SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
--------------------------------------------------------
FORM U-3A-2
STATEMENT BY HOLDING COMPANY CLAIMING EXEMPTION
UNDER RULE U-2 FROM THE PROVISIONS OF THE PUBLIC
UTILITY HOLDING COMPANY ACT OF 1935
TO BE FILED ANNUALLY PRIOR TO MARCH 1
ALEXANDER & BALDWIN, INC.
(Name of Company)
P. O. Box 3440
Honolulu, Hawaii 96801
(hereinafter called the "Claimant") and its wholly-owned subsidiary,
A&B-Hawaii, Inc., P. O. Box 3440, Honolulu, Hawaii 96801 (hereinafter called
"Co-claimant"), hereby file with the Securities and Exchange Commission,
pursuant to Rule U-2, this joint and consolidated statement claiming exemption
as a holding company from the provisions of the Public Utility Holding Company
Act of 1935. This statement is filed jointly by Claimant and Co-claimant
pursuant to oral authorization to file on a joint and consolidated basis
received from the Commission on February 21, 1990. In support of such claim
for exemption, the following information is submitted:
1. The name, jurisdiction of organization, location and nature of
business of Claimant and Co-claimant, and every subsidiary thereof, other than
any exempt wholesale generator (EWG) or foreign utility company in which
Claimant or Co-claimant directly or indirectly holds an interest, as at
January 31, 1999 (indirect subsidiaries are indicated by indentation).
Jurisdiction
Name: of Organization Location Nature of Business
---- -------------- -------- ------------------
Alexander & Baldwin,
Inc. Hawaii Honolulu, Ocean carriage of goods,
Hawaii real property management
and development,
investments
Subsidiaries:
A&B Inc. Hawaii Honolulu, Inactive
Hawaii
A&B-Hawaii, Inc. Hawaii Honolulu, Agriculture/food (inclu-
Hawaii ding sugar cane and
coffee plantations),
real property management
and development, general
freight and petroleum
hauling and self-storage
services
A&B Development California Honolulu, Ownership, management
Company Hawaii and development of real
(California) property in California
A & B Properties, Hawaii Kahului, Ownership, management,
Inc. Hawaii development and selling
of real property
Prospect Hawaii Honolulu, Development and selling
Venture LLC Hawaii of real property
ABHI-Crockett, Hawaii Honolulu, Investment in sugar
Inc. (fka Cali- Hawaii refining and marketing
fornia and business
Hawaiian Sugar
Company, Inc.)
East Maui Irri- Hawaii Puunene, Collection and distribu-
gation Company, Hawaii tion of irrigation water
Limited on island of Maui
Kahului Trucking & Hawaii Kahului, Motor carriage of goods,
Storage, Inc. Hawaii self-storage services
and stevedoring on
island of Maui
Kauai Commercial Hawaii Lihue, Motor carriage of goods
Company, Hawaii and self-storage
Incorporated services on island of
Kauai
Kukui'ula Hawaii Koloa, Ownership, management
Development Hawaii and development of real
Company, Inc. property on island of
Kauai
South Shore Hawaii Koloa, Development and opera-
Community Hawaii tion of sewer trans-
Services LLC mission and treatment
system on island of
Kauai
South Shore Hawaii Koloa, Development and opera-
Resources LLC Hawaii tion of water source and
delivery system on
island of Kauai
McBryde Sugar Hawaii Eleele, Coffee plantation
Company, Limited Hawaii
Kauai Coffee Hawaii Eleele, Grow, process and sell
Company, Inc. Hawaii coffee
Ohanui Corporation Hawaii Puunene, Collection and distri-
Hawaii bution of domestic water
on island of Maui
WDCI, INC. Hawaii Honolulu, Ownership, manage-
Hawaii ment and development of
property
C&H Sugar Delaware Crockett, Refining raw sugar and
Company, Inc. California marketing of refined
sugar products and
molasses
Hawaiian Sugar & Hawaii Puunene, Ocean carriage of sugar
Transportation Hawaii from Hawaii
Cooperative
Matson Navigation Hawaii San Ocean carriage of goods
Company, Inc. Francisco, between West Coast of
California United States and
Hawaii, Western Pacific
and Asian ports
Matson Intermodal Hawaii San Broker, shipper's agent
System, Inc. Francisco, and freight forwarder
California for overland cargo
services of ocean
carriers
Matson Services Hawaii San Tugboat services
Company, Inc. Francisco,
California
Matson Terminals, Hawaii San Stevedoring and terminal
Inc. Francisco, services
California
Matson Logistics Hawaii San Agent to provide deli-
Solutions, Inc. Francisco, very of equipment, goods
California and supplies for busi-
nesses and projects
The Matson California San Inactive
Company Francisco,
California
The Oceanic California San Inactive
Steamship Francisco,
Company California
2. A brief description of the properties of Claimant and
Co-claimant, and each of their subsidiary public utility companies, used for
the generation, transmission and distribution of electric energy for sale, or
for the production, transmission and distribution of natural or manufactured
gas:
Claimant: None
Co-Claimant: 4 steam-driven generators with rated capacities of 1
of 4,000 KW, 2 of 10,000 KW, and 1 of 20,000 KW; 5
hydroelectric plants with rated capacities of 1 of
1,000 KW, 3 of 1,500 KW and 1 of 500 KW; about 80
miles of transmission lines; all located on the
island of Maui, State of Hawaii
McBryde Sugar Company, 2 hydroelectric plants with rated capacities of
Limited ("McBryde") 1 of 1,000 KW and 1 of 3,600 KW; about 18 miles
(Note 1) of transmission lines; all located on the island of
Kauai, State of Hawaii
_______________
Note 1. McBryde Sugar Company, Limited has filed with the Securities and
Exchange Commission an application for an order declaring that it is
not an electric utility company.
3. Information for the calendar year 1998 with respect to Claimant
and Co-claimant, and each of their subsidiary public utility companies:
(a)(1) Number of kwh of electric energy sold (all sales were at
wholesale):
Claimant None
Co-claimant 72,589,000 kwh, with associated
revenues of $4,422,000
McBryde 21,975,000 kwh, with associated
revenues of $935,400
(2) Number of Mcf of natural or manufactured gas distributed
at retail:
None. Neither Claimant nor Co-claimant, nor any of their
subsidiary public utility companies, distributes any natural or manufactured
gas at retail.
(b) Number of kwh of electric energy and Mcf of natural or
manufactured gas distributed at retail outside the State in which each such
company is organized:
None. Neither Claimant nor Co-claimant, nor any of their
subsidiary public utility companies, distributes any electric energy or natural
or manufactured gas at retail outside the State in which each such company is
organized.
(c) Number of kwh of electric energy and Mcf of natural or
manufactured gas sold at wholesale outside the State in which each such company
is organized, or at the State line:
None. Neither Claimant nor Co-claimant, nor any of their
subsidiary public utility companies, sells electric energy or natural or
manufactured gas at wholesale (or otherwise) outside the State in which each
such company is organized, or at the State line.
(d) Number of kwh of electric energy and Mcf of natural or
manufactured gas purchased outside the State in which each such company is
organized, or at the State line:
None. Neither Claimant nor Co-claimant, nor any of their
subsidiary public utility companies, purchases any electric energy or natural
or manufactured gas outside the State in which each such company is organized,
or at the State line.
4. The following information for the reporting period with respect
to Claimant and Co-claimant and each interest they hold directly or indirectly
in an EWG or a foreign utility company, stating monetary amounts in United
States dollars:
(a) Name, location, business address and description of the
facilities used by the EWG or foreign utility company for the generation,
transmission and distribution of electric energy for sale or for the
distribution at retail of natural or manufactured gas.
