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 March 31, 2000
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-565
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ALEXANDER & BALDWIN, INC.
-------------------------
(Exact name of registrant as specified in its charter)
HAWAII 99-0032630
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(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
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(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
March 31, 2000: 41,589,876
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
The condensed financial statements and notes for the first quarter of 2000 are
presented below.
<TABLE>
<CAPTION>
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF INCOME
(In thousands except per share amounts)
Three Months Ended
March 31
2000 1999
---- ----
(unaudited)
<S> <C> <C>
Revenue:
Net sales, revenue from services
and rentals $ 214,467 $ 191,065
Interest, dividends and other 5,424 6,377
--------- ---------
Total revenue 219,891 197,442
--------- ---------
Costs and Expenses:
Costs of goods sold, services and
rentals 170,576 144,649
Selling, general and administrative 22,262 23,125
Interest 5,347 4,527
Income taxes 7,525 9,303
--------- ---------
Total costs and expenses 205,710 181,604
--------- ---------
Income before cumulative effect of
change in accounting method 14,181 15,838
Cumulative effect of change in
accounting method for drydocking
costs (net of income taxes of $7,668)
(note d) 12,250 --
--------- ---------
Net Income $ 26,431 $ 15,838
========= =========
Basic and Diluted Earnings Per Share:
Before cumulative effect of
accounting change $ 0.34 $ 0.36
Accounting change (note d) 0.29 --
--------- ---------
Net income $ 0.63 $ 0.36
========= =========
Dividends Per Share $ 0.225 $ 0.225
Average Number of Shares Outstanding 42,131 43,559
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
INDUSTRY SEGMENT DATA
(In thousands)
Three Months Ended
March 31
2000 1999
---- ----
(unaudited)
<S> <C> <C>
Revenue:
Ocean Transportation $ 190,513 $ 169,195
Property Development and
Management:
Leasing 11,896 11,587
Sales 3,052 7,932
Food Products 13,666 8,002
Other 764 726
--------- ---------
Total Revenue $ 219,891 $ 197,442
========= =========
Operating Profit:(1)
Ocean Transportation $ 19,893 $ 18,265
Property Development and
Management:
Leasing 7,184 7,622
Sales 701 5,540
Food Products 2,068 1,471
Other 709 650
--------- ---------
Total Operating Profit $ 30,555 $ 33,548
========= =========
(1)Before interest expense, corporate expenses and income taxes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(In thousands)
MARCH 31 December 31
2000 1999
---- ----
(unaudited) (audited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,800 $ 3,333
Accounts and notes receivable, net 128,790 136,637
Inventories 23,724 15,927
Real estate held for sale 9,837 12,706
Deferred income taxes 12,400 16,260
Prepaid expenses and other assets 14,550 20,739
Accrued deposits to Capital Construction
Fund (2,801) (3,152)
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Total current assets 192,300 202,450
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Investments 160,675 158,726
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Real Estate Developments 60,279 60,810
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Property, at cost 1,757,897 1,748,586
Less accumulated depreciation and
amortization 827,035 819,959
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Property - net 930,862 928,627
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Capital Construction Fund 143,927 145,391
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Other Assets 68,820 65,456
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Total $1,556,863 $1,561,460
========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of
long-term debt $ 17,500 $ 22,500
Accounts payable 57,740 55,655
Other 47,495 64,490
---------- ----------
Total current liabilities 122,735 142,645
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Long-term Liabilities:
Long-term debt 309,809 277,570
Post-retirement benefit obligations 47,544 60,767
Other 44,488 51,161
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Total long-term liabilities 401,841 389,498
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Deferred Income Taxes 362,353 358,354
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Shareholders' Equity:
Capital stock 34,175 34,933
Additional capital 54,522 53,124
Unrealized holding gains on securities 50,172 49,461
Retained earnings 543,243 545,849
Cost of treasury stock (12,178) (12,404)
---------- ----------
Total shareholders' equity 669,934 670,963
---------- ----------
Total $1,556,863 $1,561,460
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
March 31
2000 1999
---- ----
(unaudited)
<S> <C> <C>
Cash Flows from Operating Activities $ 23,001 $ 29,250
--------- ---------
Cash Flows from Investing Activities:
Capital expenditures (19,759) (13,412)
Proceeds from disposal of property,
investments and other assets 182 2,198
Deposits into Capital Construction
Fund (2,664) (1,765)
Withdrawals from Capital
Construction Fund 3,777 930
Change in investments, net 719 (810)
--------- ---------
Net cash used in investing
activities (17,745) (12,859)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from issuances of long-
term debt 34,500 5,000
Payments of long-term debt (2,500) (18,195)
Payments on short-term commercial
paper borrowings, net (5,000) (47,000)
Proceeds from issuances of capital
stock -- 54
Repurchases of capital stock (20,260) (15,792)
Dividends paid (9,529) (9,792)
--------- ---------
Net cash used in financing
activities (2,789) (85,725)
--------- ---------
Net Increase (Decrease) in Cash and
Cash Equivalents $ 2,467 $ (69,334)
========= =========
Other Cash Flow Information:
Interest paid, net of amounts
capitalized $ 5,197 $ 4,446
Income taxes paid, net of refunds 821 962
Other Non-Cash Information:
Accrued deposits to (withdrawals
from) Capital Construction
Fund, net (351) 930
Depreciation 17,111 19,630
Tax-deferred property sales -- 5,682
Change in unrealized holding gains 711 (8,498)
</TABLE>
<PAGE>
FINANCIAL NOTES
(Unaudited)
(a) The condensed balance sheet as of March 31, 2000 and the condensed
statements of income and of cash flows for the three months ended
March 31, 2000 and 1999 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
the donation of appreciated stock.
