest expense 24,575 29,602 26,965 27,406 21,104
Hurricane loss - - - - -
Income taxes 42,359 58,820 107,461 61,535 62,167
---------- ---------- ---------- ---------- ----------
Income from continuing operations 83,945 106,892 199,011 117,733 101,077
Income (loss) from discontinued operations 4,861 1,075 (310) - -
Cumulative effect of change
in accounting principle - - - - -
---------- ---------- ---------- ---------- ----------
Net income $ 88,806 $ 107,967 $ 198,701 $ 117,733 $ 101,077
========== ========== ========== ========== ==========
Comprehensive income - - - - -
========== ========== ========== ========== ==========
Basic and Diluted Earnings per Share:
Income from continuing operations $1.82 $2.32 $4.30 $2.35 $1.93
Income (loss) from discontinued operations 0.10 0.02 (0.01) - -
Cumulative effect of change
in accounting principle - - - - -
---------- ---------- ---------- ---------- ----------
Net income $1.92 $2.34 $4.29 $2.35 $1.93
========== ========== ========== ========== ==========
Return on beginning equity 16.7% 23.5% 45.2% 31.7% 21.4%
Cash dividends per share $ 0.88 $ 0.86 $ 0.80 $ 0.77 $ 0.68
Average number of shares outstanding 46,213 46,133 46,326 50,079 52,444
Gross profit percentage 31.9% 36.0% 48.5% 38.8% 37.2%
Effective income tax rate 33.5% 35.5% 35.1% 34.3% 38.1%
Market price range per share:
High $ 29.500 $ 38.000 $ 39.500 $ 36.750 $ 32.000
Low 21.000 19.000 31.250 20.875 16.000
Close 28.250 22.250 37.500 31.500 21.625
At Year End:
Shareholders of record 7,749 7,860 7,650 7,201 6,859
Shares outstanding 46,229 46,201 46,096 50,099 50,347
Shareholders' equity $ 578,669 $ 530,298 $ 459,712 $ 439,729 $ 371,007
Per-share 12.52 11.48 9.97 8.78 7.37
Total assets 1,547,648 1,364,165 1,141,671 1,070,483 981,737
Working capital 23,195 55,340 33,906 35,974 42,262
Cash and cash equivalents 18,675 47,351 23,389 22,794 26,695
Property-net 882,513 799,942 691,194 548,066 520,124
Real estate developments-noncurrent 36,362 14,156 - - -
Long-term debt-noncurrent 452,279 315,851 196,954 174,715 172,014
Capital lease obligations-noncurrent 69,717 86,392 95,241 100,306 106,935
Current ratio 1.2 to 1 1.5 to 1 1.4 to 1 1.4 to 1 1.5 to 1
Capital stock price/earnings
ratio at December 31 14.7 to 1 9.5 to 1 8.7 to 1 13.4 to 1 11.2 to 1
All share and per-share amounts reflect the 2-for-1 stock split in 1988.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDUSTRY SEGMENT INFORMATION
(In thousands)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Ocean transportation $ 712,654 $ 661,586 $ 593,807 $ 604,754 $ 551,687
Property development and management:
Leasing 37,148 35,916 34,073 33,387 32,606
Sales 35,916 31,909 25,835 60,767 32,559
Food products 486,912 506,909 377,082 441,209 304,007
Other 2,815 3,490 2,796 3,916 2,945
- -----------------------------------------------------------------------------------------------------------
Total revenue $1,275,445 $1,239,810 $1,033,593 $1,144,033 $ 923,804
===========================================================================================================
OPERATING PROFIT:
Ocean transportation $ 100,350* $ 81,618 $ 87,769 $ 97,319 $ 91,194
Property development and management:
Leasing 24,559 23,875 23,063 23,163 22,975
Sales 13,262 15,307 14,497 18,522 18,570
Food products 27,083 26,863 (27,797) (418) 12,692
Other 2,639 3,220 2,593 3,143 2,357
- -----------------------------------------------------------------------------------------------------------
Total operating profit 167,893 150,883 100,125 141,729 147,788
Interest expense, net (28,936) (34,081) (33,429) (27,702) (28,802)
General corporate expenses (11,745) (12,769) (14,742) (17,396) (18,864)
- -----------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes $ 127,212 $ 104,033 $ 51,954 $ 96,631 $ 100,122
===========================================================================================================
IDENTIFIABLE ASSETS:
Ocean transportation $ 930,636 $1,005,741 $ 997,230 $ 853,933 $ 882,335
Property development and management 317,622 312,829 297,927 271,073 268,581
Food products 382,109 386,986 413,675 399,717 418,724
Other 74,431 90,559 92,405 87,362 39,094
- -----------------------------------------------------------------------------------------------------------
Assets of continuing operations 1,704,798 1,796,115 1,801,237 1,612,085 1,608,734
Discontinued operations - container leasing - - - 313,690 296,008
- -----------------------------------------------------------------------------------------------------------
Total assets $1,704,798 $1,796,115 $1,801,237 $1,925,775 $1,904,742
===========================================================================================================
CAPITAL EXPENDITURES:
Ocean transportation $ 20,828 $ 171,110 $ 46,872 $ 29,676 $ 53,745
Property development and management 8,620 4,141 8,613 14,376 34,772
Food products 18,806 12,058 13,650 18,665 26,637
DEPRECIATION AND AMORTIZATION:
Ocean transportation $ 62,192 $ 62,055 $ 57,619 $ 55,663 $ 55,738
Property development and management 6,281 6,214 5,561 5,246 4,860
Food products 19,538 20,144 20,390 21,340 15,974
*Includes $20 million from the settlement of a lawsuit that
involved insurance claims for earthquake damage to port facilities in 1989.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
CONSOLIDATED EARNINGS AND REVENUE
Net income in 1997 was $81,387,000, or $1.80 per share. This was a 25-percent
improvement compared with net income of $65,285,000 in 1996, or $1.44 per
share. Net income in 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 in 1996 included a one-time vessel charter hire that
contributed $3,545,000, or $0.08 per share. Income in both 1997 and 1996
benefited from partial reversals of a financial reserve that was set up to
cover the costs of closing a sugar plantation: 1997 income included $600,000,
or $0.01 per share, and 1996 income included $2,900,000, or $0.06 per share.
Excluding these factors, 1997 income was $68,309,000, an increase of
$9,469,000, or 16 percent, from $58,840,000 in 1996. Revenue in 1997 was
$1,275,445,000, compared with revenue of $1,239,810,000 in 1996, primarily
reflecting slightly higher ocean transportation revenue and property sales.
1997 COMPARED WITH 1996
OCEAN TRANSPORTATION revenue of $712,654,000 increased eight percent and
operating profit of $100,350,000 increased 23 percent in 1997 compared with
1996. Excluding the insurance settlement, however, which contributed
$19,965,000, pre-tax, to operating profit in 1997, and the one-time vessel
charter hire, which contributed $5,634,000, pretax, to operating profit in
1996, operating profit for the ocean transportation segment rose six percent.
Hawaii's continuing slow economic growth and decline in construction caused
reduced cargo volumes for the Hawaii service. Compared with 1996, total Hawaii
container volume was down two percent and total automobile volume was down five
percent in 1997. In an effort to support Hawaii's economic revitalization,
Matson announced that it would defer an increase in Hawaii service rates and
would reduce an existing fuel surcharge from 1.75 percent to 1.5 percent, in
January 1998.
Despite the decline in Guam's economic growth rate, Matson's Guam service,
which completed its first full year in 1997, continued to contribute
significantly to Matson's results. Matson and APL renegotiated the terms of
their alliance in late 997. A new vessel schedule will be implemented in early
1998 and will benefit both carriers and their customers by reducing transit
times. Although longshore labor disruptions continued into 1997, the
relatively poor terminal productivity and increased cargo handling costs
improved somewhat. After adjusting for volume effects, overall terminal labor
costs increased by 6 percent in 1997, after 15-percent increase in 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 the previous year. That decrease was
due primarily to properties acquired in early 1997 that have 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 residential 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. Six of the 1997
and four of the 1996 sales were completed on a tax-deferred basis.
The mix of property sales in any year can be diverse. Sales can include
property sold under threat of condemnation, developed residential real estate,
commercial properties, developable subdivision lots and undeveloped land. The
sale of undeveloped land and subdivision lots generally provides a greater
contribution margin than does the sale of developed and commercial property,
due to the low historical-cost basis of the Company's Hawaii land, which
averages approximately $150 per acre. Consequently, property sales revenue
trends and the amount of real estate held for sale on the balance sheets do
not necessarily indicate future profitability for this segment.
