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 June 30, 2003
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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 June 30, 2003: 41,447,803
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
The condensed financial statements and notes for the second quarter and first
six months of 2003 are presented below, with comparative figures from the 2002
financial statements.
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Condensed Statements of Income
(In millions, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
(unaudited) (unaudited)
Revenue:
Operating revenue $ 313.3 $ 276.7 $ 584.9 $ 509.5
Interest and other 1.4 1.9 3.2 4.1
---------- ----------- ----------- -----------
Total revenue 314.7 278.6 588.1 513.6
---------- ----------- ----------- -----------
Costs and Expenses:
Costs of goods sold, services and rentals 252.4 230.1 476.6 428.7
Selling, general and administrative 30.1 27.6 59.9 53.4
Interest 2.4 3.0 5.0 6.0
---------- ----------- ----------- -----------
Total costs and expenses 284.9 260.7 541.5 488.1
---------- ----------- ----------- -----------
Income Before Taxes 29.8 17.9 46.6 25.5
Income taxes 11.0 6.1 17.1 9.1
---------- ----------- ----------- -----------
Income From Continuing Operations 18.8 11.8 29.5 16.4
Discontinued Operations (net of income taxes):
Properties 4.4 1.4 11.3 6.6
---------- ----------- ----------- -----------
Net Income $ 23.2 $ 13.2 $ 40.8 $ 23.0
========== =========== =========== ===========
Basic Earnings Per Share:
Continuing operations $ 0.45 $ 0.29 $ 0.71 $ 0.40
Discontinued operations 0.11 0.03 0.28 0.16
----------- ----------- ----------- -----------
Net income $ 0.56 $ 0.32 $ 0.99 $ 0.56
=========== =========== =========== ===========
Diluted Earnings Per Share:
Continuing operations $ 0.45 $ 0.29 $ 0.71 $ 0.40
Discontinued operations 0.11 0.03 0.27 0.16
----------- ----------- ----------- -----------
Net income $ 0.56 $ 0.32 $ 0.98 $ 0.56
=========== =========== =========== ===========
Dividends Per Share $ 0.225 $ 0.225 $ 0.450 $ 0.450
Average Number of Shares Outstanding 41.4 41.0 41.4 40.8
See Financial Notes
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Industry Segment Data, Net Income
(In millions)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
(unaudited) (unaudited)
Revenue:
Transportation:
Ocean transportation $ 199.3 $ 175.7 $ 385.4 $ 331.0
Intermodal services 57.4 48.6 108.4 88.9
Property Development and Management:
Leasing 20.6 17.4 39.7 35.2
Sales 26.4 16.6 43.1 53.9
Less amounts reported in discontinued
operations (24.1) (7.3) (38.5) (39.6)
Food Products 35.1 27.6 50.0 44.2
---------- ---------- ----------- ----------
Total revenue $ 314.7 $ 278.6 $ 588.1 $ 513.6
========== ========== =========== ==========
Operating Profit, Net Income:
Transportation:
Ocean transportation $ 23.2 $ 13.9 $ 35.3 $ 16.3
Intermodal services 1.4 0.9 1.9 1.0
Property Development and Management:
Leasing 9.5 7.7 18.1 15.9
Sales 6.9 2.9 18.5 11.8
Less amounts reported in discontinued
operations (7.0) (2.2) (18.2) (10.4)
Food Products 2.3 1.0 4.2 3.1
---------- ---------- ----------- ----------
Total operating profit 36.3 24.2 59.8 37.7
Interest Expense (2.4) (3.0) (5.0) (6.0)
General Corporate Expenses (4.1) (3.3) (8.2) (6.2)
---------- ---------- ----------- ----------
Income From Continuing Operations Before
Income Taxes 29.8 17.9 46.6 25.5
Income Taxes (11.0) (6.1) (17.1) (9.1)
---------- ---------- ----------- ----------
Income From Continuing Operations 18.8 11.8 29.5 16.4
Discontinued Operations (net of income taxes):
Properties 4.4 1.4 11.3 6.6
---------- ---------- ----------- ----------
Net Income $ 23.2 $ 13.2 $ 40.8 $ 23.0
========== ========== =========== ==========
See Financial Notes
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Condensed Balance Sheets
(In millions)
June 30, December 31,
2003 2002
---- ----
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 14.7 $ 0.6
Accounts and notes receivable, net 161.6 155.5
Inventories 23.8 15.0
Real estate and other assets held for sale 26.6 33.4
Deferred income taxes 11.9 12.0
Prepaid expenses and other assets 14.3 17.2
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Total current assets 252.9 233.7
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Investments 58.0 32.9
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Real Estate Developments 22.9 42.0
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Property, at cost 1,771.0 1,764.1
Less accumulated depreciation and amortization 822.1 821.5
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Property - net 948.9 942.6
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Capital Construction Fund 210.7 208.4
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Other Assets 147.8 138.0
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Total $ 1,641.2 $ 1,597.6
=========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of long-term debt $ 9.6 $ 9.6
Accounts payable 89.1 80.9
Other 81.7 60.6
----------- -----------
Total current liabilities 180.4 151.1
----------- -----------
Long-term Liabilities:
Long-term debt 249.4 247.8
Deferred income taxes 339.4 337.8
Post-retirement benefit obligations 43.1 42.6
Other 98.9 94.6
----------- -----------
Total long-term liabilities 730.8 722.8
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Commitments and Contingencies
Shareholders' Equity:
Capital stock 33.9 33.8
Additional capital 90.1 84.8
Accumulated other comprehensive loss (37.5) (26.8)
Retained earnings 655.1 643.6
Cost of treasury stock (11.6) (11.7)
----------- -----------
Total shareholders' equity 730.0 723.7
----------- -----------
Total $ 1,641.2 $ 1,597.6
=========== ===========
See Financial Notes
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
Condensed Statements of Cash Flows
(In millions)
Six Months Ended
June 30,
2003 2002
---- ----
(unaudited)
Cash Flows from (used in) Operating Activities $ 61.5 $ (7.5)
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures (19.2) (26.3)
Proceeds from disposal of property and other assets 4.9 18.3
Capital Construction Fund, net (2.3) (16.6)
Other (1.9) (6.3)
----------- -----------
Net cash used in investing activities (18.5) (30.9)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuances of long-term debt 114.9 39.0
