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") hereby files with the Securities and
Exchange Commission, pursuant to Rule U-2, its statement claiming exemption as
a holding company from the provisions of the Public Utility Holding Company Act
of 1935. 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 every subsidiary thereof, other than any exempt
wholesale generator (EWG) or foreign utility company in which Claimant directly
or indirectly holds an interest, as at January 31, 2002 (indirect subsidiaries
are indicated by indentation).
Jurisdiction
of
Name Organization Location Nature of Business
---- ------------ -------- ------------------
Alexander & Baldwin, Hawaii Honolulu, Ocean carriage of goods,
Inc. Hawaii real property management
and development, food
products, investments
Subsidiaries:
A&B Inc. Hawaii Honolulu, Inactive
Hawaii
A&B Development California Honolulu, Ownership, manage-
Company Hawaii ment and development of
(California) real property in
Arizona and Hawaii
A & B Properties, Hawaii Kahului, Ownership, management,
Inc. Hawaii development and selling
of real property
Prospect Hawaii Honolulu, Development and selling of
Venture LLC Hawaii real property
Haleakala Town Hawaii Honolulu, Development and selling of
Center LLC Hawaii real property
Upcountry Maui Hawaii Honolulu, Development and selling of
Town Center LLC Hawaii real property
West Maui Hawaii Honolulu, Development and selling of
Development Hawaii real property
Company LLC
Kai Lani Company, Hawaii Honolulu, Development and selling of
LLC Hawaii real property
Kamuela Hawaii Honolulu, Development and selling of
Associates LLC Hawii real property
ABHI-Crockett, Hawaii Honolulu, Ownership of interest in
Inc. Hawaii sugar refining and
marketing business
C&H Sugar Delaware Crockett, Refining raw sugar and
Company, Inc. California marketing of refined
sugar products
Agri-Quest Hawaii Puunene, Diversified agriculture
Development Hawaii
Company, Inc.
East Maui Irrigation Hawaii Puunene, Collection and distribu-
Company, Limited Hawaii tion of irrigation water
on island of Maui
Hawaiian Hawaii Puunene, Inactive
DuraGreen, Inc. Hawaii
Kahului Trucking & Hawaii Kahului, Motor carriage of goods,
Storage, Inc. Hawaii repair and maintenance
shop services, self-
storage services and
stevedoring on island of
Maui
Kauai Commercial Hawaii Lihue, Motor carriage of goods
Company, Hawaii and self-storage services
Incorporated 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
Community Hawaii operation of sewer trans-
Services LLC mission and treatment
system on island of Kauai
South Shore Hawaii Koloa, Development and
Resources LLC Hawaii operation of water source
and delivery system on
island of Kauai
McBryde Sugar Hawaii Eleele, Coffee plantation and
Company, Limited Hawaii hydroelectric power
generation
Kauai Coffee Hawaii Eleele, Grow, process and sell
Company, Inc. Hawaii coffee
Ohanui Corporation Hawaii Puunene, Collection and distribu-
Hawaii tion of domestic water on
island of Maui
WDCI, Inc. Hawaii Honolulu, Ownership, manage-
Hawaii ment and development of
property
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 Oakbrook Broker, shipper's agent
System, Inc. Terrace, and freight forwarder for
Illinois overland cargo services of
ocean carriers
Matson Hawaii Oakbrook Broker, shipper's agent
Intermodal- Terrace, and freight forwarder for
Paragon, Inc. Illinois overland cargo services of
ocean carriers
Matson Terminals, Hawaii San Stevedoring and terminal
Inc. Francisco, services
California
Matson Logistics Hawaii San Agent to provide delivery
Solutions, Inc. Francisco, of equipment, goods and
California supplies for businesses
and projects
Matson Ventures, Hawaii San Ownership of interest
Inc. Francisco, in stevedoring and
California terminal services
entity
SSA Terminals, Delaware Seattle, Stevedoring and
LLC Washington terminal services
Sea Star Line, Delaware Jacksonville, Investment in business
LLC Florida providing ocean carriage
of goods between Florida
and Puerto Rico
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 each of
its 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: 3 steam-driven generators with rated capacities of 1
of 10,000 KW, 1 of 16,000 KW, and 1 of 20,000 KW
(also 2 currently inactive steam-driven generators
with rated capacities of 1 of 4,000 KW and 1 of
10,000 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 2001 with respect to Claimant
and each of its subsidiary public utility companies:
(a)(1) Number of kwh of electric energy sold (all sales were at
wholesale):
Claimant 61,074,000 kwh, with associated
revenues of $5,983,000
McBryde 21,216,328 kwh, with associated
revenues of $1,695,316
(2) Number of Mcf of natural or manufactured gas distributed at
retail:
None. Neither Claimant nor any of its 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 any of its 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 any of its 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 any of its 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 each interest it holds 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. Claimant does not hold 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.
Not 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
---------
A consolidating statement of income and retained earnings of Claimant
and its subsidiary companies for the last calendar year, together with a
consolidating balance sheet of Claimant and its subsidiary companies as of the
close of such calendar year, are attached hereto.
EXHIBIT B
---------
An organizational chart showing the relationship of each EWG or foreign
utility company to associate companies in the holding-company system.
Not applicable. Claimant does not hold any interest, directly or
indirectly, in an EWG or a foreign utility company.
The above-named Claimant has caused this statement to be duly executed
on its behalf by its authorized officer this 28th day of February, 2002
ALEXANDER & BALDWIN, INC.
(Name of Claimant)
By: /s/ Michael J. Marks
---------------------------
Michael J. Marks
Vice President
(Corporate Seal)
Attest:
By: /s/ Alyson J. Nakamura
----------------------
Secretary
Name, title and address of Officer to whom notices and correspondence
concerning this statement should be addressed:
Michael J. Marks
Vice President and General Counsel
Alexander & Baldwin, Inc.