FOOD PRODUCTS revenue of $486,912,000 in 1997 was four-percent lower than the
prior year's 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. Operating
results also were impacted by the previously noted partial reversals of the
reserve established in 1995 for a plantation closure.
During most of 1997, margins in the cane sugar refining industry continued to
benefit from relatively low supplies of beet sugar. However, toward the end of
1997, the prospects of a larger sugar beet crop and decreasing beet sugar
prices began to tighten margins throughout the industry. This factor, combined
with other competitive pressures and continuing low cane sugar import quotas,
will make it difficult for the refining business to sustain 1997-level
earnings into 1998. The Company's coffee-growing and marketing operations had
losses for both 1997 and 1996, although results are improving, due to higher
production volume (4,300,000 pounds of green beans in 1997 versus 2,400,000
pounds in 1996), improved quality and a stronger marketing effort.
During 1997, the Company addressed concerns about the decline in sugar
production at its Maui sugar plantation. The decline was due primarily to
excessive rainfall early in the year and to disappointing sugar yields from a
new plant variety. Changes in cultivation and ripening processes are expected
to improve future yields. Cost-reduction efforts also have been implemented
throughout the plantation operations.
1996 COMPARED WITH 1995
OCEAN TRANSPORTATION revenue increased 11 percent, reflecting primarily the
start-up of the Guam service, but operating profit declined seven percent in
1996, compared with 1995. Operating and overhead costs increased in 1996, due
primarily to the implementation of the Guam service and to disruptive labor
actions during the third and fourth quarters, related to the West Coast
longshore contract. Operating profit also was affected adversely by higher fuel
prices and higher fuel consumption. Together, these factors obscured the
synergies of the newly combined shipping services and other cost reduction
initiatives. Operating results for 1996 also benefited from the previously
noted one-time vessel charter payment.
PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue rose five percent and
operating profit rose four percent compared with 1995. These 1996 increases
were due to full-year contributions from properties added to the leased
portfolio in the second half of 1995. Occupancy levels for the Company's
Mainland leased real estate portfolio averaged 97 percent in 1996, the same
rate as for 1995. Occupancy levels for the Company's Hawaii leased real estate
portfolio averaged 86 percent in 1996, versus 90 percent in 1995, reflecting
the weak real estate market in Hawaii and the increased presence of large
discount retailers in the market. Both of these factors limited the absorption
of new and vacant space.
PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue of $31,909,000 for 1996 was
24-percent higher than in 1995; however, operating profit increased only six
percent for 1996 compared with 1995. 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. Sales in 1995
included a 5.5-acre parcel at Maui Business Park, three individual lots in Maui
Business Park, eight developed industrial lots, a 38-acre agricultural-
subdivision parcel and 47 residential properties. Four of the 1996 sales were
completed on a tax-deferred basis. No tax-deferred sales were completed in
1995.
FOOD PRODUCTS revenue of $506,909,000 for 1996 was 34-percent greater than the
1995 revenue of $377,082,000. Operating profit was $26,863,000 for 1996,
compared with a loss of $27,797,000 for 1995. Operating profit in 1996
included $4,600,000, pre-tax, for the partial reversal of an $8,100,000,
pre-tax, charge for the closure of sugar-growing operations on Kauai recorded
in 1995. Operating profit for 1995 had been affected adversely by a refinery
workers' strike, the $8,100,000, pre-tax, charge, a $3,800,000, pre-tax, write-
down of an operating asset, high raw sugar costs and low refined sugar prices.
FINANCIAL CONDITION AND LIQUIDITY
The Company's principal liquid resources, which consist of cash and cash
equivalents, trade receivables, sugar and coffee inventories and unused lines
of credit, less accrued deposits to the Capital Construction Fund (CCF),
totaled $509,176,000 at December 31, 1997, an increase of $709,000 from
December 31, 1996. Amounts available under lines of credit increased
$25,500,000, due primarily to lower commercial paper balances outstanding at
year-end. Accounts receivable increased $8,406,000, due principally to higher
receivables at Matson. Sugar and coffee inventories decreased $22,652,000, due
principally to the timing of raw sugar purchases. Accrued deposits to the CCF
decreased by $8,344,000. Cash and cash equivalents decreased by $2,201,000,
due primarily to debt repayments.
Working capital of $114,806,000 at December 31, 1997 was $19,227,000 higher
than the amount at the end of 1996. This increase was due primarily to a
decrease in short-term debt, partially offset by lower inventories.
Net cash provided by operations, before capital expenditures for real estate
developments held for sale, was $187,505,000 and $149,801,000 for 1997 and
1996, respectively. Net operating cash flows were used principally for capital
expenditures, payments of debt, deposits into the CCF, repurchases of capital
stock and dividends. Withdrawals from the CCF were used to repay debt.
In 1997, capital expenditures were $48,496,000, compared with $187,721,000 in
1996. Ocean transportation capital additions in 1997 of $20,828,000 were
primarily for the acquisition of container and terminal equipment. Property
development and management capital additions in 1997 of $8,620,000 were for
real-estate developments held for investment purposes and for improvements to
leased properties. Food products capital additions in 1997 of $18,806,000 were
primarily for sugar refinery modifications and for power generation,
harvesting, and factory equipment for the Company's sugar- and coffee-growing
operations.
Capital expenditures approved, but not yet spent, were $84,222,000 at December
31, 1997. These expenditures are primarily for Year 2000 remediation,
container equipment, real-estate developments held for investment purposes,
improvements to leased properties, and irrigation, factory and power generation
equipment for the Company's sugar-growing operations. For 1998, 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 STANDARDS: The Company adopted two new accounting standards in
1997: Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per
Share" and SFAS No. 130 "Reporting Comprehensive Income." In accordance with
SFAS 128, the Company renamed its Primary Earnings per Share (EPS) to Basic EPS
and disclosed its Diluted EPS. Due to the immaterial impact of the Company's
stock options, Basic and Diluted EPS are the same amount. In accordance with
SFAS 130, the Company added the measure of comprehensive income, consisting of
net income plus unrealized holding gains on securities, to its Statements of
Income. Comprehensive income, however, is not used in the calculation of EPS.
See also Note 1 to the Company's Financial Statements.
INSURANCE LITIGATION: In February 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 $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.
LEGISLATION: In September 1997, the Secretary of Agriculture established,
under the Federal Agriculture Improvement and Reform Act and in accordance with
the Harmonized Tariff Schedule, the aggregate quantity of sugars and syrups
that can be imported into the United States. The maximum import quantity for
fiscal year 1998 was set at 1,800,000 metric tons raw value (mtrv) with an
initial release of 1,200,000 mtrv and the remaining 600,000 mtrv to be released
in 200,000 mtrv increments in January, March, and May if, in those months, the
stocks-to-use ratio, as published in the World Agricultural Supply and Demand
Estimate (WASDE), is not greater than 15.5 percent. In January 1998, the WASDE
stocks-to-use ratio was 15.7 percent. As a result, the first 1998 increment
was cancelled and the maximum import quantity for fiscal year 1998 is now
1,600,000 mtrv.
TAX-DEFERRED REAL ESTATE EXCHANGES: In 1997, the Company sold five parcels of
land for $16,689,000. Proceeds of $11,000,000 were reinvested in 1997 and the
remaining proceeds are expected to be reinvested in 1998, both on a tax-
deferred basis. Also, in 1997, the Company received $699,000 from a sale of
land under threat of condemnation. Proceeds of this condemnation are also
expected to be reinvested on a tax-deferred basis. Proceeds of $4,000,000 from
prior condemnation sales were reinvested in 1997 on a tax-deferred basis. The
proceeds from these sales and condemnation are reflected in the Condensed
Statements of Cash Flows under the caption "Non-cash Activities."
SHARE REPURCHASES: In 1997, the Company repurchased 624,050 shares of its
common stock, for an aggregate of $16,585,000 ($26.58 per share, 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.
YEAR 2000: Beginning in 1996, the Company initiated an evaluation of its
computer systems and applications to prepare for the Year 2000. Following this
evaluation, implementation plans for all business segments were prepared and
are currently being executed. Areas which have the greatest risk of impacting
operations are being corrected first; however, all work related to primary
systems and applications is expected to be completed substantially by the end
of 1998. Many of the primary systems are already Year 2000 compliant. The
plans consist of upgrading, modifying or replacing various systems for
approximately $6,000,000 to $8,000,000. The costs incurred in connection with
the Year 2000 compliance are being treated as an operating expense unless a
system is being replaced for operating reasons as well as Year 2000 compliance,
in which case costs are being capitalized. The Company believes that its
systems and applications necessary to operate and manage its businesses will be
replaced, modified or upgraded in advance of the Year 2000 and that the related
costs will not have a material impact on the operations, cash flows, financial
condition or segment results of future periods.
