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<br>
UNITED STATES<br>
SECURITIES AND EXCHANGE COMMISSION<br>
<br>
Washington, D.C. 20549<br>
<br>
FORM 10-K<br>
<br>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF<br>
THE SECURITIES EXCHANGE ACT OF 1934<br>
<br>
For the fiscal year ended December 31, 2001<br>
Commission file number 0-565<br>
<br>
ALEXANDER & BALDWIN, INC.<br>
(Exact name of registrant as specified in its charter)<br>
<br>
Hawaii 99-0032630<br>
(State or other<br>
jurisdiction (I.R.S.<br>
of incorporation or Employer Identification<br>
organization) No.)<br>
<br>
822 Bishop Street<br>
Post Office Box 3440, Honolulu, Hawaii 96801<br>
(Address of principal executive offices and zip code)<br>
<br>
808-525-6611<br>
(Registrant's telephone number, including area code)<br>
<br>
Securities registered pursuant to Section 12(b) of the Act:<br>
None<br>
<br>
Securities registered pursuant to Section 12(g) of the Act:<br>
Common Stock, without par value<br>
(Title of Class)<br>
<br>
Number of shares of Common Stock outstanding at February 14, 2002:<br>
40,606,808<br>
<br>
Aggregate market value of Common Stock held by non-affiliates at February 14,<br>
2002:<br>
$937,859,339<br>
<br>
Indicate by check mark whether the registrant (1) has filed all reports<br>
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of<br>
1934 during the preceding 12 months (or for such shorter period that the<br>
registrant was required to file such reports), and (2) has been subject to such<br>
filing requirements for the past 90 days. Yes X No<br>
--- ---<br>
<br>
Indicate by check mark if disclosure of delinquent filers pursuant to Item<br>
405 of Regulation S-K is not contained herein, and will not be contained, to<br>
the best of registrant's knowledge, in definitive proxy or information<br>
statements incorporated by reference in Part III of this Form 10-K or any<br>
amendment to this Form 10-K. [X]<br>
<br>
Documents Incorporated By Reference<br>
Portions of Registrant's Proxy Statement dated March 11, 2002 (Part III of Form<br>
10-K).<br>
<br>
<br>
<PLAINTEXT><br>
<br>
<br>
TABLE OF CONTENTS<br>
<br>
<br>
<br>
PART I<br>
Page<br>
----<br>
<br>
Items 1. & 2. Business and Properties........................................................ 1<br>
<br>
A. Ocean Transportation........................................................... 1<br>
(1) Freight Services.......................................................... 1<br>
(2) Vessels................................................................... 2<br>
(3) Terminals................................................................. 2<br>
(4) Other Services............................................................ 4<br>
(5) Competition............................................................... 4<br>
(6) Labor Relations........................................................... 5<br>
(7) Rate Regulation........................................................... 5<br>
<br>
B. Property Development and Management............................................ 5<br>
(1) General................................................................... 5<br>
(2) Planning and Zoning....................................................... 6<br>
(3) Residential Projects...................................................... 6<br>
(4) Commercial and Industrial Properties...................................... 8<br>
<br>
C. Food Products.................................................................. 11<br>
(1) Production................................................................ 11<br>
(2) Marketing of Sugar and Coffee............................................. 12<br>
(3) Competition and Sugar Legislation......................................... 12<br>
(4) Properties and Water...................................................... 13<br>
<br>
D. Employees and Labor Relations.................................................. 14<br>
<br>
E. Energy......................................................................... 15<br>
<br>
Item 3. Legal Proceedings.................................................................... 15<br>
<br>
Item 4. Submission of Matters to a Vote of Security Holders.................................. 16<br>
<br>
Executive Officers of the Registrant............................................................ 16<br>
<br>
PART II<br>
<br>
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................ 16<br>
<br>
Item 6. Selected Financial Data.............................................................. 18<br>
<br>
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 19<br>
<br>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................... 25<br>
<br>
Item 8. Financial Statements and Supplementary Data.......................................... 26<br>
<br>
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 57<br>
<br>
<br>
i<br>
<br>
<br>
<br>
<br>
<br>
<br>
<br>
PART III<br>
Page<br>
----<br>
Item 10. Directors and Executive Officers of the Registrant.............. 58<br>
<br>
A. Directors....................................................... 58<br>
<br>
B. Executive Officers of the Registrant............................ 58<br>
<br>
Item 11. Executive Compensation.......................................... 59<br>
<br>
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 59<br>
<br>
Item 13. Certain Relationships and Related Transactions.................. 59<br>
<br>
PART IV<br>
<br>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 60<br>
<br>
A. Financial Statements............................................ 60<br>
<br>
B. Financial Statement Schedules................................... 60<br>
<br>
C. Exhibits Required by Item 601 of Regulation S-K................. 60<br>
<br>
D. Reports on Form 8-K............................................. 65<br>
<br>
Signatures................................................................. 66<br>
<br>
Independent Auditors' Consent.............................................. 68<br>
<br>
<br>
ii<br>
<br>
<PLAINTEXT><br>
<br>
<br>
ALEXANDER & BALDWIN, INC.<br>
<br>
FORM 10-K<br>
<br>
Annual Report for the Fiscal Year<br>
Ended December 31, 2001<br>
<br>
PART I<br>
<br>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES<br>
<br>
Alexander & Baldwin, Inc. ("A&B") is a diversified corporation with most of<br>
its operations centered in Hawaii. It was founded in 1870 and incorporated in<br>
1900. Ocean transportation operations and related shoreside operations of A&B<br>
are conducted by a wholly-owned subsidiary, Matson Navigation Company, Inc.<br>
("Matson"), and several Matson subsidiaries. Real property and food products<br>
operations are conducted by A&B and certain other wholly-owned subsidiaries of<br>
A&B.<br>
<br>
The industry segments of A&B are as follows:<br>
<br>
A. Ocean Transportation--carrying freight, primarily between various ports<br>
on the United States Pacific Coast and major Hawaii ports and Guam;<br>
chartering vessels to third parties; providing terminal, stevedoring and<br>
container equipment maintenance services in Hawaii; arranging intermodal<br>
transportation in North America; and providing supply and distribution<br>
services.<br>
<br>
B. Property Development and Management--purchasing, developing, selling,<br>
managing and leasing retail, office, industrial, commercial and<br>
residential properties, in Hawaii and on the U.S. Mainland.<br>
<br>
C. Food Products--growing sugar cane and coffee in Hawaii; producing bulk<br>
raw sugar, specialty food-grade sugars, molasses and green coffee;<br>
marketing and distributing roasted coffee and green coffee; providing<br>
sugar and molasses hauling and storage, general freight and petroleum<br>
hauling in Hawaii; and generating and selling electricity.<br>
<br>
For information about the revenue, operating profits and identifiable assets<br>
of A&B's industry segments for the three years ended December 31, 2001, see<br>
Note 14 ("Industry Segments") to A&B's financial statements in Item 8 below.<br>
<br>
DESCRIPTION OF BUSINESS AND PROPERTIES<br>
<br>
A. Ocean Transportation<br>
<br>
(1) Freight Services<br>
<br>
Matson's Hawaii Service offers containership freight services between the<br>
ports of Los Angeles, Oakland, Seattle, and the major ports in Hawaii, which<br>
are located on the islands of Oahu, Kauai, Maui and Hawaii. Roll-on/roll-off<br>
service is provided between California and the major ports in Hawaii. Container<br>
cargo also is received at and delivered to Portland, Oregon, and moved overland<br>
between Portland and Seattle at no extra charge.<br>
<br>
Matson is the principal carrier of ocean cargo between the United States<br>
Pacific Coast and Hawaii. In 2001, Matson carried 149,636 containers (compared<br>
with 151,496 in 2000) and 122,389 motor vehicles (compared with 132,186 in<br>
2000) between those destinations. In response to a weakening Hawaii economy and<br>
declining demand, Matson reduced its Hawaii Service fleet from eight vessels to<br>
seven vessels in January 2002. Principal westbound cargoes carried by Matson to<br>
Hawaii include refrigerated commodities, dry containers of mixed commodities,<br>
<br>
1<br>
<br>
<br>
<br>
packaged foods, motor vehicles, and building materials. Principal eastbound<br>
cargoes carried by Matson from Hawaii include motor vehicles, household goods,<br>
canned pineapple, refrigerated containers of fresh pineapple, and dry<br>
containers of mixed commodities. The preponderance of Matson's Hawaii Service<br>
revenue is derived from the westbound carriage of containerized freight and<br>
motor vehicles.<br>
<br>
Matson's Guam Service provides containership freight service between the<br>
United States Pacific Coast and Guam and Micronesia. Matson's Guam Service is a<br>
component of the Pacific Alliance Service, a strategic alliance established in<br>
1996 by Matson and American President Lines, Ltd. ("APL") to provide freight<br>
service between the United States Pacific Coast and Hawaii, Guam, and several<br>
Far East ports. In 2001, Matson carried 17,225 containers (compared with 18,165<br>
in 2000) and 2,750 automobiles (compared with 2,616 in 2000) in the Guam<br>
Service. The alliance currently utilizes five vessels (three Matson vessels and<br>
two APL vessels) in a schedule which provides service from the United States<br>
Pacific Coast to Guam and Micronesia, continuing through Far East ports, and<br>
returning to California.<br>
<br>
Matson's Mid-Pacific Service offers container and conventional freight<br>
service between the United States Pacific Coast and the ports of Kwajalein,<br>
Ebeye and Majuro in the Republic of the Marshall Islands and Johnston Island,<br>
all via Honolulu.<br>
<br>
See "Rate Regulation" below with respect to Matson's freight rates.<br>
<br>
(2) Vessels<br>
<br>
Matson's cargo fleet consists of eleven containerships, two combination<br>
container/trailerships, one roll-on/roll-off barge, two container barges<br>
equipped with cranes which serve the neighbor islands of Hawaii and one<br>
container barge equipped with cranes in the Mid-Pacific Service. These<br>
seventeen vessels represent an investment of approximately $694,618,000<br>
expended over the past 31 years. The majority of vessels in the Matson cargo<br>
fleet have been acquired with the assistance of withdrawals from a Capital<br>
Construction Fund established under Section 607 of the Merchant Marine Act,<br>
1936, as amended. Matson's fleet is aging and includes six vessels that will be<br>
between 29 and 32 years old in 2002. During 2001, Matson actively began<br>
pursuing vessel replacement alternatives.<br>
<br>
Currently, three containerships are time-chartered to APL in connection with<br>
the Pacific Alliance Service. Two container/trailerships previously<br>
bareboat-chartered to Sea Star Line, LLC, which operates the vessels in the<br>
Florida-Puerto Rico trade, and in which Matson has a minority investment<br>
interest, were sold to Sea Star Line, LLC in January 2002.<br>
<br>
Matson's fleet units are described on the list on the following page.<br>
<br>
As a complement to its fleet, Matson owns approximately 15,000 containers,<br>
10,670 container chassis, 730 auto-frames and miscellaneous other equipment.<br>
Capital expenditures by Matson in 2001 for vessels, equipment and systems<br>
totaled approximately $28,000,000.<br>
<br>
(3) Terminals<br>
<br>
Matson Terminals, Inc. ("Matson Terminals"), a wholly-owned subsidiary of<br>
Matson, provides container stevedoring, container equipment maintenance and<br>
other terminal services for Matson and other ocean carriers at its 108-acre<br>
marine terminal in Honolulu. Matson Terminals owns and operates seven cranes at<br>
the terminal, which handled 383,506 containers in 2001 (compared with 402,500<br>
in 2000) and can accommodate three vessels at one time. In 2001, Matson<br>
Terminals substantially completed a $32 million terminal improvement project at<br>
the Honolulu terminal, which included the conversion from a straddle<br>
carrier-based container handling system to a wheeled chassis-based system. The<br>
conversion is expected to increase terminal storage density, improve<br>
productivity, and reduce costs. Matson Terminals' lease with the State of<br>
Hawaii runs through September 2016.<br>
<br>
2<br>
<br>
<br>
<br>
MATSON NAVIGATION COMPANY, INC.<br>
FLEET--2/1/02<br>
<br>
<br>
<br>
Usable Cargo Capacity<br>
--------------------------------------------<br>
Containers Vehicles<br>
Year Maximum Maximum ----------------------------- --------------<br>
Official Year Recon- Speed Deadweight Reefer<br>
Vessel Name Number Built structed Length (Knots) (Long Tons) 20' 24' 40' Slots TEUs (1) Autos Trailers<br>
- ----------- -------- ----- -------- ---------- ------- ----------- --- --- ----- ------ -------- ----- --------<br>
<br>
Diesel-Powered Ships<br>
