UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 2004
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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 _________________
Commission file number 0-565
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ALEXANDER & BALDWIN, INC.
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(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 9680l
822 Bishop Street, Honolulu, Hawaii 96813
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(Address of principal executive offices) (Zip Code)
(808) 525-6611
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(Registrant's telephone number, including area code)
N/A
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(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 |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_|
Number of shares of common stock outstanding as of
March 31, 2004: 42,514,037
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements and notes for the first quarter
of 2004 are presented below, with comparative figures for the first quarter of
2003.
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In millions, except per-share amounts)
Three Months Ended
March 31,
2004 2003
---- ----
(unaudited)
Revenue:
Operating revenue $ 344.9 $ 273.4
--------- ----------
Costs and Expenses:
Costs of goods sold, services and rentals 267.6 224.2
Selling, general and administrative 31.1 29.8
Interest 3.3 2.6
--------- ----------
Total costs and expenses 302.0 256.6
--------- ----------
Income Before Taxes 42.9 16.8
Income taxes 16.1 6.1
--------- ----------
Income From Continuing Operations 26.8 10.7
Discontinued Operations (net of income taxes):
Properties 0.3 6.9
--------- ----------
Net Income $ 27.1 $ 17.6
========= ==========
Basic Earnings Per Share:
Continuing operations $ 0.63 $ 0.26
Discontinued operations 0.01 0.17
---------- ----------
Net income $ 0.64 $ 0.43
========== ==========
Diluted Earnings Per Share:
Continuing operations $ 0.62 $ 0.26
Discontinued operations 0.01 0.16
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Net income $ 0.63 $ 0.42
========== ==========
Dividends Per Share $ 0.225 $ 0.225
Average Number of Shares Outstanding 42.3 41.4
See Financial Notes
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Industry Segment Data, Net Income
(In millions)
Three Months Ended
March 31,
2004 2003
---- ----
(unaudited)
Revenue:
Transportation:
Ocean transportation $ 196.5 $ 186.1
Logistics services 74.1 51.0
Property Development and Management:
Leasing 20.8 19.1
Sales 40.1 16.7
Less amounts reported in discontinued
operations -- (14.4)
Food Products 13.4 14.9
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Total revenue $ 344.9 $ 273.4
========== =========
Operating Profit, Net Income:
Transportation:
Ocean transportation $ 18.6 $ 12.1
Logistics services 1.0 0.5
Property Development and Management:
Leasing 9.5 8.6
Sales 19.0 11.6
Less amounts reported in discontinued
operations (0.4) (11.2)
Food Products 2.6 1.9
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Total operating profit 50.3 23.5
Interest Expense (3.3) (2.6)
General Corporate Expenses (4.1) (4.1)
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Income From Continuing Operations Before
Income Taxes 42.9 16.8
Income Taxes (16.1) (6.1)
---------- ---------
Income From Continuing Operations 26.8 10.7
Discontinued Operations (net of income taxes):
Properties 0.3 6.9
---------- ---------
Net Income $ 27.1 $ 17.6
========== =========
See Financial Notes
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In millions)
March 31, December 31,
2004 2003
---- ----
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 21 $ 6
Accounts and notes receivable, net 152 160
Inventories 31 16
Real estate and other assets held for sale 17 30
Deferred income taxes 13 15
Prepaid expenses and other assets 19 20
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Total current assets 253 247
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Investments 82 68
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Real Estate Developments 82 77
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Property, at cost 1,888 1,888
Less accumulated depreciation and amortization 827 809
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Property - net 1,061 1,079
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Capital Construction Fund 165 165
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Other Assets 123 124
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Total $ 1,766 $ 1,760
========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of long-term debt $ 15 $ 15
Accounts payable 88 95
Other 74 73
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Total current liabilities 177 183
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Long-term Liabilities:
Long-term debt 320 330
Deferred income taxes 353 356
Post-retirement benefit obligations 44 44
Other 37 36
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Total long-term liabilities 754 766
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Commitments and Contingencies
Shareholders' Equity:
Capital stock 35 35
Additional capital 122 112
Deferred compensation (2) --
Accumulated other comprehensive loss (9) (8)
Retained earnings 700 684
Cost of treasury stock (11) (12)
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Total shareholders' equity 835 811
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Total $ 1,766 $ 1,760
========= =========
See Financial Notes
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In millions)
Three Months Ended
March 31,
2004 2003
---- ----
(unaudited)
Cash Flows from Operating Activities $ 50 $ 7
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Cash Flows from Investing Activities:
Capital expenditures (9) (12)
Proceeds from disposal of property and other assets -- 3
Capital Construction Fund, net (1) (1)
Investments, net (11) (3)
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Net cash used in investing activities (21) (13)
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Cash Flows from Financing Activities:
Proceeds from issuances of long-term debt 3 83
Payments of long-term debt (13) (69)
Proceeds from issuances of capital stock 5 2
Dividends paid (9) (9)
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Net cash from (used in) financing activities (14) 7
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Net Increase in Cash and Cash Equivalents $ 15 $ 1
========= =========
Other Cash Flow Information:
Interest paid, net of amounts capitalized $ (4) $ (3)
Income taxes paid, net of refunds (1) (2)
Other Non-cash Information:
Accrued deposit to Capital Construction Fund, net 1 -
Depreciation expense (19) (18)
Tax-deferred property sales 4 11
Tax-deferred property purchases -- (11)
Debt assumed in real estate acquisition -- 15
Assets conveyed to joint venture -- 28
See Financial Notes
Financial Notes
(Unaudited)
(1) The Condensed Balance Sheet as of March 31, 2004, the Condensed
Statements of Income and the Condensed Statements of Cash Flows for the
quarter ended March 31, 2004 and 2003 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. 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.
(2) The 2004 and 2003 estimated effective income tax rate differs from
the statutory rate, due primarily to tax credits.
(3) Commitments and Contingencies: Commitments, excluding operating lease
commitments, that were in effect at March 31, 2004, included the
following (in millions):
Vessel purchase (a) $ 107
Guarantee of Hokua debt (b) $ 18
Guarantee of Sea Star debt (c) $ 11
Guarantee of HS&TC debt (d) $ 15
Standby letters of credit (e) $ 20
Bonds (f) $ 13
Benefit plan withdrawal obligations (g) $ 51
These amounts are not recorded on the Company's balance sheet and,
based on the Company's current knowledge and with the exception of item
(a), it is not expected that the Company or its subsidiaries will be
called upon to advance funds under these commitments.
(a) During 2002, Matson Navigation Company, Inc. ("Matson")
entered into an agreement with Kvaerner Philadelphia
Shipyard Inc., to purchase two container ships.
The total project cost for each ship is approximately
$107 million. The first ship was delivered in September
2003 and the second ship is expected to be delivered
in the third or fourth quarter of 2004. The cost of the
second ship is expected to be funded with a combination
of cash from the Capital Construction Fund, the
issuance of new debt, and operations. No significant
payment is required until acceptance and delivery of the
ship. No obligation is recorded on the financial
statements because conditions necessary to record either
a liability or an asset have not been met.
