FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 0-565
-----
ALEXANDER & BALDWIN, INC.
-------------------------
(Exact name of registrant as specified in its charter)
HAWAII 99-0032630
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. BOX 3440, HONOLULU, HAWAII 96801
822 BISHOP STREET, HONOLULU, HAWAII 96813
----------------------------------- -----
(Address of principal executive (Zip Code)
offices)
(808) 525-6611
--------------
(Registrant's telephone number, including area code)
N/A
---
(Former name, former address and former
fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Number of shares of common stock outstanding as of
September 30, 1999: 43,123,536
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
The condensed financial statements and notes for the third quarter and first
nine months of 1999 are presented below with comparative figures from the 1998
financial statements.
<TABLE>
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF INCOME
(In thousands except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue:
Net sales, revenue from
services and rentals $ 240,690 $ 322,204 $ 690,484 $ 967,973
Interest, dividends and other 4,214 4,158 15,705 15,621
--------- --------- --------- ---------
Total revenue 244,904 326,362 706,189 983,594
--------- --------- --------- ---------
Costs and Expenses:
Costs of goods sold,
services and rentals 192,440 271,563 535,923 810,724
Selling, general and
administrative 20,836 26,520 67,700 79,830
Interest 4,209 6,229 13,105 18,602
Income taxes 8,943 8,270 31,898 27,914
--------- --------- --------- ---------
Total costs and expenses 226,428 312,582 648,626 937,070
--------- --------- --------- ---------
Income before cumulative
effective of change
in accounting method 18,476 13,780 57,563 46,524
Cumulative effect of change in
accounting method for
insurance-related assessments
(net of income taxes of $3,481 - - - (5,801)
--------- --------- --------- ---------
Net Income $ 18,476 $ 13,780 $ 57,563 $ 40,723
========= ========= ========= =========
Basic Earnings Per Share $ 0.43 $ 0.31 $ 1.33 $ 0.91
Diluted Earnings Per Share $ 0.43 $ 0.31 $ 1.33 $ 0.91
Dividends Per Share $ 0.225 $ 0.225 $ 0.675 $ 0.675
Average Numbers of Shares 43,223 44,842 43,366 44,851
Outstanding
</TABLE>
<PAGE>
<TABLE>
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
INDUSTRY SEGMENT DATA
(In thousands)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue:
Ocean Transportation $ 185,529 $ 180,202 $ 542,560 $ 541,126
Property Development and
Management:
Leasing 10,852 9,576 33,272 28,009
Sales 7,985 6,246 43,096 74,819
Food Products 39,812 129,620 85,083 337,488
Other 726 718 2,178 2,152
--------- --------- --------- ---------
Total $ 244,904 $ 326,362 $ 706,189 $ 983,594
========= ========= ========= =========
Operating Profit:(1)
Ocean Transportation $ 21,896 $ 16,200 $ 65,479 $ 50,357
Property Development and
Management:
Leasing 6,562 5,786 20,578 17,274
Sales 1,590 1,633 17,079 20,269
Food Products 4,828 7,557 8,318 13,602
Other 693 642 2,033 2,005
--------- --------- --------- ---------
Total $ 35,569 $ 31,818 $ 113,487 $ 103,507
========= ========= ========= =========
(1)Before interest expense, corporate expenses and income taxes
</TABLE>
<PAGE>
<TABLE>
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(In thousands)
<CAPTION>
SEPTEMBER 30 December 31
1999 1998
---- ----
(UNAUDITED) (audited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,787 $ 86,818
Accounts and notes receivable, net 127,072 129,808
Inventories 16,959 19,772
Real estate held for sale 13,556 8,535
Deferred income taxes 11,170 9,524
Prepaid expenses and other assets 13,023 9,407
Accrued deposits to Capital Construction
Fund (1,173) (9,070)
---------- ----------
Total current assets 184,394 254,794
---------- ----------
Investments 163,742 159,068
---------- ----------
Real Estate Developments 56,047 57,690
---------- ----------
Property, at cost 1,746,015 1,787,424
Less accumulated depreciation and
amortization 818,989 837,704
---------- ----------
Property - net 927,026 949,720
---------- ----------
Capital Construction Fund 145,664 143,303
---------- ----------
Other Assets 60,399 41,065
---------- ----------
Total $1,537,272 $1,605,640
========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of
long-term debt $ 20,824 $ 45,533
Short-term commercial paper borrowing - 42,000
Accounts payable 53,794 37,781
Other 80,551 62,367
---------- ----------
Total current liabilities 155,169 187,681
---------- ----------
Long-term Liabilities:
Long-term debt 230,790 255,766
Post-retirement benefit obligations 61,711 61,929