Not applicable. Neither Claimant nor Co-claimant holds
any interest, directly or indirectly, in an EWG or a foreign utility company.
(b) Name of each system company that holds an interest in
such EWG or foreign utility company; and description of the interest held.
No applicable (see 4(a) above).
(c) Type and amount of capital invested, directly or
indirectly, by the holding company claiming exemption; any direct or indirect
guarantee of the security of the EWG or foreign utility company by the holding
company claiming exemption; and any debt or other financial obligation for
which there is recourse, directly or indirectly, to the holding company
claiming exemption or another system company, other than the EWG or foreign
utility company.
Not applicable (see 4(a) above).
(d) Capitalization and earnings of the EWG or foreign utility
company during the reporting period.
Not applicable (see 4(a) above).
(e) Identify any service, sales or construction contract(s)
between the EWG or foreign utility company and a system company, and describe
the services to be rendered or goods sold and fees or revenues under such
agreement(s).
Not applicable (see 4(a) above).
EXHIBIT A
---------
Consolidating statements of income and retained earnings of Claimant
and Co-claimant, and their subsidiary companies, for the last calendar year,
together with a consolidating balance sheet of Claimant and Co-claimant, and
their subsidiary companies, as of the close of such calendar year, are attached
hereto.
EXHIBIT B
---------
FINANCIAL DATA SCHEDULE
-----------------------
The registrant is required to submit this report and any amendments
thereto electronically via EDGAR. Attached hereto is a Financial Data Schedule
that sets forth the financial and other data specified below that are
applicable to the registrant on a consolidated basis:
ITEM NO. CAPTION HEADING
1 Total Assets
2 Total Operating Revenues
3 Net Income
EXHIBIT C
---------
An organizational chart showing the relationship of each EWG or foreign
utility company to associate companies in the holding-company system.
Not applicable. Neither Claimant nor Co-claimant holds any interest,
directly or indirectly, in an EWG or a foreign utility company.
The above-named Claimant and Co-claimant have caused this joint and
consolidated statement to be duly executed on their behalf by their authorized
officers this 26th day of February, 1999.
ALEXANDER & BALDWIN, INC. A&B-HAWAII, INC.
(Name of Claimant) (Name of Co-Claimant)
By: /s/ Glenn R. Rogers By: /s/ Glenn R. Rogers
Glenn R. Rogers Glenn R. Rogers
Executive Vice President Senior Vice President
(Corporate Seal) (Corporate Seal)
Attest: Attest:
By: /s/ Alyson J. Nakamura By: /s/ Alyson J. Nakamura
Secretary Secretary
Name, title and address of Officer to whom notices and correspondence
concerning this statement should be addressed:
If to Claimant
Alexander & Baldwin Inc.: Michael J. Marks
Vice President and General Counsel
Alexander & Baldwin, Inc.
P. O. Box 3440
Honolulu, Hawaii 96801
If to Co-claimant
A&B-Hawaii, Inc.: Michael J. Marks
Senior Vice President and General Counsel
A&B-Hawaii, Inc.
P. O. Box 3440
Honolulu, Hawaii 96801
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
ALEXANDER & BALDWIN, INC.
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
($000 OMITTED)
ABIC ABI/MATSON ABHIC OTHER ABHI MCB
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE:
Ocean transportation 708,735 708,735 - - - -
Property development & management 119,304 20,708 98,596 98,411 - 185
Food products 459,268 - 459,268 370,120 83,583 5,565
Power generation 5,357 - 5,357 - 4,422 935
--------- ------- ------- ------- ------ ------
Total operating revenue 1,292,664 729,443 563,221 468,531 88,005 6,685
OPERATING COSTS AND EXPENSES:
Cost of goods and services 1,081,567 596,014 485,553 398,650 79,413 7,490
Write-down of real estate assets 20,216 - 20,216 20,216 - -
Loss on partial sale of subsidiary 19,756 - 19,756 19,756 - -
Power generation 2,269 - 2,269 - 1,754 515
--------- ------- ------- ------- ------ ------
Total operating costs and expenses 1,123,808 596,014 527,794 438,622 81,167 8,005
--------- ------- ------- ------- ------ ------
GROSS MARGIN 168,856 133,429 35,427 29,909 6,838 (1,320)
GENERAL, ADMIN & SELLING EXPENSES 103,171 78,270 24,901 19,652 5,249 -
--------- ------- ------- ------- ------ ------
INCOME FROM OPERATIONS 65,685 55,159 10,526 10,257 1,589 (1,320)
OTHER INCOME 18,956 16,942 2,014 (995) 1,308 1,701
OTHER EXPENSE 29,346 11,836 17,510 5,120 12,384 6
--------- ------- ------- ------- ------ ------
INCOME (LOSS) BEFORE INCOME TAXES & ACCT'G CHANGE 55,295 60,265 (4,970) 4,142 (9,487) 375
PROVISION FOR INCOME TAXES (BENEFIT) 24,352 22,347 2,005 5,077 (3,195) 123
ACCOUNTING CHANGE, NET OF TAX (5,801) (5,801) - - - -
--------- ------- ------- ------- ------ ------
NET INCOME (LOSS) 25,142 32,117 (6,975) (935) (6,292) 252
========= ======= ======= ======= ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALEXANDER & BALDWIN, INC.