- --------------------<br>
R.J. PFEIFFER....... 979814 1992 713'6" 23.0 27,100 48 171 988 300 2,229 -- --<br>
MOKIHANA (2)........ 655397 1983 860'2" 23.0 30,167 182 0 1,340 408 2,824 -- --<br>
MAHIMAHI (2)........ 653424 1982 860'2" 23.0 30,167 182 0 1,340 408 2,824 -- --<br>
MANOA (2)........... 651627 1982 860'2" 23.0 30,187 182 0 1,340 408 2,824 -- --<br>
Steam-Powered Ships<br>
- -------------------<br>
KAUAI............... 621042 1980 1994 720'5 1/2" 22.5 26,308 -- 458 538 300 1,626 44 --<br>
MAUI................ 591709 1978 1993 720'5 1/2" 22.5 26,623 -- 458 538 300 1,626 -- --<br>
MATSONIA............ 553090 1973 1987 760'0" 21.5 22,501 16 128 771 201 1,712 450 56<br>
LURLINE............. 549900 1973 1982 826'6" 21.5 22,213 6 162 713 292 1,379 220 81<br>
EWA (3)............. 530140 1972 1978 787'8" 21.0 38,747 286 276 681 228 1,979 -- --<br>
CHIEF GADAO......... 530138 1971 1978 787'8" 21.0 37,346 230 464 597 274 1,981 -- --<br>
LIHUE............... 530137 1971 1978 787'8" 21.0 38,656 286 276 681 188 1,979 -- --<br>
MANULANI............ 528400 1970 720'5 1/2" 22.5 27,109 26 160 659 221 1,536 -- --<br>
MANUKAI (3)......... 524219 1970 720'5 1/2" 22.5 27,107 -- 537 416 251 1,476 -- --<br>
Tugs and Barges<br>
- ---------------<br>
WAIALEALE (4)....... 978516 1991 345'0" -- 5,621 -- -- -- 35 -- 230 45<br>
ISLANDER (5)........ 933804 1988 372'0" -- 6,837 -- 276 24 70 380 -- --<br>
MAUNA LOA (5)....... 676973 1984 350'0" -- 4,658 -- 144 72 84 316 -- --<br>
HALEAKALA (5)....... 676972 1984 350'0" -- 4,658 -- 144 72 84 316 -- --<br>
<br>
<br>
<br>
<br>
<br>
Molasses<br>
----------<br>
<br>
Vessel Name Short Tons<br>
- ----------- ----------<br>
<br>
Diesel-Powered Ships<br>
- --------------------<br>
R.J. PFEIFFER....... --<br>
MOKIHANA (2)........ --<br>
MAHIMAHI (2)........ --<br>
MANOA (2)........... --<br>
Steam-Powered Ships<br>
- -------------------<br>
KAUAI............... 2,600<br>
MAUI................ 2,600<br>
MATSONIA............ 4,300<br>
LURLINE............. 2,100<br>
EWA (3)............. --<br>
CHIEF GADAO......... --<br>
LIHUE............... --<br>
MANULANI............ 5,300<br>
MANUKAI (3)......... 5,300<br>
Tugs and Barges<br>
- ---------------<br>
WAIALEALE (4)....... --<br>
ISLANDER (5)........ --<br>
MAUNA LOA (5)....... 2,100<br>
HALEAKALA (5)....... 2,100<br>
<br>
- --------<br>
(1) "Twenty-foot Equivalent Units" (including trailers). TEU is a standard<br>
measure of cargo volume correlated to the volume of a standard 20-foot dry<br>
cargo container.<br>
(2) Time-chartered to APL until February 2006.<br>
(3) Reserve Status<br>
(4) Roll-on/Roll-off Barge<br>
(5) Container Barge<br>
<br>
3<br>
<br>
<br>
<br>
SSA Terminals, LLC, a joint venture formed by Matson and Stevedoring<br>
Services of America in July 1999, provides terminal and stevedoring services at<br>
West Coast terminal facilities in Los Angeles, Long Beach, Oakland and Seattle.<br>
<br>
Capital expenditures incurred by Matson Terminals for terminals and<br>
equipment totaled approximately $31,100,000 in 2001.<br>
<br>
(4) Other Services<br>
<br>
Matson Intermodal System, Inc. ("Matson Intermodal") is an intermodal<br>
marketing company which arranges North American rail and truck transportation<br>
for shippers and carriers, frequently in conjunction with ocean transportation.<br>
Through volume purchases of rail and motor carrier transportation services,<br>
augmented by such services as shipment tracing and single-vendor invoicing,<br>
Matson Intermodal is able to reduce transportation costs for customers. Matson<br>
Intermodal currently has 40 offices and manages 30 equipment depots across the<br>
United States Mainland.<br>
<br>
In July 2001, Matson Services Company, Inc. ("Matson Services"), a<br>
wholly-owned subsidiary of Matson, sold the two tugboats which it had employed<br>
in Hawaiian waters to provide harbor assistance to vessels calling at the<br>
islands of Hawaii and Maui. Matson Services was dissolved effective December<br>
31, 2001.<br>
<br>
Matson Logistics Solutions, Inc. ("Matson Logistics"), a wholly-owned<br>
subsidiary of Matson, provides supply chain, transportation management, and<br>
project cargo management services to Matson customers and others. In 2001,<br>
Matson Logistics entered the air freight business by entering into an alliance<br>
with an existing international air freight forwarder.<br>
<br>
(5) Competition<br>
<br>
Matson's Hawaii and Guam Services have one major containership competitor,<br>
which serves Long Beach, Oakland, Tacoma, Honolulu and Guam.<br>
<br>
Other competitors in the Hawaii Service include two common carrier barge<br>
services, unregulated proprietary and contract carriers of bulk cargoes, and<br>
air cargo services. Although air freight competition is intense for<br>
time-sensitive or perishable cargoes, historic and projected inroads of such<br>
competition in cargo volume are limited by the amount of cargo space available<br>
in passenger aircraft and by generally higher air freight rates.<br>
<br>
Matson vessels are operated on schedules which make available to shippers<br>
and consignees regular day-of-the-week sailings from the United States Pacific<br>
Coast and day-of-the-week arrivals in Hawaii. Under its current schedule,<br>
Matson operates 182 Hawaii round-trip voyages per year, 75 percent more than<br>
its closest competitor, and arranges additional voyages when cargo volumes<br>
require additional capacity. This service is attractive to customers because<br>
more frequent arrivals permit customers to lower inventory costs. In addition,<br>
Matson competes by offering more comprehensive service to customers, supported<br>
by its scope of equipment and its efficiency and experience in the handling of<br>
containerized cargoes, and by competitive pricing.<br>
<br>
The carriage of cargo between the United States Pacific Coast and Hawaii on<br>
foreign-built or foreign-documented vessels is prohibited by Section 27 of the<br>
Merchant Marine Act, 1920, frequently referred to as the Jones Act. However,<br>
foreign-flag vessels carrying cargo to Hawaii from foreign sources provide<br>
indirect competition for Matson's container freight service between the United<br>
States Pacific Coast and Hawaii. Far East countries, Australia, New Zealand and<br>
South Pacific islands have direct foreign-flag services to Hawaii.<br>
<br>
In response to coordinated efforts by various interests to convince Congress<br>
to repeal the Jones Act, Matson joined other businesses and organizations in<br>
1995 to form the Maritime Cabotage Task Force, which supports the<br>
<br>
4<br>
<br>
<br>
<br>
retention of the Jones Act and other cabotage laws. Repeal of the Jones Act<br>
would allow all foreign-flag vessel operators, which do not have to abide by<br>
U.S. laws and regulations, to sail between American ports, in direct<br>
competition with Matson and other U.S. operators which must comply with such<br>
laws and regulations. The Task Force seeks to inform elected officials and the<br>
public about the economic, national security, commercial, safety and<br>
environmental benefits of the Jones Act and similar cabotage laws.<br>
<br>
Matson Intermodal competes for freight with a number of large and small<br>
companies engaged in intermodal transportation. Matson Logistics competes with<br>
many larger providers of logistics services and with transportation companies<br>
whose services include logistics.<br>
<br>
(6) Labor Relations<br>
<br>
The absence of strikes and the availability of labor through hiring halls<br>
are important to the maintenance of profitable operations by Matson. Matson's<br>
operations have not been disrupted significantly by strikes in the past 30<br>
years. See "Employees and Labor Relations" below for a description of labor<br>
agreements and certain unfunded liabilities for multi-employer pension plans to<br>
which Matson and Matson Terminals contribute.<br>
<br>
(7) Rate Regulation<br>
<br>
Matson is subject to the jurisdiction of the Surface Transportation Board<br>
with respect to its domestic rates. A rate in the noncontiguous domestic trade<br>
is presumed reasonable and will not be subject to investigation if the<br>
aggregate of increases and decreases is not more than 7.5 percent above, or<br>
more than 10 percent below, the rate in effect one year before the effective<br>
date of the proposed rate, subject to increase or decrease by the percentage<br>
change in the U.S. Producer Price Index. Matson filed a 3.5 percent<br>
across-the-board increase in its Hawaii Service shipping rates, which became<br>
effective on February 14, 2001. Also in 2001, Matson reduced its fuel surcharge<br>
in its Hawaii and Guam Services by one percentage point, from 4.25 percent to<br>
3.25 percent, effective November 25, 2001.<br>
<br>
B. Property Development and Management<br>
<br>
(1) General<br>
<br>
A&B and its subsidiaries own approximately 90,900 acres of land, consisting<br>
of approximately 90,600 acres in Hawaii and approximately 300 acres elsewhere,<br>
as follows:<br>
<br>
<br>
<br>
Location No. of Acres<br>
-------- ------------<br>
<br>
Oahu...... 36<br>
Maui...... 68,709<br>
Kauai..... 21,892<br>
California 122<br>
Texas..... 65<br>
Washington 13<br>
Arizona... 35<br>
Nevada.... 19<br>
Colorado.. 10<br>
------<br>
TOTAL.. 90,901<br>
======<br>
<br>
<br>
As described more fully in the table below, the bulk of this acreage currently<br>
is used for agricultural and related activities, and includes pasture land,<br>
watershed land, and conservation reserves. The balance is used or planned for<br>
development or other urban uses. An additional 3,270 acres on Maui and Kauai<br>
are leased from third parties.<br>
<br>
5<br>
<br>
<br>
<br>
<br>
<br>
No. of<br>
Current Use Acres<br>
----------- ------<br>
<br>
Hawaii<br>
------<br>
Fully-entitled urban (defined below)... 1,246<br>
Agricultural, pasture and miscellaneous 60,100<br>
Watershed land/conservation............ 29,291<br>
U.S. Mainland<br>
-------------<br>
Fully-entitled urban................... 254<br>
Agriculture, pasture and miscellaneous. 10<br>
------<br>
TOTAL............................... 90,901<br>
======<br>
<br>
<br>
A&B and its subsidiaries are actively involved in the entire spectrum of<br>
land development, including planning, zoning, financing, constructing,<br>
purchasing, managing and leasing, and selling and exchanging real property.<br>
<br>
(2) Planning and Zoning<br>
<br>
The entitlement process for development of property in Hawaii is both<br>
time-consuming and costly, involving numerous State and County regulatory<br>
approvals. For example, conversion of an agriculturally-zoned parcel to<br>
residential zoning usually requires the following approvals:<br>
<br>
. amendment of the County general plan to reflect the desired residential<br>
use;<br>
<br>
. approval by the State Land Use Commission to reclassify the parcel from<br>
the "Agricultural" district to the "Urban" district;<br>
<br>
. County approval to rezone the property to the precise residential use<br>
desired; and,<br>
<br>
. if the parcel is located in the Special Management Area, the granting of<br>
a Special Management Area permit by the County.<br>
<br>
The entitlement process is complicated by the conditions, restrictions and<br>
exactions that are placed on these approvals, including, among others, the<br>
construction of infrastructure improvements, payment of impact fees,<br>
restrictions on the permitted uses of the land, provision of affordable<br>
housing, and/or mandatory fee sale of portions of the project.<br>
<br>
A&B actively works with regulatory agencies, commissions and legislative<br>
bodies at various levels of government to obtain zoning reclassification of<br>
land to its highest and best use. A&B designates a parcel as "fully-entitled"<br>
or "fully-zoned" when all necessary government land use approvals have been<br>
obtained.<br>
<br>
As described in more detail below, in 2001, work to obtain entitlements for<br>
urban use focused on (i) obtaining Community Plan designations for various A&B<br>
lands on Maui, and (ii) obtaining County entitlements for a proposed<br>
single-family subdivision and proposed hotel on Maui. The Community Plans serve<br>
to guide planning and development activity on Maui. A&B has obtained and<br>
continues to seek various urban designations for its undeveloped lands within<br>
the four Community Plans where most of its Maui lands are located.<br>
<br>
(3) Residential Projects<br>
<br>
A&B is pursuing a number of residential projects in Hawaii, including:<br>
<br>
(a) Kukui'Ula. Kukui'Ula is a 1,045-acre master planned resort residential<br>
community located in Poipu, Kauai. Approximately 837 acres are fully entitled<br>
for up to 900 hotel and vacation ownership (timeshare) units, 3,000 residential<br>
units, a golf course, and commercial uses. The balance of the project is<br>
partially entitled and planned for<br>
<br>
6<br>
<br>
<br>
<br>
up to 750 residential units. During 2001, the Company engaged in a number of<br>
development activities intended to position the project for development and for<br>
securing joint venture partners, including the following:<br>
<br>
. Civil engineering design commenced on Koloa Plantations, Kukui'Ula's<br>
second residential project. Approximately 95 one-half acre lots are<br>
planned.<br>
<br>
. The project's water master plan was updated, and two potential water<br>
sources were identified to supply potable water for the initial phase of<br>
development. Agreements defining the Company's participation in these<br>
water projects are undergoing final review by the Department of Water of<br>
the County of Kauai.<br>
<br>
. Preliminary civil engineering design of backbone infrastructure<br>
commenced for the major project roadway.<br>
<br>
. The initial phase of beach improvements was implemented, and<br>