Other 47,444 52,593
---------- ----------
Total long-term liabilities 339,945 370,288
---------- ----------
Deferred Income Taxes 349,488 353,029
---------- ----------
Shareholders' Equity:
Capital stock 35,382 36,098
Additional capital 53,075 51,946
Unrealized holding gains on securities 52,499 63,329
Retained earnings 564,119 555,820
Cost of treasury stock (12,405) (12,551)
---------- ----------
Total shareholders' equity 692,670 694,642
---------- ----------
Total $1,537,272 $1,605,640
========== ==========
</TABLE>
<PAGE>
<TABLE>
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Nine Months Ended
September 30
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Cash Flows from Operating Activities $ 112,852 $ 60,198
---------- ----------
Cash Flows from Investing Activities:
Capital expenditures (41,375) (73,083)
Proceeds from disposal of property,
investments and other assets 3,097 3,620
Deposits into Capital Construction Fund (16,818) (10,000)
Withdrawals from Capital Construction Fund 6,560 7,200
Increase in investments (5,704) (600)
Reduction in investments - 136
---------- ----------
Net cash used in investing activities (54,240) (72,727)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from issuances of long-term debt 20,000 15,000
Payments of long-term debt (54,709) (43,750)
Proceeds (payments) from short-term
borrowings, net (57,000) 63,000
Proceeds from issuances of capital stock 54 1,575
Repurchases of capital stock (20,724) (6,662)
Dividends paid (29,264) (30,291)
---------- ----------
Net cash used in financing activities (141,643) (1,128)
---------- ----------
Net Decrease in Cash and Cash Equivalents $ (83,031) $ (13,657)
========== ==========
Other Cash Flow Information:
Interest paid, net of amounts capitalized $ 13,426 $ 20,052
Income taxes paid, net of refunds 22,926 24,006
Other Non-Cash Information:
Net accrued deposits to (withdrawals
from) Capital Construction Fund, net (7,897) (10,000)
Depreciation 56,647 67,077
Tax-deferred property sales 34,883 64,349
Tax-deferred property purchases 32,798 57,053
Change in unrealized holding gains (10,829) (12,532)
</TABLE>
<PAGE>
FINANCIAL NOTES
(Unaudited)
(a) The condensed balance sheet as of September 30, 1999, the condensed
statements of income for the three months and nine months ended September
30, 1999 and 1998, and the condensed statements of cash flows for the nine
months ended September 30, 1999 and 1998 are unaudited. Because of the
nature of the Company's operations, the results for interim periods are
not necessarily indicative of results to be expected for the year, but in
the opinion of management, all material adjustments necessary for the fair
presentation of interim period results have been included in the interim
financial statements.
(b) Estimated effective annual income tax rates differ from statutory rates,
primarily due to the dividends-received deduction, various tax credits and
a reduction of income taxes due to the settlement of prior years' IRS
audit issues.
(c) The Company's total non-owner changes in shareholders' equity consist of
net income plus unrealized holding gains on securities (comprehensive
income). On this basis, comprehensive income for the three months ended
September 30, 1999 and 1998 was $21 million and $6 million, respectively.
Comprehensive income for the nine months ended September 30, 1999 and 1998
was $47 million and $28 million, respectively.
(d) Certain amounts have been reclassified to conform with the current year's
presentation.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------
THIRD QUARTER EVENTS:
OPERATING RESULTS: Net income for the third quarter of 1999 was $18,476,000,
or $0.43 per share. Net income for the comparable period of 1998 was
$13,780,000, or $0.31 per share. Revenue for the third quarter of 1999 was
$244,904,000, compared with revenue of $326,362,000 in the third quarter of
1998. The significant decrease in revenue resulted primarily from the December
1998 sale of the Company's majority interest in California and Hawaiian Sugar
Company, Inc. (C&H).
Net income for the first nine months of 1999 was $57,563,000, or $1.33 per
share, versus $40,723,000, or $0.91 per share, in the first nine months of
1998. Net income in 1998 included a charge of $5,801,000, or $0.13 per share,
to reflect the cumulative effect of an accounting change. Revenue for the
first nine months of 1999 was $706,189,000, compared with revenue of
$983,594,000 in the first nine months of 1998. The significant decrease in
revenue in the first nine months of 1999 also resulted primarily from the sale
of the Company's majority interest in C&H.