OUTLOOK: Information about the Company's outlook for 1998 and its plans to
address issues affecting primary business units are included in the Letter to
Shareholders on pages 5 through 9 and in the business unit discussions included
on pages 10 through 20 of the Annual Report to Shareholders, which sections are
incorporated herein by reference.
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 environment at the federal, state and local levels, such as
government rate regulations, land-use regulations, government administration of
the U.S. sugar program, and retention of cabotage laws; (5) dependence on raw
sugar suppliers and other third-party suppliers; (6) fuel prices; (7) labor
relations; and (8) other risk factors described elsewhere in these
communications and from time to time in the Company's filings with the SEC.
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 21).
The Board of Directors, through its Audit Committee (composed of non-employee
directors), oversees management's responsibilities in the preparation of the
financial statements and nominates the independent auditors, subject to
shareholder election. The Audit Committee meets regularly with the external
and internal auditors to evaluate the effectiveness of their work in
discharging their respective responsibilities and to assure their independent
and free access to the Committee.
/s/ John C. Couch
- ------------------------
John C. Couch
Chairman of the Board, President
and Chief Executive Officer
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
(In thousands, except per-share amounts)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Year Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
Transportation and terminal services $ 566,705 $ 547,427 $ 511,673
Food products 471,967 495,149 363,751
Rentals and other services 159,153 143,392 100,423
Property development and other 35,519 31,424 25,334
Interest 23,131 15,085 19,571
Gain on sale of property and other 16,119 4,577 10,158
Dividends 2,851 2,756 2,683
- ---------------------------------------------------------------------------------
Total revenue 1,275,445 1,239,810 1,033,593
- ---------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of services 585,739 550,745 473,757
Cost of goods sold 425,979 437,976 361,492
Selling, general and administrative 107,579 112,975 112,961
Interest 28,936 34,565 37,365
Interest capitalized - (484) (3,936)
- ---------------------------------------------------------------------------------
Total costs and expenses 1,148,233 1,135,777 981,639
- ---------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 127,212 104,033 51,954
INCOME TAXES 45,825 38,748 19,535
- ---------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 81,387 65,285 32,419
DISCONTINUED OPERATIONS:
Income From Operations of Matson Leasing
Company, Inc. (Net of income taxes of
$3,228) - - 5,336
Gain on Sale of Matson Leasing Company,
Inc. (Net of income taxes of $8,954) - - 18,000
- ---------------------------------------------------------------------------------
NET INCOME 81,387 65,285 55,755
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding gains on securities
(Net of income taxes of $3,977 in 1997,
$3,961 in 1996 and $6,391 in 1995) 6,939 8,375 10,757
- ---------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 88,326 $ 73,660 $ 66,512
=================================================================================
BASIC AND DILUTED EARNINGS PER SHARE OF
COMMON STOCK:
Continuing Operations $ 1.80 $ 1.44 $ 0.72
Discontinued Operations - - 0.51
- ---------------------------------------------------------------------------------
Net Income $ 1.80 $ 1.44 $ 1.23
=================================================================================
AVERAGE COMMON SHARES OUTSTANDING 45,182 45,303 45,492
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (In thousands)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Year Ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Income from continuing operations $ 81,387 $ 65,285 $ 32,419
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation 88,558 88,951 85,127
Plantation closure (reversal) (990) (4,624) 8,100
Loss (gain) on disposal of property,
investments and other assets (872) (1,686) 226
Changes in assets and liabilities:
Accounts and notes receivable (5,532) (5,225) (32,889)
Inventories 24,276 (16,616) 2,640
Prepaid expenses and other assets 1,973 103 6,153
Accounts and income taxes payable (672) 7,062 14,580
Deferred income taxes payable 13,168 10,420 42,965
Other liabilities (13,791) 6,131 (8,771)
Capital expenditures for real estate
developments held for sale (5,636) (16,799) (19,734)
Discontinued leasing operations - - (59,160)
- ----------------------------------------------------------------------------------
Net cash provided by operations 181,869 133,002 71,656
- ----------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property (45,598) (185,142) (63,908)
Capital expenditures for real estate
developments held for investment (2,898) (2,579) (5,581)
Receipts from disposal of income
producing property, investments
and other assets 728 10,897 362,501
Deposits into Capital Construction Fund (11,656) (11,481) (136,484)
<PAGE>
Withdrawals from Capital Construction Fund 50,000 145,500 999
Reduction (increase) in investments - net (822) 1,184 (1,518)
Discontinued leasing operations:
Capital expenditures - - (30,061)
Other - - 900
- ----------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities (10,246) (41,621) 126,848
- ----------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 34,500 43,000 40,000
Payments of long-term liabilities (109,082) (81,888) (189,764)
Proceeds (payments) of short-term commercial
paper borrowings - net (45,000) (21,000) 25,000
Repurchases of capital stock (16,585) (1,250) (11,580)
Proceeds from issuance of capital stock 2,132 1,291 468
Dividends paid (39,789) (39,860) (40,035)
- ----------------------------------------------------------------------------------
Net cash used in financing activities (173,824) (99,707) (175,911)
- ----------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) for the year (2,201) (8,326) 22,593
Balance, beginning of year 23,824 32,150 9,557
- ----------------------------------------------------------------------------------
Balance, end of year $ 21,623 $ 23,824 $ 32,150
==================================================================================
OTHER CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 30,956 $ 36,472 $ 41,277
Income taxes paid, net of refunds 29,775 26,360 53,014
NON-CASH ACTIVITIES.Tax-deferred property sales 17,388 12,325 -
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
(In thousands, except per-share amounts)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
December 31, 1997 1996
- ---------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 21,623 $ 23,824
Accounts and notes receivable:
Trade, less allowances of $18,005 and $10,294 152,098 134,552
Other 24,067 33,207
Inventories:
Sugar and coffee 38,888 61,540
Materials and supplies 30,321 35,330
Real estate held for sale 12,563 17,383
Deferred income taxes 9,404 17,708
Prepaid expenses and other assets 9,977 12,114
Accrued deposits to Capital Construction Fund (10,000) (1,656)
- ---------------------------------------------------------------------------------
Total current assets 288,941 334,002
- ---------------------------------------------------------------------------------
INVESTMENTS 102,813 91,602
- ---------------------------------------------------------------------------------
REAL ESTATE DEVELOPMENTS 68,056 70,144
- ---------------------------------------------------------------------------------
PROPERTY:
Land 66,161 61,869
Buildings 218,116 204,588
Vessels 815,805 811,774
Machinery and equipment 697,095 676,830
Water, power and sewer systems 83,334 78,726
Other property improvements 94,512 88,529
- ---------------------------------------------------------------------------------
Total 1,975,023 1,922,316
Less accumulated depreciation and amortization 938,508 861,126
- ---------------------------------------------------------------------------------
Property.net 1,036,515 1,061,190
- ---------------------------------------------------------------------------------
CAPITAL CONSTRUCTION FUND 148,610 178,616
- ---------------------------------------------------------------------------------
PENSION ASSETS 1,192 -
- ---------------------------------------------------------------------------------
OTHER ASSETS.NET 58,671 60,561
- ---------------------------------------------------------------------------------
Total $1,704,798 $1,796,115
=================================================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997 1996
- ---------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 24,453 $ 31,966
Current portion of capital lease obligations 10,032 12,116
Short-term commercial paper borrowings 17,000 62,000
Accounts payable 46,835 50,496
Payrolls and vacation pay 20,561 21,996
Uninsured claims 15,265 16,129
Post-retirement benefit obligations.current portion 5,164 5,710
Taxes other than income 4,551 5,445
Accrued interest payable 2,158 3,313
Accrued and other liabilities 28,116 29,252
- ---------------------------------------------------------------------------------
Total current liabilities 174,135 238,423
- ---------------------------------------------------------------------------------
LONG-TERM LIABILITIES:
Long-term debt 290,885 345,618
Capital lease obligations 2,000 12,039
Post-retirement benefit obligations 112,125 116,047
Uninsured claims 9,249 7,902
Pension obligations - 3,651
Other 37,062 37,194
- ---------------------------------------------------------------------------------
Total long-term liabilities 451,321 522,451
- ---------------------------------------------------------------------------------
DEFERRED INCOME TAXES 359,754 350,913
- ---------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Capital stock.common stock without par value;
authorized, 150,000 shares ($.75 stated value
per share); outstanding, 44,881 shares in 1997
and 45,339 shares in 1996 36,769 37,150
Additional capital 49,437 43,377
Unrealized holding gains on securities 55,144 48,205
Retained earnings 591,135 568,969
Cost of treasury stock (12,897) (13,373)
- ---------------------------------------------------------------------------------
Total shareholders' equity 719,588 684,328
- ---------------------------------------------------------------------------------
Total $1,704,798 $1,796,115
=================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per-share amounts)
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Three Years Ended December 31, 1997
- --------------------------------------------------------------------------------------------------------------------
Capital Stock
------------------------------------------
Issued In Treasury
--------------------- ------------------
Unrealized
Additional Holding Retained
Shares Stated Value Shares Cost Capital Gains Earnings
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 49,991 $ 37,493 4,300 $(14,724) $ 38,862 $ 29,073 $541,910
CHANGES IN 1995:
Shares repurchased and retired (511) (383) (11,196)
Stock options exercised 24 18 669
Acquired in payment of options (2) (1) (40)
Issued--incentive plans 8 6 (70) 907 607
Unrealized holding gains on
securities 10,757
Net income 55,755
Cash dividends -- $.88 per share (40,035)
- --------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 49,510 37,133 4,230 (13,817) 40,138 39,830 546,394
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
====================================================================================================================
See notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of Alexander & Baldwin, Inc. and all subsidiaries, after elimination
of significant intercompany amounts.