(c) The Company's total non-owner changes in shareholders' equity consist of
net income adjusted for unrealized holding gains (losses) on securities
(other comprehensive income). On this basis, comprehensive income for the
three months ended March 31, 2000 and 1999 was $27 million and $7 million,
respectively.
(d) The cumulative effect of an accounting change in the first quarter of 2000
related to the treatment of vessel drydocking costs. The Company changed
its method of accounting for these costs from the accrual method to the
deferral method. Drydocking costs had been accrued as a liability and an
expense on an estimated basis, in advance of the next scheduled
drydocking. Under the deferral method, actual drydocking costs are
capitalized when incurred and amortized over the period to the next
drydocking. The new method amortizes the costs over the period of benefit
and eliminates the uncertainty in estimating these costs. This change was
made to conform with prevailing industry accounting practices. The
cumulative effect of this accounting change, as of January 1, 2000, is
shown separately in the condensed statements of income and resulted in
income of $12,250,000 (net of income tax expense of $7,668,000), or $0.29
per share.
The effect of this change in accounting method as of January 1, 2000, on
the condensed balance sheets, was to increase other assets by $4,765,000,
eliminate drydocking reserves of $15,153,000, increase deferred taxes by
$7,668,000, and increase total shareholders' equity by $12,250,000.
The pro forma net income (assuming the new accounting method was applied
retroactively) for the first quarter of 2000 is $14,181,000 (or $0.34 per
share). The pro forma effect of this accounting change to first-quarter
1999 net income was not material.
(e) 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
- ------------------------------------------------
FIRST QUARTER EVENTS:
OPERATING RESULTS: Net income for the first quarter of 2000 was $26,431,000,
or $0.63 per share, after an accounting change. The accounting change
resulted in a one-time, non-cash increase to first-quarter 2000 earnings of
$12,250,000, or $0.29 per share. Excluding this change, first-quarter 2000
income was $14,181,000, or $0.34 per share. In the first quarter of 1999,
income was $15,838,000, or $0.36 per share. Revenue in the first quarter of
2000 was $219,891,000, compared with revenue of $197,442,000 in the first
quarter of 1999.
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 $251,222,000
at March 31, 2000, a decrease of $2,139,000 from December 31, 1999. This net
reduction was due primarily to a decrease in receivables and in amounts
available under lines of credit, partially offset by an increase in sugar and
coffee inventories and cash. Receivables decreased $7,847,000, due primarily
to improved collections and to the timing of the sugar-harvesting season in
1999. Amounts available under lines of credit decreased $4,501,000, due
primarily to an increase in outstanding debt. Sugar and coffee inventories
increased $7,391,000, due primarily to the timing of the sugar-harvesting
season in 1999.
Working capital was $69,565,000 at March 31, 2000, an increase of $9,760,000
from the amount at the end of 1999. This net increase was due primarily to
decreases in short-term liabilities and notes payable, and to an increase in
inventories, partially offset by decreases in income taxes and trade
receivables. The decrease in short-term liabilities was due primarily to the
elimination of vessel drydocking accruals (see Note d to the Company's
condensed financial statements).
RESULTS OF SEGMENT OPERATIONS -
FIRST-QUARTER 2000 COMPARED WITH THE FIRST-QUARTER 1999
OCEAN TRANSPORTATION revenue of $190,513,000 for the first quarter of 2000
increased 13 percent from the comparable period in 1999 and operating profit of
$19,893,000 increased nine percent from the first quarter of 1999. The
improvements were due primarily to higher cargo volume in the Hawaii service,
resulting from competitive gains, partially offset by higher operating costs,
principally for fuel, container handling and container repositioning.
