FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 1998 -------------- 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 ----- ALEXANDER & BALDWIN, INC. ------------------------- (Exact name of registrant as specified in its charter) HAWAII 99-0032630 ------ ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P. O. BOX 3440, HONOLULU, HAWAII 96801 822 BISHOP STREET, HONOLULU, HAWAII 96813 ----------------------------------- ----- (Address of principal executive (Zip Code) offices) (808) 525-6611 -------------- (Registrant's telephone number, including area code) N/A --- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Number of shares of common stock outstanding as of March 31, 1998: 44,861,162
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ----------------------------- The condensed financial statements and notes for the first quarter of 1998 are presented below. <TABLE> <CAPTION> ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF INCOME (In thousands except per share amounts) Three Months Ended March 31 1998 1997 ---- ---- (unaudited) <S> <C> <C> Revenue: Net sales, revenue from services and rentals $284,267 $271,192 Interest, dividends and other 7,140 25,060 -------- -------- Total revenue 291,407 296,252 -------- -------- Costs and Expenses: Costs of goods sold, services and rentals 237,208 228,034 Selling, general and administrative 26,081 26,312 Interest 6,080 7,942 Income taxes 8,264 12,739 -------- -------- Total costs and expenses 277,633 275,027 -------- -------- Net Income $ 13,774 $ 21,225 ======== ======== Basic and Diluted Earnings Per Share $ 0.31 $ 0.47 Dividends Per Share $ 0.225 $ 0.220 Average Number of Shares Outstanding 44,842 45,311 </TABLE>
<TABLE> <CAPTION> ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES INDUSTRY SEGMENT DATA (In thousands) Three Months Ended March 31 1998 1997 ---- ---- (unaudited) <S> <C> <C> Revenue: Ocean Transportation $178,800 $181,120 Property Development and Management: Leasing 9,235 9,116 Sales 7,781 4,111 Food Products 94,874 101,188 Other 717 717 -------- -------- Total Revenue $291,407 $296,252 ======== ======== Operating Profit: Ocean Transportation $ 17,370 $ 34,050 Property Development and Management: Leasing 5,899 6,234 Sales 4,642 1,580 Food Products 2,998 2,443 Other 678 663 -------- -------- Total Operating Profit $ 31,587 $ 44,970 ======== ======== </TABLE>
<TABLE> <CAPTION> ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES CONDENSED BALANCE SHEETS (In thousands) March 31 December 31 1998 1997 ---- ---- (unaudited) <S> ASSETS <C> <C> Current Assets: Cash and cash equivalents $ 11,045 $ 21,623 Accounts and notes receivable, net 158,991 176,165 Inventories 85,549 69,209 Real estate held for sale 10,766 12,563 Deferred income taxes 9,936 9,404 Prepaid expenses and other assets 10,417 9,977 Accrued deposits to Capital Construction Fund (10,000) (10,000) ---------- ---------- Total current assets 276,704 288,941 ---------- ---------- Investments 102,636 102,813 ---------- ---------- Real Estate Developments 69,549 68,056 ---------- ---------- Property, at cost 2,001,271 1,975,023 Less accumulated depreciation and amortization 959,950 938,508 ---------- ---------- Property - net 1,041,321 1,036,515 ---------- ---------- Capital Construction Fund 148,610 148,610 ---------- ---------- Other Assets 66,508 59,863 ---------- ---------- Total $1,705,328 $1,704,798 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 30,600 $ 34,485 Short-term commercial paper borrowings 28,000 17,000 Accounts payable 37,145 46,835 Other 79,181 75,815 ---------- ---------- Total current liabilities 174,926 174,135 ---------- ---------- Long-term Liabilities: Long-term debt 296,498 290,885 Capital lease obligations 1,500 2,000 Post-retirement benefit obligations 111,875 112,125 Other 39,891 46,311 ---------- ---------- Total long-term liabilities 449,764 451,321 ---------- ---------- Deferred Income Taxes 358,753 359,754 ---------- ---------- Shareholders' Equity: Capital stock 36,723 36,769 Additional capital 50,749 49,437 Unrealized holding gains on securities 54,355 55,144 Retained earnings 592,609 591,135 Cost of treasury stock (12,551) (12,897) ---------- ---------- Total shareholders' equity 721,885 719,588 ---------- ---------- Total $1,705,328 $1,704,798 ========== ========== </TABLE> <TABLE> <CAPTION> ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS (In thousands) Three Months Ended March 31 1998 1997 ---- ---- (unaudited) <S> <C> <C> Cash Flows from Operating Activities $ 17,104 $ 30,650 -------- -------- Cash Flows from Investing Activities: Capital expenditures (27,838) (8,044) Proceeds from disposal of property, investments and other assets 2 86 Deposits into Capital Construction Fund - (2,908) Increase in investments, net (468) (1,797) -------- -------- Net cash used in investing activities (28,304) (12,663) -------- -------- Cash Flows from Financing Activities: Proceeds from issuances of long-term debt 11,500 34,500 Payments of long-term debt (10,079) (16,672) Proceeds of short-term commercial paper borrowings, net 11,000 9,000 Proceeds from issuances of capital stock 543 363 Repurchases of capital stock (2,250) (3,169) Dividends paid (10,092) (9,974) -------- -------- Net cash provided by financing activities 622 14,048 -------- -------- Net Increase (Decrease) in Cash and Cash Equivalents $(10,578) $ 32,035 ======== ======== Other Cash Flow Information: Interest paid, net of amounts capitalized $ 7,103 $ 7,892 Income taxes paid, net of refunds 4,311 1,076 Other Non-Cash Information: Accrued deposits to Capital Construction Fund, net - 19,903 Depreciation 21,951 22,729 Tax-deferred property exchange 4,279 1,558 Change in unrealized holding gains (789) (3,819) </TABLE>