P. O. Box 3440
Honolulu, Hawaii 96801
LEGEND OF COMPANY REFERENCES IN CONSOLIDATING FINANCIAL SCHEDULES:
ABIC Alexander & Baldwin, Inc. Consolidated
ABI Alexander & Baldwin, Inc., Parent Company
MCB McBryde Sugar Company, Limited
OTHER All other subsidiaries and consolidating adjustments
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2001
($000 OMITTED)
ABIC ABI MCB OTHER
Operating Revenue:
Ocean transportation 783,608 -- -- 783,608
Property development & management 158,982 31,991 200 126,791
Food products 94,285 78,445 5,877 9,963
Power generation 7,685 5,983 1,702 --
--------- ------- ------- -------
Total operating revenue 1,044,560 116,419 7,779 920,362
--------- ------- ------- -------
Operating Costs and Expenses:
Cost of operations 844,022 93,815 6,381 743,826
Power generation 1,932 1,440 492 --
--------- ------- ------- -------
Total operating costs and expenses 845,954 95,255 6,873 743,826
--------- ------- ------- -------
Gross Margin 198,606 21,164 906 176,536
General, Admin & Selling Expenses 97,716 13,160 -- 84,556
--------- ------- ------- -------
Income from Operations 100,890 8,004 906 91,980
Other Income 145,513 131,672 1,929 11,912
Other Expense 59,198 20,852 -- 38,346
--------- ------- ------- -------
Income Before Taxes 187,205 118,824 2,835 65,546
Provision for Income Taxes (Benefit) 67,392 42,272 1,081 24,039
--------- ------- ------- -------
Income from continuing operations before
accounting changes 119,813 76,552 1,754 41,507
Discontinued operations (9,185) (9,185) -- --
--------- ------- ------- -------
Net Income 110,628 67,367 1,754 41,507
========= ======= ======= =======
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001
($000 OMITTED)
ABIC ABI MCB OTHER
ASSETS
Current Assets:
Cash 19,291 15,509 -- 3,782
Accounts and notes receivable 130,491 11,971 405 118,115
Inventories 16,280 -- 3,904 12,376
Prepaid expenses and other current assets 53,952 13,157 464 40,331
--------- --------- ------- ---------
Total current assets 220,014 40,637 4,773 174,604
--------- --------- ------- ---------
Investments:
Subsidiaries and divisions -- 545,819 -- (545,819)
Other 33,021 1,630 7 31,384
--------- --------- ------- ---------
Total investments 33,021 547,449 7 (514,435)
--------- --------- ------- ---------
Real Estate Developments 47,840 -- -- 47,840
--------- --------- ------- ---------
Property:
Land 104,135 46,085 2,285 55,765
Buildings 314,903 112,661 1,038 201,204
Vessels 694,618 -- -- 694,618
Machinery and equipment 519,598 105,927 5,080 408,591
Power generation 57,707 55,362 2,345 --
Other 125,718 47,297 1,370 77,051
--------- --------- ------- ---------
Total 1,816,679 367,332 12,118 1,437,229
Less accumulated depreciation 839,631 167,445 6,790 665,396
--------- --------- ------- ---------
Property - net 977,048 199,887 5,328 771,833
--------- --------- ------- ---------
Other Assets 266,496 193,710 11,226 61,560
--------- --------- ------- ---------
Total 1,544,419 981,683 21,334 541,402
========= ========= ======= =========
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt 19,900 7,500 -- 12,400
Accounts payable 78,911 4,157 815 73,939
Other current liabilities 96,758 70,606 1,941 24,211
--------- --------- ------- ---------
Total current liabilities 195,569 82,263 2,756 110,550
--------- --------- ------- ---------
Long-term Liabilities:
Long-term debt 207,378 107,500 -- 99,878
Other long-term liabilities 430,805 81,253 8,685 340,867
--------- --------- ------- ---------
Total long-term liabilities 638,183 188,753 8,685 440,745
--------- --------- ------- ---------
Shareholders' Equity:
Capital stock 33,328 33,328 2,350 (2,350)
Additional capital 66,659 66,659 13,316 (13,316)
Retained earnings 622,615 622,615 (5,856) 5,856
Treasury stock (11,935) (11,935) 83 (83)
--------- --------- ------- ---------
Total shareholders' equity 710,667 710,667 9,893 (9,893)
--------- --------- ------- ---------
Total 1,544,419 981,683 21,334 541,402
========= ========= ======= =========
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 2001
($000 OMITTED)
ABIC ABI MCB OTHER
Balance at December 31, 2000 552,637 552,637 (24,776) 24,776
Net income 110,628 110,628 1,754 (1,754)
Dividends to shareholders (36,488) (36,488) -- --
Stock options exercised (1,970) (1,970) -- --
Capital stock purchased and retired (2,192) (2,192) -- --
------- ------- ------- ------
Balance at December 31, 2001 622,615 622,615 (23,022) 23,022
======= ======= ======= ======
ALEXANDER & BALDWIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of Alexander & Baldwin, Inc. and all wholly owned subsidiaries
("Company"), after elimination of significant intercompany amounts. Significant
investments in businesses, partnerships and joint ventures in which the Company
does not have control are accounted for under the equity method. Generally,
these are investments in businesses in which the Company's ownership is between
20 and 50 percent.
Segment Information: The Company has three operating segments: Ocean
Transportation, Property Development and Management, and Food Products. The
Company reports segment information in the same way that management assesses
segment performance. Additional information regarding these segments is found
in Note 14.
Cash and Cash Equivalents: Cash equivalents are composed of all highly
liquid investments with an original maturity of three months or less and which
have no significant risk of change in value.
Inventories: Raw sugar and coffee inventories 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. Materials and supplies inventories are
carried at historical cost, which is not greater than replacement cost.
Property: Property is stated at cost. Expenditures for major renewals and
betterments are capitalized. Replacements, maintenance and repairs that do not
improve or extend asset lives are charged to expense as incurred. Gains or
losses from property disposals are included in the determination of net income.
As discussed in Note 2, the Company changed its accounting for drydocking costs
in 2000. Costs of regularly scheduled drydocking of vessels and planned major
vessel repairs performed during drydocking are capitalized and amortized over
the periods benefited.
Coffee Orchards: Costs of developing coffee orchards are capitalized during
the development period and depreciated over the estimated productive lives. In
1999, following the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," the Company reduced the carrying value of its coffee
orchards and field and factory processing equipment. This is described further
in Note 4.
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.
Construction Expenditures: Expenditures for real estate developments are
capitalized during construction and are classified as Real Estate Developments
on the Consolidated Balance Sheets. When construction is complete, the costs
are reclassified as either 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
either operating or investing activities, based upon the Company's intention to
sell the property or to retain ownership of the property as an investment
following completion of construction.
Depreciation: Depreciation is computed using the straight-line method.
Estimated useful lives of property are as follows:
Classification Range of Life (in years)
-------------- ------------------------
Buildings................ 10 to 50
Vessels.................. 10 to 40
Marine containers........ 2 to 25
Terminal facilities...... 3 to 35
Machinery and equipment.. 3 to 35
Utility systems and other 5 to 60
Fair Value of Financial Instruments: The fair values of cash and cash
equivalents, receivables and short-term and long-term borrowings approximate
their carrying values.
Fair Value of Real-Estate Assets: Real estate is carried at the lower of
cost or fair value. Fair values generally are 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 on the Islands of Maui and Kauai. This land
has a cost basis that averages approximately $150 per acre, a value much lower
than fair value.
Impairments of Long-lived Assets: Long-lived assets are reviewed for
possible impairment when events or circumstances indicate that the carrying
value may not be recoverable. In such evaluation, the estimated future
undiscounted cash flows generated by the asset are compared with the amount
recorded for the asset to determine if a write-down may be required. If this
review determines that the recorded value will not be recovered, the amount
recorded for the asset is reduced to estimated fair value. (See Note 4.)
Voyage Revenue Recognition: Voyage revenue and variable costs and expenses
associated with voyages are included in income at the time each voyage leg
commences. This method of accounting does not differ materially from other
acceptable accounting methods. Freight rates are provided in tariffs filed with
the Surface Transportation Board of the U.S. Department of Transportation.
Real Estate Sales Revenue Recognition: Sales are recorded when the risks
and benefits of ownership have passed to the buyers (generally on closing
dates), adequate down payments have been received, and collection of remaining
balances is reasonably assured.
Sugar and Coffee Revenue Recognition: Revenue from bulk raw sugar sales is
recorded when delivered to the cooperative of Hawaiian producers based on the
estimated net return to producers in accordance with contractual agreements.