Payments of long-term debt (127.9) (13.0)
Net proceeds of short-term debt -- 7.7
Proceeds from issuances of capital stock 2.7 12.6
Dividends paid (18.6) (18.4)
----------- -----------
Net cash from (used in) financing activities (28.9) 27.9
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents $ 14.1 $ (10.5)
=========== ===========
Other Cash Flow Information:
Interest paid, net of amounts capitalized $ (5.3) $ (6.2)
Income taxes paid, net of refunds (11.1) (41.0)
Other Non-cash Information:
Depreciation expense 35.2 35.5
Tax-deferred property sales 33.9 38.6
Tax-deferred property purchases (11.2) (38.6)
Debt assumed in real estate acquisition 14.6 --
Assets conveyed to joint venture 27.7 --
See Financial Notes
Financial Notes
(Unaudited)
(1) The Condensed Balance Sheet as of June 30, 2003, the Condensed
Statements of Income for the six months ended June 30, 2003 and 2002,
and the Condensed Statements of Cash Flows for the six months ended
June 30, 2003 and 2002 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 2003 estimated effective income tax rate differs from the statutory
rate, due primarily to tax credits. The 2002 estimated effective annual
income tax rate differs from the statutory rate, due primarily to the
favorable settlement of prior years' federal and state tax audits and
tax credits.
(3) 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 the operations and cash flows of the assets can be
clearly distinguished from the remaining assets of the Company, if the
cash flows that are specific to the assets sold have been, or will be,
eliminated from the ongoing operations of the Company, if the Company
will not have a significant continuing involvement in the operations of
the assets sold and if 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.
(4) Commitments, excluding operating lease commitments, that were in
effect at June 30, 2003, included the following (in millions):
Vessel purchases (a) $ 214.0
Guarantee of Sea Star debt (b) $ 28.8
Guarantee of HS&TC debt (c) $ 15.0
Standby letters of credit (d) $ 19.8
Bonds (e) $ 13.8
Benefit plan withdrawal obligations (f) $ 11.7
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 entered into an agreement with Kvaerner
Philadelphia Shipyards, Inc., to purchase two container ships.
The total project cost for each ship is approximately $107
million. The first ship is being delivered in the third
quarter of 2003 and the second ship is expected to be
delivered in the second quarter of 2004. No significant
payments are required until the acceptance and delivery of
each ship. No obligation for these ships is recorded on the
financial statements at June 30, 2003 because conditions
necessary to record either a liability or an asset have not
been met. The financing for the acquisition is discussed in
Management's Discussion and Analysis in this Form 10-Q.
(b) Matson has guaranteed $28.8 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. It is expected that the guarantee will be
reduced, over time by the required assumption of a specified
portion by the majority partner in Sea Star, and by scheduled
repayments of the debt by Sea Star. The Company has not
recorded any liability for its obligations under the guarantee
because it believes that the probability of making any
payments is low.
(c) 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 up to $15 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 June 30,
2003, the amount drawn was $17 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.
(d) The Company has arranged for standby letters of credit
totaling $19.8 million. This includes letters of credit,
totaling approximately $12.7 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 $4.3 million for workers' compensation claims
incurred by California & Hawaiian 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 obligation to
provide this letter of credit expires on December 24, 2003
and the Company understands that C&H has the credit capacity
to provide a replacement security deposit. The remaining
letters of credit are for insurance-related matters,
construction performance guarantees, and other routine
operating matters.
(e) Of the $13.8 million in bonds, $5.9 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 $5.3
million of customs bonds and $2.6 million of non-real estate
performance bonds.
(f) The withdrawal liabilities under a Hawaii longshore plan
and certain Mainland seagoing plans aggregated
approximately $11.7 million as of the most recent valuation
dates.
The State of Hawaii, Department of Taxation ("State") has informed the
Company that it believes that a portion of the Company's ocean
transportation revenue is subject to the Public Service Company tax and
its successor, the General Excise tax. The Company strongly disagrees
with the State's overall position. If the State were to prevail fully,
the amount of the claim could be material. A liability for this matter
has been established in the accompanying balance sheets and, after
consultation with legal counsel, management believes that the ultimate
disposition of this matter will not have a material adverse effect on
the Company's operations or financial condition.
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.
(5) Accounting Method for Stock-based Compensation: 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 three and six months ended June 30, 2003 and
2002 would have been as follows (in millions, except per share
amounts):
Quarter Ended Six Months Ended
June 30 June 30
------- -------
2003 2002 2003 2002
Net Income:
As reported $ 23.2 $ 13.2 $ 40.8 $ 23.0
Stock-based compensation
expense determined under fair
value based method for all
awards, net of related tax effects (0.3) (0.3) (0.6) (0.7)
-------- -------- -------- ---------
Pro forma $ 22.9 $ 12.9 $ 40.2 $ 22.3
======== ======== ======== =========
Net Income Per Share:
Basic, as reported $ 0.56 $ 0.32 $ 0.99 $ 0.56
Basic, pro forma $ 0.55 $ 0.31 $ 0.97 $ 0.55
Diluted, as reported $ 0.56 $ 0.32 $ 0.98 $ 0.56
Diluted, pro forma $ 0.55 $ 0.31 $ 0.97 $ 0.54
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. No changes have been made to the
Company's stock option plans subsequent to that filing.