FINANCIAL NOTES (Unaudited) (a) The condensed balance sheet as of March 31, 1998 and the condensed statements of income and the condensed statements of cash flows for the three months ended March 31, 1998 and 1997 are unaudited. Because of the nature of the Company's operations, the results for interim periods are not necessarily indicative of results to be expected for the year, but in the opinion of management, all material adjustments necessary for the fair presentation of interim period results have been included in the interim financial statements. (b) Estimated effective annual income tax rates differ from statutory rates, primarily due to the dividends-received deduction and various tax credits. (c) The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," and SFAS No. 130, "Reporting Comprehensive Income," during the year ended December 31,1997. In accordance with SFAS No. 128, the Company renamed its Primary Earnings per Share (EPS) to Basic EPS and disclosed its Diluted EPS. Due to the immaterial impact of the potential exercise of the Company's stock options, Basic and Diluted EPS are the same amount. In accordance with SFAS No. 130, the Company must disclose total non-owner changes in shareholders' equity. For the Company, this consists of net income plus unrealized holding gains on securities. On this basis, comprehensive income for the first quarter of 1998 and 1997 totaled $13 million and $17 million, respectively. (d) 1997 first quarter results for ocean transportation include $20 million, pre-tax, from the settlement of a lawsuit that involved insurance claims for earthquake damage to port facilities in 1989. (e) Certain amounts have been reclassified to conform with the current year's presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS - ---------------------------------------------- OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------ FIRST QUARTER EVENTS: OPERATING RESULTS: Net income for the first quarter of 1998 was $13,774,000, or $0.31 per share. Net income for the comparable period of 1997 was $21,225,000, or $0.47 per share, including $12,361,000, or $0.27 per share, from the settlement of long-standing insurance litigation. Excluding this settlement, after-tax income rose 55 percent compared with the first quarter of 1997. FINANCIAL CONDITION AND LIQUIDITY The Company's principal liquid resources, which consist of cash and cash equivalents, receivables, sugar and coffee inventories and unused lines of credit, less accrued deposits to the Capital Construction Fund (CCF), totaled $476,459,000 at March 31, 1998, a decrease of $7,217,000 from December 31, 1997. The decrease was due primarily to lower receivables and cash balances, partially offset by increased sugar and coffee inventories and a slightly higher amount available under lines of credit. There was no change in accrued deposits to the CCF. Receivables decreased $17,174,000; this decrease was mostly at Matson Navigation Company, Inc. ("Matson"). Cash and cash equi- valents decreased by $10,578,000, due primarily to normal expenditures for container equipment, debt repayments and operating cash requirements. Sugar and coffee inventories increased $17,535,000, due principally to higher sugar production costs carried in inventory in the first quarter of 1998 and higher levels of refined sugar inventory. Amounts available under lines of credit increased just $3,000,000 in the first quarter of 1998. Working capital was $101,778,000 at March 31, 1998, a decrease of $13,028,000 from the amount at the end of 1997. This decrease was due primarily to the decreases in receivables and cash balances, partially offset by the increase in inventories. RESULTS OF SEGMENT OPERATIONS - FIRST QUARTER 1998 COMPARED WITH THE FIRST QUARTER 1997 OCEAN TRANSPORTATION revenue of $178,800,000 for the first quarter of 1998 was one-percent less than the 1997 first-quarter revenue. Operating profit in the first quarter of 1998 decreased by $16,680,000 to $17,370,000, primarily because the first quarter 1997 results included $19,937,000 (pretax) for the insurance settlement. Excluding that factor, 1998 first quarter operating profit was $3,257,000 higher than in the first quarter of 1997, an improvement of 23 percent. This increase was primarily the result of a small improvement in