Revenue from coffee is recorded when the title to the product and risk of loss
passes to third parties (generally this occurs when the product is shipped or
delivered to customers) and when collection is reasonably assured.
Non-voyage Ocean Transportation Costs: Vessel depreciation, charter hire,
terminal operating overhead and general and administrative expenses are charged
to expense as incurred.
Agricultural Costs: Costs of growing and harvesting sugar cane are charged
to the cost of production in the year incurred and to cost of sales as raw
sugar is delivered to the cooperative of Hawaiian producers as allowed in
Statement of Position No. 85-3. Costs of growing coffee are charged to
inventory in the year incurred and to cost of sales as coffee is sold.
Employee Benefit Plans: Certain ocean transportation subsidiaries are
members of the Pacific Maritime Association (PMA) and the Hawaii Stevedoring
Industry Committee, which negotiate multi-employer pension plans covering
certain shoreside bargaining unit personnel. The subsidiaries directly
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 and
defined contribution plans cover substantially all other employees.
Stock-based Compensation: As allowed by Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," the
Company has elected to continue to apply the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as
discussed in Note 12.
Income Taxes: Deferred tax assets and liabilities are established for
temporary differences between the way certain income and expense items are
reported for financial reporting and tax purposes. Deferred tax assets and
liabilities are adjusted to the extent necessary to reflect tax rates expected
to be in effect when the temporary differences reverse. A valuation allowance
is established for deferred tax assets for which realization is not likely.
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 calculation of Diluted Earnings per
Share includes the effect of unexercised options to purchase the Company's
stock.
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. (See Note 5 for a discussion of
the liquidation of marketable equity securities.)
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.
Use of Estimates: The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Future actual amounts
could differ from those estimates.
Impact of Newly Issued Accounting Standards: On January 1, 2001, the
Company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended, which establishes the accounting and reporting
standards for derivative instruments and hedging activities. The adoption of
this standard did not have a material effect on the consolidated financial
statements.
In 2000, the Company adopted SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 140
provides standards for transfers and servicing of financial assets and
extinguishments of liabilities using a financial-components approach that
focuses on control. The adoption of this standard did not have a material
effect on the consolidated financial statements.
SFAS No. 141 "Business Combinations" was issued in June 2001 and became
effective in July 2001. This statement requires the purchase method of
accounting for business combinations. This standard will affect how the Company
accounts for new business combinations, but the adoption of the standard in
2001 had no effect on the Company's current year's consolidated financial
statements.
SFAS No. 142 "Goodwill and Other Intangible Assets" was issued in June 2001
and is effective in January 2002. This statement addresses how intangible
assets, including goodwill, should be accounted for in the consolidated
financial statements. The new statement, which will be adopted by the Company
in January, 2002, will not have a material effect on the consolidated financial
statements.
SFAS No. 143 "Accounting for Asset Retirement Obligations" was issued in
June 2001 and becomes effective in January 2003. This statement addresses
accounting and reporting for obligations and costs which will occur when
long-term assets are retired. Among other things, the statement requires that
the present value of the liability associated with future asset retirements be
recorded on the balance sheet when an obligation has been incurred and when it
can be measured. The amortization of the capitalized cost and increases in the
present value of the obligation which result from the passage of time, are
recorded as charges to earnings. The possible financial impacts of this
standard, when it is adopted by the Company in January 2003, are not yet known,
but are being assessed.
Reclassifications: Certain amounts in the 2000 and 1999 consolidated
financial statements have been reclassified to conform with the 2001
presentation.
2. CHANGES IN ACCOUNTING METHODS
2001--Adoption of New Accounting Standard for Reporting Discontinued
Operations: SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" was issued in August 2001 and becomes effective in January
2002. However, as permitted by the standard, the Company adopted SFAS No. 144
effective January 1, 2001. This statement replaces previous accounting
standards related to asset impairments and provides guidance concerning the
recognition and measurement of impairment losses for certain types of long-term
assets. The statement recommends the use of probability-weighted cash flow
estimations, precludes accruing future operating losses prior to asset
disposal, expands the scope of "discontinued operations" to include a component
of an entity, and eliminates the current exemption to consolidation when
control over a subsidiary is likely to be temporary. The statement changes how
the Company analyzes and accounts for asset impairments and discontinued
operations, but, upon adoption, it had no immediate financial impacts. During
the fourth quarter of 2001, the Company recorded a loss from the abandonment of
its panelboard manufacturing facility, which it classified as Discontinued
Operations. This is described in Note 3 to the consolidated financial
statements.
2000--Change in Accounting Method for Vessel Drydocking Costs: The Company
changed its method of accounting for vessel drydocking costs, as of January 1,
2000, 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. Subsequent payments for drydocking were charged
against the accrued liability. Under the deferral method, actual drydocking
costs are capitalized when incurred and amortized over the period benefited;
generally, this is the period between scheduled drydockings. This method
eliminates the uncertainty of 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
Consolidated Statements of Income and increased net income by $12,250,000 (net
of income tax expense of $7,668,000), or $0.29 per basic share.
The effect of this change in accounting method on the balance sheets, as of
December 31, 2000, 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 shareholders' equity by $12,250,000. Had this change been applied
retroactively, the impact on net income for 1999 would not have been materially
different from reported net income.
2000--Change in Accounting for Certain Revenues and Expenses: The Company
changed its method of presentation for certain freight services that are
performed by third parties and billed by the Company to its customers. The
expenses and related revenue for these services previously were reported on a
net basis and were not reflected in the Consolidated Statements of Income.
Accordingly, operating revenue and expenses for 2000 and 1999 were increased by
$38,059,000 and $31,874,000, respectively. For 2001, the amount billed for
these services was approximately $32,764,000.
The Company also changed its method of presentation for common area
maintenance (CAM) costs. These costs, which are incurred by the Company but
which are charged to tenants under various lease arrangements, previously were
netted against Property Leasing Revenue. The Company now records CAM amounts in
Costs of Leasing Services in the Consolidated Statements of Income.
Accordingly, Property Leasing Revenue and Costs of Leasing Services for 2000
and 1999 were increased by $11,246,000 and $8,852,000, respectively. For 2001,
the CAM costs totaled $12,207,000.
These two changes were in response to the Securities and Exchange
Commission's Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements," which provides guidance about the classification, on a
gross basis, of revenues and expenses. These changes had no effect on earnings
or segment operating profit.
3. DISCONTINUED OPERATIONS
The Company ceased the operations of and abandoned its panelboard
manufacturing business operated by Hawaiian DuraGreen, Inc., a wholly-owned
subsidiary ("DuraGreen"). This subsidiary constructed a production
facility during 1999 and 2000 with an initial capital investment of
approximately $12,500,000. DuraGreen produced a panelboard product using
bagasse, a byproduct in the production of raw cane-sugar, for use in various
furniture and construction applications. After nearly a year of production
issues, poor operating results and weaknesses in the panelboard market,
management determined that the Company's investment in the business will not be
recovered and profitability could not be achieved. The 2001 loss from
Discontinued Operations includes operating losses and closure costs of
$2,964,000 and a $11,387,000 write-down of the production assets to their
estimated salvage value, net of a total income tax benefit of approximately
$5,166,000. There were no operations in prior years. The Consolidated Balance
Sheet at December 31, 2000 included assets of $11,616,000 for DuraGreen. This
amount principally was machinery and equipment.