(6) Certain amounts have been reclassified to conform to the current year's
presentation. These amounts include the revenue and operating profit of
real estate assets designated as discontinued operations. Discontinued
operations were as follows:
Quarter Ended Six Months Ended
June 30 June 30
------- -------
2003 2002 2003 2002
Discontinued Operations (net of tax)
Sales of Assets $ 4.1 $ 0.7 $ 10.5 $ 5.0
Leasing Operations 0.3 0.7 0.8 1.6
-------- -------- -------- ---------
Total $ 4.4 $ 1.4 $ 11.3 $ 6.6
======== ======== ======== =========
(7) Other Comprehensive Income for the three and six months ended
June 30, 2003 and 2002 were as follows, (in millions):
Quarter Ended Six Months Ended
June 30 June 30
------- -------
2003 2002 2003 2002
Net Income $ 23.2 $ 13.2 $ 40.8 $ 23.0
Other Comprehensive Income (Loss):
Change in valuation of derivative (3.0) -- (3.5) --
Company's share of investee's
minimum pension liability adjustment -- -- (7.2) --
-------- -------- -------- ---------
Comprehensive Income $ 20.2 $ 13.2 $ 30.1 $ 23.0
======== ======== ======== =========
C&H reported a $20.1 million minimum pension liability adjustment and
the Company recorded its share of that adjustment during the first
quarter of 2003.
(8) Subsequent Events: Events subsequent to June 30, 2003 include:
(a) In July, the Company signed an agreement to acquire three golf
courses and 270 acres of undeveloped but fully zoned land at the
Wailea Resort on Maui, and two golf courses and an undeveloped
hotel site and other vacant lands at the Kauai Lagoons Resort from
various subsidiaries of the Shinwa Golf Group. The purchase price
of approximately $135 million is subject to closing adjustments
and will be funded using existing credit facilities. The
transaction is scheduled for closing in early October and will be
completed with an affiliate of GolfBC Group.
(b) In July, the Company executed the operating agreement for the
previously announced investment in the development of "Hokua at
1288 Ala Moana" and made an initial investment of approximately
$2.5 million.
(c) On July 21, 2003, the Company borrowed $35 million on an existing
$50 million private shelf agreement to take advantage of lower
long-term interest rates.
(d) In July, Matson entered into a time charter agreement with Totem
Ocean Trailer Express, Inc. for a roll-on/roll-off vessel. The
agreement has a two-year initial term with three one-year renewal
options at an average annual expense of $12 million. To
accommodate the operations of this new vessel, Matson is
negotiating terms for the use of an additional terminal facility
in Honolulu. Matson expects to begin using this vessel for the
carriage of vehicles in its Hawaii service, during the fourth
quarter of 2003. One of Matson's existing vessels will likely be
taken out of service in connection with this new deployment.
(e) During the third quarter of 2003, Matson is expected to take
delivery of a new vessel for approximately $107 million. Matson
intends to finance the purchase with $55 million of fixed rate, 25
year term, U.S. government Guaranteed Ship Financing Bonds, more
commonly known as Title XI bonds. The bonds will be sold
concurrent with Matson taking delivery of the new vessel. The
remaining $52 million will be funded through withdrawals from the
Capital Construction Fund.
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 and pricing pressures in the Company's
primary markets;
4) legislative and regulatory environments at the federal,
state and local levels, such as government rate regulations,
land-use regulations, government administration of the U.S.
sugar program, and modifications to or retention of cabotage
laws;
5) performance of pension assets;
6) labor relations in Hawaii, the U.S. Pacific Coast, Guam and
other locations where the Company has operations;
7) acts of nature, including but not limited to, drought,
greater than normal rainfall, hurricanes and typhoons;
8) acts of terrorism;
9) significant fluctuations in fuel prices;
10) significant fluctuations in raw sugar prices;
11) risks associated with current or future litigation;
12) resolution of tax issues with the IRS or state tax
authorities;
13) performance of unconsolidated affiliates and ventures; and
14) 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 June 30
- ------------------------------------------------------------------------------------------------
(dollars in millions, except per-share) 2003 2002 Change
- ------------------------------------------------------------------------------------------------
Revenue $ 314.7 $ 278.6 13%
Net income $ 23.2 $ 13.2 76%
Basic earnings per share $ 0.56 $ 0.32 75%
- ------------------------------------------------------------------------------------------------
For the second quarter of 2003, revenue was $314.7 million, 13 percent higher
than 2002. Net income of $23.2 million for the second quarter of 2003 was 76
percent higher than 2002. Both revenue and net income benefited from higher
Matson cargo volumes and rates compared with lower than normal 2002 cargo
levels that followed events of September 11, 2001, the mix of real estate sales,
and increased leasing results due to both higher occupancies and the timing and
amount of commercial property transactions. Revenue also benefited from growth
in the intermodal business and from higher raw sugar sales.