COMPREHENSIVE INCOME: The Statements of Income include a new measure called
Comprehensive Income. This is intended to report a measure of all changes in
Shareholders' Equity that result 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 sheet. When
construction is complete, the costs are reclassified either as Property or as
Real Estate Held For Sale, based upon the Company's intent to sell the
completed asset or to hold it as an investment. Cash flows related to real
estate developments are classified as operating or investing activities, based
upon the Company's intention either to sell the property or to retain ownership
of the property as an investment following completion of construction.
FOOD PRODUCTS: Revenue is recorded when refined sugar products and coffee are
sold to third parties.
Costs of growing sugar cane are charged to the cost of production in the year
incurred and to cost of sales as refined products are sold. The cost of raw
cane sugar purchased from third parties is recorded as inventory at the
purchase price.
Costs of developing coffee are capitalized during the development period and
depreciated over the estimated productive lives of the orchards. Costs of
growing coffee are charged to inventory in the year incurred and to cost of
sales as coffee is sold.
CASH AND CASH EQUIVALENTS: The Company considers highly liquid investments
purchased with original maturities of three months or less, which have no
significant risk of change in value, to be cash equivalents.
INVENTORIES: Sugar inventory, consisting of raw and refined sugar 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.
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
OTHER NON-CURRENT ASSETS: Other non-current assets consist principally of
sugar supply contracts and intangible assets. These assets are being amortized
using the straight-line method over periods not exceeding 30 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, fair value is
determined by reference to the sales of similar property, market studies, tax
assessments and discounted cash flows. For commercial property, fair value is
determined using recent comparable sales, tax assessments and cash flow
analysis. A large portion of the Company's real estate is undeveloped land
located in Hawaii. This land has a cost basis which averages 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 reasonably estimated.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the 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 1996 and 1995 financial statements
have been reclassified to conform with the 1997 presentation.
RESTATEMENTS: The financial statements for all periods presented have been
restated to reflect the sale of certain net assets of the Company's container
leasing segment, as described in Note 2.
2. DISCONTINUED OPERATIONS
In June 1995, the Company sold the net assets of its container leasing
subsidiary, Matson Leasing Company, Inc., for approximately $362 million in
cash, and realized an after-tax gain of $18 million. Sales and gross profit of
the discontinued operation were $35,251,000 and $14,762,000, respectively, in
1995.
3. INVESTMENTS
At December 31, 1997 and 1996, investments principally consisted of marketable
equity securities, limited partnership interests and purchase-money mortgages.
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, 1997 and
1996 were as follows (in thousands):
1997 1996
- ---------------------------------------------------------------------
Market value $ 96,597 $85,796
Less historical cost 9,851 9,966
- ---------------------------------------------------------------------
Unrealized holding gains 86,746 75,830
Less deferred income taxes 31,602 27,625
- ---------------------------------------------------------------------
Net unrealized holding gains $ 55,144 $48,205
=====================================================================
The investments in limited partnership interests and purchase-money mortgages
are recorded at cost, which approximated market values, of $6,216,000 and
$5,806,000 at December 31, 1997 and 1996, respectively. The purchase money
mortgages are intended to be held to maturity. The value of the underlying
investments of the limited partnership interests are assessed annually and are
approximately equal to the original cost.
See Note 4 for a discussion of market values of investments in the Capital
Construction Fund.
4. 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 1997 will be used or committed for qualified
purposes prior to the expiration of the applicable 25-year periods.
Under the terms of the CCF agreement, the subsidiary may designate certain
qualified earnings as "accrued deposits" or may designate, as obligations of
the CCF, qualified withdrawals to reimburse qualified expenditures initially
made with operating funds. Such accrued deposits to and withdrawals from the
CCF are reflected on the balance sheet either as 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, 1997 and 1996, the balances on deposit in the CCF are
summarized in Table 1.
<TABLE>
<CAPTION>
TABLE 1 (In thousands)
- ---------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------
Amortized Fair Unrealized Amortized Fair Unrealized
Cost Value Gain (Loss) Cost Value Gain (Loss)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities $ 69,451 $ 68,738 $ (713) $ 84,642 $ 80,871 $(3,771)
Cash and cash equivalents 69,159 69,159 - 92,318 92,318 -
Accrued deposits 10,000 10,000 - 1,656 1,656 -
- -------------------------------------------------------------------------------------------------------
Total $148,610 $147,897 $ (713) $178,616 $174,845 $(3,771)
=======================================================================================================
</TABLE>
Fair value of the mortgage-backed securities ("MBS") was determined by an
outside investment management company, based on the experience of trading
identical or substantially similar securities. No central exchange exists for
these securities; they are traded over-the-counter.
At the end of 1997, the fair value of the Company's investments in MBS is less
than amortized cost, due to interest rate sensitivity inherent in the fair
value determination of such securities. While an unrealized market loss
exists, the Company intends to hold these investments to maturity, which ranges
from 2005 through 2028. The MBS have a weighted average life of approximately
5.6 years. The Company earned $5,897,000 in 1997, $6,838,000 in 1996 and
$7,655,000 in 1995 on its investments in MBS.
Fair values of the remaining CCF investments were based on quoted market
prices, if available. If a quoted market price was not available, fair value
was estimated using quoted market prices of similar securities and investments.
These remaining investments mature in 1998.
During 1997 and 1996, there were no sales of securities classified as "held-to-
maturity" included in the CCF.
5. EMPLOYEE BENEFIT PLANS
Total contributions to the multi-employer pension plans covering personnel in
shoreside and seagoing bargaining units were $5,828,000 in 1997, $5,552,000 in
1996 and $5,903,000 in 1995. 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 the Employee Retirement Income Security Act of 1974, as amended,
and are paying premiums to the Pension Benefit Guarantee Corporation (PBGC).
The statutes provide that an employer which withdraws from or significantly
reduces its contribution obligation to a multi-employer plan generally will be
required to continue funding its proportional share of the plan's unfunded
vested benefits.
Under special rules approved by the PBGC and adopted by the 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 $2,896,000 for the year
ended December 31, 1997, based on estimates by plan actuaries. Management has
no present intention of withdrawing from and does not anticipate termination of
any of the aforementioned plans.