Increases to a bunker fuel surcharge should help to offset unfavorable fuel
cost variances in the future, and container inventory imbalances resulting
from labor disruptions in the fall of 1999 have been significantly reduced.
Matson Navigation Company's first-quarter 2000 Hawaii service container volume
was five-percent higher than in the 1999 first quarter and Hawaii automobile
volume was 72-percent higher. The sizeable increase in automobile volume was
due primarily to competitive gains.
PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue of $11,896,000 for the
first quarter of 2000 was three-percent higher than in the first quarter of
1999; however, operating profit of $7,184,000 was six-percent lower than in the
first quarter of 1999. The decrease in operating profit was primarily due to a
one-time buyout of a long-term ground lease in the first quarter of 1999,
partially offset by first-quarter 2000 improvements, resulting from recently
acquired properties and higher portfolio occupancy levels. First-quarter 2000
occupancy levels for Mainland properties averaged 95 percent, versus 92 percent
in the first quarter of 1999. Occupancy levels for Hawaii properties averaged
84 percent in the first quarter of 2000, versus 72 percent in the comparable
period of 1999. The increase in Hawaii occupancy was due primarily to higher
tenancy in retail and warehouse properties.
PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue of $3,052,000 for the first
quarter of 2000 was $4,880,000 less than in the first quarter of 1999.
Likewise, operating profit of $701,000 in the first quarter of 2000 was lower
than the $5,540,000 recorded in the same period in 1999. Both decreases were
due to differences in the mix of property sales. Sales in the first quarter of
2000 included nine residential properties and two lots in a business park.
Sales activity in the first quarter of 1999 included three business parcels and
eight residential properties.
The mix of property sales in any year or quarter can be diverse. Sales can
include property sold under threat of condemnation, developed residential real
estate, commercial properties, developable subdivision lots and undeveloped
land. The sale of undeveloped land and subdivision lots generally provides a
greater contribution margin than does the sale of developed and commercial
property, due to the low historical-cost basis of the Company's Hawaii land.
Consequently, property sales revenue trends and the amount of real estate held
for sale on the balance sheets do not necessarily indicate future profitability
trends for this segment.
FOOD PRODUCTS revenue of $13,666,000 for the first quarter of 2000 was 71-
percent higher than the revenue reported for the comparable period of 1999.
The increase in revenue was due primarily to the timing of the sugar-harvesting
season in 1999 and to improved coffee sales volume. Operating profit of
$2,068,000 increased 41 percent from that in the first quarter of 1999. This
improvement was due primarily to improved coffee results, effectuated by the
lower cost structure, and to higher power sales. Despite improvements in the
first quarter of 2000, food products results for the remainder of the year are
expected to lag those of 1999, due to lower raw sugar prices.
OTHER MATTERS
ACCOUNTING CHANGE: The Company recorded an accounting change of $12,250,000
(after-tax) in the first quarter of 2000, relating to the treatment of vessel
drydocking costs. The Company changed its method of accounting for these costs
from the accrual method to the deferral method. This change was made to
conform to prevailing industry accounting practices (see Note d to the
Company's condensed financial statements).
CORPORATE ORGANIZATION: The Company merged its wholly owned subsidiary,
A&B-Hawaii, Inc., into the Company on December 31, 1999. This merger had no
adverse impacts on operations or consolidated assets and obligations.
TAX-DEFERRED REAL ESTATE EXCHANGES: There were no tax-deferred real estate
purchases or sales in the first quarter of 2000.
SHARE REPURCHASES: In the first quarter of 2000, the Company repurchased
1,011,000 shares of its common stock for an aggregate of about $20,260,000
(average of $20.04 per share).
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: The economic outlook for the state of Hawaii continues to
improve. The State of Hawaii's Department of Business, Economic Development &
Tourism (DBEDT) recently introduced an index of leading economic indicators.
This measure continues to rise. Through January 2000, the most up-to-date
figure available, the index was higher for the tenth consecutive month and it
now has risen in 14 of the past 16 months. Some economic measures already are
reflecting the improving outlook, such as unemployment and jobs. In its March
2000 outlook, DBEDT raised its projections for growth in real gross state
product for the year 2000 to 2.5% (from 2.2% in its December 1999 outlook), for
2001 to 2.7% (from 2.0%), and for 2002 to 2.6% (from 1.9%). The external
factors cited for raising the projections were the continuing strength of the
U.S. Mainland economy and improvement in the Asian economies. Rising growth in
visitor arrivals is anticipated, with the projection for growth in 2000 now at
2.3% 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 visitor arrivals from Japan.