archaeological mitigation and preservation plans were prepared for<br>
inventoried archaeological sites.<br>
<br>
In September 2001, a non-binding letter of intent was entered into with a<br>
Mainland-based developer of master-planned communities, for the joint venture<br>
development of Kukui'Ula. Based on due diligence activities completed to date,<br>
a joint venture agreement could be finalized in the first quarter of 2002.<br>
<br>
Sales at Koloa Estates, Kukui'Ula's first for-sale residential project,<br>
neared completion in 2001. Lot sales at this 32-lot subdivision commenced in<br>
September 1999. As of January 31, 2002, 28 lots have been sold, with three lots<br>
in escrow and one lot reserved. The average sales price of the 31 lots sold or<br>
in escrow was $149,200.<br>
<br>
(b) The Vintage at Kaanapali. Located on 17 acres in the Kaanapali Golf<br>
Estates project in Kaanapali, Maui, and surrounded by the Kaanapali South Golf<br>
Course, this project was developed as 73 detached single-family homes under a<br>
condominium regime. Home construction began in February 2000 and was completed<br>
in June 2001. All 73 homes were sold by July 2001. The units were sold at an<br>
average price of $590,000.<br>
<br>
(c) The Summit at Kaanapali. In January 2000, the Company acquired an<br>
additional 17 acres in the Kaanapali Golf Estates project. This land is being<br>
developed into 55 single-family homes or house lots. Site work construction was<br>
completed in May 2001 and construction of the 17 homes in Phase I commenced in<br>
June 2001. Five units were completed and closed as of December 31, 2001, at an<br>
average price of $1.1 million. As of January 31, 2002, an additional eight<br>
units were in escrow.<br>
<br>
(d) HoloHolo Ku. In October 2001, the Company entered into a joint venture<br>
with Kamuela Associates LLC for the development of 44 detached single-family<br>
homes under a condominium regime, on an 8.5-acre parcel in Kamuela on the<br>
island of Hawaii. An additional 7.2-acre estate lot is available for sale.<br>
Construction commenced early November 2001 and sales are projected to begin<br>
closing in the fourth quarter of 2002. As of January 31, 2002, there were 28<br>
binding sales contracts in escrow.<br>
<br>
(e) Kai Lani. In September 2001, the Company entered into a joint venture<br>
agreement with Armstrong Kai Lani Corporation for the development of 116<br>
townhouse units on an 11-acre parcel in the Ko Olina Resort on Oahu.<br>
Construction commenced February 2002.<br>
<br>
(f) Waikiki Project. On November 1, 2001, the Company acquired a 1.63-acre<br>
vacant, fee simple development site in Waikiki, Oahu, for approximately $3.6<br>
million. The property, located at the entrance to Waikiki, is zoned for<br>
high-rise residential use and limited commercial uses. Planning and design work<br>
for a high-rise condominium development is expected to take place in 2002.<br>
<br>
(g) Other Maui Subdivisions. The Company continues to seek entitlements for<br>
two other single-family subdivisions on Maui: (i) an approximately 200-unit<br>
subdivision on 67 acres in Haliimaile (Upcountry, Maui), and (ii) an<br>
approximately 400-unit subdivision on 210 acres in Spreckelsville, which<br>
includes the possible expansion of the nearby nine-hole Maui Country Club golf<br>
course into an 18-hole course. A final decision by the Maui County Council on<br>
the Company's zoning application for the Haliimaile project was anticipated in<br>
2001. However, due to general water and traffic issues for the Upcountry<br>
region, final Council action is not anticipated until the second half of 2002.<br>
Approval of the Spreckelsville project was sought from the Maui County Council<br>
as part of its ten-year update of the Wailuku-Kahului Community Plan. Primarily<br>
in response to concerns raised over potential traffic impacts, the<br>
<br>
7<br>
<br>
<br>
<br>
Council Planning Committee, in September 2001, voted against including<br>
Spreckelsville in the Community Plan. However, because of the project's<br>
positive planning features, the Committee recommended that the Company file a<br>
separate Community Plan application in order to have the project impacts<br>
evaluated under an environmental impact assessment.<br>
<br>
In May 2001, a Disposition Agreement was entered into for the bulk sale of<br>
the 86.4-acre Maunaolu agricultural subdivision (minimum two-acre sized lots).<br>
Closing could be accomplished in the first half of 2002.<br>
<br>
(4) Commercial and Industrial Properties<br>
<br>
An important source of property revenue is the lease rental income the<br>
Company receives from nearly 5.4 million leasable square feet of industrial and<br>
commercial building space, ground leases on 275 acres for commercial/industrial<br>
use, and leases on 10,930 acres for agricultural/pasture use.<br>
<br>
(a) Hawaii Commercial/Industrial Properties<br>
<br>
In Hawaii, most of the approximately 1.5 million square feet of<br>
income-producing commercial and industrial properties owned by the Company are<br>
located in the central Kahului/Wailuku area of Maui and in central Oahu. They<br>
consist primarily of three shopping centers and ten office buildings, as well<br>
as twelve other improved commercial and industrial properties. The average<br>
occupancy for the Hawaii improved commercial properties increased to 90% in<br>
2001, from 86% in 2000. The improvement was due primarily to the high tenancies<br>
in recently-acquired properties.<br>
<br>
The Pacific Guardian Complex, consisting of an eighteen-story office<br>
building and an adjacent two-story commercial complex, having a total leasable<br>
area of 136,100 square feet, was acquired in February 2001. The property is<br>
located in the Kapiolani business district on the island of Oahu. In June 2001,<br>
the 124,600-square-foot Kaneohe Bay Shopping Center, located in the suburban<br>
community of Kaneohe, Oahu, was added to the portfolio. Both properties were<br>
98% occupied at the time of acquisition. These acquisitions were made through<br>
tax-deferred exchanges under Section 1031 of the Internal Revenue Code, as<br>
amended ("Code").<br>
<br>
8<br>
<br>
<br>
<br>
The primary Hawaii commercial/industrial properties are as follows:<br>
<br>
<br>
<br>
Leasable Area<br>
Property Location Type (sq. ft.)<br>
-------- ---------------- ---------------- -------------<br>
<br>
Maui Mall.................. Kahului, Maui Retail 192,600<br>
Pacific Guardian Complex... Honolulu, Oahu Office 136,100<br>
Kaneohe Bay Shopping Center Kaneohe, Oahu Retail 124,600<br>
P&L Warehouse.............. Kahului, Maui Warehouse 104,100<br>
Kahului Shopping Center.... Kahului, Maui Retail 99,400<br>
Ocean View Center.......... Honolulu, Oahu Office 99,200<br>
Hawaii Business Park....... Pearl City, Oahu Warehouse 85,200<br>
Haseko Center.............. Honolulu, Oahu Office 84,200<br>
One Main Plaza............. Wailuku, Maui Office 81,600<br>
Wakea Business Center...... Kahului, Maui Warehouse/Retail 61,500<br>
Kahului Office Building.... Kahului, Maui Office 55,400<br>
Fairway Shops at Kaanapali. Kaanapali, Maui Retail 35,000<br>
Kahului Office Center...... Kahului, Maui Office 31,000<br>
Apex Building.............. Kahului, Maui Retail 28,100<br>
Stangenwald Building....... Honolulu, Oahu Office 27,100<br>
Judd Building.............. Honolulu, Oahu Office 20,200<br>
<br>
<br>
A number of other commercial and industrial projects are being developed on<br>
Maui, Oahu and Kauai, including:<br>
<br>
(i) Triangle Square. Construction of Kele Center, a 15,000-square-foot<br>
commercial building at Triangle Square, near the Kahului Airport on Maui, was<br>
completed in June 2001. A 4,500-square-foot national franchise restaurant<br>
opened in October 2001, and a 1,200-square-foot national haircare salon is<br>
scheduled to open in early 2002. Construction of a 6,200-square-foot automobile<br>
dealership was completed in October 2001, and the dealership opened for<br>
business that same month. Ground leases and build-to-suit opportunities are<br>
being pursued for the remaining 4.5 acres at Triangle Square.<br>
<br>
(ii) Maui Business Park. Located in Kahului, Maui, the initial phase of<br>
Maui Business Park consists of Phase IA (37.4 saleable acres), completed in<br>
1995, and Phase IB (32.0 saleable acres), completed in 2000.<br>
<br>
Phase IA includes the 349,305-square-foot Maui Marketplace retail center,<br>
which is owned by a third party and occupies 20.3 acres of the subdivision.<br>
Maui Marketplace includes national tenants such as Lowe's Home Improvement<br>
Warehouse, Office Max, Sports Authority, Old Navy, Border's Books and Music,<br>
and Pier 1. The remaining area of Phase IA consists of 30 lots with an average<br>
size of 22,900 square feet, of which one lot was sold and one lot was leased in<br>
2001. Thirteen lots (7.3 saleable acres) remain available for sale or lease.<br>
<br>
In Phase IB, Home Depot completed construction of a 135,000-square-foot<br>
store in May 2001. In February 2001, Wal-Mart purchased a 14.0-acre parcel in<br>
the subdivision and completed construction of a 142,000-square-foot store in<br>
October 2001. The remaining area consists of 10 lots with an average size of<br>
18,800 square feet, of which one lot was sold and one lot was leased in 2001.<br>
Eight lots (3.7 saleable acres) remain available for sale or lease.<br>
<br>
As part of the County of Maui's ten-year update of the Wailuku-Kahului<br>
Community Plan, referred to above,<br>
the Company is seeking the approval of approximately 175 acres for future<br>
expansion of Maui Business Park. Based on concerns raised by Maui County<br>
Council members over, among other things, whether the expansion areas were too<br>
close to Kahului Airport, the Council Planning Committee voted against<br>
recommending approval of the expansion areas. Following the Company's efforts<br>
to address these concerns, on January 11, 2002, the County Council voted to<br>
send the expansion proposal back to the Planning Committee for reconsideration.<br>
<br>
(iii) Kahului Airport Hotel. In January 2001, land use applications were<br>
filed with the County of Maui for the development of a 140-room,<br>
moderately-priced hotel on 3.4 acres, at the entrance to Kahului Airport. The<br>
hotel, to be operated under the Courtyard by Marriott brand, requires Community<br>
Plan, zoning and special management area approvals before development can<br>
proceed. A required environmental assessment for the project was completed in<br>
July 2001. In September 2001, the Maui Planning Commission recommended approval<br>
of the land use applications to<br>
<br>
9<br>
<br>
<br>
<br>
the Maui County Council, and in January 2002, the Council's Land Use Committee<br>
recommended approval of the land use applications to the Council. Final Council<br>
action is anticipated in the second quarter of 2002.<br>
<br>
(iv) Fairway Shops at Kaanapali. Construction of this 35,500-square-foot<br>
resort retail center in Kaanapali, Maui commenced in July 2001 and was<br>
completed in December 2001. The center is located on a 3.2-acre site along<br>
Honoapiilani Highway, the main corridor between Lahaina and Kapalua. Leasing<br>
activities have commenced, but have been adversely affected by the September 11<br>
impacts on tourism.<br>
<br>
(v) Port Allen Marina Center. Pursuant to a long-term master plan for the<br>
development of 80 acres at Port Allen, Kauai, construction began in October<br>
2001 on a 26,000-square-foot retail center located on 1.7 acres. Construction<br>
is expected to be complete by the third quarter of 2002.<br>
<br>
(vi) Mill Town Center. Located in Waipahu, Oahu (approximately 12 miles<br>
from Honolulu), the Mill Town Center is a light-industrial subdivision<br>
consisting of 27.5 saleable acres being developed in two phases. Phase IA<br>
(10.2 saleable acres), completed in 1999, consists of 23 fee simple industrial<br>
lots. Four lots were sold to commercial and industrial businesses in 2001 and<br>
eight lots (3.2 saleable acres) remain available for sale or lease.<br>
<br>
Construction of infrastructure improvements for Phase IB (17.3 saleable<br>
acres) was delayed in 2001 due to the discovery of lead contamination in<br>
approximately four acres of the subdivision. Infrastructure construction<br>
commenced in August 2001 on the unaffected portion of the site. Remediation<br>
activities on the affected portion commenced in December 2001 and are expected<br>
to be completed in early 2002. Construction of the remaining infrastructure for<br>
Phase IB is expected to be completed by mid-2002. Marketing activities<br>
commenced in 2001. In November 2001, an affiliate of Japan-based Fuji Photo<br>
Film Co., Ltd. purchased a 3.0-acre parcel in Phase IB and commenced<br>
construction of a 54,000-square-foot office, film processing and warehouse<br>
facility. The remaining portion of Phase IB consists of 31 lots (14.3 saleable<br>
acres), with an average size of 20,100 square feet.<br>
<br>
(b) U.S. Mainland Commercial/Industrial Properties<br>
<br>
On the U.S. Mainland, the Company owns a portfolio of commercial and<br>
industrial properties, acquired primarily by way of tax-deferred exchanges<br>
under Code Section 1031, comprising a total of approximately 4.0 million square<br>
feet of leasable area, as follows:<br>
<br>
<br>
<br>
Leasable Area<br>
Property Location Type (sq. ft.)<br>
- -------- -------------------- ------------------------ -------------<br>
<br>
Ontario Distribution Center.... Ontario, CA Warehouse 895,500<br>
Great Southwest Industrial..... Dallas, TX Warehouse 842,900<br>
Ontario-Pacific Business Centre Ontario, CA Warehouse 246,100<br>
Valley Freeway Corporate Park.. Kent, WA Warehouse 229,100<br>
Airport Square................. Reno, NV Retail 170,800<br>