The net pension benefit and components for 1997, 1996 and 1995, of single-
employer defined benefit pension plans, which cover substantially all other
employees, were as follows (in thousands):
1997 1996 1995
- ---------------------------------------------------------------------------
Service cost--benefits earned
during the year $ 6,692 $ 6,326 $ 6,210
Interest cost on projected benefit
obligations 23,807 23,295 21,785
Actual return on plan assets (84,027) (47,980) (78,713)
Net amortization and deferral 48,272 14,599 50,298
Curtailments and terminations 412 (779) (1,761)
- ---------------------------------------------------------------------------
Net pension benefit $ (4,844) $ (4,539) $ (2,181)
===========================================================================
The funded status of the single-employer plans at December 31, 1997 and 1996
was as follows (in thousands):
1997 1996
- ---------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits $ 310,593 $ 284,755
Non-vested benefits 9,395 8,415
- ---------------------------------------------------------------------------
Accumulated benefit obligations 319,988 293,170
Additional amounts related to projected
compensation levels 34,895 32,925
- ---------------------------------------------------------------------------
Projected benefit obligations 354,883 326,095
Plan assets at fair value 443,248 380,909
- ---------------------------------------------------------------------------
Excess of plan assets over
projected benefit obligations (88,365) (54,814)
Prior service costs to be recognized in future
years (5,707) (3,518)
Unrecognized actuarial net gain 91,011 59,119
Unrecognized net asset at
January 1, 1987 (being amortized over
periods of 4 to 15 years) 1,869 2,864
- ---------------------------------------------------------------------------
Accrued pension liability (asset) $ (1,192) $ 3,651
===========================================================================
At December 31, 1997 and 1996, the projected benefit obligations were
determined using a discount rate of 7.25 percent and 7.5 percent, respectively,
and assumed increases in future compensation levels of 4.25 percent and 4.5
percent, respectively. The expected long-term rate of return on assets was
9 percent for 1997 and 1996. The assets of the plans consist principally of
listed stocks and bonds. Gains and losses are amortized using the minimum
method allowed by Statement of Financial Accounting Standards (SFAS) No. 87.
Contributions are determined annually for each plan by the Company's pension
administrative committee, based upon the actuarially determined minimum
required contribution under ERISA and the maximum deductible contribution
allowed for tax purposes. For the plans covering employees who are members
of collective bargaining units, the benefit formulas are determined according
to the collective bargaining agreements, either using career average pay as the
base or a flat dollar amount per year of service. The benefit formulas for the
remaining defined benefit plans are based on final average pay.
The Company has non-qualified supplemental pension plans covering certain
employees and retirees, which provide for incremental pension payments from the
Company's general funds so that total pension benefits would be substantially
equal to amounts that would have been payable from the Company's qualified
pension plans if it were not for limitations imposed by income tax regulations.
The obligation, included with other non-current liabilities, relating to these
unfunded plans, totaled $10,654,000 and $9,844,000 at December 31, 1997 and
1996, respectively.
6. POST-RETIREMENT BENEFIT PLANS
The Company has plans that provide certain retiree health care and life
insurance benefits to substantially all salaried and to certain hourly
employees. Employees are generally eligible for such benefits upon retirement
and completion of a specified number of years of credited service. The Company
does not pre-fund these benefits and has the right to modify or terminate
certain of these plans in the future. Certain groups of retirees pay a portion
of the benefit costs.
The net periodic cost for post-retirement health care and life insurance
benefits during 1997, 1996 and 1995 included the following (in thousands):
1997 1996 1995
- ---------------------------------------------------------------------
Service cost $ 1,310 $ 1,351 $ 1,512
Interest cost 6,250 6,605 7,031
Net amortization (6,683) (2,016) (1,524)
Curtailment gain - (2,476) (2,045)
- ---------------------------------------------------------------------
Post-retirement benefit cost $ 877 $ 3,464 $ 4,974
=====================================================================
The unfunded accumulated post-retirement benefit obligations at December 31,
1997 and 1996 are summarized below (in thousands):
1997 1996
- ----------------------------------------------------------------------
Retirees $ 52,668 $ 54,951
Fully-eligible active plan participants 12,120 10,865
Other active plan participants 26,324 27,780
Unrecognized prior service cost 3,824 3,643
Unrecognized net gain 22,353 24,518
- ----------------------------------------------------------------------
Accumulated post-retirement benefit
obligations 117,289 121,757
Current obligation 5,164 5,710
- ----------------------------------------------------------------------
Non-current obligation $112,125 $116,047
======================================================================
At December 31, 1997 and 1996, the weighted average discount rates used in
determining the accumulated post-retirement benefit obligations were 7.25
percent and 7.5 percent, respectively, and the assumed health care cost trend
rate used in measuring the accumulated post-retirement benefit obligations was
10 percent through 2001, decreasing to 5 percent thereafter. For 1997, gains
and losses are being amortized over five years. For 1996 and previous years,
gains and losses were amortized using the minimum method allowed by SFAS No.
106. This change did not significantly affect financial results for 1997. If
the assumed health care cost trend rate were increased by one percentage point,
the accumulated post-retirement benefit obligation as of December 31, 1997 and
1996 would have increased by approximately $11,113,000 and $11,105,000,
respectively, and the net periodic post-retirement benefit cost for 1997 and
1996 would have increased by approximately $1,172,000 and $1,208,000,
respectively.
7. LONG-TERM DEBT, CREDIT AGREEMENTS
At December 31, 1997 and 1996, long-term debt consisted of the following (in
thousands):
1997 1996
- -------------------------------------------------------------------
Commercial paper, 1997 high 6.70%, low 5.15% $130,852 $225,632
Bank variable rate loans (1997 high 6.325%,
low 5.570%) due after 1997 41,500 22,000
Term loans:
7.18%, payable through 2007 67,500 75,000
8%, payable through 2000 27,500 37,500
9.05%, payable through 1999 14,815 21,285
9.8%, payable through 2004 14,583 16,667
9%, payable through 1999 10,588 15,882
7.43%, payable through 2007 15,000 15,000
7.65%, payable through 2001 10,000 10,000
11.78%, repaid in 1997 - 618
- -------------------------------------------------------------------
Total 332,338 439,584
Less current portion 24,453 31,966
Commercial paper classified as current 17,000 62,000
- -------------------------------------------------------------------
Long-term debt $290,885 $345,618
===================================================================
VARIABLE RATE LOANS: The Company and a subsidiary have a revolving credit and
term loan agreement with five commercial banks, whereby they may borrow up to
$155,000,000, under revolving loans to November 30, 1999, at varying rates of
interest. Any revolving loan outstanding on that date may be converted into a
term loan, which would be payable in 16 equal quarterly installments. The
agreement contains certain restrictive covenants, the most significant of which
requires the maintenance of an interest coverage ratio of 2:1. At December 31,
1997 and 1996, $25,000,000 and $15,000,000, respectively, were outstanding
under this agreement.
The Company and a subsidiary have an uncommitted $45,000,000 short-term
revolving credit agreement with a commercial bank. The agreement extends to
November 30, 1998, but may be canceled by the bank at any time. At
December 31, 1997 and 1996, $11,500,000 and $7,000,000, respectively, were
outstanding under this agreement.
The Company and a subsidiary have an uncommitted $25,000,000 revolving credit
agreement with a commercial bank. The agreement extends to September 8, 2000.
At December 31,1997, $5,000,000 was outstanding under this agreement. No
amount was outstanding at December 31, 1996.
A subsidiary has a $50,000,000 one-year revolving credit agreement with a two-
year term option. Up to $25,000,000 of this agreement serves as a commercial
paper liquidity back-up line, with the balance available for general corporate
funds. At December 31, 1997 and 1996, there were no amounts outstanding under
this agreement.
A subsidiary has an uncommitted $15,000,000 revolving credit agreement with a
commercial bank. The Agreement extends to November 28, 2000. At December 31,
1997 and 1996, there were no amounts outstanding under this agreement.
TERM LOAN: The Company and a subsidiary have a shelf facility under which they
may borrow up to $50,000,000 in $5,000,000 term loan increments. At December
31, 1997 and 1996, $15,000,000 had been borrowed.
COMMERCIAL PAPER: At December 31, 1997, there were two commercial paper
programs. The first program was used by a subsidiary to finance the
construction of a vessel, which was delivered in 1992. At December 31, 1997,
$99,852,000 of commercial paper notes was outstanding under this program.
Maturities ranged from 3 to 34 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 is used by a subsidiary to fund the
purchases of sugar inventory from Hawaii sugar growers and to provide working
capital for sugar refining and marketing operations. At December 31, 1997,
$31,000,000 of commercial paper notes was outstanding under this program.
Maturities ranged from 22 to 26 days. The interest cost and certain fees on
the borrowings relating to sugar inventory advances to growers are reimbursed
by the growers. Of the total commercial paper borrowing outstanding at
December 31, 1997, $17,000,000 was classified as current. The commercial paper
is supported by a $100,000,000 backup revolving credit facility with five
commercial banks. Both the commercial paper program and the backup facility
are guaranteed by the subsidiary's parent and by the Company.