- ---------------------------------------------------------------------------------------------
Six Months Ended June 30
- ---------------------------------------------------------------------------------------------
(dollars in millions, except per-share) 2003 2002 Change
- ---------------------------------------------------------------------------------------------
Revenue $ 588.1 $ 513.6 15%
Net income $ 40.8 $ 23.0 77%
Basic earnings per share $ 0.99 $ 0.56 77%
- ---------------------------------------------------------------------------------------------
For the first half of 2003, revenue was $588.1 million, 15 percent higher than
2002. Net income of $40.8 million for the first half of 2003 was 77 percent
higher than 2002. Both of these increases were due to the same factors noted for
the second quarter comparison.
The Company's effective tax rate is 37 percent for the first half of 2003,
compared to 33 percent for all of 2002, reflecting favorable settlements of tax
audits and realization of certain incentives in 2002.
RESULTS OF SEGMENT OPERATIONS
Transportation - Ocean Transportation
- -------------------------------------------------------------------------------
Quarter Ended June 30
- -------------------------------------------------------------------------------
(dollars in millions) 2003 2002 Change
- -------------------------------------------------------------------------------
Revenue $ 199.3 $ 175.7 13%
Operating profit $ 23.2 $ 13.9 67%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Volume (Units)
Hawaii containers 39,900 40,100 --
Automobiles 41,600 35,600 17%
Guam containers 4,600 4,000 15%
- -------------------------------------------------------------------------------
Improved revenue and operating profit for the second quarter of 2003 compared
with the second quarter of 2002 were the result of rate actions in 2002 and 2003
(described below), an improved mix of freight, higher automobile volume,
improved results from the operations of joint ventures, and productivity
improvements at the Sand Island container terminal. These favorable factors were
partially offset by increased vessel operating costs following the
re-introduction, in late 2002, of an eighth vessel in the Hawaii Service to
accommodate the increase in freight volumes, and higher pension costs. The
additional vessel was made necessary as freight volumes returned to more normal
levels.
Container volume in the Hawaii Service was substantially the same as the second
quarter of 2002 but automobile volumes were 17 percent higher. The higher
automobile volume reflects principally rental fleet replacements in Hawaii. The
Guam service improvement was due mainly to recovery efforts following Typhoon
Pongsona.
- --------------------------------------------------------------------------------
Six Months Ended June 30
- --------------------------------------------------------------------------------
(dollars in millions) 2003 2002 Change
- --------------------------------------------------------------------------------
Revenue $ 385.4 $ 331.0 16%
Operating profit $ 35.3 $ 16.3 2.2x
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Volume (Units):
Hawaii containers 78,900 75,800 4%
Automobiles 79,100 60,100 32%
Guam containers 9,000 7,900 14%
- --------------------------------------------------------------------------------
Improved revenue and operating profit for the first half of 2003 compared with
the first half of 2002 were due mainly to recovery of cargo volumes following
events of September 11, 2001 as well as the factors noted for the second
quarter.
Container volume in the Hawaii Service and automobile volumes were four percent
and 32 percent, respectively, higher than in the first six months of 2002,
reflecting the recovery in westbound container volumes that had declined in the
months following September 11, 2001 and a carryover of freight into 2003
following West Coast port disruptions in the fourth quarter of 2002. Automobile
volume changes also reflect increased rental fleet replacements in Hawaii in
2003. As with the second quarter, the 14 percent improvement in Guam service was
due mainly to recovery efforts following Typhoon Pongsona.
In January 2003, Matson implemented a terminal handling charge in its Hawaii
Service of $200 per container for westbound freight, $100 per container for
eastbound freight, and $30 per automobile. Due to increasing fuel costs, Matson
increased its fuel surcharge from 3.25 percent to 4.75 percent in May 2002 and
to six percent in October 2002 in Hawaii and in November 2002 in Guam. In March
2003, the surcharge was increased to 7.5 percent. In May 2003, Matson reduced
its fuel surcharge from 7.5 percent to 6.5 percent, in its Hawaii and Guam
services.
Matson expects to take delivery, during the third quarter of 2003, of a new
vessel, the M.V. Manukai, constructed at a cost of approximately $107 million.
One fully depreciated vessel that is being replaced by this new ship was
disposed during the second quarter.
Transportation - Intermodal Services
- -------------------------------------------------------------------------------
Quarter Ended June 30
- -------------------------------------------------------------------------------
(dollars in millions) 2003 2002 Change
- -------------------------------------------------------------------------------
Revenue $ 57.4 $ 48.6 18%
Operating profit $ 1.4 $ 0.9 56%
- -------------------------------------------------------------------------------
Revenue and operating profit growth in the second quarter of 2003 for the
Company's intermodal services business was mainly the result of increased
customer volume, especially in international and highway activity.
- -------------------------------------------------------------------------------
Six Months Ended June 30
- -------------------------------------------------------------------------------
(dollars in millions) 2003 2002 Change
- -------------------------------------------------------------------------------
Revenue $ 108.4 $ 88.9 22%
Operating profit $ 1.9 $ 1.0 90%
- -------------------------------------------------------------------------------
As with the second quarter, revenue and operating profit growth during the first
half of 2003 was due mainly to increased customer volume.
The revenue for intermodal 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 narrower than other A&B businesses. The primary operating
profit and investment risk for this business is the quality of receivables,
which is monitored closely.
Property Development and Management - Leasing
- -----------------------------------------------------------------------------
Quarter Ended June 30
- -----------------------------------------------------------------------------
(dollars in millions) 2003 2002 Change
- -----------------------------------------------------------------------------
Revenue $ 20.6 $ 17.4 18%
Operating profit $ 9.5 $ 7.7 23%
- -----------------------------------------------------------------------------
Occupancy Rates:
Mainland 96% 91% 5%
Hawaii 90% 87% 3%
- -----------------------------------------------------------------------------
Revenue and operating profit growth for the second quarter of 2003, before
removing amounts treated as discontinued operations, was the result of higher
occupancies for both Mainland and Hawaii commercial leasing portfolios, and the
purchases of income-producing property during 2002 and early 2003. The
comparison also benefited from a relatively low level of occupancies during the
second quarter of 2002.