(b) At March 31, 2004, A&B Properties, Inc. ("Properties")
had guaranteed $2.5 million of the $12 million component
of a $130 million construction loan agreement that was
entered into by Hokua Development Group LLC ("Hokua"), a
limited liability company in which the Company is an
investor. The $12 million component was used by Hokua to
acquire the land that is being developed. This guarantee
terminates upon the initial funding of the balance of
the construction loan prior to the termination of the
guarantee. Properties would be called upon to honor this
guarantee in the event that Hokua is unable to repay the
construction loan.
Properties also has a limited guarantee equal to the
lesser of $15 million or 15.5 percent of the outstanding
loan balance that could be triggered if the purchasers
of condominium apartments become entitled to rescind
their purchase obligations. This could occur if Hokua
breaches covenants contained in its sales contracts or
violates the Interstate Land Sales Practices Act, the
Hawaii Condominium Act, the Securities Act of 1933 or
the Securities Exchange Act of 1934.
(c) Matson has guaranteed $11 million of the debt of Sea
Star Line, LLC ("Sea Star," a business in which Matson
holds a minority interest investment) and would be
required to perform under the guarantee should Sea Star
be unable to meet its obligations. This amount declined
by approximately $16 million from 2003 year-end, due to
an amendment, executed during the first quarter of 2004,
to the venture's operating agreement that reduces
Matson's allocation of the guarantee to 19.5 percent of
the outstanding balance; this is consistent with
Matson's ownership percentage. It is expected that the
guarantee will be further reduced, over time by
scheduled repayments of the debt by Sea Star.
(d) The Company guarantees up to $15 million of a $30
million revolving credit line of Hawaiian Sugar &
Transportation Cooperative's ("HS&TC," a raw sugar
marketing and transportation cooperative that the
Company uses to market and transport its sugar and of
which the Company is a member). That credit line is
used primarily to fund purchases of raw sugar from the
Hawaii growers and is fully secured by the inventory,
receivables and transportation assets of the
cooperative. The amount that may be drawn by HS&TC
under the facility is limited to 95 percent of its
inventory value plus the lesser of 90 percent or $16
million of HS&TC's receivables. The Company's guarantee
is limited to the lesser of $15 million or the actual
amounts drawn. Although the amount drawn by HS&TC on
its credit line varies, as of March 31, 2004, the amount
drawn was $12 million. The Company has not recorded any
liability for its obligation under the guarantee because
it believes that the likelihood of making any payment
is not probable.
(e) The Company has arranged for standby letters of credit
totaling $20 million. This includes letters of credit,
totaling approximately $12 million that 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 $3 million for
workers' compensation claims incurred by C&H Sugar
Company, Inc. ("C&H," an unconsolidated entity in which
the Company has a minority ownership equity interest)
employees, under a now-closed self-insurance plan, prior
to December 24, 1998. The Company only would be
called upon to honor this letter of credit in the event
of C&H's insolvency. The agreement with C&H to provide
this letter of credit expired on December 24, 2003.
C&H has advised the Company that it is unable to
provide a replacement security deposit. Until C&H meets
this contractual obligation, the Company will not be
released from this letter of credit. The remaining
letters of credit, totaling $5 million, are for
insurance-related matters, construction performance
guarantees, and other routine operating matters. Of
this $5 million, one letter of credit for $2.7 million
expired without renewal in April 2004.
(f) Of the $13 million in bonds, $6 million consists of
subdivision bonds related to real estate construction
projects in Hawaii. These bonds are required either by
the state or by county governments to ensure that
certain infrastructure work, as part of real-estate
development, is completed. The Company has the financial
ability and intention to complete these improvements.
Also included in the total are $5 million of customs
bonds.
(g) The withdrawal liabilities for multi-employer pension
plans, in which Matson is a participant, aggregated
approximately $51 million as of the most recent
valuation dates. Management has no present intention of
withdrawing from and does not anticipate the termination
of any of the aforementioned plans.
Contingencies: As described in the Company's 2003 Form 10-K, a petition
was filed in January 2004, by the Native Hawaiian Legal Corporation
("NHLC"), on behalf of four individuals, requesting that the State of
Hawaii Board of Land and Natural Resources ("BLNR") declare that the
Company has no current legal authority to continue to divert water from
streams in East Maui for use in its sugar growing operations, and to
order the immediate full restoration of these streams until a legal
basis is established to permit the diversions of the streams.
The Company has objected to the petition and asked the BLNR to conduct
an administrative hearing on the matter, and to consolidate it with the
pending hearing on the Company's application to the BLNR for the
issuance of a long-term water lease. The Company is at the same time
working with the NHLC and its East Maui clients to assist their taro
growing activities by making improvements to their water systems so as
to improve the flow of water to their taro patches. An interim
agreement has been entered into between the parties to permit the
improvements to be completed, deferring the administrative hearing
process until May 24, 2004, with the potential of further extensions as
the parties may agree.
As also described in the Company's 2003 Form 10-K, on February 6 and 7,
2004, union workers at Honolulu's two largest concrete manufacturers,
which supply most of the concrete on Oahu, went on strike, shutting
down both manufacturing operations. This shutdown delayed the pouring
of the foundation for the Hokua and Lanikea projects. These two strikes
have ended, but the matter delayed both projects by several weeks.
As reported in Items 7 and 8 of the Company's 2003 Form 10-K, the State
of Hawaii Department of Health ("DOH") has issued a notice of violation
of state and federal air pollution control regulations and a $2 million
proposed penalty, following the Company's self reporting of this matter
and taking corrective action to comply with the regulations. The
Company has contested this matter, but there has been no change in the
status since 2003 year-end. The Company believes that the resolution of
this matter will not have a material effect on its financial statements
and that appropriate accruals for this matter have been recorded.
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.
(4) Accounting Method for Stock-Based Compensation and Diluted Earnings per
Share: As allowed by Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," and by
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure," the Company has elected to continue to apply the
provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." Accordingly, no compensation cost is
recognized in the Company's net income for options granted with
exercise prices that are equal to the market values of the underlying
common stock on the dates of grant.
Pro forma information regarding net income and earnings per share,
using the fair value method and 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.
Had compensation cost for the stock options been based on the estimated
fair values at grant dates, the Company's pro forma net income and net
income per share for the first quarter of 2004 and 2003 would have been
as follows (in millions, except per share amounts):
Quarter Ended
March 31
--------
2004 2003
Net Income:
As reported $ 27.1 $ 17.6
Stock-based compensation
expense determined under fair
value based method for all
awards, net of related tax effects (0.3) (0.3)
-------- --------
Pro forma $ 26.8 $ 17.3
======== ========
Net Income Per Share:
Basic, as reported $ 0.64 $ 0.43
Basic, pro forma $ 0.63 $ 0.42
Diluted, as reported $ 0.63 $ 0.42
Diluted, pro forma $ 0.62 $ 0.42
Effect on average shares outstanding of assumed exercise
of stock options (in millions of shares):
Average number of shares outstanding 42.3 41.4
Effect of assumed exercise of outstanding stock options 0.6 0.1
-------- --------
Average number of shares outstanding after assumed exercise of
outstanding stock options 42.9 41.5
======== ========
The pro forma effects are not necessarily representative of the pro
forma effects on future net income or earnings per share, because the
number of future shares that may be issued is not known; shares vest
over several years, and assumptions used to determine the fair value
can vary significantly. Additional information about stock-based
compensation is included in Notes 1 and 12 of Item 8 in the Company's
most recently filed Form 10-K.