4. IMPAIRMENT OF LONG-LIVED ASSETS AND INVESTMENTS
2001--As described in Note 5, the Company holds common and preferred stock
holdings in C&H Sugar Company, Inc. ("C&H"). As a result of operating losses
and declining cash flows at C&H, combined with adverse market changes, the
Company concluded that C&H's estimated future earnings and cash flows would not
allow recovery of the carrying value of the Company's investments. This loss in
value was considered an "other than temporary" impairment condition;
accordingly, the carrying values of the investments were written down by
$28,600,000 during the fourth quarter of 2001. The loss includes a write-down
of the common stock and junior preferred stock values to zero, and a write-down
of the senior preferred stock to approximately $11,500,000. The amount of the
write-down was based on the valuation of the common, and junior and senior
preferred stocks, as conducted by an independent valuation firm. Accepted
valuation practices were utilized in determining these investments' fair
values, including the market and income approaches, discounted cash flow
method, and market yield analysis. The valuation considered the Company's
minority position, the illiquidity of these types of investments in the public
market, the ability of future cash flows to fund future debt and preferred
obligations, and sugar industry conditions. The Company has no current plans to
divest or sell its investments in C&H.
2001--The Company wrote off $4,823,000 for power generation equipment that
is being removed from service. This equipment was no longer needed in the
Company's cane sugar refining operations on Maui, due to changes in factory and
power generation processes.
1999--The Company began growing coffee in Hawaii in 1987 as an alternative
crop to sugar cane. Since inception, the Company's coffee operation generated
operating losses and negative cash flows. During the second half of 1999, the
Company significantly reduced the coffee workforce and changed its coffee
marketing and selling plans. To exacerbate the problem, coffee commodity prices
dropped significantly in 1999, due to an oversupply of coffee in the
marketplace. Because of continuing cash-flow losses, the ongoing viability of
the coffee operation was evaluated again. As a result, the Company determined
that the estimated future cash flows of the coffee operation were less than the
carrying value of its productive assets, consisting mainly of orchards and
field and processing equipment. Accordingly, a $15,410,000 (pre-tax) charge was
recorded to write down these productive assets to their fair value (i.e.,
present value of estimated future cash flows).
5. INVESTMENTS
At December 31, 2001 and 2000, investments consisted principally of
marketable equity securities, equity in affiliated companies, limited
partnership interests and purchase-money mortgages, as follows:
2001 2000
------- --------
(in thousands)
Equity in Affiliated Companies:
SSA Terminals, LLC (SSAT).................................... $16,033 $ 21,867
C&H Sugar Company, Inc. (C&H)................................ 11,504 41,705
Sea Star Line, LLC (Sea Star)................................ 1,854 7,586
Other........................................................ 300 300
Marketable Equity Securities..................................... -- 108,069
Limited Partnership Interests, Purchase-money Mortgages and Other 3,330 3,614
------- --------
Total Investments................................................ $33,021 $183,141
======= ========
Marketable Equity Securities: The marketable equity securities are
classified as "available for sale" and are stated at quoted market values as
traded on national exchanges. The unrealized holding gains on these securities
and the reclassification of gains previously included in Comprehensive Income,
net of deferred income taxes, have been recorded as a separate component of
Shareholders' Equity and are included in Comprehensive Income.
In May, 2001, BNP Paribas SA, France's largest bank, announced that, subject
to regulatory, shareholder and other approvals, it would purchase the remaining
55 percent of BancWest Corporation ("BancWest") which it did not already own
for $35 per share. This offer was 40% higher than the market price of
BancWest's stock at the time of the offer. When the offer was made, the Company
owned 3,385,788 shares of BancWest. The transaction closed during the fourth
quarter of 2001. As a result of the sale, the Company received cash of
$118,503,000, recorded a pre-tax gain of $110,338,000, and recognized an
after-tax gain of approximately $68,410,000 ($1.69 per basic share.)
During 2001, the Company also divested its holdings in Pacific Century
Financial Corporation ("Pacific Century"). This was completed through the
donation of 360,000 shares to the Company's charitable foundation and the sales
of 749,000 shares of the stock. The fair value of the donated stock was
approximately $7,500,000 and the historical cost basis was approximately
$500,000. The net expense related to this contribution was $500,000 and is
included in "Selling general and administrative expenses" in the 2001
consolidated financial statements. The Company received $16,219,000 for the
sales of the shares, recognized a pre-tax gain of $15,140,000 and recorded an
after-tax gain of $9,378,000 ($0.23 per basic share).
The changes in the net unrealized holding gains (losses) for the three years
ended December 31, 2001 were as follows:
2001 2000 1999
-------- ------- --------
(in thousands)
Holding gains (losses) arising during year,
net of deferred income tax.................. $ 15,851 $12,476 $(13,868)
Reclassification of gains previously included
in Comprehensive Income, net of income tax.. (77,788) -- --
-------- ------- --------
Total........................................ $(61,937) $12,476 $(13,868)
======== ======= ========
As described above, the marketable equity investments were divested during
2001. Accordingly there was no balance in unrealized holdings at year-end 2001.
The components of the net unrealized holding gains, as noted on the
Consolidated Balance Sheet at December 31, 2000, were as follows:
2000
--------------
(in thousands)
Market value................ $108,069
Less historical cost........ 9,761
--------
Unrealized holding gains.... 98,308
Less deferred income taxes.. 36,371
--------
Net unrealized holding gains $ 61,937
========
Equity in Affiliated Companies: In 1998, the Company sold a majority
interest in C&H. Following the sale, the Company retained approximately 36
percent of the common stock, 40 percent of the junior preferred stock and all
of the senior preferred stock of C&H. Dividends on the senior and junior
preferred stocks are cumulative. Through December 2003, dividends on the senior
preferred stock may be paid either in cash or by issuance of additional shares
of senior preferred stock. C&H must redeem from the Company, at one thousand
dollars per share, the outstanding senior preferred stock in December 2009 and
outstanding junior preferred stock in December 2010. C&H was included in the
consolidated results of the Company up to the date of the sale. The Company
accounts for its investment in C&H under the equity method. See Note 4 for a
discussion of the 2001 impairment loss related to this investment which
resulted from an other than temporary decline in value. Financial information
for C&H as of and for the years ended December 31, 2001 and 2000 follows:
Condensed Balance Sheets
2001 2000
-------- --------
(in thousands)
Assets:
Current......................................... $103,699 $125,735
Property and other.............................. 116,293 129,529
-------- --------
Total............................................. $219,992 $255,264
======== ========
Liabilities and Shareholders' Equity:
Current......................................... $ 35,030 $ 63,470
Long-term debt and other........................ 139,737 124,941
Shareholders' equity, including preferred stock. 45,225 66,853
-------- --------
Total............................................. $219,992 $255,264
======== ========
Condensed Statements of Income
2001 2000
-------- --------
(in thousands)
Revenue........... $427,350 $413,153
Cost and Expenses. 433,864 409,839
-------- --------
Net (Loss) Income. $ (6,514) $ 3,314
======== ========
Matson, a wholly owned subsidiary of the Company, has a minority interest
investment in a limited liability corporation (LLC) with Saltchuk Resources,
Inc. and International Shipping Agency, Inc., named Sea Star Line, LLC, which
operates an ocean transportation service between Florida and Puerto Rico.