In the third quarter of 1999, A&B's consolidated operating profit was
$35,569,000, about 12 percent above the $31,818,000 in the third quarter of
1998. For the first nine months of 1999, operating profit was $113,487,000,
versus $103,507,000 in the first nine months of 1998, an increase of about ten
percent.
The comparisons for the quarters and the nine-month period both benefited from
improved results in ocean transportation and property leasing, partially offset
by lower results in food products and property sales. In both time periods,
interest expense was lower, reflecting lower debt and lower interest rates.
Net proceeds from the year-end 1998 sale of C&H was the primary reason for the
reduction in outstanding debt. A lower tax rate in the most recent quarter,
which is projected to continue for the remainder of 1999, reflects a favorable
resolution of prior years' tax obligations.
FINANCIAL CONDITION AND LIQUIDITY
The Company's principal liquid resources, comprising cash and cash equivalents,
receivables, sugar and coffee inventories and unused lines of credit, less
accrued deposits to the Capital Construction Fund (CCF), totaled $361,234,000
at September 30, 1999, a decrease of $4,159,000 from December 31, 1998. This
net reduction was due primarily to a decrease in cash, receivables, and sugar
and coffee inventories, partially offset by an increase in amounts available
under lines of credit and a decrease in accrued deposits to the CCF. Cash and
cash equivalents decreased by $83,031,000, due primarily to the use of proceeds
from the 1998 sale of C&H to repay debt in 1999. Amounts available
under lines of credit increased $74,998,000, due to the addition of a new
credit facility and a reduction of outstanding debt.
Working capital was $29,225,000 at September 30, 1999, a decrease of
$37,888,000 from the amount at the end of 1998. This net reduction was due
primarily to a decrease in cash and an increase in accounts payable, partially
offset by a decrease in notes payable and the current portion of debt.
RESULTS OF SEGMENT OPERATIONS -
THIRD QUARTER 1999 COMPARED WITH THE THIRD QUARTER 1998
OCEAN TRANSPORTATION revenue of $185,529,000 for the third quarter of 1999 was
three-percent higher than the 1998 third-quarter revenue. Operating profit of
$21,896,000 increased $5,696,000, or 35 percent, from the unusually low
$16,200,000 operating profit recorded in the third quarter of 1998. The
increase was due primarily to higher revenue in the Hawaii service, the result
of competitive gains in the carriage of automobiles and the absence of a barge
competitor that adversely affected Matson Navigation Company, Inc.'s (Matson)
1998 results. Third quarter 1999 Hawaii service container volume was
seven-percent higher than in the 1998 third quarter, and automobile volume was
54-percent higher.
The labor agreements between the maritime industry employers and the
International Longshore and Warehouse Union (ILWU) on the West Coast and in
Hawaii expired on July 1, 1999. A new three-year agreement was concluded
between the Pacific Maritime Association, representing the maritime industry
employers on the West Coast, and the ILWU on July 15, 1999. In Hawaii, a
tentative three-year agreement was reached with the ILWU on October 24, 1999
and is expected to be ratified by the union membership. The new agreements
provide for increases in base wages, skill-rate differentials and pension and
welfare benefits.
PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue of $10,852,000 and
operating profit of $6,562,000 for the third quarter of 1999 were 13-percent
higher than in the third quarter of 1998. These increases were due primarily
to contributions from newly acquired properties and to improved occupancy
rates.
PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue of $7,985,000 for the third
quarter of 1999 was 28-percent higher than the $6,246,000 recorded in the third
quarter of 1998. However, operating profit from property sales this quarter
was $1,590,000, three-percent lower than in the comparable period of 1998.
Sales in the third quarter of 1999 included the sale of 1,800 acres of
undeveloped land northeast of Sacramento, Calif., four lots for light
industrial development and seven residential properties. Sales in the third
quarter of 1998 included 30 residential properties in several developments on
the island of Maui.
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 generally provides a greater contribution margin than
does the sale of developed and commercial property, due to the low historical-
cost basis of the Company's Hawaii land, which averages approximately $150 per
acre. Consequently, property sales revenue trends and the amount of real
estate held for sale on the condensed balance sheets are not necessarily
indicative of future profitability for this segment.