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-Q, press releases made by the Company and oral statements made by
the officers of the Company. Except for historical information contained in
these written or oral communications, such communications contain forward-
looking statements. These forward-looking statements involve a number of risks
and uncertainties that could cause actual results to differ materially from
those projected in the statements, including, but not limited to: (1) economic
conditions in Hawaii and elsewhere; (2) market demand; (3) competitive factors
and pricing pressures in the Company's primary markets; (4) legislative and
regulatory 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) raw sugar prices; (8)
labor relations; (9) risks associated with current or future litigation; and
(10) other risk factors described elsewhere in these communications and from
time to time in the Company's filings with the SEC.
<PAGE>
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, 1999.
There has been no material change in the quantitative and qualitative
disclosure about market risk since December 31, 1999.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
11. Statement re Computation of Per Share Earnings.
18. Letter re Change in Accounting Principles.
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: May 12, 2000 /s/ G. Stephen Holaday
---------------------------------
G. Stephen Holaday
Vice President and Acting
Chief Financial Officer
Date: May 12, 2000 /s/ Thomas A. Wellman
---------------------------------
Thomas A. Wellman
Controller
<PAGE>
EXHIBIT INDEX
-------------
11. Statement re Computation of Per Share Earnings.
18. Letter re Change in Accounting Principles.
27. Financial Data Schedule.
<PAGE>
<TABLE>
EXHIBIT 11
ALEXANDER & BALDWIN, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
- -------------------------------------------------------------------------------
<CAPTION>
Three Months Ended
March 31
2000 1999
---- ----
<S> <C> <C>
Basic Earnings Per Share
- ------------------------
Net income $ 26,431 $ 15,838
======== ========
Average number of shares outstanding 42,131 43,559
======== ========
Basic earnings per share $ 0.63 $ 0.36
======== ========
Diluted Earnings Per Share
- --------------------------
Net income $ 26,431 $ 15,838
======== ========
Average number of shares outstanding 42,131 43,559
Effect of assumed exercise of
outstanding stock options -- --
-------- --------
Average number of shares outstanding
after assumed exercise of
outstanding stock options 42,131 43,559
======== ========
Diluted earnings per share $ 0.63 $ 0.36
======== ========
</TABLE>
<PAGE>
May 12, 2000
Alexander & Baldwin, Inc.
822 Bishop Street
Honolulu, Hawaii 96801-3440
At your request, we have read the description included in your Quarterly Report
on Form 10-Q to the Securities and Exchange Commission for the quarter ended
March 31, 2000, of the facts relating to your change in accounting for
drydocking costs from accruing and expensing such costs in advance to deferring
such costs when incurred and amortizing them over the period to the next
drydocking. We believe, on the basis of the facts so set forth and other
information furnished to us by appropriate officials of the Company, that the
accounting change described in your Form 10-Q is to an alternative accounting
principle that is preferable under the circumstances.
We have not audited any consolidated financial statements of Alexander &
Baldwin, Inc. and its consolidated subsidiaries as of any date or for any
period subsequent to December 31, 1999. Therefore, we are unable to express,
and we do not express, an opinion on the facts set forth in the above-mentioned
Form 10-Q, on the related information furnished to us by officials of the
Company, or on the financial position, results of operations, or cash flows of
Alexander & Baldwin, Inc. and its consolidated subsidiaries as of any date or
for any period subsequent to December 31, 1999.
Yours truly,
/s/ Deloitte & Touche LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
condensed balance sheet as of March 31, 2000 and the condensed statement
of income for the three months ended March 31, 2000 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> (6,200)
<SECURITIES> 12,000
<RECEIVABLES> 128,790
<ALLOWANCES> 0
<INVENTORY> 23,724
<CURRENT-ASSETS> 192,300
<PP&E> 1,757,897
<DEPRECIATION> 827,035
<TOTAL-ASSETS> 1,556,863
<CURRENT-LIABILITIES> 122,735
<BONDS> 309,809
0
0
<COMMON> 34,175
<OTHER-SE> 635,759
<TOTAL-LIABILITY-AND-EQUITY> 1,556,863
<SALES> 214,467
<TOTAL-REVENUES> 219,891
<CGS> 170,576
<TOTAL-COSTS> 170,576
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,347
<INCOME-PRETAX> 41,624
<INCOME-TAX> 15,193
<INCOME-CONTINUING> 26,431
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,431
<EPS-BASIC> 0.63
<EPS-DILUTED> 0.63
</TABLE>