CONSOLIDATING BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 1998
($000 OMITTED)
ABIC ABI/MATSON ABHIC OTHER ABHI MCB
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash 86,818 9,615 77,203 75,670 1,533 -
Accounts and notes receivable 129,808 114,954 14,854 3,360 11,212 282
Inventories 28,307 7,954 20,353 9,197 5,046 6,110
Prepaid expenses and other current assets 9,861 4,659 5,202 3,134 1,586 482
--------- --------- ------- -------- ------- -------
Total current assets 254,794 137,182 117,612 91,361 19,377 6,874
--------- --------- ------- -------- ------- -------
INVESTMENTS:
Subsidiaries - - - (256,732) 256,732 -
Divisions - - - (36,217) 36,217 -
Other 159,068 122,152 36,916 36,575 334 7
--------- --------- ------- -------- ------- -------
Total investments 159,068 122,152 36,916 (256,374) 293,283 7
--------- --------- ------- -------- ------- -------
REAL ESTATE DEVELOPMENTS 57,690 - 57,690 57,690 - -
--------- --------- ------- -------- ------- -------
PROPERTY:
Land 77,272 18,219 59,053 51,090 5,676 2,287
Buildings 211,328 66,798 144,530 139,095 3,672 1,763
Vessels 757,730 757,730 - - - -
Machinery and equipment 535,172 399,525 135,647 7,443 109,497 18,707
Power generation 57,041 - 57,041 - 54,696 2,345
Other 148,881 65,025 83,856 19,208 55,042 9,606
--------- --------- ------- -------- ------- -------
Total 1,787,424 1,307,297 480,127 216,836 228,583 34,708
Less accumulated depreciation 837,704 626,421 211,283 41,542 156,315 13,426
--------- --------- ------- -------- ------- -------
Property - net 949,720 680,876 268,844 175,294 72,268 21,282
--------- --------- ------- -------- ------- -------
OTHER ASSETS 184,368 124,824 59,544 38,921 35,679 (15,056)
--------- --------- ------- -------- ------- -------
TOTAL 1,605,640 1,065,034 540,606 106,892 420,607 13,107
========= ========= ======= ======== ======= =======
CURRENT LIABILITIES:
Current portion of long-term debt 87,533 30,294 57,239 42,000 15,239 -
Accounts payable 37,781 32,441 5,340 2,884 2,434 22
Other current liabilities 62,367 44,719 17,648 1,260 15,382 1,006
--------- --------- ------- -------- ------- -------
Total current liabilities 187,681 107,454 80,227 46,144 33,055 1,028
--------- --------- ------- -------- ------- -------
LONG-TERM LIABILITIES:
Long-term debt 255,766 117,266 138,500 - 138,500 -
Other long-term liabilities 467,551 362,059 105,492 48,884 44,497 12,111
--------- --------- ------- -------- ------- -------
Total long-term liabilities 723,317 479,325 243,992 48,884 182,997 12,111
--------- --------- ------- -------- ------- -------
SHAREHOLDERS' EQUITY:
Capital stock 36,098 36,097 1 (2,350) 1 2,350
Additional capital 51,946 (75,599) 127,545 (13,316) 127,545 13,316
Unrealized holding gains 63,329 63,329 - - - -
Retained earnings 555,820 466,979 88,841 27,447 77,009 (15,615)
Treasury stock (12,551) (12,551) - 83 - (83)
--------- --------- ------- -------- ------- -------
Total shareholders' equity 694,642 478,255 216,387 11,864 204,555 (32)
--------- --------- ------- -------- ------- -------
TOTAL 1,605,640 1,065,034 540,606 106,892 420,607 13,107
========= ========= ======= ======== ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALEXANDER & BALDWIN, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
($000 OMITTED)
ABIC ABI/MATSON ABHIC OTHER ABHI MCB
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 591,135 495,319 95,816 30,459 81,224 (15,867)
Net income 25,142 32,117 (6,975) (935) (6,292) 252
Dividends to shareholders (40,323) (40,323) - - -
Capital stock purchased and retired (20,111) (20,111) - - -
Stock acquired in payment of options (23) (23) - - -
Net income of subsidiaries - (2,077) 2,077
------- ------- ------ ------ ------ -------
Balance at December 31, 1998 555,820 466,979 88,841 27,447 77,009 (15,615)
======= ======= ====== ====== ====== =======
</TABLE>
<PAGE>
LEGEND OF COMPANY REFERENCES IN CONSOLIDATING FINANCIAL SCHEDULES:
ABIC Alexander & Baldwin, Inc. Consolidated
ABI/MATSON Alexander & Baldwin, Inc. / Matson Navigation Company, Inc. /
Consolidating Adjustments
ABHIC A&B - Hawaii, Inc. Consolidated
OTHER All other A&B - Hawaii, Inc. Subsidiaries / Consolidating
Adjustments
ABHI A&B - Hawaii, Inc.
MCB McBryde Sugar Company, Limited
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ALEXANDER & BALDWIN, INC.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of Alexander & Baldwin, Inc. and all wholly-owned subsidiaries, after
elimination of significant intercompany amounts. Investments in 20 to 50
percent owned companies are accounted for using the equity method.
COMPREHENSIVE INCOME: Comprehensive Income includes changes from either
recognized transactions or other economic events, excluding capital stock
transactions, which impact Shareholders' Equity. For the Company, the only
difference between Net Income and Comprehensive Income is the unrealized
holding gains on securities available for sale. Comprehensive Income is not
used in the calculation of Earnings per Share.
BASIC AND DILUTED EARNINGS PER SHARE OF COMMON STOCK: Basic Earnings per Share
is determined by dividing Net Income by the weighted-average common shares
outstanding during the year. The impact on earnings per share of the Company's
stock options is immaterial; consequently, Diluted Earnings per Share is the
same amount as Basic Earnings per Share.
OCEAN TRANSPORTATION: Voyage revenue and variable costs and expenses are
included in income at the time each voyage leg commences. This method of
accounting does not differ materially from other acceptable accounting methods.
Vessel depreciation, charter hire, terminal operating overhead and general and
administrative expenses are charged to expense as incurred. Expected costs of
regularly-scheduled dry docking of vessels and planned major vessel repairs
performed during dry docking are accrued.
PROPERTY DEVELOPMENT AND MANAGEMENT: Sales are recorded when the risks and
benefits of ownership have passed to the buyers (generally at closing dates),
adequate down payments have been received and collection of remaining balances
is reasonably assured.
Expenditures for real estate developments are capitalized during construction
and are classified as Real Estate Developments on the Balance Sheets. When
construction is complete, the costs are reclassified either as Real Estate Held
for Sale or Property, based upon the Company's intent to sell the completed
asset or to hold it as an investment. Cash flows related to real estate
developments are classified as operating or investing activities, based upon
the Company's intention either to sell the property or to retain ownership of
the property as an investment following completion of construction.
FOOD PRODUCTS: Revenue is recorded when refined sugar products and coffee are
sold to third parties.
Costs of growing sugar cane are charged to the cost of production in the year
incurred and to cost of sales as refined products are sold. The cost of raw
cane sugar purchased from third parties is recorded as inventory at the
purchase price.
Costs of developing coffee orchards are capitalized during the development
period and depreciated over the estimated productive lives. Costs of growing
coffee are charged to inventory in the year incurred and to cost of sales as
coffee is sold.
CASH AND CASH EQUIVALENTS: The Company considers highly liquid investments
purchased with original maturities of three months or less, which have no
significant risk of change in value, to be cash equivalents.
INVENTORIES: Sugar inventory, consisting of raw and refined sugar products,
and coffee inventory, are stated at the lower of cost (first-in, first-out
basis) or market. Other inventories, composed principally of materials and
supplies, are stated at the lower of cost (principally average cost) or market.
PROPERTY: Property is stated at cost. Major renewals and betterments are
capitalized. Replacements, maintenance and repairs which do not improve or
extend asset lives are charged to expense as incurred. Assets held under
capital leases are included with property owned. Gains or losses from property
disposals are included in income.
CAPITALIZED INTEREST: Interest costs incurred in connection with significant
expenditures for real estate developments or the construction of assets are
capitalized. Interest expense is shown net of capitalized interest on the
Statements of Income, because the amounts are not significant.
DEPRECIATION: Depreciation is computed using the straight-line method.
Depreciation expense includes amortization of assets under capital leases.
Estimated useful lives of property are as follows:
Buildings 10 to 50 years
Vessels 10 to 40 years
Marine containers 15 years
Machinery and equipment 3 to 35 years
Utility systems and other depreciable property 5 to 60 years
PENSION PLANS: Certain ocean transportation subsidiaries are members of the
Pacific Maritime Association (PMA), the Maritime Service Committee or the
Hawaii Stevedore Committee, which negotiate multi-employer pension plans
covering certain seagoing and shoreside bargaining unit personnel. The
subsidiaries negotiate multi-employer pension plans covering other bargaining
unit personnel. Pension costs are accrued in accordance with contribution
rates established by the PMA, the parties to a plan or the trustees of a plan.
Several trusteed, noncontributory, single-employer defined benefit plans cover
substantially all other employees.
INCOME TAXES: Income tax expense is based on revenue and expenses in the
Statements of Income. Deferred income tax liabilities and assets are computed
at current tax rates for temporary differences between the financial statement
and income tax bases of assets and liabilities.