- ----------------------------------------------------------------------------
Six Months Ended June 30
- ----------------------------------------------------------------------------
(dollars in millions) 2003 2002 Change
- ----------------------------------------------------------------------------
Revenue $ 39.7 $ 35.2 13%
Operating profit $ 18.1 $ 15.9 14%
- ----------------------------------------------------------------------------
Occupancy Rates:
Mainland 92% 91% 1%
Hawaii 90% 87% 3%
- ----------------------------------------------------------------------------
Revenue and operating profit growth for the first half of 2003, before removing
amounts treated as discontinued operations, was also the result of higher
occupancies and the purchases of new income-producing property.
Property Development and Management - Sales
- ---------------------------------------------------------------------------
Quarter Ended June 30
- ---------------------------------------------------------------------------
(dollars in millions) 2003 2002 Change
- ---------------------------------------------------------------------------
Revenue $ 26.4 $ 16.6 59%
Operating profit $ 6.9 $ 2.9 2.4x
- ---------------------------------------------------------------------------
Sales during the second quarter of 2003 included the sales of a commercial
property in Reno, Nevada, one industrial lot on Oahu, and three residential
properties.
Sales during the second quarter of 2002 included a Colorado shopping center, an
85-acre parcel on Maui, four industrial lots, and seven residential properties.
- -----------------------------------------------------------------------
Six Months Ended June 30
- -----------------------------------------------------------------------
(dollars in millions) 2003 2002 Change
- -----------------------------------------------------------------------
Revenue $ 43.1 $ 53.9 -20%
Operating profit $ 18.5 $ 11.8 57%
- -----------------------------------------------------------------------
Sales during the first half of 2003 included six commercial properties
(including a seven-acre property on Maui that had a low carrying cost), four
industrial lots, and eight residential properties.
Sales during the first half of 2002 included the sales of a seven-building
distribution complex in Texas, an 85-acre parcel in upcountry Maui, four
commercial properties, five industrial lots, 11 residential properties, and a
shopping center in Colorado.
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 June 30 Six Months Ended June 30
- -------------------------------------------------------------------------------------------------------------
(dollars in millions, before tax) 2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------------
Sales revenue $ 23.5 $ 5.4 $ 36.9 $ 35.3
Leasing revenue $ 0.6 $ 1.9 $ 1.6 $ 4.3
Sales operating profit $ 6.6 $ 1.0 $ 17.0 $ 7.8
Leasing operating profit $ 0.4 $ 1.2 $ 1.2 $ 2.6
- -------------------------------------------------------------------------------------------------------------
During the second quarter of 2003, the operating results and the proceeds from
the sale of the Airport Square property in Reno, Nevada was included in
discontinued operations. This property had been designated as discontinued in
2002 due to the planned sale of the property. During the second quarter of 2002,
discontinued property sales included the proceeds from the Market Square
Shopping Center in Greeley, Colorado.
In addition to the property sales noted above, 2003 discontinued operations
included the proceeds from the sales of five commercial properties on Maui
(including the Dairy Road Center), and for 2002, the sales of a mainland
distribution complex in Texas and one commercial property on Maui.
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 June 30
- --------------------------------------------------------------------------------
(dollars in millions) 2003 2002 Change
- --------------------------------------------------------------------------------
Revenue $ 35.1 $ 27.6 27%
Operating profit $ 2.3 $ 1.0 2.3x
- --------------------------------------------------------------------------------
Tons sugar produced 68,900 56,200 23%
- --------------------------------------------------------------------------------
Revenue and operating profit improvements for the second quarter of 2003
compared with 2002 were due mainly to higher raw sugar production and higher
estimated full year sugar prices, partially offset by higher operating costs for
employee benefits and factory maintenance. Quarterly fluctuations in sales and
operating profit are normal for this business due to weather, production and
other seasonality factors.
- -------------------------------------------------------------------------------
Six Months Ended June 30
- -------------------------------------------------------------------------------
(dollars in millions) 2003 2002 Change
- ------------------------------------------------------------------------------
Revenue $ 50.0 $ 44.2 13%
Operating profit $ 4.2 $ 3.1 35%
- -------------------------------------------------------------------------------
Tons sugar produced 87,600 81,900 7%
- -------------------------------------------------------------------------------
Revenue and operating profit improvements for first half of 2003 were due to the
same factors noted for the second quarter of the year. Production shortfalls
during the first quarter, however, that resulted from wet weather and a delayed
harvesting start were partially offset during the second quarter.
Through June 30, 2003, 52 percent of the Company's expected 2003 commodity sugar
crop had been forward priced. An additional seven percent of the 2003 crop is
food grade and is pre-priced. Average raw sugar prices for the first half of
2003 are approximately two percent higher than the first half of 2002.
In spite of the strong performance in the first half of 2003, the outlook for
the Food Products segment for the full year remains lower than the unusually
good results for the second half of 2002 due mainly to the timing of production,
and price and cost re-estimates during the second half of 2002.
FINANCIAL CONDITION, LIQUIDITY, FINANCING ARRANGEMENTS AND CASH FLOWS
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
$524.0 million at June 30, 2003, an increase of $19.5 million from December 31,
2002. This net increase was due primarily to $14.1 million increase in cash,
$8.3 million in higher sugar inventories and $6.1 million of higher receivable
balances, partially offset by $9.0 million drawn on variable rate debt
facilities.