San Pedro Plaza................ San Antonio, TX Office 163,800<br>
2868 Prospect Park............. Sacramento, CA Office 160,700<br>
Day Creek Industrial........... Ontario, CA Warehouse 147,300<br>
Arbor Park..................... San Antonio, TX Retail 139,500<br>
Mesa South Center.............. Phoenix, AZ Retail 133,600<br>
Moulton Plaza.................. Laguna Hills, CA Retail 133,600<br>
San Jose Avenue Warehouse...... City of Industry, CA Warehouse 126,000<br>
Southbank II................... Phoenix, AZ Office 120,800<br>
Village at Indian Wells........ Indian Wells, CA Retail 104,600<br>
2450 Venture Oaks.............. Sacramento, CA Office 99,000<br>
Northwest Business Center...... San Antonio, TX Service Center/Warehouse 87,100<br>
Carefree Court................. Carefree, AZ Retail 85,000<br>
Wilshire Center................ Greeley, CO Retail 46,700<br>
Market Square.................. Greeley, CO Retail 43,300<br>
<br>
<br>
10<br>
<br>
<br>
<br>
In January 2001, the Company sold its Bainbridge Property portfolio located<br>
on Bainbridge Island, WA. This portfolio included two retail properties and an<br>
office building, having a combined leasable area of 114,600 square feet. In<br>
June 2001, the Company acquired the Carefree Court shopping center, located in<br>
the resort community of Carefree, AZ, situated north of Scottsdale, AZ. This<br>
property was acquired as part of a Code Section 1031 exchange. In February<br>
2002, the Company sold the Great Southwest Industrial property, located in<br>
Dallas, TX.<br>
<br>
A&B's Mainland commercial properties achieved an average occupancy rate of<br>
93%, as compared to the 2000 average of 96%. The decrease primarily resulted<br>
from an increase in available space in the Great Southwest Industrial property.<br>
<br>
C. Food Products<br>
<br>
(1) Production<br>
<br>
A&B has been engaged in activities relating to the production of cane sugar<br>
and molasses in Hawaii since 1870, and production of coffee in Hawaii since<br>
1987. A&B's current food products operations consist of a sugar plantation on<br>
the island of Maui, operated by its Hawaiian Commercial & Sugar Company<br>
("HC&S") division, and a coffee farm on the island of Kauai, operated by its<br>
Kauai Coffee Company, Inc. ("Kauai Coffee") subsidiary.<br>
<br>
HC&S is Hawaii's largest producer of raw sugar, having produced 191,512 tons<br>
of raw sugar in 2001, or about 70% of the raw sugar produced in Hawaii,<br>
compared with 210,269 tons of raw sugar in 2000. The decrease in production was<br>
due primarily to an extended drought. Total Hawaii sugar production, in turn,<br>
amounted to approximately four percent of total United States sugar production.<br>
HC&S harvested 15,101 acres of sugar cane in 2001, compared with 17,266 acres<br>
in 2000. The decrease in acres harvested was due primarily to a<br>
later-than-expected factory startup in 2001 and unexpected factory problems and<br>
weather delays toward the end of the 2001 harvesting season. Yields averaged<br>
12.7 tons of sugar per acre in 2001, compared with 12.2 tons per acre in 2000.<br>
The average cost per ton of sugar produced at HC&S was $371 in 2001, compared<br>
with $331 in 2000. The increase in cost per ton was attributable to higher<br>
operating costs and lower sugar production. As a by-product of sugar<br>
production, HC&S also produced 71,207 tons of molasses in 2001, compared with<br>
70,551 tons in 2000.<br>
<br>
In 2001, 8,848 tons of the raw sugar produced by HC&S were produced as<br>
specialty food-grade raw sugars and sold under HC&S's Maui Brand(R) trademark.<br>
A $2.4 million expansion of the production facilities for these sugars was<br>
completed in February 2001. Further expansion is planned for 2002.<br>
<br>
During 2001, Kauai Coffee had approximately 3,400 acres of coffee trees<br>
under cultivation. The harvest of the 2001 coffee crop yielded approximately<br>
3.8 million pounds of green coffee, compared with 2.8 million pounds in 2000.<br>
The increased production was due primarily to better weather conditions in 2001.<br>
<br>
Due to weaknesses in the panelboard market, production problems and poor<br>
operating results, a development panelboard plant ceased operations and was<br>
abandoned. The plant, operated by Hawaiian DuraGreen, Inc., a wholly-owned<br>
subsidiary of A&B, produced panelboard from bagasse, a by-product in the<br>
production of sugar. A&B recorded operating losses and closure costs of<br>
$2,964,000, and a $11,387,000 write-down of the production assets, as a result<br>
of this action.<br>
<br>
HC&S and McBryde Sugar Company, Limited ("McBryde"), the parent company of<br>
Kauai Coffee, produce electricity for internal use and for sale to the local<br>
electric utility companies. HC&S's power is produced by burning bagasse, by<br>
hydroelectric power generation and, when necessary, by burning fossil fuels,<br>
whereas McBryde produces power solely by hydroelectric generation. The price<br>
for the power sold by HC&S and McBryde is equal to the utility companies'<br>
"avoided cost" of not producing such power themselves. In addition, HC&S<br>
receives a capacity payment to provide a guaranteed power generation capacity<br>
to the local utility. (See "Energy" below.)<br>
<br>
Kahului Trucking & Storage, Inc., a subsidiary of A&B, provides sugar and<br>
molasses hauling and storage, petroleum hauling, mobile equipment maintenance<br>
and repair services, and self-service storage facilities on Maui.<br>
<br>
11<br>
<br>
<br>
<br>
Kauai Commercial Company, Incorporated, another subsidiary of A&B, provides<br>
similar services on Kauai, as well as general trucking services.<br>
<br>
(2) Marketing of Sugar and Coffee<br>
<br>
Substantially all of the raw sugar produced in Hawaii is purchased, refined<br>
and marketed by C&H Sugar Company, Inc. ("C&H"), of which A&B owns a 36 percent<br>
common stock interest. The results of A&B's equity investment in C&H are<br>
reported in A&B's financial statements as an investment in an affiliate. C&H<br>
processes the raw cane sugar at its refinery at Crockett, California, and<br>
markets the refined products primarily in the western and central United<br>
States. HC&S markets its specialty food-grade raw sugars to food and beverage<br>
producers and to retail stores under its Maui Brand(R) label, and to<br>
distributors which repackage the sugars under their own labels. HC&S's largest<br>
food-grade raw sugar customers are Cumberland Packing Corp. and Sugar Foods<br>
Corporation, which repackage HC&S's turbinado sugar for their "Sugar in the<br>
Raw" products.<br>
<br>
Hawaiian Sugar & Transportation Cooperative ("HS&TC"), a cooperative<br>
consisting of the two remaining sugar cane growers in Hawaii (including HC&S),<br>
has a ten-year supply contract with C&H, ending in June 2003, pursuant to which<br>
the growers sell their raw sugar to C&H at a price equal to the New York #14<br>
Contract settlement price, less a discount and less costs of sugar vessel<br>
discharge and stevedoring. This price, after deducting the marketing,<br>
operating, distribution, transportation and interest costs of HS&TC, reflects<br>
the gross revenue to the Hawaii sugar growers, including HC&S. Notwithstanding<br>
the ten-year supply contract, HC&S arranged directly with C&H for the forward<br>
pricing of a substantial portion of its 2001 harvest, as described in Item 7A<br>
("Quantitative and Qualitative Disclosures About Market Risk") below. In<br>
addition, as of January 15, 2002, 30% of the expected 2002 harvest has been<br>
forward priced.<br>
<br>
At Kauai Coffee, coffee marketing efforts are directed toward developing a<br>
market for premium-priced, estate-grown Kauai green coffee. Most of the coffee<br>
crop is being marketed on the U.S. Mainland and in Asia as green (unroasted)<br>
coffee. In addition to the sale of green coffee, Kauai Coffee produces and<br>
sells roasted, packaged coffee in Hawaii under the "Kauai Coffee" trademark.<br>
<br>
(3) Competition and Sugar Legislation<br>
<br>
Hawaii sugar growers produce more sugar per acre than other major producing<br>
areas of the world, but that advantage is partially offset by Hawaii's high<br>
labor costs and the distance to the U.S. Mainland market. Hawaiian refined<br>
sugar is marketed primarily west of Chicago. This is also the largest beet<br>
sugar growing and processing area and, as a result, the only market area in the<br>
United States which produces more sugar than it consumes. Sugar from sugar<br>
beets is the greatest source of competition in the refined sugar market for the<br>
Hawaiian sugar industry.<br>
<br>
The overall U.S. caloric sweetener market continues to grow. The use of<br>
non-caloric (artificial) sweeteners accounts for a relatively small percentage<br>
of the domestic sweetener market. The anticipated increased use of high<br>
fructose corn syrup and artificial sweeteners is not expected to affect sugar<br>
markets significantly in the near future.<br>
<br>
The U.S. Congress historically has sought, through legislation, to assure a<br>
reliable domestic supply of sugar at stable and reasonable prices. The current<br>
protective legislation for domestic sugar, the Federal Agriculture Improvement<br>
and Reform Act (the "1996 Farm Bill"), provides a sugar loan program for the<br>
1996 through 2002 crops, with a loan rate (support price) of 18 cents per pound<br>
for raw sugar. The loan rate represents the value of sugar given as collateral<br>
for government price-support loans. The government is required to administer<br>
the sugar program at no net cost, and this is accomplished by adjusting fees<br>
and quotas for imported sugar to maintain the domestic price at a level that<br>
discourages producers from defaulting on loans. The ten-year supply contract<br>
between HS&TC and C&H limits HC&S's ability to place sugar under loan pursuant<br>
to the sugar loan program. The 1996 Farm Bill also eliminated marketing<br>
allotments, thereby removing the means of limiting domestic production. The<br>
1.25-million-ton minimum import quota set under the General Agreement on Tariff<br>
and Trade ("GATT") is retained in the 1996 Act.<br>
<br>
<br>
12<br>
<br>
<br>
<br>
During 2001, legislation was developed for a new omnibus farm bill ("2002<br>
Farm Bill"). A House farm bill, entitled the Farm Security Act of 2001, was<br>
approved by the U.S. House of Representatives on October 5, 2001. Among other<br>
things, that bill seeks to continue for ten years the current marketing loan<br>
program at current loan rates for sugar, and seeks to reestablish marketing<br>
allotments which are expected to stabilize prices. A Senate farm bill, with<br>
identical provisions for sugar, was approved by the U.S. Senate on February 13,<br>
2002. The 2002 Farm Bill is expected to be approved in 2002.<br>
<br>
In 2001, U.S. domestic raw sugar prices averaged 21.09 cents per pound,<br>
above the 20-year lows experienced in 2000, but still below historical<br>
averages. The pricing situation has improved, but continues to be challenging,<br>
even to efficient producers like HC&S. A chronological chart of the average<br>
U.S. domestic raw sugar prices, based on the average daily New York Contract<br>
#14 settlement price for domestic raw sugar, is shown below:<br>
<br>
[CHART]<br>
<br>
<br>
<br>
<br>
<br>
Jan-98 22.11<br>
FEB 21.79<br>
MAR 21.74<br>
APR 22.2<br>
MAY 22.28<br>
JUN 22.298<br>
JUL 22.32<br>
AUG 22.3<br>
SEP 22.25<br>
OCT 22.15<br>
NOV 22.03<br>
DEC 21.97<br>
Jan-99 22.41<br>
FEB 22.34<br>
MAR 22.55<br>
APR 22.58<br>
MAY 22.65<br>
JUN 22.63<br>
JUL 22.61<br>
AUG 21.31<br>
SEP 20.10<br>
OCT 20.51<br>
NOV 17.45<br>
DEC 17.67<br>
Jan-00 17.70<br>
FEB 17.05<br>
MAR 18.46<br>
APR 19.41<br>
MAY 19.12<br>
JUN 19.26<br>
JUL 17.64<br>
AUG 18.13<br>
SEP 18.97<br>
OCT 21.20<br>
NOV 21.39<br>
DEC 20.53<br>
Jan-01 20.81<br>
FEB 21.18<br>
MAR 21.40<br>
APR 21.51<br>
MAY 21.19<br>
JUN 21.04<br>
JUL 20.64<br>
AUG 21.01<br>
SEP 20.87<br>
OCT 20.85<br>
NOV 21.19<br>
DEC 21.35<br>
<br>
<br>
<br>
<br>
Liberalized international trade agreements, such as the GATT, include<br>
provisions relating to agriculture which can affect the U.S. sugar or sweetener<br>
industries materially. A "side" agreement that modified the North American Free<br>
Trade Agreement ("NAFTA") alleviated some of the sugar producers' concerns by<br>
limiting Mexico's exports of sugar to the U.S. under NAFTA. However, the export<br>
ceiling provided for in the side agreement increased to 250,000 tons of sugar<br>
in 2000, and will be eliminated in 2007. The increased sugar supply could<br>
affect domestic sugar prices adversely.<br>
<br>
Kauai Coffee competes with coffee growers located worldwide, including<br>
Hawaii. Due to an oversupply of coffee in the marketplace, coffee commodity<br>
prices dropped significantly in 2000 and continued to drop to record lows in<br>
2001.<br>
<br>
(4) Properties and Water<br>
<br>
The HC&S sugar plantation, the largest in Hawaii, consists of approximately<br>
43,300 acres of land, including 2,000 acres leased from the State of Hawaii and<br>
1,300 acres under lease from private parties. Over 37,000 acres are under<br>
cultivation, and the balance either is used for contributory purposes, such as<br>
roads and plant sites, or is not suitable for cultivation.<br>
<br>
McBryde owns approximately 9,500 acres of land on Kauai, of which<br>
approximately 2,400 acres are used for watershed and other conservation uses,<br>
approximately 3,400 acres are used by Kauai Coffee, and the remaining acreage<br>
is leased to various agricultural enterprises for cultivation of a variety of<br>
crops and for pasturage.<br>
<br>
Large quantities of water are needed by HC&S and Kauai Coffee for their<br>
sugar cane and coffee growing operations. Because of the importance of water,<br>
access to water, reliable sources of supply and efficient irrigation systems<br>