Matson has guaranteed obligations of $31,500,000 of this unconsolidated
affiliate and chartered two vessels to Sea Star Line, LLC. Subsequent to 2001
year-end, Matson sold the two vessels to Sea Star for an aggregate sales price
of $17,000,000, which was the approximate carrying value of the vessels at 2001
year end. This amount is included in "Real estate and other assets held for
sale" on the Consolidated Balance Sheet at December 31, 2001. This investment
represents a minority interest and is accounted for under the equity method.
Matson is part owner of an LLC with Stevedoring Services of America, named
SSA Terminals, LLC, which provides stevedoring and terminal services at six
terminals in three West Coast ports to the Company and other shipping lines.
This investment represents a minority interest and is accounted for under the
equity method. During 1999, Matson contributed assets with a value of
$16,438,000 in connection with the formation of SSAT. The "Cost of
transportation services" included approximately $89,551,000, $99,151,000 and
$46,856,000, for 2001, 2000 and 1999, respectively, paid to this unconsolidated
affiliate for terminal services.
The Company's equity in income (loss) of unconsolidated affiliates for the
three years ended December 31, 2001 was $(8,778,000), $6,859,000, and
$3,002,000, respectively.
Limited Partnership Interests and Purchase-money Mortgages: The investments
in limited partnerships are recorded at the lower of cost or fair value and
purchase-money mortgages are recorded at cost. The purchase-money mortgages are
intended to be held to maturity. The values of the investments in limited
partnerships are assessed annually.
See Note 7 for a discussion of fair values of investments in the Capital
Construction Fund.
6. PROPERTY
Property on the Consolidated Balance Sheets includes the following:
2001 2000
---------- ----------
(in thousands)
Vessels....................................... $ 694,618 $ 770,352
Machinery and equipment....................... 545,298 534,894
Buildings..................................... 317,068 271,314
Land.......................................... 104,135 95,195
Water, power and sewer systems................ 87,915 80,084
Other property improvements................... 67,645 56,355
---------- ----------
Total..................................... 1,816,679 1,808,194
Less accumulated depreciation and amortization 839,631 853,502
---------- ----------
Property--net............................. $ 977,048 $ 954,692
========== ==========
7. CAPITAL CONSTRUCTION FUND
Matson 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 and certain related equipment 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 December 31,
2001, the oldest CCF deposits date from 1994. Management believes that all
amounts on deposit in the CCF at the end of 2001 will be used or committed for
qualified purposes prior to the expiration of the applicable 25-year periods.
Under the terms of the CCF agreement, Matson 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 Consolidated 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 Consolidated Balance Sheets or Consolidated 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, 2001 and 2000, the balances on deposit in the CCF are
summarized as follows:
2001 2000
----------------------------- -----------------------------
(in thousands)
Amortized Fair Unrealized Amortized Fair Unrealized
Cost Value Gain Cost Value Gain (Loss)
--------- -------- ---------- --------- -------- -----------
Mortgage-backed securities $ 26,180 $ 26,983 $ 803 $ 32,302 $ 32,281 $(21)
Cash and cash equivalents. 128,557 129,161 604 113,583 113,871 288
Accrued deposits.......... 4,000 4,000 -- 4,520 4,520 --
-------- -------- ------ -------- -------- ----
Total..................... $158,737 $160,144 $1,407 $150,405 $150,672 $267
======== ======== ====== ======== ======== ====
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 $2,476,000 in
2001, $2,654,000 in 2000, and $3,152,000 in 1999 on its investments in
mortgage-backed securities. The fair values of other CCF investments are based
on quoted market prices. These other investments mature no later than January
9, 2004. One security classified as "held to maturity" was sold during 2001 for
a loss of $42,800. In 2000, three securities classified as "held-to-maturity"
were sold for a combined loss of $48,400. These securities no longer met
authorized credit requirements.
8. NOTES PAYABLE AND LONG-TERM DEBT
At December 31, 2001 and 2000, long-term debt consisted of the following:
2001 2000
-------- --------
(in thousands)
Commercial paper, 2001 high 6.79%, low 1.88%........................ $ 99,878 $ 99,766
Bank variable rate loans, due after 2001, 2001 high 7.13%, low 2.17% 17,400 136,500
Term loans:
7.38%, payable through 2007....................................... 45,000 52,500
7.42%, payable through 2010....................................... 20,000 20,000
7.43%, payable through 2007....................................... 15,000 15,000
7.57%, payable through 2009....................................... 15,000 15,000
7.55%, payable through 2009....................................... 15,000 15,000
7.65%, payable through 2001....................................... -- 7,500
-------- --------
Total............................................................... 227,278 361,266
Less current portion................................................ 19,900 30,500
-------- --------
Long-term debt...................................................... $207,378 $330,766
======== ========
Commercial Paper: At December 31, 2001, $99,878,000 of commercial paper
notes was outstanding under a commercial paper program used by a subsidiary to
finance the construction of a vessel. Maturities ranged from 6 to 56 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.
Variable Rate Loans: The Company has a revolving credit and term loan
agreement with six commercial banks, whereby it may borrow up to $185,000,000
under revolving loans through November 2004, at market rates of interest. Any
revolving loan outstanding on that date may be converted into a term loan,
which would be payable in four 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 and total debt to earnings
before interest, depreciation,
amortization and taxes of 3:1. At December 31, 2000, $113,500,000 was
outstanding under this agreement. No amount was drawn on this facility at
December 31, 2001.
The Company has an uncommitted $70,000,000 short-term revolving credit
agreement with a commercial bank. The agreement extends through November 2002,
but may be canceled by the bank or the Company at any time. The
amount which the Company may draw under the facility is reduced by the amount
drawn against the bank under the previously referenced $185,000,000 multi-bank
facility, in which it is a participant, and by letters of credit issued under
the $70,000,000 uncommitted facility. At December 31, 2001 and 2000, $5,000,000
and $7,500,000, respectively, were outstanding under this agreement. Under the
borrowing formula for this facility, the Company could have borrowed an
additional $59,477,000 at December 31, 2001.
Matson has two revolving credit agreements totaling $90,000,000 with
commercial banks. The first facility is a $50,000,000 two-year revolving credit
agreement which expires in September 2003. At December 31, 2001, no amounts
were drawn on this facility. At December 31, 2000, $15,500,000 was outstanding.
The second facility is a two-year $40,000,000 revolving credit agreement which
was entered into during 2001 and which expires in January 2003. At December 31,
2001, $12,400,000 was drawn on this new facility.
Matson also has a $25,000,000 one-year revolving credit agreement with a
commercial bank, expiring in November 2002, which serves as a commercial paper
liquidity back-up line. At December 31, 2001 and 2000, no amounts were
outstanding under this agreement.