(5) Accounting for and Classification of Discontinued Operations: As
required by Statement of Financial Accounting Standards ("SFAS") No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
the sales of certain income-producing assets are classified as
discontinued operations if (i) the operations and cash flows of the
assets can be clearly distinguished from the remaining assets of the
Company, (ii) the cash flows that are specific to the assets sold have
been, or will be, eliminated from the ongoing operations of the
Company, (iii) the Company will not have a significant continuing
involvement in the operations of the assets sold, and (iv) the amount
is considered material. Certain assets that are "held for sale," based
on the likelihood and intention of selling the property within 12
months, are also treated as discontinued operations. Depreciation on
these assets is discontinued upon reclassification. Sales of land,
residential houses, and office condominium units are generally
considered inventory and are not included in discontinued operations.
Discontinued operations were as follows (in millions):
Quarter Ended
March 31
--------
2004 2003
Discontinued Operations (net of tax)
Sales of Assets $ 0.3 $ 6.4
Leasing Operations -- 0.5
------- --------
Total $ 0.3 $ 6.9
======= ========
(6) Other Comprehensive Income for the first quarter of 2004 and 2003 was
as follows (in millions):
Quarter Ended
March 31
--------
2004 2003
Net Income $ 27.1 $ 17.6
Other Comprehensive Income (Loss):
Change in valuation of derivative (0.9) (0.5)
Company's share of investee's minimum
liability adjustment -- (7.2)
-------- --------
$ 26.2 $ 9.9
======== ========
The change in valuation of derivative amount reflects the valuation of
an interest rate lock agreement related to the previously noted vessel
that Matson expects to take delivery of during 2004.
(7) Pension and Post-retirement Plans: The Company has defined benefit
pension plans that cover substantially all non-bargaining unit and
certain bargaining unit employees. The Company also has unfunded
non-qualified plans that provide benefits in excess of the amounts
permitted to be paid under the provisions of the tax law to
participants in qualified plans. The assumptions related to discount
rates, expected long-term rates of return on invested plan assets,
salary increases, age, mortality and health care cost trend rates,
along with other factors, are used in determining the assets,
liabilities and expenses associated with pension benefits. Management
reviews the assumptions annually with its independent actuaries, taking
into consideration existing and future economic conditions and the
Company's intentions with respect to these plans. Management believes
that its assumptions and estimates for 2004 are reasonable. Different
assumptions, however, could result in material changes to the assets,
obligations and costs associated with benefit plans.
The Components of Net Periodic Benefit Cost for the first quarters of
2004 and 2003 were as follows (in millions):
Pension Benefits Post-retirement Benefits
---------------- ------------------------
2004 2003 2004 2003
---- ---- ---- ----
Service Cost $ 1.0 $ 1.0 $ 0.1 $ 0.1
Interest Cost 2.5 3.0 0.5 0.4
Expected Return on Plan Assets (3.6) (3.4) -- --
Amortization of Prior Service Cost 0.1 0.6 -- --
Amortization of Net (Gain) Loss 0.3 1.0 0.1 0.1
-------- -------- -------- ---------
Net Periodic Benefit Cost $ 0.3 $ 2.2 $ 0.7 $ 0.6
======== ======== ======== =========
Total year 2004 pension expense is expected to be approximately $2
million. The 2004 pension expense would have been approximately $15
million had it not benefited from strong 2003 asset growth and the
Company's joining a multi-employer plan. For the total 2003 year, the
Company had a pension income of $2 million, after recording a
settlement gain of $17 million that resulted from joining a
multi-employer pension plan in late 2003.
As previously disclosed, the Company still expects to contribute
approximately $5 million to its pension plan in September 2004.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the consolidated financial condition and
results of operations of Alexander & Baldwin, Inc. and its subsidiaries
(collectively, the "Company") should be read in conjunction with the condensed
consolidated financial statements and related notes thereto.
FORWARD-LOOKING STATEMENTS
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. These statements are "forward-looking" statements as that
term is defined in the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements may be contained in, among other things, Securities
and Exchange Commission ("SEC") filings, such as the Forms 10-K, 10-Q and 8-K,
press releases made by the Company, the Company's Internet Web sites (including
Web sites of its subsidiaries), 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, the following factors:
1) economic conditions in Hawaii and elsewhere;
2) market demand;
3) competitive factors, such as the possible entrance of a new
competitor in the Hawaii shipping trade, and pricing
pressures, principally in the Company's transportation
businesses;
4) legislative and regulatory environments at the federal,
state and local levels, including, among others, government
rate regulations, land-use regulations, government
administration of the U.S. sugar program, and modifications
to or retention of cabotage laws;
5) performance of pension assets;
6) availability of water for irrigation and to support
real-estate development;
7) performance of unconsolidated affiliates and ventures;
8) significant fluctuations in raw sugar prices and the ability
to sell raw sugar to C&H Sugar Company, Inc.("C&H");
9) significant fluctuations in fuel prices;
10) resolution of tax issues with the IRS or state tax
authorities;
11) Company, contractor, vendor and other labor relations in
Hawaii, the U.S. Pacific Coast, Guam and other locations
where the Company has operations;
12) renewal or replacement of significant agreements including,
but not limited to, lease agreements and Matson's alliance
and charter agreement with American President Lines, Ltd.;
13) acts of nature, including but not limited to, drought,
greater than normal rainfall, hurricanes and typhoons;
14) acts of war and terrorism;
15) risks associated with current or future litigation; and
16) other risk factors described elsewhere in these
communications and from time to time in the Company's
filings with the SEC.
CONSOLIDATED REVENUE & NET INCOME
- --------------------------------------------------------------------------
Quarter Ended March 31
- --------------------------------------------------------------------------
(dollars in millions, except per-share) 2004 2003 Change
- --------------------------------------------------------------------------
Revenue $ 344.9 $ 273.4 26%
Operating expenses $ 302.0 $ 256.6 18%
Net income $ 27.1 $ 17.6 54%
Basic earnings per share $ 0.64 $ 0.43 49%
- --------------------------------------------------------------------------
Consolidated revenue of $344.9 million for the first quarter of 2004
was 26 percent higher than the first quarter of 2003. This 26 percent increase
was due principally to the $23.4 million increase in real estate sales, $23.1
million growth in integrated logistics, and $10.4 million higher revenue for
ocean transportation. The reasons for the revenue growth are described below in
Analysis of Operating Revenue and Profit.
Operating expense of $302 million for the first quarter of 2004 was 18
percent higher than in 2003. Costs of goods sold, services and rentals increased
$43.4 million compared with the first quarter of 2003 due to higher purchased
transportation services at the integrated logistics business and the sales of
higher cost-basis real-estate in 2004. Additional information about operating
expenses is contained in the Analysis of Operating Revenue and Profit. Selling,
general and administrative costs were four percent higher than the first quarter
of 2003 due to inflationary pressures and salary increases subsequent to the
first quarter of 2003 partially offset by lower pension costs. Higher interest
expense reflects the cost of the new vessel financing. Income taxes were higher
than the first quarter of 2003 due to higher pre-tax income and a higher
effective tax rate.
Additional information about the revenue and profits of the Company are
provided in the segment discussion below. Because the Company operates in five
different segments, the review of segment operations provides an important
perspective on the financial results for the Company.