Balance Sheet: Working capital was $72.5 million at June 30, 2003, a decrease of
$10.1 million from the balance carried at the end of 2002. The lower working
capital was due primarily to higher income taxes and trade accounts payable and
the Company's third quarter dividend that had been declared, but not paid, at
quarter end, partially offset by increased cash and receivable balances and raw
sugar inventories. These fluctuations are mostly due to business seasonality.
During the first quarter of 2003, the Company conveyed 852 acres of land and
improvements with a carrying cost of $27.7 million to the Kukui'Ula joint
venture. This transfer reduced Real Estate Developments and increased
Investments. No gain or loss was recorded on the transfer.
Long-term Debt, including amounts classified as current, totaled $259.0 million
at June 30, 2003 compared with a balance of $257.4 million at December 31, 2002.
This increase includes $14.6 million of debt assumed by the Company, as part of
a real estate purchase, net of increased operating cash flow. The weighted
average interest rate for the Company's outstanding borrowings at June 30, 2003
was approximately 4%.
On July 21, 2003, the Company borrowed $35 million on an existing $50 million
private shelf agreement for the purpose of restructuring some of its debt to
take advantage of lower long-term interest rates. This amount carries a term of
10 years at an interest rate of 4.10%. This restructuring will provide the
Company with more flexibility to finance medium-term real estate projects and
investments.
As noted earlier, Matson expects, subject to certain conditions, to take
delivery of a new vessel during the third quarter of 2003 for approximately $107
million. Matson intends to finance the purchase with $55 million of fixed rate,
25 year term, U.S. government Guaranteed Ship Financing Bonds, more commonly
known as Title XI bonds. The bonds will be sold concurrent with Matson taking
delivery of the new vessel. The remaining $52 million will be funded through
withdrawals from the Capital Construction Fund. No decision has been made about
the form of financing for the new vessel that will be delivered to Matson during
2004. Matson has, however, received from the Maritime Administration, a
commitment to guarantee bonds for up to $75 million for that vessel, of which
35% may be issued at a floating rate.
Cash Flows and Capital Expenditures: Cash Flows from Operating Activities were
$61.5 million for the first half of 2003, compared with Cash Flows used in
Operating Activities of $7.5 million for the first half of 2002. The higher cash
flow was due principally to better operating results, the timing of sales and
expenditures for real estate development projects that are classified as Real
Estate Held for Sale and fluctuations in other working capital balances,
including the timing of payments for income taxes in 2002 resulting from a sale
of securities in late 2001.
For the first half of 2003, capital expenditures, including purchases of
property using tax-deferred proceeds and additions to real estate held for sale
but excluding assumed debt, totaled $50.7 million. Of this amount, $38.5 million
was for real estate acquisitions and property development, $5.1 million was for
agricultural projects, $5.7 million was at Matson, and $1.4 million was for
renovations to the Company's historic headquarters building in Honolulu. Of the
$50.7 million, $20.4 million was included in Cash Flows from Operating
Activities, $11.2 million utilized tax-deferred proceeds and was not included in
cash flows, and the remaining $19.1 million was recorded as Cash Flows from
Investing Activities.
Real estate acquisitions during the first half of 2003 included the following:
Boardwalk Shopping Center: Purchased in March 2003 for $23.1 million,
the Boardwalk Shopping Center in Austin, Texas comprises 184,600 square
feet of retail space.
1100 Alakea: Purchased in March 2003 for $20 million, 1100 Alakea is a
31-story Class "A" office building with approximately 170,000 square
feet of leasable area on 26,000 square feet of fee simple property in
Honolulu, Hawaii. The Company intends to convert the building to
fee-simple office condominiums.
Vista Controls Building: Purchased in March 2003 for $4.8 million, the
Vista Controls Building is a 51,000 square foot, fully leased,
two-story commercial building in Valencia, California.
In July, the Company signed an agreement to acquire three golf courses and 270
acres of undeveloped but fully zoned land at the Wailea Resort on Maui, and two
golf courses and an undeveloped hotel site and other vacant lands at the Kauai
Lagoons Resort from various subsidiaries of the Shinwa Golf Group. The purchase
price of approximately $135 million is subject to closing adjustments and will
be funded using existing credit facilities. The transaction is scheduled for
closing in early October and will be completed with an affiliate of GolfBC
Group.
Tax-Deferred Real Estate Exchanges: Sales - During the first half of 2003, the
Company recorded, on a tax-deferred basis, real-estate sales of $37.3 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. Of the total sales
proceeds, $3.4 million was included in the Statement of Cash Flows as both
Capital expenditures for property and developments and as "Receipts from
disposal of property." The remaining $33.9 million is reported under the caption
"Other Non-cash Information" in the Condensed Statements of Cash Flows.
Purchases - During the first half of 2003, the company utilized $14.6 million of
tax-deferred funds to acquire new income-producing assets.
Commitments and Contingencies: A description of other financing arrangements in
effect at the end of the first half is described in Note (4) 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. In addition, the Company has emergency
response and crisis management programs. The Company has received a claim for
payment of environmental remediation costs associated with a sugar refinery
site, sold in 1994, that previously was owned by California and Hawaiian Sugar
Company. Additionally, the Company has self-reported to the State of Hawaii
Department of Health, possible violations of state and federal air pollution
control regulations at its Maui sugar mill. Although operating in accordance
with the requirements of permits issued to the Company, the permits' operating
conditions may not have reflected the federal standards fully. The Company
believes that the resolution of the two matters noted above will not have a
material effect on the Company's financial statements and that appropriate
accruals for these obligations have been recorded. There have been no
substantive changes in these two matters since 2002 year-end.