Other Debt Agreements: During 2001, the Company completed a private shelf
agreement for $50,000,000, which expires in April 2004. At December 31, 2001,
no amount had been drawn on this facility. Also in 2001, Matson entered into a
$50,000,000 private shelf offering which expires in June 2004. No amounts were
drawn on that facility at year end. An uncommitted $25,000,000 revolving credit
agreement with a commercial bank expired in May 2001.
Long-term Debt Maturities: At December 31, 2001, maturities and planned
prepayments of all long-term debt during the next five years are $19,900,000
for 2002, $9,643,000 for 2003, $12,500,000 for 2004, $17,500,000 for 2005 and
$17,500,000 for 2006.
Interest Rate Risk: The Company is exposed to changes in U.S. interest
rates, primarily as a result of its borrowing and investing activities used to
maintain liquidity and to fund business operations. In order to manage its
exposure to changes in interest rates, the Company utilizes a balanced mix of
debt maturities, along with both fixed-rate and variable-rate debt. The Company
does not hedge its interest rate exposure. The nature and amount of the
Company's long-term and short-term debt can be expected to fluctuate as a
result of future business requirements, market conditions and other factors.
The following table summarizes the Company's debt obligations at December 31,
2001, presenting principal cash flows and related interest rates by expected
fiscal year of maturity. Variable interest rates represent the weighted-average
rates of the portfolio at December 31, 2001. The Company estimates that the
carrying value of its debt is not materially different from its fair value.
Expected Fiscal Year of Maturity at December 31, 2001
---------------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter Total
------- ------ ------- ------- ------- ---------- --------
(dollars in thousands)
Fixed rate........... $ 7,500 $9,643 $12,500 $17,500 $17,500 $ 45,357 $110,000
Average interest rate 7.17% 7.33% 7.38% 7.42% 7.45% 7.49% --
Variable rate........ $12,400 -- -- -- -- $104,878 $117,278
Average interest rate 2.20% -- -- -- -- 2.04% --
9. LEASES
The Company as Lessee: Principal operating leases include land, office and
terminal facilities, containers and equipment, leased for periods which expire
between 2003 and 2052. 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 $19,748,000, $19,741,000, and
$28,343,000 for the years ended December 31, 2001, 2000, and 1999, respectively.
Future minimum payments under operating leases as of December 31, 2001 were
as follows:
Operating
Leases
--------------
(in thousands)
2002........................ $ 12,843
2003........................ 12,699
2004........................ 12,556
2005........................ 8,848
2006........................ 7,814
Thereafter.................. 91,761
--------
Total minimum lease payments $146,521
========
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 $10,431,000 and $9,887,000 at December 31, 2001
and 2000, 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 five vessels under operating leases. Two of the vessels were
chartered to an unconsolidated affiliate and were sold to that affiliate in
January 2002 (see Note 5). The historical cost of and accumulated depreciation
on leased property at December 31, 2001 and 2000 were as follows:
2001 2000
-------- --------
(in thousands)
Leased property..................... $653,200 $621,860
Less accumulated amortization....... 173,269 154,467
-------- --------
Property under operating leases--net $479,931 $467,393
======== ========
Total rental income under these operating leases for the three years ended
December 31, 2001 was as follows:
2001 2000 1999
-------- -------- -------
(in thousands)
Minimum rentals........................... $105,251 $ 98,607 $93,275
Contingent rentals (based on sales volume) 2,481 1,917 1,244
-------- -------- -------
Total..................................... $107,732 $100,524 $94,519
======== ======== =======
Future minimum rental income on non-cancelable leases at December 31, 2001
was as follows:
Operating
Leases
--------------
(in thousands)
2002...... $ 96,807
2003...... 90,028
2004...... 81,757
2005...... 75,112
2006...... 26,586
Thereafter 151,375
--------
Total..... $521,665
========
10. 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, 2001, 2000, and 1999
is shown in the table on page 46.
The net periodic benefit cost for the defined benefit pension plans and the
post-retirement health care and life insurance benefit plans during 2001, 2000,
and 1999 is summarized in the table on page 46.
The assumptions used to determine the benefit information were as follows:
Other Post-retirement
Pension Benefits Benefits
---------------- --------------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
Discount rate................. 7.25% 7.75% 7.75% 7.25% 7.75% 7.75%
Expected return on plan assets 9.00% 9.00% 9.00% -- -- --
Rate of compensation increase. 4.25% 4.25% 4.25% 4.25% 4.25% 4.25%
For the 2001 post-retirement benefit measurement purposes, a ten 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 by one percent per
year through 2005 and then remain at five percent thereafter. For the 2000
measurement purposes, a ten percent annual rate of increase was assumed through
2001, after which a constant five percent rate was assumed. Unrecognized gains
and losses of the post-retirement benefit plans are amortized over five years.
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, 2001, 2000, and 1999 and the net periodic post-retirement benefit
cost for 2001, 2000 and 1999, would have increased or decreased as follows:
Other Post-retirement Benefits
One Percentage Point
----------------------------------------------
Increase Decrease
-------------------- -------------------------
2001 2000 1999 2001 2000 1999
------ ------ ------ ------- ------- -------
(in thousands)
Effect on total of service and interest cost components $ 296 $ 196 $ 416 $ (244) $ (226) $ (347)
Effect on post-retirement benefit obligation........... $3,856 $1,664 $4,062 $(3,199) $(2,278) $(3,388)
The assets of the defined benefit pension plans consist principally of
listed stocks and bonds. 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 (ERISA), as amended, and the maximum deductible
contribution allowed for tax purposes. For the plans covering employees who are
members of collective bargaining units, the benefit formulas are determined
according to the collective bargaining agreements, either using career average
pay as the base or a flat dollar amount per year of service. The benefit
formulas for the remaining defined benefit plans are based on final average
pay.
The Company has non-qualified supplemental pension plans covering certain
employees and retirees, which provide for incremental pension payments from the
Company's general funds, so that total pension benefits would be substantially
equal to amounts that would have been payable from the Company's qualified
pension plans if it were not for limitations imposed by income tax regulations.
The obligation, included with other non-current liabilities, relating to these
unfunded plans, totaled $13,807,000 and $12,597,000 at December 31, 2001 and
2000, respectively.
Total contributions to the multi-employer pension plans covering personnel
in shoreside and seagoing bargaining units were $4,028,000 in 2001, $3,027,000
in 2000, and $4,367,000 in 1999. 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 $2,465,000 as of December
31, 2001, 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.