ANALYSIS OF OPERATING REVENUE AND PROFIT
The following information should be read in connection with the
financial statements and notes contained in Item 1 of this Form 10-Q.
Transportation - Ocean Transportation
- ---------------------------------------------------------------
Quarter Ended March 31
- ---------------------------------------------------------------
(dollars in millions) 2004 2003 Change
- ---------------------------------------------------------------
Revenue $ 196.5 $ 186.1 6%
Operating profit $ 18.6 $ 12.1 54%
- ---------------------------------------------------------------
Volume (Units)
Hawaii containers 39,700 39,000 2%
Automobiles 36,300 37,500 -3%
Guam containers 4,500 4,400 2%
- ---------------------------------------------------------------
Ocean Transportation revenue of $196.5 million was six percent higher
than the first quarter of 2003. Of this increase nearly two-thirds was due to
improved yields and cargo mix, and approximately one-third was due to volume and
charter carriage. Container volume was two percent higher than the first quarter
of 2003 reflecting higher shipments of retail commodities and construction
materials. This is, in part, the result of 2004 economic growth, partially
offset by a non-recurring carryover of freight from 2002 into 2003, due to the
late 2002 West Coast port disruptions. Lower automobile carriage for the first
quarter of 2004 compared with the first quarter of 2003 was due principally to
the non-recurring carryover of automobiles in early 2003 following the 2002 port
disruptions.
Operating profit of $18.6 million was 54 percent better than the first
quarter of 2003. Of this improvement approximately half related to favorable
yields and higher container volume, 16 percent resulted from yard congestion,
vessel schedule disruptions and cargo handling costs following the 2002 port
disruptions. The remaining improvement was due principally to improved returns
from joint ventures, and lower administrative and pension costs.
Effective March 14, 2004, Matson increased its fuel surcharge for
Hawaii and Guam/Commonwealth of Northern Mariana Islands services from 7.5
percent to eight percent due to increased cost of bunker fuel.
Transportation - Logistics Services
- -------------------------------------------------------------------------
Quarter Ended March 31
- -------------------------------------------------------------------------
(dollars in millions) 2004 2003 Change
- -------------------------------------------------------------------------
Revenue $ 74.1 $ 51.0 45%
Operating profit $ 1.0 $ 0.5 100%
- -------------------------------------------------------------------------
Matson Integrated Logistics revenue growth for the first quarter of
2004 for the Company's integrated logistics services business was mainly the
result of increased customer volume, in large part due to an acquisition in late
2003. This transaction is discussed in Items 7 and 8 of the Company's 2003 Form
10-K. The increase in operating profit was the result of the business growth.
The revenue for logistics services includes the total amount billed to
customers for transportation services. The primary costs include purchased
transportation for that cargo. As a result, the operating profit margins for
this business are lower than other A&B businesses. The primary operating profit
and investment risk for this business is the quality of receivables, which is
monitored closely by management.
Property Development and Management - Leasing (before removing amounts
classified as discontinued operations)
- ------------------------------------------------------------------------
Quarter Ended March 31
- ------------------------------------------------------------------------
(dollars in millions) 2004 2003 Change
- ------------------------------------------------------------------------
Revenue $ 20.8 $ 19.1 9%
Operating profit $ 9.5 $ 8.6 10%
- ------------------------------------------------------------------------
Occupancy Rates:
Mainland 94% 87% 7%
Hawaii 90% 89% 1%
- ------------------------------------------------------------------------
Property Leasing revenue and operating profit growth for the first
quarter of 2004 was the result of higher occupancies for the Mainland commercial
leasing portfolio and higher contributions from replacement income-producing
properties acquired since the 2003 first quarter. The lower mainland occupancy
for the first quarter of 2003 resulted from a large lease vacancy in late 2002.
Although this vacancy reduced occupancy rates for the first quarter of 2003, it
had little effect on revenue or operating profit. This vacancy had been filled
by the 2003 second quarter. Hawaii occupancy increased, due principally to gains
in office leasing.
Property Development and Management - Sales (before removing amounts
classified as discontinued operations)
- ----------------------------------------------------------------------
Quarter Ended March 31
- ----------------------------------------------------------------------
(dollars in millions) 2004 2003 Change
- ----------------------------------------------------------------------
Revenue $ 40.1 $ 16.7 2.4x
Operating profit $ 19.0 $ 11.6 64%
- ----------------------------------------------------------------------
Sales during the first quarter of 2004 included the sales of 17 Maui
and Oahu commercial inventory properties for $12.2 million, 7.5 office
condominium floors for $8.8 million, and 23 residential properties for $18.9
million. Operating profit also included the Company's share of earnings in two
real estate joint ventures of $1 million that, combined, reflects the sales of
12 residential units.
Sales during the first quarter of 2003 included eight commercial
properties for $14.9 million and five residential properties for $1.6 million.
Operating profit also included the Company's share of earnings in two real
estate joint ventures of $1.2 million that, combined, reflects the sales of 32
residential units.
The mix of property sales in any year or quarter can be diverse. Sales
can include developed residential real estate, commercial properties,
developable subdivision lots, undeveloped land, and property sold under threat
of condemnation. The sale of undeveloped land and vacant parcels in Hawaii
generally provides a greater contribution to earnings 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, cash flows
from the sales of real estate and the amount of real estate held for sale on the
balance sheets do not necessarily indicate future profitability trends for this
segment. The reporting of property sales is also affected by the classification
of certain property sales as discontinued operations.
Property Development and Management - Discontinued Operations
- -------------------------------------------------------------------
Quarter Ended March 31
- -------------------------------------------------------------------
(dollars in millions, before tax) 2004 2003
- -------------------------------------------------------------------
Sales revenue -- $ 13.4
Leasing revenue -- $ 1.0
Sales operating profit $ 0.4 $ 10.4
Leasing operating profit -- $ 0.8
- -------------------------------------------------------------------
There were no sales of property that were characterized as discontinued
operations during the first quarter of 2004 but discontinued operations included
a cost adjustment for property that was sold previously. During the first
quarter of 2003, the proceeds from sales of five commercial properties on Maui
were classified as discontinued operations.
Because the Company regularly sells commercial properties, the amounts
reported as continuing and discontinued operations in prior quarters are
restated each time a property is designated as discontinued.
Food Products
- ------------------------------------------------------------------------
Quarter Ended March 31
- ------------------------------------------------------------------------
(dollars in millions) 2004 2003 Change
- ------------------------------------------------------------------------
Revenue $ 13.4 $ 14.9 -10%
Operating profit $ 2.6 $ 1.9 37%
- ------------------------------------------------------------------------
Tons sugar produced 11,700 18,700 -37%
- ------------------------------------------------------------------------
Food products revenue declined for the first quarter of 2004 compared
with 2003 due mainly to lower raw sugar production and sales prices that were
about seven percent below 2003. Operating profit, however, benefited principally
from higher electrical power sales, stronger food-grade sugar and roasted-coffee
sales. Lower sugar production during the first quarter of 2004 was due to wet
weather that affected harvesting conditions adversely. Quarterly fluctuations in
sales and operating profit are normal for this business due to weather,
production and other seasonality factors.
Through March 31, 2004, approximately 27 percent of the Company's
expected 2004 commodity sugar crop had been priced. Approximately five percent
of the 2004 crop is food-grade and is sold at prices higher than the raw-sugar
commodity prices. Average revenue per ton of sugar for 2004 is expected to be
approximately seven percent lower than in 2003.