OTHER MATTERS
Significant Accounting Policies: The Company's significant accounting policies
are described in Note 1 of the 2002 consolidated financial statements included
in Item 8 of the Company's Form 10-K for the year ended December 31, 2002. There
have been no changes to the policies since that filing.
Significant Estimates: The preparation of the condensed consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported.
The more significant of these include:
1) assumptions underlying the calculation of pension,
post-retirement, and non-qualified benefit obligations and
costs,
2) assumptions underlying the carrying value of investments,
3) the estimation of allowances for doubtful accounts,
4) the estimation of liabilities for self-insurance programs,
5) the calculation and classification of tax obligations and
provisions prior to completion of tax returns and completion
of taxing authority audits,
6) the application of cost accounting methods for sugar,
molasses and coffee inventory and cost of sales,
7) depreciable lives and salvage values for fixed assets,
8) liabilities for environmental assessments and remedial
efforts,
9) estimates of joint venture earnings or losses prior to
the issuance of final annual joint venture financial
statements,
10) accruals for obligations incurred but not yet billed to the
Company, and
11) recoverability of claims from losses under insurance
coverage.
The Company believes that the methods it uses to determine estimates comply with
generally accepted accounting principles consistently applied.
Investments: The Company's joint ventures are described in Item 8 of its most
recently filed Form 10-K and Item 2 of its most recently filed Form 10-Q.
During the second quarter, the Company announced that its wholly owned
subsidiary, A&B Properties, had signed a letter of intent with MK Management,
LLC, formed by The MacNaughton Group and The Kobayashi Group, for the
development of "Hokua at 1288 Ala Moana," a 40-story luxury residential
condominium in Honolulu. The operating agreement for this development was signed
in July 2003. A&B's total investment in the venture is expected to be $40
million and will be funded over approximately 18 months.
The accrual of preferred stock dividends of C&H (net of losses), subsequent to
the write down of the investments in 2001, has been deferred until the investee
has sufficient cash flow available to make dividend payments.
Charter Agreements: Matson and American President Lines, Ltd. ("APL") are
parties to the Successor Alliance Slot Hire and Time Charter Agreement dated
January 28, 1998 ("APL Agreement"). 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 revenue of approximately
$2.9 million per month for Matson.
In July, Matson entered into a time charter agreement with Totem Ocean Trailer
Express, Inc. for a roll-on/roll-off vessel. The agreement has a two-year
initial term with three one-year renewal options at an average annual expense of
$12 million. To accommodate the operations of this new vessel, Matson is
negotiating terms for the use of an additional terminal facility in Honolulu.
Matson expects to begin using this vessel for the carriage of vehicles in its
Hawaii service, during the fourth quarter of 2003. One of Matson's existing
vessels will likely be taken out of service in connection with this new
deployment.
New and Proposed Accounting Standards: In April 2003, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities." SFAS No. 149, effective, in most regards, for contracts
entered into or modified after June 30, 2003 provides clarifying guidance to
SFAS No. 133 and establishes additional accounting and reporting standards for
derivative instruments, hedging activities, and derivatives embedded in other
contracts. The Company is evaluating the effects of SFAS No. 149, but currently
does not expect that the standard will have an effect on its consolidated
financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equities." SFAS No.
150, effective for financial instruments entered into or modified after May 31,
2003 and for interim periods beginning after June 15, 2003, requires that
certain instruments that were previously classified as equity should be
classified as a liability. These include instruments for which redemption is
mandatory, that have an obligation to repurchase the issuer's equity shares, and
unconditional obligation that must or may be settled by issuing a variable
number of the issuer's equity shares, provided that certain characteristics are
present. The Company does not have any instruments that would be reclassified,
under SFAS No. 150, from equity to liability.
In November 2002, the FASB issued Interpretation No. ("FIN") 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." This Interpretation specifies that a
guarantor is required to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. This
applies to guarantees issued or modified after December 31, 2002. The
Interpretation also revises the disclosure requirements about a guarantor's
obligations under agreements, which are effective for the 2002 consolidated
financial statements. The adoption of FIN 45 had no effect on the Company's 2003
first half condensed consolidated financial statements.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities." 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. For interests in variable interest entities created
before February 1, 2003, the Interpretation shall apply to the first interim or
annual reporting period beginning after June 15, 2003. The Company has made no
investments in Variable Interest Entities during the first half of 2003 and is
currently evaluating investments that existed at December 31, 2002 to determine
if any such investments are in Variable Interest Entities.
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,
2002 and in Item 2 of the Company's most recently filed Form 10-Q.
Pensions: For 2002, the total year pre-tax pension benefit of approximately $1.4
million was recorded in the Company's income statement. For 2003, due to market
driven lower pension assets and the application of a lower discount rate for the
calculation of pension obligations, the Company expects that the full year
pre-tax expense will be approximately $14 million. Additional information
regarding pensions is included in Item 8 of the Company's 2002 Form 10-K.
Stock Options: Information regarding the accounting for and pro forma effect of
options to purchase shares of the Company's stock is included in Note (5) to the
financial statement included in Item 1.