FAIR VALUES: The carrying values of current assets (other than inventories,
real estate held for sale, deferred income taxes and prepaid and other assets)
and of debt instruments, are reasonable estimates of their fair values. Real
estate is carried at the lower of cost or fair value. Fair values are
generally determined using the expected market value for the property, less
sales costs. For residential units and lots held for sale, market value is
determined by reference to the sales of similar property, market studies, tax
assessments and cash flows. For commercial property, market value is
determined using recent comparable sales, tax assessments and cash flows. A
large portion of the Company's real estate is undeveloped land located in
Hawaii. This land has a cost basis which averages approximately $150 per acre,
a value which is much lower than fair value.
FUTURES CONTRACTS: Realized and unrealized gains and losses on commodity
futures contract hedges are recorded in inventory and subsequently charged to
cost of sales when the related inventory is sold. These amounts are not
significant.
ENVIRONMENTAL COSTS: Environmental expenditures that relate to current
operations are expensed or capitalized as appropriate. Expenditures that
relate to an existing condition caused by past operations or events, and which
do not contribute to current or future revenue generation, are charged to
expense. Liabilities are recorded when environmental assessments or remedial
efforts are probable and the costs can be estimated reasonably.
YEAR-2000 COSTS: Computer and related costs necessary to prepare for the Year-
2000 date change are treated as an operating expense in the year incurred
unless a computer system is being replaced for operating reasons as well as for
Year-2000 compliance, in which case the costs are capitalized. The annual
amounts charged to expense were not significant. (See Management's Discussion
and Analysis, unaudited, for additional information.)
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the
reporting periods. Future actual amounts could differ from those estimates.
RECLASSIFICATIONS: Certain amounts in the 1997 and 1996 financial statements
have been reclassified to conform with the 1998 presentation.
2. INVESTMENTS AND PARTIAL SALE OF SUBSIDIARY
At December 31, 1998 and 1997, investments consisted principally of marketable
equity securities, equity in affiliated companies, limited partnership
interests and purchase-money mortgages, as follows (in thousands):
1998 1997
- -----------------------------------------------------------------------
Marketable equity securities $ 110,119 $ 96,597
Equity in affiliated companies 42,568 --
Limited partnership interests,
purchase-money mortgages and other 6,381 6,216
- -----------------------------------------------------------------------
Total Investments $ 159,068 $ 102,813
=======================================================================
MARKETABLE EQUITY SECURITIES: The marketable equity securities are classified
as "available for sale" and are stated at quoted market values. The unrealized
holding gains on these securities, net of deferred income taxes, have been
recorded as a separate component of Shareholders' Equity.
The components of the net unrealized holding gains at December 31, 1998 and
1997 were as follows (in thousands):
1998 1997
- -----------------------------------------------------------------------
Market value $ 110,119 $ 96,597
Less historical cost 9,851 9,851
- -----------------------------------------------------------------------
Unrealized holding gains 100,268 86,746
Less deferred income taxes 36,939 31,602
- -----------------------------------------------------------------------
Net unrealized holding gains $ 63,329 $ 55,144
=======================================================================
EQUITY IN AFFILIATED COMPANIES: On December 24, 1998, the Company recognized a
loss of $19,756,000 for the partial sale of its sugar refining and marketing
unit, California and Hawaiian Sugar Company, Inc. (C&H) and the sale of a
majority of its equity in that company. The Company received approximately
$45,000,000 in cash, after the repayment of certain C&H indebtedness,
$25,000,000 in senior preferred stock, $9,600,000 in junior preferred stock,
and retained an approximately 36 percent common stock interest in the
recapitalized C&H. The Company holds all of C&H's senior preferred stock and
40 percent of C&H's junior preferred stock. The carrying amounts of these
investments approximated their fair values at December 31, 1998. C&H is
included in the consolidated results of the Company up to the date of the sale.
Effective December 24, 1998, the Company began accounting for its investment in
C&H under the equity method. The equity in earnings of C&H for the last seven
days of 1998 was not significant. Condensed balance sheet information for C&H
as of December 31, 1998 was as follows (in thousands):
1998
- --------------------------------------------------
Assets:
Current $ 77,109
Property and other 139,191
- --------------------------------------------------
Total $ 216,300
==================================================
Liabilities
Current $ 36,092
Long-term debt and other 123,845
Shareholders' equity, including
preferred stock 56,363
- --------------------------------------------------
Total $ 216,300
==================================================
In September 1998, the Company invested approximately $7,284,000 in a joint
venture which carries cargo between Florida and Puerto Rico, in which the
Company has a 27.5-percent interest. The Company charters two of its ships to
that venture.
LIMITED PARTNERSHIP INTERESTS AND PURCHASE-MONEY MORTGAGES: The investments in
limited partnership interests and purchase-money mortgages are recorded at
cost, which approximated market values at December 31, 1998 and 1997. The
purchase-money mortgages are intended to be held to maturity. The value of the
underlying investments of the limited partnership interests is assessed
annually.
See Note 5 for a discussion of market values of investments in the Capital
Construction Fund.
3. CHANGE IN ACCOUNTING METHOD FOR INSURANCE- RELATED ASSESSMENTS
The Company self-insures a portion of its federal workers' compensation
liability. As such, the Company utilizes the U.S. Department of Labor (DOL)
second injury fund, as authorized by Section 8(f) of the U.S. Longshore and
Harborworkers' Act. Under this Act, the DOL annually assesses self-insurers
for their share of the related cost. Through 1997 these assessments were
recorded as expense in the year the amounts were assessed and paid. Effective
January 1, 1998, the Company adopted the provisions of the American Institute
of Certified Public Accountants Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments." This
statement requires that the Company record as a liability, the expected cost of
future assessments relating to existing compensation claims made prior to the
end of the current fiscal year. In adopting this statement, the Company
recorded a one-time, non-cash charge to earnings of $9,282,000 ($5,801,000 net
of income tax, $0.13 per share), representing the cumulative effect of the
accounting change as of the beginning of the year. The discount rate used in
estimating the liability was 5.43%. On an undiscounted basis, the liability
was approximately $13,869,000 as of December 31, 1998. The effect of the
change on operating costs was not significant for the current or prior years.
4. WRITE-DOWN OF REAL ESTATE ASSETS
During 1998, the Company changed the strategic direction of its 1,045 acre
Kukui'Ula real estate development, from a single master-planned residential
community to a series of individual subdivisions with fewer units, as a result
of continued weaknesses in the State's and Kauai's economy and real estate
markets. As a result, the Company determined that its investment in a waste
water treatment plant (WWTP) could not be recovered through the WWTP's future
cash flows; accordingly, the costs of the WWTP were reduced by $15,900,000 to
the plant's fair value, which was based on the present value of estimated
future cash flows. Under the original higher-density Kukui'Ula development
plan, the cost of the WWTP would have been recoverable from its future cash
flows. The changes in the development plan also resulted in the write-off of
$4,316,000 for design and study costs which were determined to have no future
economic benefit. The remaining carrying cost of the Kukui'Ula project is
approximately $29,650,000 and, based on current development plans, the Company
has determined that this amount is recoverable from the project's future cash
flows.
5. CAPITAL CONSTRUCTION FUND
A subsidiary is party to an agreement with the United States Government which
established a Capital Construction Fund (CCF) under provisions of the Merchant
Marine Act, 1936, as amended. The agreement has program objectives for the
acquisition, construction or reconstruction of vessels and for repayment of
existing vessel indebtedness. Deposits to the CCF are limited by certain
applicable earnings. Such deposits are Federal income tax deductions in the
year made; however, they are taxable, with interest payable from the year of
deposit, if withdrawn for general corporate purposes or other non-qualified
purposes, or upon termination of the agreement. Qualified withdrawals for
investment in vessels having adequate tax bases do not give rise to a current
tax liability, but reduce the depreciable bases of the vessels or other assets
for income tax purposes.