The 2004 full-year operating profit for Food Products is expected to be
less than the amounts reported last year because raw sugar prices have declined
and sugar production may be less than 2003 levels.
FINANCIAL CONDITION, LIQUIDITY, FINANCING ARRANGEMENTS AND CASH FLOWS
Debt and Liquid Resources: 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 $575 million at March 31, 2004, an increase of $30 million
from December 31, 2003. The increase was due primarily to $15 million of higher
cash balances, $15 million of higher sugar and coffee inventory balances, and $6
million of higher balances available under variable rate debt facilities
partially offset by $8 million of lower receivable balances. Inventory balances
were the result of normal business seasonality. Cash balances were higher than
2003 year-end due to receivable collections, business growth, and timing of
capital expenditures.
Long-term Debt, including amounts classified as current, totaled $335
million at March 31, 2004 compared with a balance of $345 million at December
31, 2003. This $10 million decrease was due principally to normal debt
repayments. The weighted average interest rate for the Company's outstanding
borrowings at March 31, 2004 was approximately 4%.
As noted previously, Matson expects to take delivery of a new vessel in
the third or fourth quarter of 2004. Matson has received from the Maritime
Administration, a commitment to guarantee up to $75 million of U.S. government
Guaranteed Ship Financing Bonds, more commonly known as Title XI bonds, of which
35% may be issued at a floating rate. The Company's Capital Construction Fund
and operating cash flows may also be used in connection with the vessel
purchase.
Working Capital: Working capital was $76 million at March 31, 2004, an
increase of $12 million from the balance carried at the end of 2003. The higher
working capital was due primarily to higher cash and inventory balances
partially offset by lower balances of real estate held for sale. Real estate
held for sale declined during the first quarter mainly due to the sales of
office condominium property discussed above.
Cash Flows and Capital Expenditures: Cash Flows from Operating
Activities was $50 million for the first quarter of 2004, compared with Cash
Flows from Operating Activities of $7 million for the first quarter of 2003. The
higher cash flow was due to better operating results, the sales of real estate
classified as Real Estate Held for Sale and fluctuations in other working
capital balances.
For the first quarter of 2004, capital expenditures totaled $9 million
compared with $12 million for the first quarter of 2003. For both quarters,
these expenditures were for normal operations. There were no real estate
acquisitions during the first quarter of 2004.
Tax-Deferred Real Estate Exchanges: Sales - There was one sale of
property, for $3.6 million, on a tax-deferred basis during the first quarter of
2004. During the first quarter of 2003, the Company recorded, on a tax-deferred
basis, real-estate sales proceeds of $14.4 million. The proceeds from these
sales were immediately available for reinvestment in replacement property. The
proceeds from tax-deferred sales are held in escrow pending future use to
purchase new real estate assets.
Purchases - No property was purchased during the first quarter of 2004
using the proceeds from tax-deferred sales. As of March 31, 2004, $3.6 million
of proceeds from tax-deferred sales had not been reinvested.
Commitments and Contingencies: A description of commitments and
contingencies in effect at the end of the first quarter is described in Note (3)
to the financial statements of Item 1.
Environmental Matters: As with most industrial and land development
companies of its size, the Company's shipping, real estate, and agricultural
businesses have certain risks that 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. The Company has
emergency response and crisis management programs.
OTHER MATTERS
Significant Accounting Policies: The Company's significant accounting
policies are described in Note 1 of the consolidated financial statements
included in Item 8 of the Company's Form 10-K for the year ended December 31,
2003 and in the Financial Notes included in Item 1 of this Form 10-Q.
Critical Accounting Policies Estimates: The Company's accounting
policies are described in Note 1 of the Consolidated Financial Statements
included in Item 8 of the Company's most recently filed Form 10-K. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America, upon which the Management's
Discussion and Analysis is based, requires that management exercise judgment
when making estimates and assumptions about future events that affect the
amounts reported in the financial statements and accompanying notes. Future
events and their effects cannot be determined with absolute certainty and actual
results will, inevitably, differ from those estimates. These differences could
be material. The most significant accounting estimates inherent in the
preparation of A&B's financial statements were described in Item 7 of the
Company's 2003 Form 10-K.
Investments: The Company's joint ventures are described in Item 8 of
its most recently filed Form 10-K. The Company has evaluated investments in
unconsolidated affiliates relative to Financial Interpretation ("FIN") Number 46
"Consolidation of Variable Interest Entities," as revised, and has determined
that the investments in these affiliates are either not subject to or do not
meet the consolidation requirements of FIN No. 46. Accordingly, the Company
accounts for these investments using the equity method of accounting and the
consolidation provisions of Accounting Research Bulletin No. 51 "Consolidated
Financial Statements," as amended.
Charter Agreements: Matson and American President Lines, Ltd. ("APL")
are parties to the Successor Alliance Slot Hire and Time Charter Agreement ("APL
Agreement") that expires in February 2006. This APL Agreement provides the
structure of an alliance through which Matson provides a weekly service to Guam.
Pursuant to this eight-year APL Agreement, Matson time charters three C-9 class
vessels to APL and APL reserves a designated number of container slots on each
vessel for Matson's exclusive use. This APL Agreement generates charter revenue
of approximately $2.9 million per month for Matson.
New and Proposed Accounting Standards: In December 2003, the Financial
Accounting Standards Board ("FASB") issued Interpretation No. 46, revised,
"Consolidation of Variable Interest Entities" ("FIN 46") The Interpretation
defines variable interest entities and addresses consolidation of such entities
by the primary beneficiary of the entity. The Interpretation is effective for
interests in variable interest entities created after January 31, 2003 and is
effective March 31, 2004. The Company has evaluated investments in
unconsolidated affiliates relative to FIN 46, revised, and has determined that
the investments in these affiliates are either not subject to or do not meet the
consolidation requirements of FIN No. 46. Accordingly, the Company accounts for
these investments using the equity method of accounting and the consolidation
provisions of Accounting Research Bulletin No. 51 "Consolidated Financial
Statements," as amended.
In December 2003, the FASB amended Statement of Accounting Standards
("SFAS") No. 132 "Employers' Disclosures about Pensions and Other Postretirement
Benefits." The portions of the amendment that will apply to the Company's 2004
financial statement disclosures include a table of expected benefit payments for
five years and, in total, for the subsequent five-year period. Additionally, the
Company is required to disclose components of the net benefit cost in quarterly
financial statements beginning with the first quarter of 2004. This interim
disclosure information is included above.
Additional information about the impacts of newly issued accounting
standards is discussed in Item 8 of the Company's Form 10-K for the year ended
December 31, 2003.
Economic Conditions: Some measures of Hawaii's economy have begun
"leveling out," in the near-term, at a moderate level. These measures include
growth in personal income, jobs and construction. As a result, the State's
above-average performance relative to the U.S. mainland is reverting to that of
the now-higher growth trend for the country as a whole, at least until the
contribution of new factors, such as a military housing program, begin to
contribute. Another potential positive factor for 2004 is Japan's gradually
improving economic situation.