Hawaii service revenue and the start of a revised operating alliance with American President Lines, Ltd. Matson's first-quarter 1998 Hawaii service container volume was two-percent higher than in the 1997 first quarter, while automobile volume was two-percent lower. PROPERTY DEVELOPMENT AND MANAGEMENT - LEASING revenue of $9,235,000 for the first quarter of 1998 was one-percent higher than the first quarter 1997 revenue, and operating profit of $5,899,000 was five-percent lower than the 1997 first-quarter amount. The reduction primarily reflected the weak Hawaii economy, a lower lease rate on one property and the net effect of acquisitions and sales of various income properties. First quarter 1998 occupancy levels for Mainland properties averaged 96 percent, versus 99 percent in the first quarter of 1997. Occupancy levels for Hawaii properties averaged 65 percent in the first quarter of 1998, versus 82 percent in the comparable period of 1997. That decrease was due primarily to a temporary vacancy related to a former Woolworth tenancy and properties acquired recently at favorable prices that have relatively low occupancy rates. PROPERTY DEVELOPMENT AND MANAGEMENT - SALES revenue of $7,781,000 in the first quarter of 1998 compared with $4,111,000 in the comparable period of 1997. Operating profit from property sales in the first quarter of 1998 was $4,642,000, versus $1,580,000 in the same period in 1997. Sales in the first quarter of 1998 included three business parcels and nine residential properties. Sales in the first quarter of 1997 included one developed business lot and 11 residential properties. Three of the 1998 and one of the 1997 sales were completed on a tax-deferred basis. The mix of property sales in any year can be diverse. Sales can include property sold under threat of condemnation, developed residential real estate, commercial properties, developable subdivision lots and undeveloped land. The sale of undeveloped land and subdivision lots generally provides a greater contribution margin than does the sale of developed and commercial property, due to the low historical-cost basis of the Company's Hawaii land, which averages approximately $150 per acre. Consequently, property sales revenue trends and the amount of real estate held for sale on the condensed balance sheets are not necessarily indicative of future profitability for this segment. FOOD PRODUCTS revenue of $94,874,000 for the first quarter of 1998 was six- percent lower than the revenue reported for the comparable period of 1997. However, operating profit was $2,998,000 for the first quarter of 1998, versus $2,443,000 a year earlier. Hawaii agribusiness results were higher for both sugar production and coffee. Refined sugar sales and refiners' margins were lower at California and Hawaiian Sugar Company, Inc., due to greater supplies of refined beet and cane sugar in the domestic market. OTHER INSURANCE LITIGATION: Matson received a favorable cash settlement of $33,650,000 on February 13, 1997 for a contested insurance claim in connection with repairing port facilities damaged by a 1989 earthquake. As noted previously, this settlement resulted in additional net income of $12,361,000 in the first quarter of 1997. LEGISLATION: In September 1997, the Secretary of Agriculture established, under the Federal Agriculture Improvement and Reform Act and in accordance with the Harmonized Tariff Schedule, the aggregate quantity of sugars and syrups that can be imported into the United States. The maximum import quantity for fiscal year 1998 was set at 1,800,000 metric tons raw value (mtrv), with an initial release of 1,200,000 mtrv and the remaining 600,000 mtrv to be released in 200,000 mtrv increments in January, March, and May, if, in those months, the stocks-to-use ratio, as published in the World Agricultural Supply and Demand Estimate (WASDE), is not greater than 15.5 percent. In January 1998, the WASDE stocks-to-use ratio was 15.7 percent and, as a result, the first 1998 increment was cancelled. In March 1998, the WASDE stocks-to-use ratio was 14.5 percent. As a result, the second 1998 increment was released and the maximum import quantity for fiscal year 1998 is still at 1,600,000 mtrv. The approved import quantity is now 1,400,000 mtrv and the final increment of 200,000 mtrv will be cancelled or released in May 1998. TAX-DEFERRED REAL ESTATE EXCHANGES: In the first quarter of 1998, the Company sold five parcels of land on Maui for $4,279,000 (net reinvestment proceeds). The proceeds from these sales are reflected in the Condensed Statements of Cash Flows under the caption "Other Non-Cash Information" and are expected to be reinvested on a tax-deferred basis. SHARE REPURCHASES: During the first quarter of 1998, the Company repurchased 85,000 shares of its common stock for an aggregate of $2,250,000 (average of $26.47 per share). ENVIRONMENTAL MATTERS: As with most industrial and land-development companies of its size, the Company's operations have certain risks, which could result in