Amounts deposited into the CCF are a preference item for calculating Federal
alternative minimum taxable income. Deposits not committed for qualified
purposes within 25 years from the date of deposit, will be treated as non-
qualified withdrawals over the subsequent five years. As of year-end, the
oldest CCF deposits date from 1994. Management believes that all amounts on
deposit in the CCF at the end of 1998 will be used or committed for qualified
purposes prior to the expiration of the applicable 25-year periods.
<TABLE>
<CAPTION>
TABLE 1 (In thousands)
- ------------------------------------------------------------------- ----------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------
Amortized Fair Unrealized Amortized Fair Unrealized
Cost Value Gain (Loss) Cost Value Gain (Loss)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities $ 52,606 $ 53,108 $ 502 $ 69,451 $ 68,738 $ (713)
Cash and cash equivalents 81,627 81,627 -- 69,159 69,159 -
Accrued deposits 9,070 9,070 -- 10,000 10,000 -
- ---------------------------------------------------------------------------------------------------------
Total $143,303 $143,805 $ 502 $148,610 $147,897 $ (713)
=========================================================================================================
</TABLE>
Under the terms of the CCF agreement, the subsidiary may designate certain
qualified earnings as "accrued deposits" or may designate, as obligations of
the CCF, qualified withdrawals to reimburse qualified expenditures initially
made with operating funds. Such accrued deposits to and withdrawals from the
CCF are reflected on the Balance Sheets either as obligations of the Company's
current assets or as receivables from the CCF.
The Company has classified its investments in the CCF as "held-to-maturity"
and, accordingly, has not reflected temporary unrealized market gains and
losses on the Balance Sheets or Statements of Income. The long-term nature of
the CCF program supports the Company's intention to hold these investments to
maturity.
At December 31, 1998 and 1997, the balances on deposit in the CCF are
summarized in Table 1.
Fair value of the mortgage-backed securities was determined by an outside
investment management company based on experience trading identical or
substantially similar securities. No central exchange exists for these
securities; they are traded over-the-counter. The Company earned $4,514,000 in
1998, $5,897,000 in 1997 and $6,838,000 in 1996 on its investments in mortgage-
backed securities. The fair values of other CCF investments are based on
quoted market prices. These other investments mature in 1999. There were no
sales of securities classified as "held-to-maturity" during 1998 or 1997.
6. EMPLOYEE BENEFIT PLANS
The Company has funded single-employer defined benefit pension plans which
cover substantially all non-bargaining unit employees.
In addition, the Company has plans that provide certain retiree health care and
life insurance benefits to substantially all salaried and to certain hourly
employees. Employees are generally eligible for such benefits upon retirement
and completion of a specified number of years of credited service. The Company
does not pre-fund these benefits and has the right to modify or terminate
certain of these plans in the future. Certain groups of retirees pay a portion
of the benefit costs.
The status of the funded defined benefit pension plans and the unfunded
accumulated post-retirement benefit plans at December 31, 1998, 1997 and 1996
is shown in Table 2 (page 36).
The net periodic benefit cost for the defined benefit pension plans and the
post-retirement health care and life insurance benefit plans during 1998, 1997
and 1996 is summarized in Table 3 (page 36).
As described in Note 2, the Company sold a majority of its interest in C&H
during 1998. The impact of this transaction on the benefit obligation and the
plan assets is noted in Table 2. At the time of the transaction, C&H had
recorded in its financial statements net obligations of $12,300,000 and
$46,500,000 for its pension and post-retirement benefit plans, respectively.
The assumptions used to determine the components of the net periodic benefit
cost were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Post-retirement Benefits
--------------------------- ------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 6.75% 7.25% 7.50% 6.75% 7.25% 7.50%
Expected return on
plan assets 9.00% 9.00% 9.00% - - -
Rate of compensation
increase 4.25% 4.25% 4.50% 4.25% 4.25% 4.50%
</TABLE>
For post-retirement benefit measurement purposes, a 10-percent annual rate of
increase in the per capita cost of covered health care benefits was assumed
through 2001. The rate was assumed to decrease to 5-percent for 2002 and
remain at that level thereafter. For 1998 and 1997, gains and losses of the
post-retirement benefit plans were amortized over five years. For 1996 and
previous years, gains and losses for the post-retirement benefit plans were
amortized using the minimum method allowed by Statement of Financial Accounting
Standards (SFAS) No. 106, "Employer's Accounting for Post-retirement Benefits
other than Pensions." This change did not significantly affect financial
results.
If the assumed health care cost trend rate were increased or decreased by one
percentage point, the accumulated post-retirement benefit obligation, as of
December 31, 1998, 1997 and 1996, and the net periodic post-retirement benefit
cost for 1998, 1997 and 1996, would have increased or decreased as follows (in
thousands):
<TABLE>
<CAPTION>
Other Post-retirement Benefits
One Percentage Point
--------------------------------------------------------------
Decrease Increase
----------------------------- -----------------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Effect on total of service and
interest cost components $ (583) $(1,016) $(1,052) $ 689 $ 1,172 $ 1,208
Effect on post-retirement
benefit obligation $(4,387) $(9,786) $(9,833) $ 5,157 $11,113 $11,105
</TABLE>
The assets of the defined benefit pension plans consist principally of listed
stocks and bonds. Gains and losses are amortized using the minimum method
allowed by SFAS No. 87, "Employer's Accounting for Pensions." Contributions
are determined annually for each plan by the Company's pension administrative
committee, based upon the actuarially determined minimum required contribution
under the Employee Retirement Income Security Act of 1974, as amended, (ERISA)
and the maximum deductible contribution allowed for tax purposes. For the
plans covering employees who are members of collective bargaining units, the
benefit formulas are determined according to the collective bargaining agree-
ments, either using career average pay as the base or a flat dollar amount per
year of service. The benefit formulas for the remaining defined benefit plans
are based on final average pay.
The Company has non-qualified supplemental pension plans covering certain
employees and retirees, which provide for incremental pension payments from the
Company's general funds, so that total pension benefits would be substantially
equal to amounts that would have been payable from the Company's qualified
pension plans if it were not for limitations imposed by income tax regulations.
The obligation, included with other non-current liabilities, relating to these
unfunded plans, totaled $11,860,000 and $10,654,000 at December 31, 1998 and
1997, respectively. The annual expense associated with the non-qualified plans
was not significant.
Total contributions to the multi-employer pension plans covering personnel in
shoreside and seagoing bargaining units were $5,633,000 in 1998, $5,828,000 in
1997 and $5,552,000 in 1996. Union collective bargaining agreements provide
that total employer contributions during the terms of the agreements must be
sufficient to meet the normal costs and amortization payments required to be
funded during those periods. Contributions are generally based on union labor
paid or cargo volume. A portion of such contributions is for unfunded accrued
actuarial liabilities of the plans being funded over periods of 25 to 40 years,
which began between 1967 and 1976.
The multi-employer plans are subject to the plan termination insurance
provisions of ERISA and are paying premiums to the Pension Benefit Guarantee
Corporation (PBGC). The statutes provide that an employer who withdraws from,
or significantly reduces its contribution obligation to, a multi-employer plan
generally will be required to continue funding its proportional share of the
plan's unfunded vested benefits.