The trends observed during 2003 continue in the important visitor
industry. That is, total visitors rise, based on the net of small decreases in
the international market, offset by growth in the U.S. market. In the month of
February, for example, total visitors rose six percent versus February 2003,
with domestic travelers up 11.4 percent and international visitors off 4.3
percent. Hotel occupancies show improvement. In February, for example, statewide
occupancy, at 83.5 percent, was five percent better than in February 2003. Room
rates also are edging higher, reflecting a reduction in past discounting.
Hawaii's consumption of consumer durable goods differs periodically
from that of the Mainland. For example, in 2003, total auto registrations in the
U.S. declined by 2.1 percent. Hawaii's registrations rose by an unexpectedly
high 17.6 percent, with strong rental car replacements as well as consumer
purchases. The outlook in 2004 is for a 7.2 percent increase.
Low mortgage rates and limited inventory have combined to sustain a
steady rise in median prices for homes and condominiums on Oahu and the Neighbor
Islands. For example, total residential re-sales on Oahu totaled $907 million in
the first quarter 2004, an increase of 37 percent over the already strong
year-earlier level. Some note is being taken in the Hawaii press and in public
forums of the resulting limited supply of affordable housing.
With sustained high demand for residential real estate, construction
activity remains high, although some measures are off recent peaks. The
contracting tax base, a proxy for the level of total construction activity,
decreased by 2.4 percent in the fourth quarter 2003. On the other hand, it was
up 6.1 percent for the full 2003 year. Construction jobs statewide were up 5.5
percent in the fourth quarter and 7.3 percent for the full year. Looking ahead,
total private building authorizations declined by 8.5 percent in the fourth
quarter, but still are at a relatively high level. Residential units authorized
rose by 17.6 percent in the period.
Defense-related expenditures remain very important to Hawaii. About
10,000 personnel have been deployed to Iraq and Afghanistan, with a near-term
decline in consumption and retail volume. In the future, however, formation of a
Hawaii-based Stryker brigade calls for greater air and ground deployments to
Hawaii. In addition, planning, training and supply efforts are beginning for
long-term, multi-billion dollar contracts to replace, rebuild and manage
military housing on Oahu.
The state of Hawaii's Department of Business, Economic Development and
Tourism recently notched downward its projection for Hawaii's real gross state
product by 0.2 percent, to 2.6 percent. The forecast for 2005 remains at 2.4
percent.
Historically, moderate growth levels, such as these, have proven more
sustainable than higher growth, which often creates imbalances among the limited
resources in island communities. For A&B, moderate growth also creates
opportunities for increasing demand for shipping to Hawaii, as well as for all
aspects of real estate activity.
Management Changes: The following management changes occurred from
January 1, 2004 through April 23, 2004:
o Christopher J. Benjamin was promoted to vice president and chief
financial officer of A&B effective February 9, 2004. James S.
Andrasick held the positions of chief financial officer and
treasurer through February 8, 2004 and continues as president and
chief executive officer of Matson.
o Paul W. Hallin was promoted to senior vice president, development
of A&B Properties, Inc. effective January 1, 2004.
o Charles W. Loomis was promoted to associate general counsel of A&B
effective February 9, 2004. Mr. Loomis is also vice president of
A&B Properties, Inc.
o Thomas A. Wellman was promoted to vice president, treasurer and
controller of A&B effective February 9, 2004.
o Michael G. Wright was promoted to senior vice president,
acquisitions and investments of A&B Properties, Inc. effective
January 1, 2004.
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,
2003. There has been no material change in the quantitative and qualitative
disclosure about market risk since December 31, 2003.
ITEM 4. CONTROLS AND PROCEDURES
- --------------------------------
(a) Disclosure Controls and Procedures. The Company's management, with
the participation of the Company's Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the Company's
disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) as of the end of the period covered
by this report. Based on such evaluation, the Company's Chief
Executive Officer and Chief Financial Officer have concluded
that, as of the end of such period, the Company's disclosure controls
and procedures are effective in recording, processing, summarizing
and reporting, on a timely basis, information required to be
disclosed by the Company in the reports that it files or submits
under the Exchange Act.
(b) Internal Control Over Financial Reporting. There have not been any
changes in the Company's internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report relates
that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
At the Annual Meeting of Shareholders of the Company held on April 22,
2004, the Company's shareholders voted in favor of: (i) the election of nine
directors to the Company's Board of Directors, (ii) the ratification of the
appointment of Deloitte & Touche LLP as the Company's independent auditors, and
(iii) the approval of an amendment to the Alexander & Baldwin, Inc. 1998
Non-Employee Director Stock Option Plan. The number of votes for, against or
withheld, as well as the number of abstentions, as to each matter voted upon at
the Annual Meeting of Shareholders, were as follows:
(i) Election of Directors For Withheld Broker Non-Votes
--- -------- ----------------
Michael J. Chun 38,569,799 419,256 0
Allen Doane 38,519,804 469,251 0
Walter A. Dods, Jr. 31,447,619 7,541,436 0
Charles G. King 37,395,294 1,593,761 0
Constance H. Lau 38,624,062 364,993 0
Carson R. McKissick 38,277,607 711,448 0
Maryanna G. Shaw 38,282,053 707,002 0
Charles M. Stockholm 38,554,116 434,939 0
Jeffrey N. Watanabe 38,436,966 552,089 0
(ii) Ratification of Appoint- For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
ment of Auditors 38,006,274 655,497 327,283 0
(iii) Proposal to Approve an For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
Amendment to the 1998
Stock Option/ 32,342,010 1,686,798 654,477 4,305,770
Stock Incentive Plan
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
4.b.(ii) First Amendment to Third Amended and Restated
Revolving Credit and Term Loan Agreement, effective as of
February 4, 2004, among Alexander & Baldwin, Inc. and First
Hawaiian Bank, Bank of America, N.A., Bank of Hawaii, The Bank
of New York, Wells Fargo Bank, National Association, American
Savings Bank, F.S.B., and First Hawaiian Bank, as Agent.
10.b.1.(xxxix) Amendment No. 2 to the Alexander & Baldwin,
Inc. One-Year Performance Improvement Incentive Plan, dated
February 25, 2004.
10.b.1.(xiv) Amendment No. 2 to the Alexander & Baldwin,
Inc. 1998 Non-Employee Director Stock Option Plan, dated
February 26, 2004.
31.1 Certification of Chief Executive Officer, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K
A&B furnished a Current Report on Form 8-K dated April 21,
2004 pursuant to Item 12 that attached a press release
announcing A&B's financial results for the quarter ended March
31, 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALEXANDER & BALDWIN, INC.
(Registrant)
Date: April 26, 2004 /s/ Christopher J. Benjanim
------------------------------------------
Christopher J. Benjamin
Vice President and Chief Financial Officer
Date: April 26, 2004 /s/ Thomas A. Wellman
------------------------------------------
Thomas A. Wellman
Vice President, Controller and Treasurer
EXHIBIT INDEX
4.b.(ii) First Amendment to Third Amended and Restated Revolving
Credit and Term Loan Agreement, effective as of February 4, 2004, among
Alexander & Baldwin, Inc. and First Hawaiian Bank, Bank of America, N.A., Bank
of Hawaii, The Bank of New York, Wells Fargo Bank, National Association,
American Savings Bank, F.S.B., and First Hawaiian Bank, as Agent.
10.b.1.(xxxix) Amendment No. 2 to the Alexander & Baldwin, Inc.