Pension Benefits Other Post-retirement Benefits
------------------------------- -----------------------------
2001 2000 1999 2001 2000 1999
--------- --------- --------- -------- -------- --------
(in thousands)
Change in Benefit Obligation
Benefit obligations at beginning of year...... $ 235,000 $ 218,189 $ 229,573 $ 37,910 $ 47,836 $ 55,298
Service cost.................................. 4,844 4,877 5,705 443 504 892
Interest cost................................. 17,549 16,882 15,013 2,720 2,939 3,460
Plan participants' contributions.............. -- -- -- 1,137 1,165 1,423
Actuarial (gain) loss......................... 13,130 (2,016) (25,177) 2,314 (2,652) (8,198)
Benefits paid................................. (14,094) (13,146) (12,109) (3,452) (3,635) (4,320)
Amendments.................................... 498 1,137 10,129 -- -- --
Settlements................................... -- 8,602 (1,304) -- (8,247) --
Curtailments.................................. -- -- (3,823) -- -- (719)
Special or contractual termination benefits... -- 475 182 -- -- --
--------- --------- --------- -------- -------- --------
Benefit obligation at end of year............. 256,927 235,000 218,189 41,072 37,910 47,836
--------- --------- --------- -------- -------- --------
Change in Plan Assets
Fair value of plan assets at beginning of year 364,299 381,090 338,267 -- -- --
Actual return on plan assets.................. (35,747) (3,645) 56,236 -- -- --
Settlements................................... -- -- (1,304) -- -- --
Employer contribution......................... 135 -- -- -- -- --
Benefits paid................................. (14,094) (13,146) (12,109) -- -- --
--------- --------- --------- -------- -------- --------
Fair value of plan assets at end of year...... 314,593 364,299 381,090 -- -- --
--------- --------- --------- -------- -------- --------
Accrued Asset (Obligation)
Plan assets less benefit obligation........... 57,666 129,299 162,901 (41,072) (37,910) (47,836)
Unrecognized net actuarial gain............... (4,963) (91,307) (135,670) (4,232) (9,134) (15,841)
Unrecognized transition asset................. -- (63) (183) -- -- --
Unrecognized prior service cost............... 10,597 12,547 13,939 72 79 32
--------- --------- --------- -------- -------- --------
Accrued asset (obligation).................... $ 63,300 $ 50,476 $ 40,987 $(45,232) $(46,965) $(63,645)
========= ========= ========= ======== ======== ========
Components of Net Periodic
Benefit Cost/(Income)
Service cost.................................. $ 4,844 $ 4,877 $ 5,705 $ 443 $ 504 $ 892
Interest cost................................. 17,549 16,882 15,013 2,720 2,939 3,460
Expected return on plan assets................ (32,107) (33,651) (29,922) -- -- --
Recognition of net gain....................... (5,360) (9,083) (4,251) (2,522) (2,872) (2,644)
Amortization of prior service cost............ 2,448 2,528 905 7 7 8
Amortization of unrecognized transition asset. (63) (119) (713) -- -- --
Recognition of settlement (gain)/loss......... -- 8,602 (53) -- (14,800) --
Recognition of curtailment gain............... -- -- (3,641) -- -- (292)
--------- --------- --------- -------- -------- --------
Net periodic benefit cost/(income)............ $ (12,689) $ (9,964) $ (16,957) $ 648 $(14,222) $ 1,424
========= ========= ========= ======== ======== ========
Cost of termination benefits recognized....... $ -- $ 475 $ 182 $ -- $ -- $ --
========= ========= ========= ======== ======== ========
11. INCOME TAXES
The income tax expense for the three years ended December 31, 2001 consisted
of the following:
2001 2000 1999
------- ------- -------
(in thousands)
Current:
Federal......... $65,881 $26,186 $21,035
State........... 8,900 847 3,461
------- ------- -------
Current........... 74,781 27,033 24,496
Deferred.......... (7,389) 17,358 8,465
------- ------- -------
Income tax expense $67,392 $44,391 $32,961
======= ======= =======
Income tax expense for the three years ended December 31, 2001 differs from
amounts computed by applying the statutory federal rate to pre-tax income, for
the following reasons:
2001 2000 1999
------- ------- -------
(in thousands)
Computed federal income tax expense............. $65,522 $42,950 $33,439
State tax on income, less applicable federal tax 5,285 2,968 3,790
Low-income housing credits...................... (859) (1,124) (1,161)
Dividend exclusion.............................. (867) (954) (860)
Prior years' tax settlement..................... -- -- (2,815)
Fair market value over cost of donations........ (1,481) -- --
Other--net...................................... (208) 551 568
------- ------- -------
Income tax expense.............................. $67,392 $44,391 $32,961
======= ======= =======
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax liability at December 31, 2001 and 2000 were
as follows:
2001 2000
-------- --------
(in thousands)
Property basis and depreciation............... $166,810 $180,895
Tax-deferred gains on real estate transactions 106,993 104,033
Capital Construction Fund..................... 61,998 58,704
Unrealized holding gains on securities........ -- 36,371
Pensions...................................... 24,720 19,447
Post-retirement benefits...................... (17,331) (17,900)
Insurance reserves............................ (9,301) (10,740)
Other--net.................................... (4,504) 3,143
-------- --------
Total......................................... $329,385 $373,953
======== ========
The Internal Revenue Service (IRS) completed its examination of the
Company's tax returns through 1997. The IRS is currently auditing the Company's
tax returns for 1998 and 1999. Management believes that the outcome of the
current audit will not have a material effect on the Company's financial
position or results of operations.
12. STOCK OPTIONS
Employee Stock Option Plans: The Company has two stock option plans under
which key employees are granted options to purchase shares of the Company's
common stock. There are no longer any outstanding options under a third plan,
which terminated in 1993.
Adopted in 1998, the Company's 1998 Stock Option/Stock Incentive Plan ("1998
Plan") provides for the issuance of non-qualified stock options to employees of
the Company. Under the 1998 Plan, option prices may not be less than the fair
market value of the Company's common stock on the dates of grant, the options
become exercisable over periods determined, at the dates of grant, by the
committee that administers the plan (generally ratably over three years), and
the options generally expire ten years from the date of grant. 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 such
number of shares as is equal to the number 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.
Adopted in 1989, the Company's 1989 Stock Option/Stock Incentive Plan ("1989
Plan") is substantially the same as the 1998 Plan, except that each option is
generally exercisable in-full one year after the date granted. The 1989 Plan
terminated in January 1999, but options granted through 1998 remain exercisable.
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 vested fully 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 2001 or outstanding at the end of the year was
not material.
Director Stock Option Plans: The Company has two Directors' stock option
plans. Under the 1998 Non-Employee Director Stock Option Plan ("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 in three successive annual installments of
1,000 shares beginning one year after the date granted.
The 1989 Non-Employee Directors Stock Option Plan ("1989 Directors' Plan")
is substantially the same as the 1998 Directors' Plan, except that each option
generally becomes exercisable in-full one year after the date granted. This
plan terminated in January 1999, but options granted through termination remain
exercisable.