are crucial for the successful growing of sugar cane and coffee. A&B's<br>
plantations use a "drip" irrigation system that distributes water to the roots<br>
through small holes in plastic tubes. All of the cultivated cane land farmed by<br>
HC&S is drip irrigated. All of Kauai Coffee's fields also are drip irrigated.<br>
<br>
13<br>
<br>
<br>
<br>
A&B owns 16,000 acres of watershed lands on Maui, which supply a portion of<br>
the irrigation water used by HC&S. A&B also held four water licenses to 38,000<br>
acres owned by the State of Hawaii, which over the years supplied approximately<br>
one-third of the irrigation water used by HC&S. The last of these water license<br>
agreements expired in 1986, and all four agreements have since been extended as<br>
revocable permits that are renewable annually. In 2001, a request was made to<br>
the State Board of Land and Natural Resources to replace these revocable<br>
permits with a long-term water lease. Pending a contested case hearing before<br>
the Board on the request for the long-term lease, the Board approved a<br>
month-to-month holdover of the existing permits.<br>
<br>
D. Employees and Labor Relations<br>
<br>
As of December 31, 2001, A&B and its subsidiaries had approximately 2,054<br>
regular full-time employees. About 916 regular full-time employees were engaged<br>
in the growing of sugar cane and coffee and the production of raw sugar and<br>
green coffee, 927 were engaged in ocean transportation, 44 were engaged in<br>
property development and management, and the balance was in administration and<br>
miscellaneous operations. Approximately 55% were covered by collective<br>
bargaining agreements with unions.<br>
<br>
As of December 31, 2001, Matson and its subsidiaries also had approximately<br>
317 seagoing employees. Approximately 26% of Matson's regular full-time<br>
employees and all of the seagoing employees were covered by collective<br>
bargaining agreements.<br>
<br>
Historically, collective bargaining with longshore and seagoing unions has<br>
been complex and difficult. However, Matson and Matson Terminals consider their<br>
relations with those unions, other unions, and their non-union employees<br>
generally to be satisfactory.<br>
<br>
Matson's seagoing employees are represented by six unions, three<br>
representing unlicensed crew members and three representing licensed crew<br>
members. Matson negotiates directly with these unions. Collective bargaining<br>
agreements with the unions representing unlicensed crew members are expected to<br>
be renewed in mid-2002 without service interruption.<br>
<br>
SSA Terminals LLC ("SSAT"), the previously-described joint venture of Matson<br>
and Stevedoring Services of America ("SSA"), provides stevedoring and terminal<br>
services for Matson vessels calling at U.S. Pacific Coast ports. Matson, SSA,<br>
and SSAT are members of the Pacific Maritime Association ("PMA") which, on<br>
behalf of its members, negotiates collective bargaining agreements with the<br>
International Longshore Workers Union ("ILWU") on the Pacific Coast. Matson<br>
Terminals provides stevedoring and terminal services to Matson vessels calling<br>
at Honolulu. Matson Terminals is a member of the Hawaii Stevedore Industry<br>
Committee which, on behalf of its members, negotiates with the ILWU in Hawaii.<br>
Collective bargaining agreements with ILWU longshore workers on the Pacific<br>
Coast and in Hawaii are expected to be renewed in mid-2002 without service<br>
interruption.<br>
<br>
During 2001, Matson renewed its collective bargaining agreement with ILWU<br>
clerical workers at Los Angeles for a three-year term and expects to renew its<br>
agreement with ILWU clerical workers at Oakland in mid-2002 without service<br>
interruption.<br>
<br>
Matson contributed during 2001 to multi-employer pension plans for vessel<br>
crews. If Matson were to withdraw from or significantly reduce its obligation<br>
to contribute to one of the plans, Matson would review and evaluate data,<br>
actuarial assumptions, calculations and other factors used in determining its<br>
withdrawal liability, if any, and, in the event of material disagreement with<br>
such determination, would pursue the various means available to it under<br>
federal law for the adjustment or removal of its withdrawal liability. Matson<br>
Terminals participates in a multi-employer pension plan for its Hawaii<br>
longshore employees. For a discussion of withdrawal liabilities under the<br>
Hawaii longshore and seagoing plans, see Note 10 to A&B's financial statements<br>
in Item 8 below.<br>
<br>
Bargaining unit employees of HC&S are covered by two collective bargaining<br>
agreements with the ILWU. The agreements with the HC&S production unit<br>
employees and clerical bargaining unit employees were extended in 2001 and will<br>
expire January 31, 2003. A collective bargaining agreement with the ILWU for<br>
production employees of<br>
<br>
14<br>
<br>
<br>
<br>
Hawaiian DuraGreen, Inc. was negotiated, but all production employees<br>
subsequently were terminated in connection with the shutdown of the panelboard<br>
plant. The collective bargaining agreements covering the two ILWU bargaining<br>
units at Kahului Trucking & Storage, Inc. will expire on March 31, 2006 and on<br>
June 30, 2002 (the latter is expected to be renewed without service<br>
interruption). The two collective bargaining agreements with Kauai Commercial<br>
Company, Incorporated employees represented by the ILWU were renegotiated in<br>
2001 and will expire April 30, 2004. The collective bargaining agreement with<br>
the ILWU for the production unit employees of Kauai Coffee was renegotiated in<br>
2001 and will expire on January 31, 2004.<br>
<br>
E. Energy<br>
<br>
Matson and Matson Terminals purchase residual fuel oil, lubricants, gasoline<br>
and diesel fuel for their operations. Residual fuel oil is by far Matson's<br>
largest energy-related expense. In 2001, Matson vessels consumed approximately<br>
1.8 million barrels of residual fuel oil, the same as in 2000.<br>
<br>
Residual fuel oil prices paid by Matson started in 2001 at $127.50 per<br>
metric ton and ended the year at $103.00 per metric ton. A high of $180.50 per<br>
metric ton occurred in June, and a low of $92.00 per metric ton occurred in<br>
November. Sufficient fuel for Matson's requirements is expected to be available<br>
in 2002.<br>
<br>
As has been the practice with sugar plantations throughout Hawaii, HC&S uses<br>
bagasse, the residual fiber of the sugar cane plant, as a fuel to generate<br>
steam for the production of most of the electrical power for sugar milling and<br>
irrigation pumping operations. In addition to bagasse, HC&S uses diesel fuel<br>
oil, boiler fuel oil, and coal to produce power, principally for pumping<br>
irrigation water during the factory shutdown period when bagasse is not being<br>
produced. Since 1992, when suppliers of boiler fuel oil to HC&S discontinued<br>
regular shipments as a result of unlimited liability concerns arising from<br>
federal and state environmental laws, boiler fuel oil has been provided to HC&S<br>
on a space available basis. In 2001, HC&S produced 203,650 MWH of electric<br>
power and sold 61,074 MWH, compared with 217,279 MWH produced and 67,105 MWH<br>
sold in 2000. The reduction in power produced and sold was caused by HC&S's<br>
increased need to pump irrigation water, due to drought conditions. HC&S's oil<br>
use decreased to 68,999 barrels in 2001, from the 100,313 barrels used in 2000.<br>
Coal use for power generation increased, from 61,222 short tons in 2000 to<br>
62,389 short tons in 2001. The decrease in fuel oil used is attributed to<br>
HC&S's shutdown of one of its two sugar mills in 2000.<br>
<br>
In 2001, McBryde produced 30,637 MWH of hydroelectric power, compared with<br>
31,971 MWH of hydroelectric power produced in 2000. Power sales in 2001<br>
amounted to 21,216 MWH, compared with 23,375 MWH sold in 2000. The reduction in<br>
power production and sales was due primarily to continued drought conditions in<br>
2001.<br>
<br>
ITEM 3. LEGAL PROCEEDINGS<br>
<br>
See "Business and Properties--Ocean Transportation--Rate Regulation" above<br>
for a discussion of rate and other regulatory matters in which Matson is<br>
routinely involved.<br>
<br>
On September 14, 1998, Matson was served with a complaint filed by the<br>
Government of Guam with the Surface Transportation Board ("STB"), alleging that<br>
Sea-Land Services, Inc. ("Sea-Land"), American President Lines, Ltd. ("APL")<br>
and Matson have charged unreasonable rates in the Guam trade since January<br>
1991. Matson did not enter the trade until February 1996. On November 12, 1998,<br>
Matson filed an answer, denying that its rates have been unreasonable. Matson,<br>
Sea-Land and APL filed a joint motion to dismiss the complaint on February 16,<br>
1999. On November 15, 2001, the STB issued a decision, granting the motion in<br>
part and denying it in part. The STB dismissed the claim of discrimination,<br>
dismissed the aggregate rate challenge for shipments prior to September 10,<br>
1996, dismissed APL as a defendant based on the statute of limitations, and<br>
permitted the Caribbean Shippers Association to intervene. The parties have<br>
until April 9, 2002 to file initial briefs addressing the appropriate rate<br>
reasonableness methodology to be applied to the remaining issue of whether the<br>
aggregate rates charged by Matson and Sea-Land in the Guam trade after<br>
September 10, 1996 are reasonable. Reply briefs will be due on June 3, 2002.<br>
<br>
15<br>
<br>
<br>
<br>
A&B and its subsidiaries are parties to, or may be contingently liable in<br>
connection with, other legal actions arising in the normal conduct of their<br>
businesses, the outcomes of which, in the opinion of management after<br>
consultation with counsel, would not have a material adverse effect on A&B's<br>
results of operations or financial position.<br>
<br>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS<br>
<br>
Not applicable.<br>
<br>
EXECUTIVE OFFICERS OF THE REGISTRANT<br>
<br>
For the information about executive officers of A&B required to be included<br>
in this Part I, see paragraph B of "Directors and Executive Officers of the<br>
Registrant" in Part III below, which is incorporated into Part I by reference.<br>
<br>
PART II<br>
<br>
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS<br>
<br>
A&B common stock is listed on The Nasdaq Stock Market and trades under the<br>
symbol "ALEX". As of February 14, 2002, there were 4,233 shareholders of record<br>
of A&B common stock. In addition, Cede & Co., which appears as a single record<br>
holder, represents the holdings of thousands of beneficial owners of A&B common<br>
stock.<br>
<br>
A summary of daily stock transactions is listed in the Nasdaq National<br>
Market Issues section of major newspapers. Trading volume averaged 135,600<br>
shares a day in 2001, compared with 98,900 in 2000 and 105,800 in 1999.<br>
Currently, 19 firms make a market in ALEX.<br>
<br>
The quarterly high and low sales prices and closing prices, as reported by<br>
The Nasdaq Stock Market, and cash dividends paid per share of common stock, for<br>
2000 and 2001, were as follows:<br>
<br>
<br>
<br>
Market Price<br>
Dividends -----------------------<br>
Paid High Low Close<br>
2001 --------- ------- ------- -------<br>
----<br>
<br>
First Quarter................ $0.225 $29.609 $21.063 $21.375<br>
Second Quarter............... 0.225 25.840 20.610 25.750<br>
Third Quarter................ 0.225 26.430 21.120 23.410<br>
Fourth Quarter............... 0.225 27.920 21.600 26.700<br>
<br>
2000<br>
----<br>
First Quarter................ $0.225 $22.783 $17.938 $20.625<br>
Second Quarter............... 0.225 24.625 19.250 22.063<br>
Third Quarter................ 0.225 27.500 21.875 26.000<br>
Fourth Quarter............... 0.225 28.250 21.625 26.250<br>
<br>
<br>
Although A&B expects to continue paying quarterly cash dividends on its<br>
common stock, the declaration and payment of dividends in the future are<br>
subject to the discretion of the Board of Directors and will depend upon A&B's<br>
financial condition, results of operations, cash requirements and other factors<br>
deemed relevant by the Board of Directors. A&B strives to pay the highest<br>
possible dividends commensurate with operating and capital needs. A&B has paid<br>
cash dividends in every quarter since 1903. The most recent increase in the<br>
quarterly dividend rate was effective in the first quarter of 1998, from 22<br>
cents a share to 22.5 cents. In 2001, dividend payments to shareholders<br>
<br>
16<br>
<br>
<br>
<br>
totaled $36.5 million, which was 33% of reported net income for the year. The<br>
following dividend schedule for 2002 has been set, subject to final approval by<br>
the Board of Directors:<br>
<br>
<br>
<br>
Quarterly Dividend Declaration Date Record Date Payment Date<br>
------------------ ---------------- ----------- ------------<br>
<br>
First....... January 24 February 14 March 7<br>
Second...... April 25 May 6 June 6<br>
Third....... June 27 August 1 September 5<br>
Fourth...... October 24 November 7 December 5<br>
<br>
<br>
A&B common stock is included in the Dow Jones Transportation Index, the Dow<br>
Jones Composite Index, the Dow Jones Marine Transportation Index, the Dow Jones<br>
Sustainability Group Index and the S&P MidCap 400 Index.<br>
<br>
The number of shares of A&B common stock repurchased by A&B during each of<br>
the three years ended December 31, 2001 was as follows:<br>
<br>
<br>
<br>
Shares Average Price<br>
Year Repurchased (per share)<br>
---- ----------- -------------<br>
<br>
2001......................... 105,000 $21.61<br>
2000......................... 2,378,195 $20.29<br>
1999......................... 1,564,500 $22.26<br>