One-Year Performance Improvement Incentive Plan, dated February 25, 2004.
10.b.1.(xiv) Amendment No. 2 to the Alexander & Baldwin, Inc.
1998 Non-Employee Director Stock Option Plan, dated February 26, 2004.
31.1 Certification of Chief Executive Officer, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
EXHIBIT 31.1
CERTIFICATIONS
I, Allen Doane, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Alexander &
Baldwin, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an quarterly report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal control over financial reporting.
By /s/ Allen Doane
-----------------------------------
Allen Doane, President and
Chief Executive Officer
Date: April 26, 2004
EXHIBIT 31.2
CERTIFICATIONS
I, Christopher J. Benjamin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Alexander &
Baldwin, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an quarterly report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal control over financial reporting.
By /s/ Christopher J. Benjamin
-------------------------------------
Christopher J. Benjamin, Vice President
and Chief Financial Officer
Date: April 26, 2004
EXHIBIT 32
Certification of Chief Executive Officer and
Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Alexander & Baldwin,
Inc. (the "Company") for the quarterly period ending March 31, 2004, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
Allen Doane, as Chief Executive Officer of the Company, and Christopher J.
Benjamin, as Chief Financial Officer of the Company, each hereby certifies,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Allen Doane
- -----------------------------------
Name: Allen Doane
Title: Chief Executive Officer
Date: April 26, 2004
/s/ Christopher J. Benjamin
- -----------------------------------
Name: Christopher J. Benjamin
Title: Chief Financial Officer
Date: April 26, 2004
FIRST AMENDMENT TO
THIRD AMENDED AND RESTATED
REVOLVING CREDIT AND TERM LOAN AGREEMENT
----------------------------------------
THIS FIRST AMENDMENT TO THIRD AMENDED AND RESTATED REVOLVING CREDIT AND
TERM LOAN AGREEMENT (this "Amendment"), effective as of February 4 ,2004 (the
"Effective Date"), at Honolulu, Hawaii, is by and between ALEXANDER & BALDWIN,
INC., a Hawaii corporation (the "Borrower"), the undersigned Banks (herein
called, individually, a "Bank" and, collectively, the "Banks"), and FIRST
HAWAIIAN BANK, as agent for the Banks (the "Agent").
PRELIMINARY STATEMENTS
----------------------
A. The Borrower, certain of the Banks and other institutions
were parties to that certain Revolving Credit and Term Loan Agreement dated as
of December 1, 1982. Such Revolving Credit and Term Loan Agreement has been
amended and restated on numerous occasions, the last of which occurring pursuant
to that certain Third Amended and Restated Revolving Credit and Term Loan
Agreement effective as of November 30, 2001, by and between the Borrower, the
Banks and the Agent (the "Credit Agreement").
B. The Borrower, the Banks, and the Agent desire to amend the
Credit Agreement to amend the definition of "Consolidated Net Income" to account
for the adoption by the Borrower of certain accounting standards.
C. The Banks are willing to amend the Credit Agreement in
accordance with the terms and conditions of this Amendment.
D. All capitalized terms used herein, unless otherwise
defined, are as defined in Article IX of the Credit Agreement.
AGREEMENT
---------
In consideration of the mutual covenants set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Consolidated Net Income. The definition for "Consolidated
-----------------------
Net Income" in Article IX, Section 9.1 of the Credit Agreement is hereby amended
in its entirety as follows:
"Consolidated Net Income": shall mean the net income of the
-----------------------
Borrower and its Subsidiaries determined on a consolidated
basis in accordance with GAAP excluding (net of applicable
taxes and expenses thereto): (i) gains in excess of losses
resulting from the sale, conversion, exchange or disposition
of capital assets (i.e., assets other than current assets)
other than gains or losses resulting from the sales of
purchased or developed real property sold for cash, cash
equivalents or other property or tangible assets by the
Borrower or any Subsidiary engaged in real-estate activities
in the ordinary course of its property management and
development activities; (ii) gains resulting from the write-up
of assets to the extent permitted under GAAP; (iii) losses
resulting from the write-down of impaired assets in accordance
with GAAP; (iv) equity of the Borrower or its Subsidiaries in
the unremitted earnings of any company or entity not required
to be consolidated with the Borrower under GAAP; (v) losses
resulting from the write-down of intangible assets, including
goodwill, as required under GAAP; (vi) net income, gains or
losses resulting from any change in accounting, from any
discontinued operations or the disposition thereof (excluding,
however, net income, gains, or losses from discontinued
operations related to the sale of income-producing real
property assets classified as discontinued operations under
Statement of Financial Accounting Standards No. 144, provided
that all net proceeds of such sale be completely reinvested in
other income-producing real property assets within six (6)
months of the sale of the disposed income-producing real
property assets), from any extraordinary events, from any
cumulative changes in statutory tax rates, or from any prior
period adjustments, all determined in accordance with GAAP.
2. Confirmation of Warranties and Covenants: No Event of Default. All
-------------------------------------------------------------
of the continuing warranties of the Borrower contained in the Credit Agreement,
are hereby confirmed and reaffirmed by the Borrower as being true, valid and
correct as of the date of this Amendment. The Borrower represents and warrants
that no Event of Default exists as of the date of this Amendment.
3. No Offsets or Defenses; Waiver. As of the date hereof, the Borrower
------------------------------
has no claims, defenses or offsets against the Agent, the Banks or against the
Borrower's obligations under the Credit Agreement, as herein amended, whether in
connection with the negotiations for or closing of the Credit Agreement, of this
Amendment, or otherwise, and if any such claims, defenses or offsets exist, they
are hereby irrevocably waived and released.
4. Full Force and Effect. The provisions of the Credit Agreement and of
---------------------
the Notes, as previously amended, are hereby amended to conform with this
Amendment but in all other respects the provisions of the Credit Agreement and
the Notes, as previously amended and as amended by this Amendment, shall
continue in full force and effect.
5. Rights of the Banks. This Amendment is made on the express condition
-------------------
that nothing contained herein shall in any way be construed as affecting,
impairing, or waiving any rights of the Banks under the Credit Agreement.
6. Bind and Inure. This Amendment shall be binding upon and inure to
--------------
the benefit of the Banks, the Borrower and their respective successors and
assigns, provided, that the Borrower may not transfer any rights or obligations
under this Amendment without the prior written consent of the Banks.
7. Applicable Law; Severability. This Amendment shall be governed by
----------------------------
and interpreted in accordance with the laws of the State of Hawaii. If any
provision of this Amendment is held to be invalid or unenforceable, the validity
or enforceability of the other provisions shall remain unaffected.
8. Paragraph Headings. The headings of paragraphs in this Amendment are
------------------
inserted only for convenience and shall in no way define, describe, or limit the
scope or intent of any provision of this Amendment.
9. Counterparts and Facsimile Signatures. The parties to this Amendment
-------------------------------------
agree that this Amendment may be executed in counterparts, each of which shall
be deemed an original, and said counterparts shall together constitute one and
the same agreement, binding all of the parties hereto, notwithstanding all of
the parties are not signatory to the original or the same counterparts. In
making proof of this Amendment, it shall not be necessary to produce or account
for more than one such counterpart. For all purposes, including, without
limitation, recordation and delivery of this Amendment, duplicate unexecuted and
unacknowledged pages of the counterparts may be discarded and the remaining
pages assembled as one document. The submission of a signature-page transmitted
by facsimile or telecopy (or similar electronic transmission facility) shall be
fully binding and in full effect for all purposes under this Amendment. In such
event, original signature pages shall be delivered within a reasonable time and
substituted for the facsimile signature pages in the counterpart copies upon
receipt.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
ALEXANDER & BALDWIN, INC.