LONG-TERM DEBT MATURITIES: At December 31, 1997, maturities and planned
prepayments of all long-term debt during the next five years totaled
$24,453,000 for 1998, $32,616,000 for 1999, $19,583,000 for 2000, $17,083,000
for 2001 and $9,583,000 for 2002.
8. LEASES
THE COMPANY AS LESSEE: Various subsidiaries of the Company lease a vessel and
certain land, buildings and equipment under both capital and operating leases.
Capital leases include one vessel leased for a term of 25 years ending in 1998;
containers, machinery and equipment for terms of 5 to 12 years expiring through
1998; and a wastewater treatment facility in California, the title to which
will revert to a subsidiary in 2002. Principal operating leases cover office
and terminal facilities for periods which expire between 1998 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 $45,560,000, $45,559,000 and
$46,680,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Contingent rents and income from sublease rents were not significant.
Assets recorded under capital lease obligations and included in property at
December 31, 1997 and 1996 were as follows (in thousands):
1997 1996
- -------------------------------------------------------------------------
Vessel $55,253 $55,253
Machinery and equipment 42,039 42,468
- -------------------------------------------------------------------------
Total 97,292 97,721
Less accumulated amortization 95,866 90,462
- -------------------------------------------------------------------------
Property under capital leases--net $ 1,426 $ 7,259
=========================================================================
Future minimum payments under all leases and the present value of minimum
capital lease payments as of December 31, 1997 were as follows (in thousands):
Capital Operating
Leases Leases
- --------------------------------------------------------------------------
1998 $ 11,081 $ 27,539
1999 609 17,321
2000 578 14,448
2001 547 12,412
2002 516 11,705
Thereafter - 90,191
- --------------------------------------------------------------------------
Total minimum lease payments 13,331 $173,616
Less amount representing interest 1,299 ========
- ---------------------------------------------------------------
Present value of future minimum payments 12,032
Less current portion 10,032
- ---------------------------------------------------------------
Long-term obligations at December 31, 1997 $ 2,000
===============================================================
A subsidiary is obligated to pay terminal facility rent equal to the principal
and interest on Special Facility Revenue Bonds issued by the Department of
Transportation of the State of Hawaii. Interest on the bonds is payable semi-
annually and principal, in the amount of $16,500,000, is due in 2013. An
accrued liability of $8,257,000 and $7,713,000 at December 31, 1997 and 1996,
respectively, included in other long-term liabilities, provides for a pro-rata
portion of the principal due on these bonds.
THE COMPANY AS LESSOR: Various Company subsidiaries lease land, buildings and
land improvements under operating leases. The historical cost of and
accumulated depreciation on leased property at December 31, 1997 and 1996 were
as follows (in thousands):
1997 1996
- --------------------------------------------------------------------------
Leased property $267,569 $246,802
Less accumulated amortization 47,253 42,722
- --------------------------------------------------------------------------
Property under operating leases--net $220,316 $204,080
==========================================================================
Total rental income under these operating leases for the three years ended
December 31, 1997 was as follows (in thousands):
1997 1996 1995
- ---------------------------------------------------------------------------
Minimum rentals $ 35,535 $ 34,556 $ 28,164
Contingent rentals (based on sales volume) 1,048 1,232 880
- ---------------------------------------------------------------------------
Total $ 36,583 $ 35,788 $ 29,044
===========================================================================
Contingent rentals are based on sales volume.
Future minimum rental income on non-cancelable leases at December 31, 1997 was
as follows (in thousands):
Operating
Leases
- -------------------------------------------------------
1998 $ 23,057
1999 19,960
2000 16,288
2001 13,738
2002 11,525
Thereafter 130,618
- ------------------------------------------------------
Total $ 215,186
======================================================
9. INCOME TAXES
The income tax expense for the three years ended December 31, 1997 consisted of
the following (in thousands):
1997 1996 1995
- ---------------------------------------------------------------------------
Current:
Federal $ 30,181 $ 23,549 $(23,833)
State 2,476 4,779 403
- ---------------------------------------------------------------------------
Total 32,657 28,328 (23,430)
Deferred 13,168 10,420 42,965
- ---------------------------------------------------------------------------
Income tax expense $ 45,825 $ 38,748 $ 19,535
===========================================================================
Total income tax expense for the three years ended December 31, 1997 differs
from amounts computed by applying the statutory Federal rate to pre-tax income,
for the following reasons (in thousands):
1997 1996 1995
- ---------------------------------------------------------------------------
Computed income tax expense $ 44,525 $ 36,412 $ 18,184
State tax on income, less applicable
Federal tax 3,732 2,605 326
Low-income housing credits (1,214) (1,219) (1,224)
Fair market value over cost of donations (1,306) (11) -
Other-net 88 961 2,249
- ---------------------------------------------------------------------------
Income tax expense $ 45,825 $ 38,748 $ 19,535
===========================================================================
The tax effects of temporary differences that give rise to significant portions
of the net deferred tax liability at December 31, 1997 and 1996 were as follows
(in thousands):
1997 1996
- --------------------------------------------------------------------------
Accelerated depreciation $178,570 $171,815
Capital Construction Fund 104,408 111,064
Tax-deferred gains on real estate transactions 77,784 73,890
Unrealized holding gains on securities 31,602 27,625
Post-retirement benefits (48,014) (49,398)
Insurance reserves (6,907) (6,791)
Alternative minimum tax benefit - (3,905)
Other-net 12,907 8,905
- --------------------------------------------------------------------------
Total $350,350 $333,205
==========================================================================
The Internal Revenue Service (IRS) has completed its audits of the Company's
tax returns through 1991. No settlement 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 1992 through 1995. Management believes that
the resolution of the current audit will not have a material effect on the
Company's financial position or results of operations.
10. CAPITAL STOCK AND STOCK OPTIONS
The Company has a stock option plan ("1989 Plan") under which key employees may
be granted stock purchase options and stock appreciation rights. A second
stock option plan terminated in 1993, but shares previously granted under the
plan are still exercisable. Under the 1989 Plan, option prices may not be less
than the fair market value of a share of the Company's common stock on the
dates of grant, and each option generally becomes exercisable in-full one year
after the date granted. Payment for options exercised, to the extent not
reduced by the application or surrender of stock appreciation rights, may be
made in cash or in shares of the Company's stock. If payment is made in shares
of the Company's stock, the option holder may receive, under a reload feature
of the 1989 Plan, a new stock option grant for the number of shares equal to
that surrendered, with an option price not less than the fair market value of
the Company's stock on the date of exercise. During 1997, new options to
purchase 565,212 shares were granted under the 1989 Plan. This included reload
options to purchase 57,132 shares.
The 1989 Plan also permits issuance of shares of the Company's common stock as
a reward for past service rendered to the Company or one of its subsidiaries or
as an incentive for future service with such entities. The recipients'
interest in such shares may be fully vested upon issuance or may vest in one or
more installments, upon such terms and conditions as are determined by the
committee which administers the plan. The number of incentive shares issued
during 1997 or outstanding at the end of the year was not material.
The Company also has a Directors' stock option plan, under which each non-
employee Director of the Company, elected at an Annual Meeting of Shareholders,
is automatically granted, on the date of each such Annual Meeting, an option to
purchase 3,000 shares of the Company's common stock at the average fair market
value of the shares for the five consecutive trading days prior to the grant
date. Each option becomes exercisable six months after the date granted.
During 1997, new options to purchase 21,000 shares were granted, options to
purchase 15,000 shares were exercised and options to purchase 9,000 shares were
canceled. At December 31, 1997, options to purchase 183,000 shares were
outstanding under the plan.
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 1989 Plan and the
Directors' stock option plan had been determined consistent with SFAS No. 123,
"Accounting for Stock-Based Compensation," the after-tax cost for grants made
in 1997, 1996 and 1995 would have been approximately $1,800,000, $900,000 and
$1,300,000, respectively. Earnings per share for 1997, 1996 and 1995 would
have declined by $0.04, $0.02 and $0.03, respectively.
Changes in shares under all option plans, for the three years ended
December 31, 1997, were as follows:
Price Range
Shares Per Share
- -----------------------------------------------------------------------
1994: Outstanding, December 31 2,444,032 $17.375-37.875
1995: Granted 551,800 21.750-22.500
Exercised (23,550) 17.375-24.750
Canceled (385,531) 24.250-36.250
- -----------------------------------------------------------------------
Outstanding, December 31 2,586,751 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
(2,600,337 EXERCISABLE) 3,206,038 $21.750-37.875
=======================================================================
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. If not
renewed, the Plan will expire in 1998.