Under special rules approved by the PBGC and adopted by the Pacific Coast
longshore plan in 1984, the Company could cease Pacific Coast cargo-handling
operations permanently and stop contributing to the plan without any withdrawal
liability, provided that the plan meets certain funding obligations as defined
in the plan. The estimated withdrawal liabilities under the Hawaii longshore
plan and the seagoing plans aggregated approximately $809,000 as of December
31, 1998, based on estimates by plan actuaries. Management has no present
intention of withdrawing from and does not anticipate termination of any of the
aforementioned plans.
<TABLE>
<CAPTION>
Table 2 (In thousands)
Pension Benefits Other Post-retirement Benefits
----------------------------------- -----------------------------------
1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at
beginning of year $ 354,883 $ 326,095 $ 285,579 $ 91,112 $ 93,596 $ 91,052
Service cost 7,182 6,692 6,326 1,154 1,310 1,351
Interest cost 25,024 23,807 23,295 5,474 6,250 6,605
Plan participants' contributions -- -- -- 1,615 1,635 1,851
Actuarial (gain) loss 20,937 16,567 30,512 (8,482) (4,198) 3,425
Sale of subsidiary (158,758) -- -- (29,615) -- --
Acquisition -- -- 303 -- -- --
Benefits paid (22,886) (21,687) (20,736) (6,326) (6,933) (7,147)
Amendments 3,191 2,997 417 366 (548) (1,066)
Curtailments -- -- -- -- -- (2,475)
Special or contractual
termination benefits -- 412 399 -- -- --
- -------------------------------------------------------------------------------------------------------------
Benefit obligation at
end of year 229,573 354,883 326,095 55,298 91,112 93,596
- -------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of year 443,249 380,909 348,208 -- -- --
Actual return on plan assets 65,634 84,027 47,980 -- -- --
Acquisition -- -- 303 -- -- --
Sale of subsidiary (152,996) -- -- -- -- --
Employer contribution -- -- 5,154 -- -- --
Benefits paid (22,886) (21,687) (20,736) -- -- --
- -------------------------------------------------------------------------------------------------------------
Fair value of plan assets
at end of year 333,001 443,249 380,909 -- -- --
- -------------------------------------------------------------------------------------------------------------
Plan assets less benefit
obligation 103,428 88,366 54,814 (55,298) (91,112) (93,596)
Unrecognized net actuarial gain (83,107) (91,012) (59,119) (10,104) (22,353) (24,518)
Unrecognized transition asset (876) (1,869) (2,864) -- -- --
Unrecognized prior
service cost (benefit) 4,767 5,707 3,518 358 (3,824) (3,643)
- -------------------------------------------------------------------------------------------------------------
Accrued asset (obligation) $ 24,212 $ 1,192 $ (3,651) $ (65,044) $(117,289) $(121,757)
=============================================================================================================
_____________________________________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
Table 3 (In thousands)
Pension Benefits Other Post-retirement Benefits
----------------------------------- -----------------------------------
1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost $ 7,182 $ 6,692 $ 6,326 $ 1,154 $ 1,310 $ 1,351
Interest cost 25,024 23,807 23,295 5,474 6,250 6,605
Expected return on plan
assets (38,862) (33,309) (30,557) -- -- --
Recognition of net gain (4,128) (2,258) (2,284) (7,221) (6,315) (1,598)
Amortization of prior
service cost 1,105 808 550 (359) (368) (419)
Amortization of unrecognized
transition asset (992) (996) (1,090) -- -- --
Recognition of settlement gain -- -- -- -- -- (2,475)
Recognition of curtailment gain -- -- (1,178) -- -- --
- -------------------------------------------------------------------------------------------------------------
Net periodic benefit
cost/(income) $ (10,671) $ (5,256) $ (4,938) $ (952) $ 877 $ 3,464
=============================================================================================================
Cost of termination benefits
recognized $ -- $ 412 $ 399 -- -- --
=============================================================================================================
</TABLE>
7. LONG-TERM DEBT, CREDIT AGREEMENTS
At December 31, 1998 and 1997, long-term debt consisted of the following (in
thousands):
1998 1997
- --------------------------------------------------------------------
Commercial paper, 1998 high 6%, low 5.05% $ 141,766 $ 130,852
Bank variable rate loans, due after 1998,
1998 high 6.2%, low 5.2% 78,500 41,500
Term loans:
7.18%, payable through 2007 67,500 67,500
8%, payable through 2000 17,500 27,500
7.43%, payable through 2007 15,000 15,000
7.65%, payable through 2001 10,000 10,000
9.05%, payable through 1999 7,739 14,815
9%, payable through 1999 5,294 10,588
9.8%, payable through 2004 -- 14,583
- --------------------------------------------------------------------
Total 343,299 332,338
Less current portion 45,533 24,453
Commercial paper classified as current 42,000 17,000
- --------------------------------------------------------------------
Long-term debt $ 255,766 $ 290,885
====================================================================
COMMERCIAL PAPER: At December 31, 1998, there were two commercial paper
programs. The first program was used by a subsidiary to finance the
construction of a vessel. At December 31, 1998, $99,766,000 of commercial
paper notes was outstanding under this program. Maturities ranged from 7 to
25 days. The borrowings outstanding under this program are classified as long
- -term, because the subsidiary intends to continue the program and, eventually,
to repay the borrowings with qualified withdrawals from the Capital
Construction Fund.
The second commercial paper program, which was used by C&H, before the partial
sale of that business (see Note 2), to fund the purchases of raw sugar
inventory and to provide working capital for sugar refining and marketing
operations, was terminated on January 19, 1999 as a result of the partial sale
of C&H. At December 31, 1998, $42,000,000 of commercial paper notes was
outstanding under this program, all of which was classified as current.
Maturities ranged from 6 to 19 days. The interest cost and certain fees on the
borrowings relating to sugar inventory advances to growers were reimbursed by
the growers. The commercial paper was supported by an $85,000,000 backup
revolving credit facility with four commercial banks, which also was terminated
in January 1999.
VARIABLE RATE LOANS: The Company has a revolving credit and term loan
agreement with four commercial banks, whereby it may borrow up to $140,000,000,
under revolving loans to November 30, 2000, at varying rates of interest. Any
revolving loan outstanding on that date may be converted into a term loan,
which would be payable in 12 equal quarterly installments. The agreement
contains certain restrictive covenants, the most significant of which requires
the maintenance of an interest coverage ratio of 2:1. At December 31, 1998 and
1997, $50,000,000 and $25,000,000, respectively, were outstanding under this
agreement.
The Company has an uncommitted $45,000,000 short-term revolving credit
agreement with a commercial bank. The agreement extends to November 30, 1999,
but may be canceled by the bank or the Company at any time. At December 31,
1998 and 1997, $3,500,000 and $11,500,000, respectively, were outstanding under
this agreement.
The Company has an uncommitted $25,000,000 revolving credit agreement with a
commercial bank. The agreement extends to September 8, 2000. At December 31,
1998 and 1997, $10,000,000 and $5,000,000, respectively, were outstanding under
this agreement.
The Company has a $50,000,000 one-year revolving credit agreement with a two-
year term option. At December 31, 1998, $15,000,000 was outstanding. No
amounts were outstanding under this agreement at December 31, 1997.
The Company has an uncommitted $15,000,000 revolving credit agreement with a
commercial bank. The Agreement extends to November 28, 2000. At December 31,
1998 and 1997, there were no amounts outstanding under this agreement.