<br>
<br>
17<br>
<br>
<br>
<br>
ITEM 6. SELECTED FINANCIAL DATA<br>
<br>
The following financial data should be read in conjunction with Item 8,<br>
"Financial Statements and Supplementary Data," and Item 7, "Management's<br>
Discussion and Analysis of Financial Condition and Results of Operations" :<br>
<br>
<br>
<br>
2001 2000 1999 1998 1997<br>
---------- ---------- ---------- ---------- ----------<br>
(dollars and shares in thousands, except per-share amounts)<br>
<br>
ANNUAL OPERATIONS<br>
Total revenue/1/............................. $1,190,073 $1,068,646 $ 999,998 $1,343,475 $1,310,176<br>
Deduct:<br>
Cost of goods sold and operating expenses/1/. 908,777 849,375 812,783 1,174,881 1,065,470<br>
Depreciation and amortization............... 75,433 72,304 73,901 88,500 88,558<br>
Interest expense............................ 18,658 24,252 17,774 24,799 28,936<br>
Income taxes................................ 67,392 44,391 32,961 24,352 45,825<br>
---------- ---------- ---------- ---------- ----------<br>
Income from continuing operations before<br>
accounting changes......................... 119,813 78,324 62,579 30,943 81,387<br>
Discontinued operations...................... (9,185) -- -- -- --<br>
Cumulative effect of change in accounting<br>
methods.................................... -- 12,250 -- (5,801) --<br>
---------- ---------- ---------- ---------- ----------<br>
Net income................................... $ 110,628 $ 90,574 $ 62,579 $ 25,142 $ 81,387<br>
========== ========== ========== ========== ==========<br>
Comprehensive income......................... $ 48,691 $ 103,050 $ 48,711 $ 33,327 $ 88,326<br>
Earnings per share before accounting changes:<br>
Basic....................................... $ 2.96 $ 1.92 $ 1.45 $ 0.69 $ 1.80<br>
Diluted..................................... $ 2.94 $ 1.91 $ 1.45 $ 0.69 $ 1.80<br>
Return on beginning equity................... 15.9% 13.5% 9.0% 3.5% 11.9%<br>
Cash dividends per share..................... $ 0.90 $ 0.90 $ 0.90 $ 0.90 $ 0.88<br>
Average number of shares outstanding......... 40,535 40,898 43,206 44,760 45,182<br>
Gross profit percentage/1/................... 23.6% 23.0% 22.1% 17.0% 20.1%<br>
Effective income tax rate.................... 36.0% 36.5% 34.5% 45.4% 36.0%<br>
<br>
MARKET PRICE RANGE PER SHARE<br>
High........................................ $ 29.609 $ 28.250 $ 27.125 $ 31.125 $ 29.375<br>
Low......................................... 20.610 17.938 18.625 18.813 24.375<br>
Close....................................... 26.700 26.250 22.813 23.250 27.313<br>
<br>
AT YEAR END<br>
Shareholders of record...................... 4,252 4,438 4,761 5,125 5,481<br>
Shares outstanding.......................... 40,529 40,353 42,526 44,028 44,881<br>
Shareholders' equity........................ $ 710,667 $ 693,651 $ 670,963 $ 694,642 $ 719,588<br>
Per-share................................. 17.54 17.19 15.78 15.78 16.03<br>
Total assets................................ 1,544,419 1,666,012 1,561,460 1,605,640 1,704,798<br>
Working capital............................. 24,445 55,861 59,805 67,113 114,806<br>
Cash and cash equivalents................... 19,291 3,451 3,333 86,818 21,623<br>
Real estate developments - noncurrent....... 47,840 62,628 60,810 57,690 68,056<br>
Investments - noncurrent.................... 33,021 183,141 158,726 159,068 102,813<br>
Capital Construction Fund................... 158,737 150,405 145,391 143,303 148,610<br>
Long-term debt - noncurrent................. 207,378 330,766 277,570 255,766 292,885<br>
Current ratio............................... 1.1 to 1 1.4 to 1 1.4 to 1 1.4 to 1 1.7 to 1<br>
Capital stock price/earnings ratio.......... 9.8 to 1 11.9 to 1 15.7 to 1 41.5 to 1 15.2 to 1<br>
<br>
- --------<br>
/1/ See Note 2 to the consolidated financial statements in Item 8 for<br>
information regarding changes which were made in 2000 in presentation for<br>
certain revenues and expenses.<br>
<br>
18<br>
<br>
<br>
<br>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS<br>
OF OPERATIONS<br>
<br>
The following analysis of the consolidated financial condition and results<br>
of operations of Alexander & Baldwin, Inc. and its subsidiaries (collectively,<br>
the "Company") should be read in conjunction with the consolidated financial<br>
statements and related notes thereto.<br>
<br>
FORWARD-LOOKING STATEMENTS<br>
<br>
The Company, from time to time, may make or may have made certain<br>
forward-looking statements, whether orally or in writing, such as forecasts and<br>
projections of the Company's future performance or statements of management's<br>
plans and objectives. These statements are "forward-looking" statements as that<br>
term is defined in the Private Securities Litigation Reform Act of 1995. Such<br>
forward-looking statements may be contained in, among other things, Securities<br>
and Exchange Commission (SEC) filings, such as the Forms 10-K, press releases<br>
made by the Company, the Company's Internet Web sites (including Web sites of<br>
its subsidiaries), and oral statements made by the officers of the Company.<br>
Except for historical information contained in these written or oral<br>
communications, such communications contain forward-looking statements. These<br>
forward-looking statements involve a number of risks and uncertainties that<br>
could cause actual results to differ materially from those projected in the<br>
statements, including, but not limited to: (1) impact of events of September<br>
11, 2001; (2) economic conditions in Hawaii and elsewhere; (3) market demand;<br>
(4) competitive factors and pricing pressures in the Company's primary markets;<br>
(5) legislative and regulatory environments at the federal, state and local<br>
levels, such as government rate regulations, land-use regulations, government<br>
administration of the U.S. sugar program, and modifications to or retention of<br>
cabotage laws; (6) dependence on third-party suppliers; (7) fuel prices; (8)<br>
raw sugar prices; (9) labor relations; (10) risks associated with current or<br>
future litigation and resolution of tax issues with the IRS and state tax<br>
authorities; (11) the performance of unconsolidated affiliates and ventures;<br>
and (12) other risk factors described elsewhere in these communications and<br>
from time to time in the Company's filings with the SEC.<br>
<br>
CONSOLIDATED RESULTS OF OPERATIONS<br>
<br>
Consolidated Earnings and Revenue: Net income in 2001 was $110,628,000, or<br>
$2.73 per basic share, versus $90,574,000, or $2.21 per basic share, in 2000<br>
and $62,579,000, or $1.45 per basic share, in 1999. Revenue in 2001 was<br>
$1,190,073,000, compared with revenue of $1,068,646,000 in 2000 and<br>
$999,998,000 in 1999.<br>
<br>
Accounting Changes and Significant Transactions<br>
<br>
2001: Results for 2001 include the sales of the Company's marketable<br>
equity securities. The sales of these securities resulted in cash receipts of<br>
approximately $134,722,000, pre-tax gains of approximately $125,478,000 and<br>
after-tax gains of about $77,788,000 ($1.92 per basic share). The Company also<br>
donated appreciated stock with an approximate fair value of $7,500,000 to its<br>
charitable foundation. These sales are described more fully in Note 5 to the<br>
consolidated financial statements included in Item 8.<br>
<br>
The Company reduced the carrying value of its equity investments in C&H<br>
Sugar Company, Inc. ("C&H") by $28,600,000. This resulted in an after-tax<br>
charge of $17,732,000 ($0.44 per basic share). In addition, the Company wrote<br>
off $4,823,000 of power generation equipment, resulting in a $3,087,000<br>
after-tax charge to earnings ($0.08 per basic share). These impairments are<br>
discussed more fully in Note 4 to the consolidated financial statements<br>
included in Item 8.<br>
<br>
The Company discontinued and abandoned its panelboard manufacturing<br>
subsidiary on Maui. This discontinued operation resulted in a $9,185,000<br>
after-tax charge to earnings ($0.23 per basic share). This is described in Note<br>
3 to the consolidated Financial statements included in Item 8.<br>
<br>
2000: The Company made two changes in accounting methods (See Note 2 to<br>
the consolidated financial statements). The first change was for vessel<br>
drydocking costs at Matson. Previously, the estimated costs for future<br>
drydocking of vessels were accrued in advance of the drydocking. Subsequent<br>
payments were charged against the accrued liability. Under the new method,<br>
drydocking expenditures that benefit future periods are capitalized and<br>
<br>
19<br>
<br>
<br>
<br>
depreciated. This change increased 2000 net income by $12,250,000 (net of<br>
income tax expense of $7,668,000), or $0.29 per basic share. The second change<br>
was for the presentation of certain costs recorded in the ocean transportation<br>
and property leasing segments, which previously were recorded as an offset to<br>
revenue. This change did not affect net income.<br>
<br>
1999: Following continuing operating losses, depressed coffee prices and<br>
negative cash flows at Kauai Coffee Company, Inc. ("Kauai Coffee"), the<br>
Company's coffee plantation, the Company recorded an after-tax charge of<br>
$9,571,000, or $0.22 per basic share, to write down the recorded value of<br>
orchards and other non-current assets to their estimated fair values.<br>
<br>
RESULTS OF INDUSTRY SEGMENT OPERATIONS<br>
<br>
Detailed information related to the operations and financial performance of<br>
the Company's Industry Segments is included in Note 14 of Item 8 "Financial<br>
Statements and Supplementary Data." The following information should be read in<br>
relation to information contained in that Note.<br>
<br>
2001 Compared with 2000<br>
<br>
Ocean Transportation revenue of $796,840,000 was $53,852,000, or six<br>
percent, lower than the $850,692,000 reported for 2000. Operating profit of<br>
$62,264,000 was $31,468,000, or 34 percent, lower than the $93,732,000 reported<br>
during the prior year. The revenue and operating profit declines were directly<br>
attributable to cargo volumes and productivity issues.<br>
<br>
Matson's total Hawaii Service container volume, at 149,636 units, was one<br>
percent lower than 2000 container volume of 151,496 units. Matson's total<br>
Hawaii Service automobile volume, at 122,389 units, was seven percent lower<br>
than 2000 automobile volume of 132,186 units. The lower cargo and automobile<br>
volumes were primarily the result of the weakened Hawaii economy following the<br>
September 11, 2001 terrorist attacks on the United States of America. These<br>
attacks had a significantly adverse effect on air travel. This reduced Hawaii<br>
tourism and, in turn, significantly reduced the fourth quarter carriage of<br>
commercial cargo and automobiles to Hawaii. In January 2002, Matson reduced the<br>
number of vessels in the Hawaii Service from eight to seven.<br>
<br>
In addition to the lower container and automobile carriage, transition<br>
problems related to a terminal improvement project at Matson's Honolulu<br>
terminal reduced productivity during the fourth quarter. Lower results from<br>
Matson's investments in a shipping operation in Puerto Rico and from a<br>
stevedoring joint venture also adversely affected the total-year results.<br>
<br>
A 3.5 percent increase in Hawaii Service rates announced in 2000 took effect<br>
in February 2001. Total fuel costs decreased by $7,609,000 in 2001 versus 2000,<br>
resulting in a decrease in the fuel surcharge from 4.25% to 3.25%.<br>
<br>
Property Leasing revenue of $70,685,000 was 14 percent higher than 2000<br>
revenue of $62,105,000 and operating profit of $34,139,000 was 13 percent<br>
higher than 2000 operating profit of $30,120,000. These increases were due<br>
primarily to additions to the leased property portfolio and higher occupancy<br>
levels in the Hawaii portfolio and increased royalty revenue. Occupancy levels<br>
for the Mainland portfolio averaged 93 percent in 2001, versus 96 percent in<br>
2000. The Company owned four million square feet of leasable improved property<br>
on the Mainland at year-end 2001, the same as at the year-end 2000. Occupancy<br>
levels for the Hawaii properties averaged 90% in 2001, versus 86% in 2000. The<br>
Company owned 1.5 million square feet of leasable improved property in Hawaii<br>
at year-end 2001 compared with 1.2 million square feet at year-end 2000.<br>
<br>
Property Sales revenue of $89,156,000 for 2001 compared with $46,322,000 of<br>
revenue a year earlier. Operating profit was $17,926,000 for 2001 compared with<br>
operating profit of $24,228,000 for 2000. These fluctuations are due primarily<br>
to the changed composition of sales during the two years.<br>
<br>
20<br>
<br>
<br>
<br>
The mix of property sales in any year can be diverse. Sales can include<br>
property sold under threat of condemnation, developed residential real estate,<br>
commercial properties, developable subdivision lots and undeveloped land. The<br>
sale of undeveloped land and vacant parcels generally provides a greater<br>
contribution margin than does the sale of residential, developed and commercial<br>
property, due to the low historical-cost basis of the Company's Hawaii land.<br>
Consequently, property sales revenue trends and the amount of real estate held<br>
for sale on the balance sheets do not necessarily indicate future profitability<br>
for this segment.<br>
<br>
Sales in 2001 included a 14-acre parcel at Maui Business Park to Wal-Mart,<br>
three commercial properties in Bainbridge, Washington, a four-acre parcel on<br>
Maui, 82 residential properties and a 68-acre parcel for highway widening on<br>
Maui. Sales in 2000 included a ground lease under a Costco store, a 13-acre<br>
parcel at Maui Business Park, 16 business parcels and 28 residential properties.<br>
<br>