Changes in shares and the weighted average exercise prices for the three
years ended December 31, 2001, were as follows:
Employee Plans Directors' Plans
------------------ -------------------- Weighted
1998 1989 Average
1998 1989 1983 Directors' Directors' Total Exercise
Plan Plan Plan Plan Plan Shares Price
----- ----- ---- ---------- ---------- ------ --------
(shares in thousands)
December 31, 1998 100 3,263 161 - 204 3,728 $26.69
Granted.......... 515 - - 24 - 539 $20.65
Exercised........ - (4) - - - (4) $22.02
Canceled......... (2) (373) (161) - (15) (551) $29.16
----- ----- ---- -- --- ----- ------
December 31, 1999 613 2,886 - 24 189 3,712 $25.43
Granted.......... 511 - - 24 - 535 $21.70
Exercised........ (7) (139) - - - (146) $23.79
Canceled......... (31) (340) - - (21) (392) $29.49
----- ----- ---- -- --- ----- ------
December 31, 2000 1,086 2,407 - 48 168 3,709 $24.52
Granted.......... 590 - - 24 - 614 $27.23
Exercised........ (35) (244) - - - (279) $23.53
Canceled......... (14) (21) - - (21) (56) $25.81
----- ----- ---- -- --- ----- ------
December 31, 2001 1,627 2,142 - 72 147 3,988 $24.99
----- ----- ---- -- --- ----- ------
Exercisable...... 550 2,142 - 24 147 2,863 $25.19
----- ----- ---- -- --- ----- ------
As of December 31, 2001, the Company had reserved 431,000 and 58,000 shares
of its common stock for the exercise of options under the 1998 Plan and 1998
Directors' Plan, respectively. Additional information about stock options
outstanding as of 2001 year-end is summarized below:
Weighted Weighted
Shares Average Weighted Shares Average
Outstanding Remaining Average Exercisable Price of
as of Contractual Exercise as of Exercisable
Range of Exercise Price 12/31/2001 Years Price 12/31/2001 Options
- ----------------------- ----------- ----------- -------- ----------- -----------
(shares in thousands)
$0.00.............. 16 9.1 $ 0.00 -- --
$20.01 - 22.00..... 1,170 6.3 $21.31 682 $21.31
$22.01 - 24.00..... 445 4.3 $23.07 360 $23.05
$24.01 - 26.00..... 382 1.6 $24.37 378 $24.36
$26.01 - 28.00..... 1,025 3.3 $27.05 1,025 $27.05
$28.01 - 30.00..... 852 5.7 $28.33 320 $28.35
$30.01 - 34.88..... 98 0.8 $33.51 98 $33.51
----- --- ------ ----- ------
$ 0.00 - 34.88..... 3,988 4.7 $24.99 2,863 $25.19
----- --- ------ ----- ------
Accounting Method for Stock-based Compensation: The Company applies
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations, to account 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. Pro forma information regarding net income and earnings per share is
required, using the fair value method, by SFAS No. 123, "Accounting for
Stock-based Compensation."
The fair value of options granted for each of the three years ended December
31, 2001, reported below, has been estimated using a Black-Scholes option
pricing model. This model was developed for use in estimating the fair value of
traded options which do not have vesting requirements and which are fully
transferable. The Company's options have characteristics significantly
different from those of traded options. The following assumptions were used in
determining the pro forma amounts:
2001 2000 1999
---- ---- ----
Stock volatility........................ 25.2% 25.0% 24.8%
Expected term from grant date (in years) 6.2 6.7 6.5
Risk-free interest rate................. 4.5% 6.0% 5.0%
Forfeiture discount..................... 2.6% 0.3% 0.2%
Dividend yield.......................... 3.3% 3.4% 4.0%
Based upon the above assumptions, the computed annual weighted average fair
value of employee stock options granted during 2001, 2000, and 1999 was $6.22,
$5.54, and $4.63, respectively, per option.
Had compensation cost for the stock options granted during the past three
years been based on the estimated fair value at grant dates, as prescribed by
SFAS No. 123, the Company's pro forma net income and net income per share would
have been as follows:
2001 2000 1999
-------- ------- -------
(in thousands, except per share amounts)
Net Income:
As reported......... $110,628 $90,574 $62,579
Pro forma........... $108,848 $89,060 $61,108
Net Income Per Share:
Basic, as reported.. $ 2.73 $ 2.21 $ 1.45
Basic, pro forma.... $ 2.69 $ 2.18 $ 1.41
Diluted, as reported $ 2.72 $ 2.21 $ 1.45
Diluted, pro forma.. $ 2.67 $ 2.17 $ 1.42
The pro forma disclosures of net income and earnings per share are not
likely to be representative of the pro forma effects on future net income or
earnings per share, because the number of future shares which may be issued is
not known, shares vest over several years, and assumptions used to determine
the fair value can vary significantly.
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 (other than the
acquiring party) to purchase additional shares of the Company's stock or shares
of an acquiring company's stock at prices below market value.
13. RELATED PARTY TRANSACTIONS, COMMITMENTS AND CONTINGENCIES
At December 31, 2001, the Company and its subsidiaries had an unspent
balance of total appropriations for capital expenditures of approximately
$77,633,000. However, there are no contractual obligations to spend this entire
amount.
The Company has arranged for standby letters of credit totaling $26,019,000.
This includes letters of credit, totaling approximately $13,959,000, which
enable the Company to qualify as a self-insurer for state and federal workers'
compensation liabilities. The amount also includes a letter of credit of
$6,112,000 for workers' compensation claims incurred by C&H employees, under a
now-closed self-insurance plan, prior to December 24, 1998 (see Note 5). The
Company only would be called upon to honor this letter of credit in the event
of C&H's insolvency. The obligation to provide this letter of credit expires on
December 24, 2003. The remaining letters of credit are for insurance-related
matters, construction performance guarantees and other routine operating
matters.
C&H is a party to a sugar supply contract with Hawaiian Sugar &
Transportation Cooperative (HS&TC), a raw sugar marketing and transportation
cooperative that the Company uses to market and transport its sugar to C&H.
Under the terms of this contract, which expires in June 2003, C&H (an
unconsolidated entity in which the Company has a minority ownership equity
interest--see Notes 4 and 5) is obligated to purchase, and HS&TC is obligated
to sell, all of the raw sugar delivered to HS&TC by the Hawaii sugar growers,
at prices determined by the quoted domestic sugar market. The Company delivered
to HS&TC raw sugar totaling $70,149,000, $64,455,000, and $83,412,000, during
2001, 2000, and 1999, respectively. The Company has guaranteed up to
$15,000,000 of HS&TC's $30,000,000 working capital line. The facility is fully
collateralized by raw-sugar inventory. At December 31, 2001, HS&TC had borrowed
$2,500,000 under that facility.
The State of Hawaii, Department of Transportation (State) has informed the
Company that it believes a portion of the Company's ocean transportation
revenue is subject to the Public Service Company tax. The Company strongly
disagrees with the State's tax position. If the State were to prevail fully,
the amount of the claim could be material. Management believes, after
consultation with legal counsel, that the ultimate disposition of this matter
will not have a material adverse effect on the Company's results of operations
or financial position.
Note 5 contains additional information about transactions with
unconsolidated affiliates, which affiliates are also related parties, due to
the Company's minority interest investments.
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.
14. INDUSTRY SEGMENTS
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 the
Company and each of the Company's segments. The lead executive for each
operating segment manages the profitability, cash flows and assets of his or
her 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 Transportation
segment carries freight between various United States West Coast, Hawaii and
other Pacific ports; holds investments in ocean transportation and terminal
service businesses (see Note 5); 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 5); 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.
February 28, 2002
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N. W.
Washington, D. C. 20549
Re: Form U-3A-2 - Alexander & Baldwin, Inc. -
SEC File No. 69-166
----------------------------------------
Gentlemen:
Submitted herewith for filing is the Statement of Alexander & Baldwin,
Inc. ("A&B") 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.
Very truly yours,
/s/ Francis K. Mukai
Francis K. Mukai
Assistant General Counsel
FKM/smt
Enclosure