In 1998, the Company entered into a $25,000,000 one-year revolving credit
agreement with a commercial bank which serves as a commercial paper liquidity
back-up line. At December 31, 1998, no amounts were outstanding under this
agreement.
LONG-TERM DEBT MATURITIES: At December 31, 1998, maturities and planned
prepayments of all long-term debt during the next five years totaled
$45,533,000 for 1999, $17,500,000 for 2000, $15,000,000 for 2001, $7,500,000
for 2002 and $7,500,000 for 2003.
8. LEASES
THE COMPANY AS LESSEE: Principal operating leases include office and terminal
facilities leased for periods which expire between 1999 and 2026. Management
expects that, in the normal course of business, most operating leases will be
renewed or replaced by other similar leases.
Rental expense under operating leases totaled $45,519,000, $45,560,000 and
$45,559,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
There were no assets recorded under capital leases at December 31, 1998.
Assets recorded under capital lease obligations which were included in property
at December 31, 1997 were as follows (in thousands):
1997
- ---------------------------------------------------------------
Vessel $ 55,253
Machinery and equipment 42,039
- ---------------------------------------------------------------
Total 97,292
Less accumulated amortization 95,866
- ---------------------------------------------------------------
Property under capital leases--net $ 1,426
===============================================================
Future minimum payments under operating leases as of December 31, 1998 were as
follows (in thousands):
Operating
Leases
- ---------------------------------------------------------------
1999 $ 25,025
2000 14,595
2001 11,799
2002 11,952
2003 11,919
Thereafter 79,386
- ---------------------------------------------------------------
Total minimum lease payments $ 154,676
===============================================================
The Company is obligated to pay terminal facility rent equal to the principal
and interest on Special Facility Revenue Bonds issued by the Department of
Transportation of the State of Hawaii. Interest on the bonds is payable semi-
annually and principal, in the amount of $16,500,000, is due in 2013. An
accrued liability of $8,800,000 and $8,257,000 at December 31, 1998 and 1997,
respectively, included in other long-term liabilities, provides for a pro-rata
portion of the principal due on these bonds.
THE COMPANY AS LESSOR: The Company leases land, buildings, land improvements,
and vessels under operating leases. Five vessels were leased under new
agreements commencing in 1998. The historical cost of and accumulated
depreciation on leased property at December 31, 1998 and 1997 were as follows
(in thousands):
1998 1997
- --------------------------------------------------------------------------
Leased property $530,967 $267,569
Less accumulated amortization 113,358 47,253
- --------------------------------------------------------------------------
Property under operating leases--net $417,609 $220,316
==========================================================================
Total rental income under these operating leases for the three years ended
December 31, 1998 was as follows (in thousands):
1998 1997 1996
- --------------------------------------------------------------------------
Minimum rentals $ 79,268 $ 35,535 $ 34,556
Contingent rentals (based on sales volume) 1,079 1,048 1,232
- --------------------------------------------------------------------------
Total $ 80,347 $ 36,583 $ 35,788
==========================================================================
Future minimum rental income on non-cancelable leases at December 31, 1998 was
as follows (in thousands):
Operating
Leases
- -------------------------------------------------------
1999 $ 83,149
2000 79,513
2001 77,961
2002 75,349
2003 71,343
Thereafter 229,763
- ------------------------------------------------------
Total $ 617,078
======================================================
9. INCOME TAXES
The income tax expense for the three years ended December 31, 1998 consisted of
the following (in thousands):
1998 1997 1996
- --------------------------------------------------------------------------
Current:
Federal $ 28,877 $30,181 $ 23,549
State 3,723 2,476 4,779
- --------------------------------------------------------------------------
Total 32,600 32,657 28,328
Deferred (8,248) 13,168 10,420
- --------------------------------------------------------------------------
Income tax expense $ 24,352 $45,825 $ 38,748
==========================================================================
Total income tax expense for the three years ended December 31, 1998 differs
from amounts computed by applying the statutory Federal rate to pre-tax income
for the following reasons (in thousands):
1998 1997 1996
- ---------------------------------------------------------------------------
Computed income tax expense $ 19,353 $ 44,525 $ 36,412
State tax on income, less applicable
Federal tax 1,824 3,732 2,605
Low-income housing credits (1,204) (1,214) (1,219)
Fair market value over cost of donations -- (1,306) (11)
Bases differences in net assets acquired 3,114 -- --
Other-net 1,265 88 961
- ---------------------------------------------------------------------------
Income tax expense $ 24,352 $ 45,825 $ 38,748
===========================================================================
The tax effects of temporary differences that give rise to significant portions
of the net deferred tax liability at December 31, 1998 and 1997 were as follows
(in thousands):
1998 1997
- --------------------------------------------------------------------------
Accelerated depreciation $144,537 $178,570
Capital Construction Fund 102,741 104,408
Tax-deferred gains on real estate transactions 85,181 77,784
Unrealized holding gains on securities 36,939 31,602
Post-retirement benefits (27,027) (48,014)
Insurance reserves (10,771) (6,907)
Other-net 11,905 12,907
- --------------------------------------------------------------------------
Total $343,505 $350,350
==========================================================================
The Internal Revenue Service (IRS) has completed its audits of the Company's
tax returns through 1995 and, with the exception of the valuation of three land
donations, has settled all substantive issues raised during the audits. No
settlement has had a material effect on the Company's financial position or
results of operations. The IRS has commenced an audit of the Company's tax
returns for 1996 and 1997. Management believes that the ultimate resolution of
the outstanding audit issues and other matters which may result from the
current audits will not have a material effect on the Company's financial
position or results of operations.
10. CAPITAL STOCK AND STOCK OPTIONS
EMPLOYEE STOCK OPTION PLANS: During 1998, the Company had two stock option
plans under which key employees were granted options to purchase shares of the
Company's common stock.
Under the 1998 Plan, approved at the 1998 Annual Meeting of Shareholders,
option prices may not be less than the fair market value of the Company's
common stock on the dates of grant, and the options become exercisable over
periods determined, at the dates of grant, by the committee that administers
the plan. Payments for options exercised may be made in cash or in shares of
the Company's stock. If an option to purchase shares is exercised within five
years of the date of grant and if payment is made in shares of the Company's
stock, the option holder may receive, under a reload feature, a new stock
option grant for the number of shares equal to that surrendered, with an option
price not less than the greater of the fair market value of the Company's stock
on the date of exercise or one and one-half times the original option price.
During 1998, options to purchase 100,000 shares were granted. At December 31,
1998, these were the only options outstanding under the 1998 Plan.
The 1989 Plan is substantially the same as the 1998 Plan, except that each
option generally becomes exercisable in-full one year after the date granted.
The 1989 Plan terminated in January 1999, but options granted through 1998
remain exercisable. During 1998, options to purchase 485,400 shares were
granted, no reload options to purchase shares were granted, options to purchase
65,850 shares were exercised, and options to purchase 17,950 shares were
canceled. At December 31, 1998, options to purchase 3,263,438 shares were
outstanding under the 1989 Plan.
The 1998 and 1989 Plans also permit the issuance of shares of the Company's
common stock as a reward for past service rendered to the Company or one of its
subsidiaries or as an incentive for future service with such entities. The
recipients' interest in such shares may be fully vested upon issuance or may
vest in one or more installments, upon such terms and conditions as are
determined by the committee which administers the plans. The number of
incentive shares issued during 1998 or outstanding at the end of the year was
not material.
A third plan, the 1983 Plan, terminated in 1993, but options to purchase shares
previously granted under the 1983 Plan are still exercisable. At December 31,
1998, options to purchase 161,200 shares were outstanding under this plan.