FOOD PRODUCTS revenue of $39,812,000 for the third quarter of 1999 was
significantly lower than the revenue reported for the comparable period of
1998. Operating profit of $4,828,000 for the third quarter of 1999 decreased
36 percent, from $7,557,000 in the same period in 1998. The decrease was due
primarily to the sale of the Company's majority interest in C&H, and lower
coffee results, offset, in part, by better results from raw sugar production.
Because of currently depressed coffee prices, the Company continues to pursue
cost reduction measures in the coffee business.
RESULTS OF SEGMENT OPERATIONS -
FIRST NINE MONTHS OF 1999 COMPARED WITH THE FIRST NINE MONTHS OF 1998
OCEAN TRANSPORTATION revenue of $542,560,000, for the first nine months of
1999, was virtually the same as in the comparable 1998 period; however,
operating profit of $65,479,000 increased 30 percent. This increase was due
to the same reasons cited for the third quarter increase. Matson's Hawaii
service container volume in the first nine months of 1999 was four-percent
higher than in the first nine months of 1998, and automobile volume was
23-percent higher.
PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue of $33,272,000, for the
first nine months of 1999, was 19-percent higher than the $28,009,000 in the
first nine months of 1998. Property leasing operating profit of $20,578,000
for the first nine months of 1999 was also 19-percent higher than in the first
nine months of 1998. These increases were due to the same reasons cited for
the third quarter increases. The 1999 nine-month results also benefited from
a one-time buyout of a long-term ground lease in the first quarter.
Year-to-date 1999 occupancy levels for Mainland properties averaged 94 percent,
versus 92 percent in the first nine months of 1998. Year-to-date 1999
occupancy levels for Hawaii properties averaged 78 percent, versus 68 percent
in the comparable period of 1998.
PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue was $43,096,000 for the
first nine months of 1999, compared with $74,819,000 in sales recorded in the
first nine months of 1998. In the first nine months of 1999, operating profit
from property sales was $17,079,000. This was $3,190,000 less than the
$20,269,000 in the first nine months of 1998. The differences were due to the
number and the mix of sales in each period. Sales in the first nine months of
1999 included a 109,000 square foot office and research facility, 1,800 acres
of undeveloped land, four lots for light industrial development, five business
parcels, and 18 residential properties. Sales in the first nine months of 1998
included a large R&D and office complex, the Company's remaining interest in a
14-acre parcel at Maui Business Park, one business parcel and 44 residential
properties.
FOOD PRODUCTS revenue of $85,083,000, for the first nine months of 1999, was
significantly lower than the revenue reported for the comparable period of
1998. For the first nine months of 1999, operating profit of $8,318,000 was
39-percent lower than the $13,602,000 earned in the same period last year.
These decreases were due to the same reasons cited for the third quarter
declines.
OTHER MATTERS
CORPORATE ORGANIZATION: The Company intends to merge its wholly-owned
subsidiary, A&B-Hawaii, Inc., into the Company by December 31, 1999.
This will have no adverse impacts on operations or consolidated assets and
obligations.
C&H RECAPITALIZATION AND PARTIAL SALE: On December 24, 1998, the Company
recapitalized and sold a majority of its equity in C&H. C&H was included in
the consolidated results and in the Food Products Segment of the Company up
to the date of sale. Effective December 24, 1998, the Company began
accounting for its investment in C&H under the equity method.
TAX-DEFERRED REAL ESTATE EXCHANGES: In the first nine months of 1999, the
Company sold five parcels of land for $34,883,000. The proceeds from these
sales are reflected in the Statements of Cash Flows under the caption "Other
Non-Cash Information." During the first nine months of 1999, the Company
reinvested proceeds of $32,798,000 on a tax-deferred basis. The reinvested
proceeds are also reported under Other Non-Cash Information in the Statements
of Cash Flows.
SHARE REPURCHASES: Through November 5, 1999, the Company repurchased 1,264,500
shares of its common stock this year for an aggregate of about $27,774,000
(average of $21.96 per share). The Company is authorized to repurchase about
2,142,000 additional shares through December 31, 2000.
ENVIRONMENTAL MATTERS: As with most industrial and land-development companies
of its size, the Company's operations have certain risks which could result in
expenditures for environmental remediation. The Company believes that it is in
compliance, in all material respects, with applicable environmental laws and
regulations, and works proactively to identify potential environmental
concerns. Management believes that appropriate liabilities have been accrued
for environmental matters.