Food Products revenue of $104,376,000 in 2001 compared with revenue of<br>
$106,341,000 in 2000. Operating profit of $5,660,000 in 2001 was 25% lower than<br>
the $7,522,000 earned in 2000. The benefits of higher domestic raw sugar and<br>
molasses prices throughout 2001 and improved sales of natural sugars under the<br>
Maui Brand(R) label were more than offset by a write-off of power generation<br>
equipment which was no longer needed in the business, lower raw sugar<br>
production and power sales, and lower results from A&B's minority investment in<br>
C&H. The previously discussed impairment loss related to the Company's<br>
investment in C&H was not included in segment operating profit.<br>
<br>
HC&S produced 191,512 tons of raw sugar during 2001, compared with 210,269<br>
tons a year earlier. This lower production was the result of harvesting nearly<br>
12.5% fewer acres in 2001, compared with 2000, combined with extended drought<br>
conditions. Although drought conditions on Maui have lessened in late 2001 and<br>
early 2002, this remains a primary risk factor for this business segment's<br>
operations.<br>
<br>
For 2001, HC&S forward priced 95% of its 2001 crop at an average price of<br>
$21.13/cwt. This forward pricing program started with the 2001 crop, following<br>
an average sales price $19.10/cwt. for 2000. Through the forward pricing<br>
program, HC&S expects to stabilize its 2002 raw sugar sales prices above<br>
$21.00/cwt.<br>
<br>
A panelboard business, Hawaiian DuraGreen, was discontinued, due to<br>
depressed sales prices and production problems. This is described more fully in<br>
Note 3 to the consolidated financial statements included in Item 8.<br>
<br>
Other operating profit of $127,635,000 for 2001 was due primarily to the<br>
sales of marketable equity securities during 2001. This is described more fully<br>
in Note 5 of the consolidated financial statements included in Item 8.<br>
<br>
2000 Compared with 1999<br>
<br>
Ocean Transportation revenue of $850,692,000 was nine percent higher than<br>
1999 revenue of $778,535,000. Operating profit of $93,732,000 showed a<br>
12-percent improvement over 1999 operating profit of $83,778,000. Hawaii<br>
service container volume in 2000 was flat compared with 1999 and automobile<br>
volume was 31 percent higher. The primary revenue gains occurred in the<br>
lower-margin intermodal business. Operating results for 2000 benefited from<br>
improved performance by the Company's SSAT terminal operating joint venture and<br>
by its Matson Intermodal System subsidiary. Operating results for 1999 were<br>
affected adversely by lower productivity, due to disruptions related to the<br>
1999 renegotiation of longshore labor agreements.<br>
<br>
Matson's total Hawaii Service container volume was 151,496 units in 2000,<br>
compared with 151,215 units in 1999. Matson's total Hawaii Service automobile<br>
volume, at 132,186 units, was 31 percent higher than 1999 automobile volume of<br>
101,095 units.<br>
<br>
A 3.9 percent increase in Hawaii Service rates announced in 1999 took effect<br>
in February 2000. To mitigate partially the effect of rising fuel prices, the<br>
1.75 percent fuel surcharge in effect at the end of 1999 was increased, in<br>
three steps, to 4.25 percent during 2000. Total fuel costs increased by<br>
$17,900,000 in 2000 versus 1999. This increased cost was only partially offset<br>
by the fuel surcharge.<br>
<br>
21<br>
<br>
<br>
<br>
Property Leasing revenue of $62,105,000 was 15 percent higher than 1999<br>
revenue of $53,910,000, and operating profit of $30,120,000 improved ten<br>
percent compared with 1999 operating profit of $27,497,000. These improvements<br>
were due to higher occupancy levels, increased rents and newly acquired<br>
properties. Occupancy rates for the Mainland properties averaged 96 percent in<br>
2000, versus 94 percent in 1999. The Company owned four million square feet of<br>
leasable property on the Mainland at year-end 2000, compared with 3.1 million<br>
square feet at year-end 1999. Occupancy levels for the Hawaii properties<br>
averaged 86 percent in 2000, versus 81 percent in 1999. The Company owned 1.2<br>
million square feet of leasable property in Hawaii at the end of both 2000 and<br>
1999.<br>
<br>
Property Sales revenue of $46,322,000 was down slightly from the $48,036,000<br>
in sales recorded in 1999, while operating profit of $24,228,000 was 39 percent<br>
higher than the $17,402,000 achieved in 1999, due to mix. Property sales in<br>
2000 included the ground lease for a Costco store, a 13-acre parcel at Maui<br>
Business Park, 16 business parcels and 28 residential properties. Sales in 1999<br>
included an office/research building in Seattle, two developed business<br>
parcels, three undeveloped parcels and 41 residential properties.<br>
<br>
Food Products revenue of $106,341,000 in 2000 compared with revenue of<br>
$116,362,000 in 1999. Operating profit of $7,522,000 in 2000 was 33 percent<br>
lower than the $11,310,000 earned in 1999. The primary reasons for the declines<br>
were U.S. raw sugar prices, which were 20 percent below historical levels,<br>
lower raw sugar production that resulted from continuing drought conditions on<br>
the island of Maui, and the write down of certain assets associated with the<br>
closure of the Company's raw sugar processing factory in Paia, Maui, which<br>
consolidated the processing operation into one factory. These factors were<br>
offset partially by benefit plan settlement gains, insurance-related gains at<br>
Hawaiian Commercial & Sugar Company ("HC&S"), the Company's raw sugar producing<br>
unit on Maui, and a profit turnaround at Kauai Coffee.<br>
<br>
Although HC&S harvested about the same number of acres, sugar production of<br>
approximately 210,000 tons in 2000 was eight percent lower than the prior<br>
year's production of 228,000 tons. Lower production was due to the drought<br>
conditions noted earlier. The average No. 14 domestic raw sugar price for 2000<br>
was $19.10/cwt. This was $3.08/cwt. below 1999's price of $22.18/cwt. and was<br>
the lowest level in 20 years.<br>
<br>
Results from Kauai Coffee showed a small profit for 2000, following a<br>
successful business re-engineering in 1999, which included the write-down of<br>
its orchards and processing equipment to fair values and the implementation of<br>
other business process improvements. In addition, sales and marketing efforts<br>
were improved during 2000.<br>
<br>
ECONOMIC OUTLOOK<br>
<br>
Although none of the Company's operations were directly affected by the East<br>
Coast terrorist attacks of September 11, 2001, the events compounded<br>
pre-existing concerns about the outlook for Hawaii's economy. They also created<br>
unprecedented uncertainty about how to assess the extent, pace and duration of<br>
the decline that continues to be felt throughout the United States. Pre-dating<br>
the terrorist attacks were a slowing of the United States' economy and the<br>
economic challenges in Asia. The combination of these events had a significant<br>
effect on 2001 fourth quarter tourism and, consequently, A&B's Ocean<br>
Transportation cargo volumes were lower than in previous quarters. The effect<br>
on real-estate activities was moderate and there was little effect on the<br>
Company's Food Products segment.<br>
<br>
The performance of the Ocean Transportation segment for 2002 will depend on<br>
Matson's realizing the benefits of its Honolulu terminal improvement project,<br>
balancing its service levels and cost structure to shipper demand and improving<br>
returns from both its shipping investment in Puerto Rico and its stevedoring<br>
joint venture.<br>
<br>
Even assuming continued economic recovery, Property Management & Development<br>
operating profit for 2002 is expected to be modestly lower than 2001 operating<br>
profit. Property leasing activity is forecast to continue at a steadily rising<br>
pace, due to properties acquired in 2001, rent rollovers and possible new<br>
acquisitions. Property sales revenue is expected to exceed 2001 sales revenue,<br>
but the contribution to operating profit is expected to be lower, due to the<br>
mix of higher basis property sales in 2002. Investment opportunities, in both<br>
development and income-producing properties, and especially in Hawaii, remain a<br>
primary growth focus.<br>
<br>
22<br>
<br>
<br>
<br>
The 2002 outlook for Food Products includes stable raw sugar prices, greater<br>
raw-sugar production, as drought conditions reverse, and tight cost controls.<br>
These positive factors are expected to boost Food Products' operating profit in<br>
2002.<br>
<br>
In the aggregate, with the combination of operating profit growth from a low<br>
base in Ocean Transportation, stable growth in Property Leasing, the timing of<br>
real-estate sales, the normal seasonality of the Food Products segment, and<br>
economic growth in Hawaii, it is likely that operating profit during the first<br>
two, and possibly three, quarters of 2002 will be lower than comparable 2001<br>
periods. It is expected that this would be followed by a return to more normal<br>
trends by the end of 2002.<br>
<br>
FINANCIAL CONDITION AND LIQUIDITY<br>
<br>
Liquid Resources: Liquid resources of the Company, comprising cash and cash<br>
equivalents, receivables, inventories and unused lines of credit, less accrued<br>
deposits to the Capital Construction Fund (CCF), totaled $527,856,000 at<br>
December 31, 2001, an increase of $282,784,000 from December 31, 2000. This net<br>
increase was due primarily to additional credit facilities (see next paragraph<br>
and Note 8), lower balances drawn on continuing facilities and higher cash<br>
balances, partially offset by the termination of a $25,000,000 credit facility<br>
that had expired in late 2000 and lower trade receivable balances.<br>
<br>
New Financing Agreements: During 2001, the Company increased its revolving<br>
credit and term loan agreement from $140,000,000 to $185,000,000 and extended<br>
the term of the facility for three years, entered into a $50,000,000 private<br>
shelf agreement and withdrew from a $25,000,000 uncommitted credit facility. In<br>
addition, the Company's subsidiary, Matson, added a new $40,000,000 revolving<br>
credit agreement and entered into a $50,000,000 private shelf agreement. This<br>
additional capacity is reflected in liquid resources and the nature of the<br>
facilities are described more fully in Note 8 to the consolidated financial<br>
statements. These new and increased credit facilities may be used for possible<br>
future real estate and ocean transportation related capital investments and<br>
acquisitions.<br>
<br>
Working Capital: Working capital was $24,445,000 at December 31, 2001, a<br>
decrease of $31,416,000 from a year earlier. The lower working capital was due<br>
primarily to higher income taxes and accounts payable, and to lower trade<br>
receivables and prepaid assets, partially offset by higher other assets held<br>
for sale and cash balances. The higher amount of income taxes payable was due<br>
to the sale of BancWest Corporation shares in late December 2001. The lower<br>
trade receivables balance was due primarily to a decrease in ocean<br>
transportation revenue and to the timing of billing cycles that overlap<br>
year-end. Higher other assets held for sale was due primarily to the<br>
anticipated sale of two vessels, as described in Note 5 to the consolidated<br>
financial statements. The fluctuations in accounts payable and prepaid assets<br>
were in the ordinary course of business.<br>
<br>
Receivables: At December 31, 2001, the Company had receivables totaling<br>
$130,491,000, compared with $141,553,000 a year earlier. These amounts are net<br>
of allowances for doubtful accounts of $7,252,000 and $6,579,000, respectively.<br>
The decline in receivables was mainly the result of lower Matson cargo during<br>
the fourth quarter of 2001. The Company's management believes that the quality<br>
of these receivables is good and that its reserves are adequate.<br>
<br>
Operating Cash Flows: Net cash provided by operations was $150,968,000 and<br>
$104,278,000 for 2001 and 2000, respectively. Net operating cash flows were<br>
used principally for capital expenditures, payments of debt, dividends,<br>
repurchases of capital stock and deposits into the CCF. Withdrawals from the<br>
CCF in 2001 were used principally for vessel modifications and equipment<br>
purchases. Approximately $41,928,000 of taxes related to the December sales of<br>
marketable equity securities was accrued as a current liability at year-end.<br>
Although this improved 2001 operating cash flows, when the taxes are paid, 2002<br>
operating cash flows will be comparably reduced.<br>
<br>
Capital Additions: Capital additions comprise capital expenditures for<br>
property and capital expenditures for real property (including the<br>
re-deployment of non-cash tax deferred funds to purchase property) but excludes<br>
capital expenditures for real-estate developments held for sale, since this<br>
latter item is treated as inventory on the<br>
<br>
23<br>
<br>
<br>
<br>
balance sheets. Capital additions during 2001 were $141,440,000, compared with<br>
$106,904,000 in 2000. Ocean transportation capital additions in 2001 of<br>
$59,669,000 were primarily for terminal improvements, vessel modifications,<br>
technology investments and the acquisition of container and terminal equipment.<br>
Property development and management capital additions in 2001 of $72,050,000<br>
included $42,257,000 for the redeployment of tax deferred sales proceeds into<br>
similar income producing assets and $29,793,000 for the development of real<br>
estate, for improvements to leased properties, and for the purchase of<br>
developed commercial property. Food products capital additions in 2001 of<br>