Economic Conditions: Through midyear 2003, the economy of Hawaii continued to
perform reasonably well overall. In spite of some weaker sectors, the State of
Hawaii's Department of Business, Economic Development, and Tourism recently
raised its projection for real gross state product in 2003 to 2.0 percent, after
forecasting 1.7 percent growth just three months ago. The domestic visitor
market continues to be strong, and that, plus construction and real estate, are
more than offsetting a decline in international visitor arrivals, which is being
attributed to concerns over SARS.
Longer-term, the overall economic performances of the U.S. and, to a lesser
extent, Japan are the primary factors that can sustain Hawaii's current
performance. With even stronger monetary and fiscal stimuli now in place in the
U.S., prospects are reasonably good for improvement. Projections for growth in
Japan remain modest, but positive.
Construction activity in Hawaii continues at high levels and it is still
growing. In the first quarter of 2003, employment in the industry was up nine
percent on a year-over-year basis. The contracting tax base in construction, a
proxy for construction activity, rose 23 percent between the same periods.
Current activity on Oahu alone includes large projects, like senior housing and
a new medical school for the University of Hawaii, as well as nearly 1,000 homes
and substantial residential renovation activity. Looking ahead, total private
construction authorizations rose 95 percent, with all sectors up. Plans for
substantial federal projects for replacement of antiquated military housing also
are under way.
Management Changes: James S. Andrasick accepted the permanent position of
president and chief executive officer of Matson, effective July 15, 2003. Mr.
Andrasick will continue as chief financial officer and treasurer of A&B, on an
interim basis, until a replacement is named. Mr. Andrasick is also an executive
vice president of A&B.
Effective on August 1, 2003, David L. Hoppes was promoted to vice president,
ocean services of Matson and John W. Sullivan was promoted to vice president,
vessel operations of Matson.
On April 24 2003, Ronald J. Forest was promoted to senior vice president of
Matson and Christopher J. Benjamin was promoted to vice president, corporate
planning and development of A&B.
Paul E. Stevens resigned as executive vice president of Matson, effective July
29, 2003.
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, 2002. There
has been no material change in the quantitative and qualitative disclosure about
market risk since December 31, 2002.
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 24,
2003, the Company's shareholders voted in favor of: (i) the election of ten
directors to the Company's Board of Directors and (ii) the ratification of the
appointment of Deloitte & Touche LLP as the Company's independent auditors. The
number of votes for, against or withheld, as well as the number of abstentions
and broker non-votes, as to each matter voted upon at the Annual Meeting of
Shareholders, were as follows:
(i) Election of Directors For Withheld
--- --------
Michael J. Chun 37,351,676 480,005
Leo E. Denlea, Jr. 37,352,807 478,874
W. Allen Doane 37,487,033 344,648
Walter A. Dods, Jr. 32,456,676 5,375,005
Charles G. King 37,365,434 466,247
Carson R. McKissick 37,370,477 461,204
C. Bradley Mulholland 37,490,928 340,753
Maryanna G. Shaw 37,374,455 457,226
Charles M. Stockholm 37,355,514 476,167
Jeffrey N. Watanabe 37,486,212 345,469
(ii) Election of Auditors For Against Abstain
--- ------- -------
37,057,292 660,217 114,172
There were no broker non-votes at the Annual Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
--------
11 Statement re Computation of Per Share Earnings.
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 Form 8-K was filed on July 24, 2003 in connection with the
Company's 2003 second quarter earnings release.
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: July 31, 2003 /s/ James S. Andrasick
------------------------------------
James S. Andrasick
Executive Vice President, Chief
Financial Officer and Treasurer
Date: July 31, 2003 /s/ Thomas A. Wellman
------------------------------------
Thomas A. Wellman
Controller
EXHIBIT INDEX
11 Statement re Computation of Per Share Earnings.
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 11
ALEXANDER & BALDWIN, INC.
COMPUTATION OF EARNINGS PER SHARE
(In millions, except per share amounts)
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
Basic Earnings Per Share
Net income $ 23.2 $ 13.2 $ 40.8 $ 23.0
======== ========= ========= =========
Average number of shares outstanding 41.4 41.0 41.4 40.8
======== ========= ========= =========
Basic earnings per share $ 0.56 $ 0.32 $ 0.99 $ 0.56
========= ========== ========== ==========
Diluted Earnings Per Share
Net income $ 23.2 $ 13.2 $ 40.8 $ 23.0
======== ========= ========= =========
Average number of shares outstanding 41.4 41.0 41.4 40.8
Effect of assumed exercise of outstanding
stock options 0.2 0.4 0.2 0.3
-------- --------- --------- ---------
Average number of shares outstanding
after assumed exercise of
outstanding stock options 41.6 41.4 41.6 41.1
======== ========= ========= =========
Diluted earnings per share $ 0.56 $ 0.32 $ 0.98 $ 0.56
========= ========== ========== ==========
EXHIBIT 31.1
CERTIFICATIONS
I, W. 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 annual 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 the
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/ W. Allen Doane
------------------------------
W. Allen Doane, President and
Chief Executive Officer
Date: July 31, 2003
EXHIBIT 31.2
CERTIFICATIONS
I, James S. Andrasick, 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 annual 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 the
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/ James S. Andrasick
----------------------------------------
James S. Andrasick, Executive Vice President,
Chief Financial Officer and Treasurer
Date: July 31, 2003
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 June 30, 2003, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
W. Allen Doane, as Chief Executive Officer of the Company, and James S.
Andrasick, 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/ W. Allen Doane
- ---------------------------------
Name: W. Allen Doane
Title: Chief Executive Officer
Date: July 31, 2003
/s/ James S. Andrasick
- ---------------------------------
Name: James S. Andrasick
Title: Chief Financial Officer
Date: July 31, 2003
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.