ECONOMIC CONDITIONS: In the fall of 1999, the economic outlook for the State
of Hawaii is improving, but the anticipated rate of growth remains modest,
nonetheless. The State of Hawaii's Department of Business, Economic
Development & Tourism (DBEDT) recently published a new index of leading
economic indicators, a measure intended to anticipate economic change five to
10 months ahead. Through July, the most up-to-date figure available, this
index was higher for the fourth consecutive month; it was at an absolute high
for the last seven years; and it has risen in eight of the past 10 months.
Taking this and other measures into account, DBEDT raised its projections for
growth in real gross state product (RGSP) for the years 1999 to 2002 by 0.5%,
0.6%, 0.9% and 1.0%, respectively. Even so, the outlook for RGSP growth
remains at about two percent annually in all four of those years. The external
factors cited in raising the projections were the strength of the U.S. Mainland
economy, and improvement in the Asian economies and the value of the yen.
Rising growth in visitor arrivals is anticipated, with the projection for
growth in 2000 now at two percent. This is the net result of continued growth
in the number of arrivals from the U.S. Mainland, offset, in part, by a
diminishing rate of decrease in eastbound arrivals.
YEAR 2000
State of Year 2000 Readiness
- ----------------------------
Five years ago, the Company and its subsidiaries (collectively, the "Company")
commenced an evaluation of their computer systems and applications to prepare
for the year 2000 ("Y2K"). Following this evaluation, implementation plans for
all business segments were prepared and currently are being executed. The Y2K
initiative is proceeding with the direction of the Board of Directors, which
receives regular progress reports.
The Company's Y2K readiness project addresses risks in the following three
primary areas:
1. the Company's information systems, including hardware and software;
2. the Company's embedded systems, including computers and software that
control machinery, telephone systems, and environmental systems; and
3. third parties with whom the Company does business or otherwise has an
association.
The approach to making the information and embedded systems Y2K ready consists
of five phases: awareness, assessment, remediation, testing and installation.
The awareness phase consists of investigating the nature of the Y2K problem and
educating the Company about the risk. The assessment phase consists of taking
an inventory of the Company's computers and software, and determining which are
Y2K ready and which require remediation or replacement. The remediation phase
consists of fixing or replacing computer software and hardware identified as
not Y2K ready during the assessment phase. The testing phase involves testing
whether the software and hardware will work properly before, on and after
December 31, 1999. The installation phase involves placing the Y2K-ready
replacement components into production.
Company information systems: Company personnel and outside consultants have
assessed the Y2K readiness of the Company's information systems. Certain
information systems that were not Y2K ready and which had a significant impact
on the Company's operations were identified as mission critical and were
addressed first. All five phases are complete for all of the Company's
systems.
Company embedded systems: Company personnel were assisted by outside
consultants in assessing the embedded systems in our factories, buildings,
ships, shoreside facilities, heavy equipment, etc. The embedded systems with
Y2K problems were evaluated in terms of their impact on operations and safety.
The remediation, testing and replacement (where required) of all known embedded
systems are complete.
Third parties: In 1998, the Company identified and prioritized the third party
vendors, customers and associates that could impact Company operations. Those
third parties were contacted to assess their Y2K readiness. In particular,
Company employees conducted in-depth assessments, including face-to-face
meetings, with third parties having the potential to affect the Company
materially. Follow-up contacts continue to be made during the fourth
quarter of 1999. To date, based on these contacts, it appears there are no
known Y2K issues with these third parties that would affect the Company
materially.
Costs
- -----
The implementation plans, which consist of upgrading, modifying, or replacing
various systems, are expected to cost approximately $6,000,000 to $8,000,000,
including a contingency of $2,000,000. At the end of September 1999, the
Company had expended approximately $5,423,000 for this work, of which
$3,400,000 was expended in 1998. Y2K costs for 1998 represented about eighteen
percent of the Company's total information technology budget. The 1999 costs
are expected to be about seven percent of the budget. The internal and
external costs of the Y2K work are being expensed as incurred, unless a
computer system is being replaced for operating reasons as well as Y2K
compliance, in which case the costs are being capitalized. Cash generated from
operations is funding all of the Y2K costs; however, the Company has ample
resources from unused credit facilities, if needed. No major internal systems
projects have been delayed as a result of the Y2K work.
Risks
- -----
Company information and embedded systems: The Company believes that the Y2K
risks associated with the failure of its information and embedded systems will
be low, due to its Y2K readiness preparations. However, despite the
preparations being taken by the Company to ensure that its information and
embedded systems are Y2K ready, there may be risks due to unforeseen
circumstances.