11. RELATED PARTY TRANSACTIONS, COMMITMENTS AND CONTINGENCIES
At December 31, 1997, the Company and its subsidiaries had an unspent balance
of total appropriations for capital expenditures of approximately $84,222,000.
However, there is no contractual obligation to spend this entire amount.
The Company has arranged for standby letters of credit of approximately
$19,930,000 necessary to qualify as a self-insurer for state and federal
workers' compensation liabilities. The Company also has other letters of
credit outstanding for normal operating matters, which total approximately
$3,958,000.
A subsidiary is a party, acting as the steam host, to a Steam Purchase
Agreement with a developer which constructed and operates a cogeneration
facility contiguous to the subsidiary's California refinery. The agreement
provides that, during the 30-year period of the agreement, the subsidiary will
receive steam necessary for refinery operations at a reduced price, compared to
the market price of fuel which previously had to be purchased to generate its
steam requirements.
A subsidiary is party to a long-term sugar supply contract with Hawaiian
Sugar & Transportation Cooperative (HSTC), a raw sugar marketing and
transportation cooperative owned by the Company and by the other Hawaii sugar
growers. Under the terms of this contract, the subsidiary is obligated to
purchase, and HSTC is obligated to sell, all of the raw sugar delivered to HSTC
by the Hawaii sugar growers, at prices determined by the quoted domestic sugar
market. The subsidiary made purchases of raw sugar totaling $126,629,000 and
$190,188,000 under the contract during 1997 and 1996, respectively. The
contract also requires that the subsidiary provide cash advances to HSTC prior
to the physical receipt of the sugar at its refinery (see Note 7). Such
advances are determined by the estimated raw sugar market prices. Amounts due
to HSTC are credited against outstanding advances to HSTC upon delivery of raw
sugar to the subsidiary's refinery.
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 1997, 1996 and 1995, on page 24, is
incorporated herein by reference. Segments are:
Ocean transportation -- carrying freight between various U.S. and Canadian West
Coast, Hawaii and other Pacific ports, and providing terminal services.
Property development and management -- developing, managing and selling
residential, commercial and industrial properties.
Food products -- growing, processing and marketing sugar, molasses and coffee,
and generating and selling electricity.
As discussed in Note 2, the net assets of the container leasing segment were
sold in 1995.
<PAGE>
<TABLE>
<CAPTION>
Quarterly Results
(Unaudited)
Segment results by quarter for 1997 and 1996 are listed below (in thousands,
except per-share amounts):
1997 1996
----------------------------------------- -----------------------------------------
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
----------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Ocean Transportation $177,423 $179,106 $175,005 $181,120 $167,462 $168,701 $173,201 $152,222
Property Development
& Management:
Leasing 9,103 9,320 9,609 9,116 9,025 8,918 9,085 8,888
Sales 13,245 4,080 14,480 4,111 9,324 15,299 5,125 2,161
Food Products 134,777 132,816 118,131 101,188 146,235 140,970 121,337 98,367
Other 711 684 703 717 759 1,393 673 665
- ---------------------------------------------------------------------------- -----------------------------------------
Total Revenue $335,259 $326,006 $317,928 $296,252 $332,805 $335,281 $309,421 $262,303
============================================================================ =========================================
Operating Profit:
Ocean Transportation $ 19,088 $ 24,405 $ 22,807 $ 34,050 $ 16,711 $ 20,646 $ 26,648 $ 17,613
Property Development
& Management:
Leasing 5,787 6,105 6,433 6,234 5,658 6,032 6,243 5,942
Sales 7,345 1,257 3,080 1,580 3,407 8,673 2,995 232
Food Products 5,913 11,778 6,949 2,443 13,207 11,848 2,696 (888)
Other 653 652 671 663 623 1,356 628 613
- ---------------------------------------------------------------------------- -----------------------------------------
Total Operating Profit 38,786 44,197 39,940 44,970 39,606 48,555 39,210 23,512
- ---------------------------------------------------------------------------- -----------------------------------------
Interest Expense 6,421 6,770 7,803 7,942 8,426 8,469 8,376 8,810
General Corporate Expenses 2,925 2,865 2,891 3,064 3,563 2,970 2,858 3,378
- ---------------------------------------------------------------------------- -----------------------------------------
Income Before Income Taxes 29,440 34,562 29,246 33,964 27,617 37,116 27,976 11,324
Income Taxes 9,429 12,690 10,967 12,739 10,418 13,991 10,206 4,133
- ---------------------------------------------------------------------------- -----------------------------------------
Net Income $ 20,011 $ 21,872 $ 18,279 $ 21,225 $ 17,199 $ 23,125 $ 17,770 $ 7,191
============================================================================ =========================================
Basic and Diluted
Earnings per Share $ 0.45 $ 0.48 $ 0.40 $ 0.47 $ 0.38 $ 0.51 $ 0.39 $ 0.16
============================================================================ =========================================
Certain amounts have been reclassified to conform with the current presentation.
</TABLE>
GENERAL INFORMATION
Board of Directors
Members of the Board of Directors, including one advisory director, beneficially
own approximately seven percent of A&B shares.
At the Annual Meeting of Shareholders on April 24, 1997, shareholders elected a
total of nine directors, all of whom were nominated by the Board. Re-elected
were Michael J. Chun, John C. Couch, Leo E. Denlea, Jr., Walter A. Dods, Jr.,
Charles G. King, Carson R. McKissick, C. Bradley Mulholland, Maryanna G. Shaw
and Charles M. Stockholm. Alexander C. Waterhouse continues to serve as an
advisory director at the pleasure of the Board. R. J. Pfeiffer, Chairman of the
Board from 1980 to 1995 and a director from 1978 to 1995, continues to hold
the honorary position of Chairman Emeritus.
Management, Organization
Glenn R. Rogers, vice president, chief financial officer and treasurer of A&B,
was appointed executive vice president, chief financial officer and treasurer of
A&B, effective July 1, 1997.
Ronald H. Rothman, vice president, industrial relations of Matson, will retire,
effective May, 1, 1998. Ronald J. Forest was appointed vice president, labor
relations of Matson, effective December 11, 1997.
Credit Ratings
As discussed in Note 7 to the financial statements, Matson had outstanding
commercial paper notes at December 31, 1997 of $100 million. The Matson notes
are rated A-1/P-1/D-1 by Standard & Poor's, Moody's, and Duff & Phelps,
respectively. Standard & Poor's rates Matson's senior debt as A-.
C&H had outstanding commercial paper notes of $31 million at December 31, 1997.
The C&H notes are rated A-2/P-2 by Standard & Poor's and Moody's, respectively.
<PAGE>
DIRECTORS AND OFFICERS
ALEXANDER & BALDWIN, INC.
Directors
MICHAEL J. CHUN (54)*
President, The Kamehameha Schools
(educational institution)
JOHN C. COUCH (58)
Chairman of the Board, President and
Chief Executive Officer,
Alexander & Baldwin, Inc.
Chairman of the Board,
A&B-Hawaii, Inc.
Chairman of the Board,
Matson Navigation Company, Inc.
LEO E. DENLEA, JR. (66)**
Retired Chairman of the Board, President
and Chief Executive Officer,
Farmers Group, Inc. (insurance)
WALTER A. DODS, JR. (56)*
Chairman of the Board and
Chief Executive Officer,
First Hawaiian, Inc.
Chairman of the Board and
Chief Executive Officer,
First Hawaiian Bank (banking)
CHARLES G. KING (52)**
President, King Auto Center
(automobile dealership)
CARSON R. McKISSICK (65)*
Managing Director,
The Corporate Development Company
(financial advisory services)
C. BRADLEY MULHOLLAND (56)
President and Chief Executive Officer,
Matson Navigation Company, Inc.
MARYANNA G. SHAW (59)*
Private investor
CHARLES M. STOCKHOLM (65)**
Managing Director,
Trust Company of the West
(investment management services)
R. J. PFEIFFER (78)
Chairman Emeritus of the Board,
Alexander & Baldwin, Inc.
Chairman Emeritus of the Board,
A&B-Hawaii, Inc.
Chairman Emeritus of the Board,
Matson Navigation Company, Inc.
Advisory Director
ALEXANDER C. WATERHOUSE (86)
Vice Chairman, Waterhouse Properties, Inc.
(private investments)
* Audit Committee Members
** Compensation and Stock Option
Committee Members
ALEXANDER & BALDWIN, INC.