expenditures for environmental remediation. The Company believes that it is in compliance, in all material respects, with applicable environmental laws and regulations, and works proactively to identify potential environmental concerns. Management believes that appropriate liabilities have been accrued for environmental matters. ECONOMIC CONDITIONS: Very low real growth continues to be the immediate outlook for Hawaii's economy. No catalyst for better performance appears evident. The state's important visitor industry is expected to benefit from increasing westbound arrivals, due to the continuing strong economic performance of the U.S. mainland states and resulting expectations of strong 1998 summer vacation travel and spending. Although Asia's financial turmoil is a concern, the most immediate and direct effect on Hawaii is likely to be realized through the volatility in currency exchange. If the yen weakens further, as many expect, eastbound visitors will spend less and shorten the lengths of their stays in Hawaii, likely reducing tourism expenditures. The net effect of a favorable westbound visitor outlook and an unfavorable eastbound one is for modest growth in total expenditures, at best. Separately, passage by the Hawaii state legislature of key initiatives to support economic revitalization remains uncertain. YEAR 2000: Beginning in 1996, the Company initiated an evaluation of its computer systems and applications to prepare for the Year 2000. Following this evaluation, implementation plans for all business segments were prepared and are currently being executed. Areas which have the greatest risk of impacting operations are being corrected first; however, all work related to primary systems and applications is expected to be completed substantially by the end of 1998. Many of the primary systems are already Year 2000 compliant. The plans consist of upgrading, modifying or replacing various systems for approximately $6,000,000 to $8,000,000. The costs incurred in connection with the Year 2000 compliance are being treated as an operating expense unless a system is being replaced for operating reasons as well as Year 2000 compliance, in which case costs are being capitalized. The Company believes that its systems and applications necessary to operate and manage its businesses will be replaced, modified or upgraded in advance of the Year 2000 and that the related costs will not have a material impact on the operations, cash flows, financial condition or segment results of future periods. PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Company, from time to time, may make or may have made certain forward- looking statements, whether orally or in writing, such as forecasts and projections of the Company's future performance or statements of management's plans and objectives. Such forward-looking statements may be contained in, among other things, Securities and Exchange Commission (SEC) filings, such as the Forms 10-Q, press releases made by the Company and oral statements made by the officers of the Company. Except for historical information contained in these written or oral communications, such communications contain forward- looking statements. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those projected in the statements, including, but not limited to: (1) economic conditions in Hawaii and elsewhere; (2) market demand; (3) competitive factors and pricing pressures in the Company's primary markets; (4) legislative and regulatory environment at the federal, state and local levels, such as government rate regulations, land-use regulations, government administration of the U.S. sugar program, and retention of cabotage laws; (5) dependence on raw sugar suppliers and other third-party suppliers; (6) fuel prices; (7) labor relations; and (8) other risk factors described elsewhere in these communications and from time to time in the Company's filings with the SEC.
PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------------------------------------------ (a) Exhibits 10. Material contracts. 10.b.1.(xxxii) Alexander & Baldwin, Inc. 1998 Stock Option/Stock Incentive Plan. 10.b.1.(xxxiii) Alexander & Baldwin, Inc. 1998 Non-Employee Director Stock Option Plan. 11. Statement re computation of per share earnings. 27. Financial Data Schedule. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of l934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALEXANDER & BALDWIN, INC. ----------------------------- (Registrant) Date: May 14, 1998 /s/ Glenn R. Rogers --------------------------- Glenn R. Rogers Executive Vice President and Chief Financial Officer Date: May 14, 1998 /s/ Thomas A. Wellman --------------------------- Thomas A. Wellman Controller
EXHIBIT INDEX ------------- 10. Material contracts. 10.b.1.(xxxii) Alexander & Baldwin, Inc. 1998 Stock Option/Stock Incentive Plan. 10.b.1.(xxxiii) Alexander & Baldwin, Inc. 1998 Non-Employee Director Stock Option Plan. 11. Statement re computation of per share earnings. 27. Financial Data Schedule.