Third parties: Failure of third parties to be Y2K ready may affect the
Company's operations materially; however, the seriousness of this risk depends
on the nature and duration of the failure. The most serious impact on the
Company's operations from third parties would result if basic services, such as
telecommunications, electric power, and other basic infrastructure services,
were disrupted. Despite some public disclosures from third-party suppliers
about their readiness preparation, and despite the Company's own assessments
and inquiries, the Company cannot accurately estimate the likelihood of
significant third-party disruptions. The only risk largely under the Company's
control is preparing its internal operations for the Y2K.
As such, the most reasonably likely worst case scenario could result from
third-party failures, such as temporary short-term disruptions in customer
services and product deliveries, temporary billing and collection delays, and
temporary delays in payrolls and vendor payments. If the most reasonably
likely worst case scenario occurred, it could have a material adverse impact on
the Company's results of operations, liquidity and financial condition.
Contingency Plans
- -----------------
The Company's approach to Y2K contingency planning is to complement disaster
plans that already are in effect for the Company. The disaster plans provide
operating procedures for unanticipated outages of electricity, communications
or other essential services, such as those disruptions which might occur due
to a hurricane or tsunami. The Y2K contingency plans also address Y2K-specific
issues that are not covered in the existing disaster plans.
The contingency plans detail procedures and strategies for each business unit
for dealing with potential problems before, on and after December 31, 1999.
These preparations include ensuring that adequate levels of essential fuel,
materials and supplies are available, completing certain critical
administrative procedures before the end of 1999, and establishing command and
control centers at strategic locations.
Contingency plans principally focus on mission critical operations and support
services aimed at maintaining the safety of employees and minimizing the impact
of service interruptions to customers. The Y2K contingency plans are complete,
but they will continue to be refined and tested through the end of 1999.
Summary
- -------
Although there can be no absolute assurance that the Company will be successful
in identifying and avoiding all possible problems, the Company believes that
its systems are currently Y2K ready. However, there can be no assurance that
the Company will not be affected adversely by the failure of a vendor,
customer, or other third party to address the Y2K issue adequately.
In the context of the uncertainties inherent in dealing with the Y2K issue,
the Company believes, based on available information, that the impact of the
Y2K issue and its associated costs will not have a material impact on the
results of operations, liquidity and financial condition. This disclosure is
a Year 2000 Readiness Disclosure, pursuant to the Year 2000 Information and
Readiness Disclosure Act.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company, from time to time, may make or may have made certain forward-
looking statements, whether orally or in writing, such as forecasts and
projections of the Company's future performance or statements of management's
plans and objectives. Such forward-looking statements may be contained in,
among other things, Securities and Exchange Commission (SEC) filings, such as
the Forms 10-K, press releases made by the Company and oral statements made by
the officers of the Company. Except for historical information contained in
these written or oral communications, such communications contain forward-
looking statements. These forward-looking statements involve a number of risks
and uncertainties that could cause actual results to differ materially from
those projected in the statements, including, but not limited to: (1) economic
conditions in Hawaii and elsewhere; (2) market demand; (3) competitive factors
and pricing pressures in the Company's primary markets; (4) legislative and
regulatory environments at the federal, state and local levels, such as
government rate regulations, land-use regulations, government administration of
the U.S. sugar program, and modifications to or retention of cabotage laws; (5)
dependence on third-party suppliers; (6) fuel prices; (7) labor relations;
(8) environmental matters; (9) the ability to locate and correct or replace,
on a timely basis, all relevant computer codes prior to the year 2000; and
(10) other risk factors described elsewhere in these communications and from
time to time in the Company's filings with the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
Information concerning market risk is incorporated herein by reference to Item
7A of the Company's Form 10-K for the fiscal year ended December 31, 1998.
There has been no material change in the quantitative and qualitative
disclosures about market risk since December 31, 1998.
<PAGE>
PART II. OTHER INFORMATION
---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
--------
10. Material contracts.
10.b.1.(xxxviii) Agreement between Alexander & Baldwin, Inc.
and John C. Couch, dated August 10, 1999.
11. Statement re computation of per share earnings.
27. Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of l934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALEXANDER & BALDWIN, INC.
-------------------------
(Registrant)
Date: November 11, 1999 /s/ Glenn R. Rogers
-------------------------
Glenn R. Rogers
Executive Vice President and
Chief Financial Officer
Date: November 11, 1999 /s/ Thomas A. Wellman
-------------------------
Thomas A. Wellman
Controller
<PAGE>
EXHIBIT INDEX
-------------
10. Material contracts.
10.b.1.(xxxviii) Agreement between Alexander & Baldwin, Inc. and John C.