These options expire in January 1999.
DIRECTOR STOCK OPTION PLANS: The Company also has two Directors' stock option
plans. Under the 1998 Directors' Plan, each non-employee Director of the
Company, elected at an Annual Meeting of Shareholders, is automatically
granted, on the date of each such Annual Meeting, an option to purchase 3,000
shares of the Company's common stock at the fair market value of the shares on
the date of grant. Each option to purchase shares becomes exercisable six
months after the date granted. At December 31, 1998, no options to purchase
shares had been granted under this plan.
The 1989 Directors' Plan is substantially the same as the 1998 Directors' Plan.
This plan terminated in January 1999, but options granted through termination
remain exercisable. During 1998, options to purchase 21,000 shares were
granted and no options to purchase shares were exercised or canceled. At
December 31, 1998, options to purchase 204,000 shares were outstanding under
the 1989 Directors' Plan.
Changes in shares under all option plans, for the three years ended December
31, 1998, were as follows:
Price Range
Shares Per Share
- -----------------------------------------------------------------------
1995 Outstanding, December 31 2,586,751 $17.375-37.875
1996: Granted 495,264 21.750-32.625
Exercised (125,188) 17.375-24.750
Canceled (15,800) 24.250-36.250
- -----------------------------------------------------------------------
Outstanding, December 31 2,941,027 17.375-37.875
1997: Granted 586,212 25.100-34.875
Exercised (263,351) 17.375-24.750
Canceled (57,850) 24.750-37.875
- -----------------------------------------------------------------------
Outstanding, December 31 3,206,038 21.750-37.875
1998: Granted 606,400 22.750-29.769
Exercised (65,850) 21.750-27.000
Canceled (17,950) 26.250-34.000
- -----------------------------------------------------------------------
OUTSTANDING, DECEMBER 31 3,728,638 $21.750-37.875
EXERCISABLE, DECEMBER 31 3,143,238 $21.750-37.875
=======================================================================
ACCOUNTING METHOD FOR STOCK-BASED COMPENSATION: The Company applies Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related Interpretations, in accounting for its stock-based compensation
plans. Accordingly, no compensation cost is recognized in the Company's income
statement for stock option plans at the time grants are awarded. If the
compensation costs for the stock option grants had been determined consistent
with SFAS No. 123, "Accounting for Stock-based Compensation," the after-tax
cost for grants made in 1998, 1997 and 1996 would have been approximately
$2,015,000, $1,800,000 and $900,000, respectively. Earnings per share for
1998, 1997 and 1996 would have declined by $0.05, $0.04 and $0.02,
respectively.
SHAREHOLDER RIGHTS PLAN: The Company has a Shareholder Rights Plan, designed
to protect the interests of shareholders in the event an attempt is made to
acquire the Company. The rights initially will trade with the Company's
outstanding common stock and will not be exercisable absent certain
acquisitions or attempted acquisitions of specified percentages of such stock.
If exercisable, the rights generally entitle shareholders to purchase
additional shares of the Company's stock or shares of an acquiring company's
stock at prices below market value.
SHARE REPURCHASES: During 1998, the Company purchased and retired 969,200
shares of its stock, at an average per-share price of $21.50. During 1997, the
Company purchased and retired 624,050 shares, at an average per-share price of
$26.58.
11. RELATED PARTY TRANSACTIONS, COMMITMENTS AND CONTINGENCIES
At December 31, 1998, the Company and its subsidiaries had an unspent balance
of total appropriations for capital expenditures of approximately $60,294,000.
However, there is no contractual obligation to spend this entire amount.
The Company has arranged for standby letters of credit of approximately
$14,100,000, necessary to qualify as a self-insurer for state and federal
workers' compensation liabilities. In addition, the Company guarantees a
letter of credit of $10,432,000 for workers' compensation claims incurred by
C&H employees, under a now-closed self insurance plan, prior to December 24,
1998 (see Note 2). The Company would only be called upon to honor this
guarantee in the event of C&H's insolvency. The Company also has
approximately $3,600,000 of letters of credit outstanding for normal operating
matters.
C&H, in which A&B has a 36 percent common stock interest, is party to a long-
term sugar supply contract with Hawaiian Sugar & Transportation Cooperative
(HSTC), a raw sugar marketing and transportation cooperative owned by the
Company and by two other Hawaii sugar growers. Under the terms of this
contract, C&H is obligated to purchase, and HSTC is obligated to sell, all of
the raw sugar delivered to HSTC by the Hawaii sugar growers, at prices
determined by the quoted domestic sugar market. Prior to the partial sale of
C&H, it made purchases of raw sugar totaling $141,018,000, $126,629,000 and
$190,188,000 under the contract during 1998, 1997 and 1996, respectively.
A subsidiary has guaranteed obligations of up to $13 million of a joint venture
shipping operation (see Note 2) in which it has a 27.5-percent interest.
The Company and certain subsidiaries are parties to various legal actions and
are contingently liable in connection with claims and contracts arising in the
normal course of business, the outcome of which, in the opinion of management
after consultation with legal counsel, will not have a material adverse effect
on the Company's financial position or results of operations.
12. INDUSTRY SEGMENTS
Industry segment information for 1998, 1997 and 1996, on page 19, is
incorporated herein by reference.
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," during the fourth quarter of 1998. SFAS No. 131
established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision-making group, in deciding how to allocate
resources and in assessing performance. The Company's chief operating
decision-making group is made up of the president and lead executives of each
of the Company's segments. The lead executive for each operating segment
manages the profitability and cash flow of each respective segment's various
product or service lines and businesses. The operating segments are managed
separately because each operating segment represents a strategic business unit
that offers different products or services and serves different markets.
The Company's reportable operating segments include Ocean Transportation,
Property Development and Management and Food Products. The Ocean Trans-
portation segment carries freight between various United States and Canadian
West Coast, Hawaii and other Pacific ports, and provides terminal and cargo
logistics services. The Property Development and Management segment develops,
manages and sells residential, commercial and industrial properties. The Food
Products segment grows and processes raw sugar and molasses; invests in a
sugar refining and marketing business (see Note 2); grows, mills and markets
coffee; and generates and sells electricity.
The accounting policies of the operating segments are the same as those
described in the summary of significant policies. Reportable segments are
measured based on operating profit, exclusive of non-operating or unusual
transactions, interest expense, general corporate expenses and income taxes.
<PAGE>
EXHIBIT B
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE
DECEMBER 31, 1998
(In thousands)
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATING BALANCE SHEET AND CONSOLIDATING INCOME
STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
Item No. Caption Heading
1 Total Assets $1,605,640
2 Total Operating Revenues $1,292,664
3 Net Income $25,142
<PAGE>
February 26, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N. W.
Washington, D. C. 20549
Re: Form U-3A-2 - Alexander & Baldwin, Inc.
and A&B-Hawaii, Inc. - SEC File No. 69-166
------------------------------------------
Gentlemen:
Submitted herewith for filing is the joint and consolidated Statement of
Alexander & Baldwin, Inc. and its wholly-owned subsidiary, A&B-Hawaii, Inc., on
Form U-3A-2 claiming an exemption under Rule U-2 from the provisions of the
Public Utility Holding Company Act of 1935. This filing is being made by
direct transmission to the Commission's EDGAR system, and is being filed
jointly pursuant to oral authorization to file on a joint and consolidated
basis received from the Commission on February 21, 1990.
Very truly yours,
/s/ Francis K. Mukai
Assistant General Counsel