By /s/ James S. Andrasick
------------------------------------------------
JAMES S. ANDRASICK
Its Executive Vice President,
Chief Financial Officer and
Treasurer
By /s/ Thomas A. Wellman
------------------------------------------------
THOMAS A. WELLMAN
Its Controller and
Assistant Treasurer
"Borrower"
FIRST HAWAIIAN BANK,
as a Bank and as Agent
Corporate Hawaii Division
999 Bishop Street, 11th Floor
Honolulu, Hawaii 96813
Att'n: Mr. Alan Arizumi
Vice President
Telephone: (808) 525-6203
Facsimile: (808) 525-6200
By /s/ Alan Arizumi
------------------------------------------------
Its Vice President
BANK OF AMERICA, N.A.
WA1-501-35-01
800 Fifth Avenue, 35th Floor
Seattle, Washington 98104
Att'n: Mr. Mike Loken
Senior Vice President
Telephone: (206) 358-3145
Facsimile: (206) 585-1794
By /s/ Mike Loken
------------------------------------------------
Its Senior Vice President
BANK OF HAWAII
130 Merchant Street, 20th Floor
Honolulu, Hawaii 96813
Att'n: Mr. Scott Nahme
Vice President
Telephone: (808) 537-8689
Facsimile: (808) 537-8301
By /s/ Scott R. Nahme
------------------------------------------------
Its Vice President
THE BANK OF NEW YORK
10990 Wilshire Boulevard
Suite 1125
Los Angeles, California 90024
Att'n: Ms. Jennifer Ellerman
Vice President
Telephone: (310) 996-8677
Facsimile: (310) 996-8667
By /s/ Jennifer Ellerman
------------------------------------------------
Its Vice President
WELLS FARGO BANK, NATIONAL ASSOCIATION
MAC A0112-101
550 California Street, 10th Floor
San Francisco, California 94104
Attn: Mr. Jeff Bailard
Vice President
Telephone: (415) 396-1648
Facsimile: (415) 989-4319
By /s/ Meff Bailard
------------------------------------------------
Its Vice President
AMERICAN SAVINGS BANK, F. S. B.
P. O. Box 2300
Honolulu, Hawaii 96804-2300
Attn: Mr. Carl A. Morita
Telephone: (808) 539-7631
Facsimile: (808) 532-7370
By /s/ Carl A. Morita
------------------------------------------------
Its Vice President
"Banks"
ALEXANDER & BALDWIN, INC.
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
AMENDMENT NO. 2
---------------
The Alexander & Baldwin, Inc. 1998 Non-Employee Director Stock
Option Plan (the "Plan") is hereby amended, effective as of February 26, 2004,
in the following respects:
1. Paragraph A of Section III ("STOCK SUBJECT TO THE PLAN") of Article
One of the Plan is hereby amended in its entirety to read as follows:
"A. The stock issuable under the Plan shall be shares of the
Corporation's common stock, without par value ("Common Stock"). Such
shares may be made available from authorized but unissued shares of
Common Stock or shares of Common Stock reacquired by the Corporation
and held as Treasury shares. The aggregate number of issuable shares
shall not exceed 480,000 shares, subject to adjustment from time to
time in accordance with subparagraph D. below. Such share reserve
includes the 350,000 share increase authorized by the Board on February
26, 2004, subject to stockholder approval at the 2004 Annual Meeting."
2. Section I ("GRANT DATES") of Article Two of the Plan is hereby
amended in its entirety to read as follows:
"Commencing with the 1999 Annual Shareholders Meeting and
continuing in effect for each subsequent Annual Shareholders Meeting
prior to the 2004 Annual Meeting, each individual who is at the time
elected as a non-employee Board member shall automatically be granted,
on the date of each of such Annual Shareholders Meeting, a
non-qualified stock option to purchase 3,000 shares of Common Stock.
Commencing with the 2004 Annual Shareholders Meeting and continuing in
effect for each subsequent Annual Shareholders Meeting thereafter, each
individual who is at the time elected as a non-employee Board member
shall automatically be granted, on the date of each of such Annual
Shareholders Meeting, a non-qualified stock option to purchase 8,000
shares of Common Stock."
3. There is hereby added to Section II ("EFFECTIVE DATE AND TERM OF THE
PLAN") of Article Three of the Plan, a new Paragraph C, to read as follows:
"C. No stock options granted under the Plan in respect of the
350,000 share increase authorized by the Board on February 26, 2004,
may be exercised in whole or in part prior to approval of such share
increase by the Corporation's shareholders at the 2004 Annual Meeting.
In addition, the number of shares of Common Stock subject to each
automatic option grant made pursuant to Article Two shall not be
increased from 3,000 shares to 8,000 shares of Common Stock unless such
increase is approved by the Corporation's shareholders at the 2004
Annual Meeting."
4. Except as modified by this Amendment No. 2, all the terms and
provisions of the Alexander & Baldwin, Inc. 1998 Non-Employee Director Stock
Option Plan (as previously amended) shall continue in full force and effect.
5. If shareholder approval of this Amendment No. 2 is not obtained at
the 2004 Annual Meeting, then this Amendment No. 2 shall terminate and be of no
force or effect, and neither the 350,000-share increase to the Plan nor the
increase to the number of shares of Common Stock subject to each automatic
option grant made pursuant to Article Two of the Plan shall be implemented.
IN WITNESS WHEREOF, Alexander & Baldwin, Inc. has caused this Amendment
No. 2 to be executed on its behalf by its duly-authorized officers on this 26th
day of February, 2004.
ALEXANDER & BALDWIN, INC.
By /s/ John F. Gasher
Its Vice President
By /s/ Alyson J. Nakamura
Its Secretary
ALEXANDER & BALDWIN, INC.
ONE-YEAR PERFORMANCE IMPROVEMENT INCENTIVE PLAN
AMENDMENT NO. 2
---------------
The Alexander & Baldwin, Inc. One-Year Performance Improvement
Incentive Plan, as restated effective October 22, 1992 (the "Plan"), is hereby
amended, effective as of January 1, 2004, as follows:
1. Section V.B.2. is hereby amended by replacing it in its entirety
with the following:
"2. Aggregate. The aggregate award paid to all participants
will be limited by minimum requirements for 'income before income
taxes' and 'return on invested capital' for the Company, which will be
established or approved by the Committee in advance for each Plan Year.
If such limitations become effective, then the individual award of each
participant will be proportionately reduced."
2. Except as modified by this Amendment, all terms and provisions of
the Plan shall continue in full force and effect.
IN WITNESS WHEREOF, Alexander & Baldwin, Inc. has caused this Amendment
to be executed on its behalf by its duly authorized officers on this 25th day of
February, 2004, but effective as of January 1, 2004, as above stated.
ALEXANDER & BALDWIN, INC.
By /s/ John F. Gasher
Its Vice President
By /s/ Alyson J. Nakamura
Its Secretary