Couch, dated August 10, 1999.
11. Statement re computation of per share earnings.
27. Financial Data Schedule.
<PAGE>
August 10, 1999
Mr. John C. Couch
Dear John:
This letter will confirm our understandings with respect to your
retirement from Alexander & Baldwin, Inc. and all of its subsidiaries (the
"Company"), effective October 1, 1999.
1. You will remain on the payroll through September 30, 1999, and
then will retire, consistent with the provisions of the A&B
Retirement Plan for Salaried Employees.
2. You will receive, under the A&B Retirement Plan for Salaried
Employees, as a monthly benefit, such amount as is calculated by
our actuaries, payable on a life annuity basis, commencing
October 1, 1999 (see Attachment 1, Item I).
3. You will receive, under the defined benefit portion of the A&B
Excess Benefits Plan, THE LUMP-SUM PAYMENT, AS CALCULATED BY OUR
ACTUARIES, in the amount of $5,516,882 (see Attachment 1,
Item II).
4. You will receive, under the defined contribution portion of the
A&B Excess Benefits Plan, the balance of your deferred profit-
sharing account (such balance was $269,364.33 as of December 31,
1998), with interest credited to the date of distribution (see
Attachment 2), and with an additional amount, if any, payable in
2000, representing the excess defined contribution portion, in
respect of any profit sharing distribution declared for the 1999
fiscal year (see Paragraph 5, immediately below).
5. You will be eligible to receive a prorata share of any
distribution to be made under the Alexander & Baldwin, Inc.
Profit Sharing Retirement Plan, if any such distribution is
declared by the Board of Directors of Alexander & Baldwin, Inc.
for the 1999 fiscal year. Such prorata distribution would be
paid to you at the time distributions are paid to other
participants, in the year 2000.
6. You will be entitled to receive, under the A&B Executive
Survivor/ Retirement Benefit Plan, a benefit, payable for ten
years, in the amount of $14,079 per month. A request will be
made to the Alexander & Baldwin, Inc. Compensation and Stock
Option Committee ("CSOC") to pay you THE LUMP-SUM ACTUARIAL
EQUIVALENT OF SUCH BENEFIT, as calculated by our actuaries (see
Attachment 1, Item III).
7. You will be entitled to receive payments, at the rate of your
current monthly salary, from October 1, 1999 through May 10,
2001 (these payments represent 5 months of accrued vacation at
the rate of $57,000 per month, and 14-1/2 months of salary, at
the rate of $57,000 per month). A request will be made to the
CSOC to pay to you a LUMP-SUM PAYMENT, as of October 1, 1999,
representing the aggregate of such monthly payments to be made
through May 10, 2001.
8. Attachment 3 sets forth the relevant information with respect to
your stock options under the Alexander & Baldwin, Inc. 1989
Stock Option/Stock Incentive Plan and under the Alexander &
Baldwin, Inc. 1998 Stock Option/Stock Incentive Plan. With
respect to the listed outstanding options under the Alexander &
Baldwin, Inc. 1989 Stock Option/Stock Incentive Plan, under the
terms of that plan, you will have six months from October 1,
1999 to exercise such options. With respect to options granted
under the Alexander & Baldwin, Inc. 1998 Stock Option/Stock
Incentive Plan, pursuant to the terms of the plan, in light of
your retirement, the vesting and exercisability of such options
will be as indicated on Attachment 3. A REQUEST WILL BE MADE TO
THE CSOC TO AMEND, EFFECTIVE AS OF OCTOBER 1, 1999, ALL
OUTSTANDING STOCK OPTION AGREEMENTS BETWEEN YOU AND THE COMPANY
PURSUANT TO THE ALEXANDER & BALDWIN, INC. 1989 STOCK
OPTION/STOCK INCENTIVE PLAN (COLLECTIVELY THE "STOCK
AGREEMENTS"), TO PROVIDE FOR THE CONTINUED EXERCISABILITY OF ALL
OPTION SHARES (AS THAT TERM IS DEFINED IN THE STOCK AGREEMENTS)
FOR THE PERIOD UP TO SEPTEMBER 30, 2002, PROVIDED THAT NO OPTION
EXERCISE SHALL BE EXTENDED TO A DATE BEYOND THE EXPIRATION OF
THE OPTION TERM (I.E., ITS ORIGINALLY-ESTABLISHED EXPIRATION
DATE).