Officers
JOHN C. COUCH (58)
Chairman of the Board, President and
Chief Executive Officer
GLENN R. ROGERS (54)
Executive Vice President, Chief Financial
Officer and Treasurer
MEREDITH J. CHING (41)
Vice President (Government &
Community Relations)
JOHN B. KELLEY (52)
Vice President (Investor Relations)
MILES B. KING (50)
Vice President and Chief Administrative Officer
MICHAEL J. MARKS (59)
Vice President, General Counsel and Secretary
ROBERT K. SASAKI (57)
Vice President (Properties)
JUDITH A. WILLIAMS (54)
Vice President
(Corporate Planning & Development)
THOMAS A. WELLMAN (39)
Controller
A&B-HAWAII, INC.
Officers
JOHN C. COUCH (58)
Chairman of the Board
W. ALLEN DOANE (50)
President and Chief Executive Officer
G. STEPHEN HOLADAY (53)
Senior Vice President
(Plantation General Manager, HC&S)
MILES B. KING (50)
Senior Vice President (Human Resources)
DAVID G. KONCELIK (56)
Senior Vice President (President and Chief
Executive Officer, California and Hawaiian Sugar Company, Inc.)
MICHAEL J. MARKS (59)
Senior Vice President and General Counsel
GLENN R. ROGERS (54)
Senior Vice President,
Chief Financial Officer and Treasurer
ROBERT K. SASAKI (57)
Senior Vice President (Properties)
NORBERT M. BUELSING (47)
Vice President (Property Management)
MEREDITH J. CHING (41)
Vice President (Government &
Community Relations)
JOHN F. GASHER (64)
Vice President (Human Resources Development)
KEITH A. GOTO (54)
Vice President (Labor Relations)
JOHN B. KELLEY (52)
Vice President
STANLEY M. KURIYAMA (44)
Vice President
(Land Planning & Entitlements)
THOMAS A. WELLMAN (39)
Vice President and Controller
JUDITH A. WILLIAMS (54)
Vice President
(Corporate Planning & Development)
ALYSON J. NAKAMURA (32)
Secretary
MATSON NAVIGATION COMPANY, INC.
Officers
JOHN C. COUCH (58)
Chairman of the Board
C. BRADLEY MULHOLLAND (56)
President and Chief Executive Officer
RAYMOND J. DONOHUE (61)
Senior Vice President and
Chief Financial Officer
MILES B. KING (50)
Senior Vice President (Human Resources)
GARY J. NORTH (53)
Senior Vice President (Operations)
(President and Chief Operating Officer, Matson Terminals, Inc.)
KEVIN C. O'ROURKE (51)
Senior Vice President and General Counsel
PAUL E. STEVENS (45)
Senior Vice President (Marketing)
RICHARD S. BLISS (59)
Vice President (Area Manager, Hawaii)
ROBERT L. DAWDY (53)
Vice President (West Coast Operations)
BRANTON B. DREYFUS (44)
Vice President
(Area Manager, Southern California)
JOHN C. GOSLING (61)
Vice President (Engineering)
PHILIP M. GRILL (50)
Vice President (Government Relations)
DALE B. HENDLER (44)
Vice President (Information Services)
MERLE A. K. KELAI (66)
Vice President (Community Relations and
Government Affairs)
RONALD J. FOREST (42)
Vice President (Labor Relations)
MICHAEL J. MARKS (59)
Secretary
TIMOTHY H. REID (51)
Treasurer
JOSEPH A. PALAZZOLO (49)
Controller
All positions as of December 31, 1997
All ages as of March 31, 1998
<PAGE>
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 23, 1998.
Investor Information
Shareholders having questions about A&B are encouraged to write to John C.
Couch, Chairman of the Board, President and Chief Executive Officer; or Michael
J. Marks, Vice President, General Counsel and Secretary.
Inquiries from professional investors may be directed to John B. Kelley, Vice
President, Investor Relations.
Phone: (808) 525-8422
E-mail: [email protected]
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.
Tansfer 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 8 a.m. and 8 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 68,734 shares a day
in 1997, compared with 67,425 shares a day in 1996 and 86,022 in 1995.
Currently, 14 firms make a market in ALEX.
High and low sales prices per share, by quarter, for 1997 and 1996 were:
Quarter 1997 1996
- -----------------------------------------------------
First $ 29-3/8 - 24-1/2 $ 24-1/4 - 22-1/2
Second 27-3/4 - 24-3/8 29-1/4 - 23-3/4
Third 28-1/8 - 25-3/8 26-1/4 - 23-1/4
Fourth 28-1/4 - 26 28-1/2 - 23
Dividends
A&B strives to pay the highest possible dividends commensurate with operating
and capital needs. The Company has paid cash dividends in every quarter since
1903. An increase in the quarterly dividend rate from 22 cents a share to 22.5
cents will be effective in the first quarter of 1998. In 1997, total dividend
payments to shareholders were $39.8 million, 49 percent of reported earnings for
the year.
The following dividend schedule for 1998 has been set, subject to final approval
by the A&B Board of Directors:
Quarterly Declaration Record Payment
Dividend Date Date Date
- ------------------------------------------------
First Jan. 22 Feb. 13 March 5
Second April 23 May 7 June 4
Third June 25 Aug. 6 Sept. 3
Fourth Oct. 22 Nov. 5 Dec. 3
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
California and Hawaiian Sugar Company, Inc. Crockett, California
East Maui Irrigation Company, 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
Hawaiian Sugar & Transportation Cooperative2 Crockett, California
1 Wholly owned unless otherwise indicated
2 A cooperative owned with other Hawaii sugar companies
Alexander & Baldwin, Inc.
822 Bishop Street
Honolulu, Hawaii 96813-3924
P. O. Box 3440
Honolulu, HI 96801-3440
Telephone: 808-525-6611
Fax: 808-525-6652
Website: www.alexanderbaldwin.com
ALEXANDER & BALDWIN, INC.
Subsidiaries as of February 28, 1998
State or Other
Jurisdiction Under
Name of Subsidiary Which Organized
- ------------------ ------------------
A&B-Hawaii, Inc. Hawaii
Subsidiaries:
A & B Development Company (California) California
A & B Properties, Inc. Hawaii
California and Hawaiian Sugar
Company, Inc. Hawaii
East Maui Irrigation Company, Limited Hawaii
Kahului Trucking & Storage, Inc. Hawaii
Kauai Commercial Company, Incorporated Hawaii
Kukui'ula Development Company, Inc. Hawaii
McBryde Sugar Company, Limited Hawaii
Subsidiary: Kauai Coffee
Company, Inc. Hawaii
South Shore Community Services, Inc. Hawaii
South Shore Resources, Inc. Hawaii
WDCI, INC. Hawaii
Matson Navigation Company, Inc. Hawaii
Subsidiaries:
Matson Intermodal System, Inc. Hawaii
Matson Logistics Solutions, Inc. Hawaii
Matson Services Company, Inc. Hawaii
Matson Terminals, Inc. Hawaii
NOTE: Certain A&B subsidiaries, which considered in the aggregate do not
constitute a significant subsidiary, have been omitted.
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
Alexander & Baldwin, Inc.:
We consent to the incorporation by reference in Registration Statements No.
2-72008, 2-84179, 33-31922, 33-31923 and 33-54825 of Alexander & Baldwin, Inc.
and its subsidiaries on Form S-8 of our reports dated January 22, 1998,
appearing in and incorporated by reference in the Annual Report on Form 10-K of
Alexander & Baldwin, Inc. and its subsidiaries for the year ended December 31,
1997.
/s/ Deloitte & Touche LLP
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> (1,077)
<SECURITIES> 22,700
<RECEIVABLES> 194,170
<ALLOWANCES> 18,005
<INVENTORY> 69,209
<CURRENT-ASSETS> 288,941
<PP&E> 1,975,023
<DEPRECIATION> 938,508
<TOTAL-ASSETS> 1,704,798
<CURRENT-LIABILITIES> 174,135
<BONDS> 290,885
0
0
<COMMON> 36,769
<OTHER-SE> 682,819
<TOTAL-LIABILITY-AND-EQUITY> 1,704,798
<SALES> 1,233,344
<TOTAL-REVENUES> 1,275,445
<CGS> 1,011,718
<TOTAL-COSTS> 1,011,718
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,936
<INCOME-PRETAX> 127,212
<INCOME-TAX> 45,825
<INCOME-CONTINUING> 81,387
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81,387
<EPS-PRIMARY> 1.80
<EPS-DILUTED> 1.80
</TABLE>