9. You will be entitled to receive a prorata portion of all amounts
payable to you under the 1997-1999 and 1998-2000 cycles of the
Alexander & Baldwin, Inc. Three-Year Performance Improvement
Incentive Plan, computed at the Target level. These prorata
payments will amount to a one year and seven months', and a
seven months', portion of the amounts otherwise owing (computed
at the Target level) under the aforementioned cycles,
respectively.
10. In order to assist you with finalizing your personal business
affairs, the Company will provide you with an office and with
secretarial support at the Company's headquarters in both San
Francisco and Honolulu, through March 31, 2000.
11. During the period from October 1, 1999 through March 31, 2000,
the Company will provide you with three (3) first-class, round-
trip airline tickets from San Francisco to Honolulu, for which
you will account, through the normal Alexander & Baldwin, Inc.
expense account process.
12. As a retiree, you will be eligible for retiree medical coverage,
as provided under the Alexander & Baldwin, Inc. Retiree Health
and Welfare Benefit Plan.
13. The Alexander & Baldwin, Inc. Human Resources Department will
continue to provide administrative assistance to you in
connection with your medical claims.
14. You will, of course, be eligible for any and all other benefits
not mentioned above which are normally provided to retirees of
Alexander & Baldwin, Inc.
15. The Severance Agreement/Change of Control Agreement with you
dated August 22, 1991, as may have been amended and restated
from time to time, shall be deemed terminated as of October 1,
1999.
16. You agree that the above sets forth all of the understandings we
have with respect to the benefits which you shall receive upon
your retirement.
17. Prior to August 26, 1999, you will resign as a member of the
Boards of Directors of the Company, Matson Navigation Company,
Inc., A&B-Hawaii, Inc. and all of their subsidiaries.
If you are in agreement with the above, please acknowledge your
acceptance by signing and returning to me the duplicate copy of this letter.
Very truly yours,
ALEXANDER & BALDWIN, INC.
/s/ R. J. Pfeiffer
-----------------------------
R. J. Pfeiffer
Chairman of the Board and
Authorized Signatory
ACKNOWLEDGED:
/s/ John C. Couch
- ----------------------
John C. Couch
Date: 8/10/99
<TABLE> EXHIBIT 11
ALEXANDER & BALDWIN, INC.
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(In thousands, except per share amounts)
- -------------------------------------------------------------------------------
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic Earnings Per Share
- ------------------------
Net income $ 18,476 $ 13,780 $ 57,563 $ 40,723
======== ======== ======== ========
Average number of shares
outstanding 43,223 44,842 43,366 44,851
======== ======== ======== ========
Basic earnings per share $ 0.43 $ 0.31 $ 1.33 $ 0.91
======== ======== ======== ========
Diluted Earnings Per Share
- --------------------------
Net income $ 18,476 $ 13,780 $ 57,563 $ 40,723
======== ======== ======== ========
Average number of shares
outstanding 43,223 44,842 43,366 44,851
Effect of assumed exercise
of outstanding stop options 104 37 24 132
-------- -------- -------- --------
Average number of shares
outstanding after assumed
exercise of outstanding
stock options 43,327 44,879 43,390 44,983
======== ======== ======== ========
Diluted earnings per share $ 0.43 $ 0.31 $ 1.33 $ 0.91
======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
condensed balance sheet as of September 30, 1999 and the condensed statement
of income for the nine months ended September 30, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> (3,713)
<SECURITIES> 7,500
<RECEIVABLES> 136,116
<ALLOWANCES> 9,044
<INVENTORY> 16,959
<CURRENT-ASSETS> 184,394
<PP&E> 1,746,015
<DEPRECIATION> 818,989
<TOTAL-ASSETS> 1,537,272
<CURRENT-LIABILITIES> 155,169
<BONDS> 230,790
0
0
<COMMON> 35,382
<OTHER-SE> 657,288
<TOTAL-LIABILITY-AND-EQUITY> 1,537,272
<SALES> 690,484
<TOTAL-REVENUES> 706,189
<CGS> 535,923
<TOTAL-COSTS> 535,923
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,105
<INCOME-PRETAX> 89,461
<INCOME-TAX> 31,898
<INCOME-CONTINUING> 57,563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,563
<EPS-BASIC> 1.33
<EPS-DILUTED> 1.33
</TABLE>