$9,454,000 were primarily for routine factory modifications and replacements.<br>
<br>
Other Financing Arrangements: As described in Notes 5 and 13 to the<br>
consolidated financial statements, the Company or its subsidiaries guarantee<br>
$31,500,000 of debt of an unconsolidated affiliate, guarantee up to $15,000,000<br>
of debt of an unconsolidated sugar marketing and transportation cooperative,<br>
and have $26,019,000 of standby letters of credit. These amounts are not<br>
recorded on the Company's balance sheet. The Company does not currently expect<br>
that it will be called upon to advance funds under these commitments.<br>
<br>
Other Commitments: Capital expenditures approved but not yet spent were<br>
$77,633,000 at December 31, 2001. These expenditures are primarily for real<br>
estate developments held for investment purposes, containers and operating<br>
equipment and vessel modifications. For 2002, internal cash flows and<br>
short-term borrowing facilities are expected to be sufficient to finance<br>
working capital needs, dividends, capital expenditures and debt service.<br>
<br>
Contingencies: The Company and certain subsidiaries are parties to various<br>
legal actions and are contingently liable in connection with claims and<br>
contracts arising in the normal course of business, the outcome of which, in<br>
the opinion of management after consultation with legal counsel, will not have<br>
a material adverse effect on the Company's financial position or results of<br>
operations.<br>
<br>
OTHER MATTERS<br>
<br>
Tax-Deferred Real Estate Exchanges: In 2001, the Company sold, on a<br>
tax-deferred basis, nine properties for $31,854,000. These included the sales<br>
of a 14-acre industrial lot to Wal-Mart, three commercial properties in<br>
Bainbridge, Washington and a four-acre parcel on Maui and the sale under threat<br>
of condemnation of a 68-acre parcel on Maui for highway widening. During the<br>
year, the Company reinvested $42,257,000 in four replacement properties. At<br>
December 31, 2001, $2,200,000 of tax deferred proceeds had not been reinvested<br>
compared to $12,900,000 at the end of 2000.<br>
<br>
Funds received in tax-deferred sales of like-kind property are held by a<br>
third party agent and are included in other non-current assets on the Balance<br>
Sheets. These proceeds and the subsequent purchases of replacement property are<br>
reported in the Statements of Cash Flows under the caption "Non-cash<br>
Activities." Funds received for sales under threat of condemnation are not<br>
required to be held by a third party agent and are included in cash flows from<br>
investing activities.<br>
<br>
Environmental Matters: As with most industrial and land-development<br>
companies of its size, the Company's operations have certain risks that could<br>
result in expenditures for environmental remediation. The Company believes that<br>
it is in compliance, in all material respects, with applicable environmental<br>
laws and regulations, and works proactively to identify potential environmental<br>
concerns. Management believes that appropriate liabilities have been accrued<br>
for environmental matters.<br>
<br>
Dependence on Information Technology Systems: The Company is partially<br>
dependent on information technology systems to support its ability to conduct<br>
business. These dependencies primarily include accounting, billing, payable,<br>
cargo booking, vessel scheduling and stowage, banking, payrolls and employee<br>
communications. All of these systems are vulnerable to reliability issues,<br>
integration and compatibility concerns, and security-threatening intrusions.<br>
The Company has had no significant instances of interruption to these systems.<br>
<br>
Management believes that its information technology and systems are adequate<br>
to meet the requirements of its business and operations. It continues to make<br>
investments of capital for infrastructure, system development and<br>
<br>
24<br>
<br>
<br>
<br>
maintenance, system security and staffing and staff development. However, there<br>
can be no assurances that future incidents, whether accidental or malicious,<br>
could not affect adversely the function of the Company's information systems<br>
and operations.<br>
<br>
Significant Accounting Policies: The Company's significant accounting<br>
policies and the impacts of newly issued accounting standards are described in<br>
Notes 1 and 2 to the consolidated financial statements included in Item 8.<br>
<br>
Management Changes: During 2001, the Company hired Raymond L. Smith as<br>
Matson's Chief Operating Officer, a newly created position, and hired Matthew<br>
J. Cox as Matson's Senior Vice President, Chief Financial Officer and<br>
Controller, the latter replacing Raymond J. Donohue, who retired. Also, in<br>
2001, Christopher J. Benjamin joined A&B as Director of Corporate Development<br>
and Planning, and Michael G. Wright joined A&B Properties, Inc. as Vice<br>
President, Acquisitions and Investments.<br>
<br>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK<br>
<br>
A&B, in the normal course of doing business, is exposed to the risks<br>
associated with fluctuations in the market value of certain financial<br>
instruments. A&B maintains a portfolio of investments, pension fund investments<br>
and, through its Capital Construction Fund, an investment in mortgage-backed<br>
securities. Details regarding these financial instruments are described in<br>
Notes 4, 5, 7 and 10 to the consolidated financial statements in Item 8,<br>
"Financial Statements and Supplementary Data."<br>
<br>
A&B also is exposed to changes in U.S. interest rates, primarily as a result<br>
of its borrowing and investing activities used to maintain liquidity and to<br>
fund business operations. Details regarding these matters are described in Note<br>
8 in Item 8, "Financial Statements and Supplementary Data." The Company does<br>
not use interest rate derivative instruments such as interest rate swaps,<br>
currency swaps, futures or options, to manage its exposure to interest rate<br>
risk or for speculative purposes but may choose to use such instruments to<br>
manage interest rate risk in the future.<br>
<br>
A&B's sugar plantation, HC&S, has a contract to sell its raw sugar<br>
production to Hawaiian Sugar & Transportation Cooperative ("HS&TC"), an<br>
unconsolidated sugar and marketing cooperative, in which the Company has an<br>
ownership interest, until June 2003. Under that contract, the price paid will<br>
fluctuate with the New York Contract #14 settlement price for domestic raw<br>
sugar, less a fixed discount. The Company also has an agreement with C&H Sugar<br>
Company, Inc, the primary purchaser of sugar from HS&TC, which allows the<br>
Company to forward price, with C&H, a portion of its raw sugar deliveries to<br>
HS&TC.<br>
<br>
The Company has no direct material exposure to foreign currency risks,<br>
although it is indirectly affected by changes in currency rates to the extent<br>
that this affects tourism in Hawaii.<br>
<br>
A&B believes that, as of December 31, 2001, its exposure to market risk<br>
fluctuations for its financial instruments was not material.<br>
<br>
25<br>
<br>
<br>
<br>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA<br>
<br>
<br>
<br>
Page<br>
----<br>
<br>
Management's Report............................................. 27<br>
Independent Auditors' Report.................................... 28<br>
Consolidated Statements of Income............................... 29<br>
Consolidated Statements of Cash Flows........................... 30<br>
Consolidated Balance Sheets..................................... 31<br>
Consolidated Statements of Shareholders' Equity................. 32<br>
Notes to Consolidated Financial Statements...................... 33<br>
1. Summary of Significant Accounting Policies............... 33<br>
2. Changes in Accounting Methods............................ 36<br>
3. Discontinued Operations.................................. 36<br>
4. Impairment of Long-Lived Assets and Investments.......... 37<br>
5. Investments.............................................. 38<br>
6. Property................................................. 40<br>
7. Capital Construction Fund................................ 40<br>
8. Notes Payable and Long-term Debt......................... 41<br>
9. Leases................................................... 42<br>
10. Employee Benefit Plans................................... 44<br>
11. Income Taxes............................................. 47<br>
12. Stock Options............................................ 47<br>
13. Related Party Transactions, Commitments and Contingencies 50<br>
14. Industry Segments........................................ 50<br>
15. Quarterly Information (Unaudited)........................ 53<br>
16. Parent Company Condensed Financial Information........... 55<br>
<br>
<br>
26<br>
<br>
<br>
<br>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING<br>
<br>
The management of Alexander & Baldwin, Inc. has the responsibility for<br>
preparing the accompanying consolidated financial statements and related notes<br>
accurately and objectively. The statements have been prepared in accordance<br>
with accounting principles generally accepted in the United States of America,<br>
consistently applied, and necessarily include amounts based on judgments and<br>
estimates made by management. Management also prepared the other information in<br>
this annual report and is responsible for its accuracy and consistency with the<br>
consolidated financial statements.<br>
<br>
The Company maintains internal control systems, and related policies and<br>
procedures, designed to provide reasonable assurance that assets are<br>
safeguarded, that transactions are properly executed and recorded in accordance<br>
with management's authorization, and that underlying accounting records may be<br>
relied upon for the accurate preparation of the consolidated financial<br>
statements and other financial information. The design, monitoring and revision<br>
of internal control systems involve, among other things, management's judgment<br>
with respect to the relative cost and expected benefits of specific control<br>
measures. The Company maintains an internal auditing function that evaluates<br>
and formally reports on the adequacy and effectiveness of internal controls,<br>
policies and procedures.<br>
<br>
The Company's consolidated financial statements have been audited by<br>
Deloitte & Touche LLP, its independent auditors, who have expressed their<br>
opinion with respect to the fairness, in all material aspects, of the<br>
presentation of financial position, results of operations and cash flows under<br>
accounting principles generally accepted in the United States of America.<br>
Management has made available to Deloitte & Touche LLP all of the Company's<br>
financial records and related data. Furthermore, management believes that all<br>
representations made to Deloitte & Touche LLP during its audit were valid and<br>
appropriate.<br>
<br>
The Board of Directors, through its Audit Committee (composed of<br>
non-employee directors), oversees management's responsibilities in the<br>
preparation of the consolidated financial statements and nominates the<br>
independent auditors, subject to shareholder election. The Audit Committee<br>
meets regularly with the external and internal auditors to evaluate the<br>
effectiveness of their work in discharging their respective responsibilities<br>
and to assure their independent and free access to the Committee.<br>
<br>
<br>
<br>
<br>
<br>
/s/ W. Allen Doane /s/ James S. Andrasick<br>
<br>
W. Allen Doane James S. Andrasick<br>
President and Chief Executive Officer Senior Vice President<br>
and Chief Financial Officer<br>
<br>
27<br>
<br>
<br>
<br>
INDEPENDENT AUDITORS' REPORT<br>
<br>
TO THE SHAREHOLDERS OF ALEXANDER & BALDWIN, INC.:<br>
<br>
We have audited the accompanying consolidated balance sheets of Alexander &<br>
Baldwin, Inc. and subsidiaries as of December 31, 2001 and 2000 , and the<br>
related consolidated statements of income, shareholders' equity, and cash flows<br>
for each of the three years in the period ended December 31, 2001. These<br>
financial statements are the responsibility of the Company's management. Our<br>
responsibility is to express an opinion on these financial statements based on<br>
our audits.<br>
<br>
We conducted our audits in accordance with auditing standards generally<br>
accepted in the United States of America. Those standards require that we plan<br>
and perform the audits to obtain reasonable assurance about whether the<br>
financial statements are free of material misstatement. An audit includes<br>
examining, on a test basis, evidence supporting the amounts and disclosures in<br>
the financial statements. An audit also includes assessing the accounting<br>
principles used and significant estimates made by management, as well as<br>
evaluating the overall financial statement presentation. We believe that our<br>
audits provide a reasonable basis for our opinion.<br>
<br>
In our opinion, such consolidated financial statements present fairly, in<br>
all material respects, the financial position of Alexander & Baldwin, Inc. and<br>
subsidiaries at December 31, 2001 and 2000, and the results of their operations<br>
and their cash flows for each of the three years in the period ended December<br>
31, 2001 in conformity with accounting principles generally accepted in the<br>
United States of America.<br>
<br>
As discussed in Note 2 to the consolidated financial statements, the Company<br>
adopted a new accounting standard for reporting discontinued operations in 2001<br>
and changed its method of accounting for vessel drydocking costs in 2000.<br>
<br>
/s/ Deloitte & Touche, LLP<br>
Deloitte & Touche LLP<br>
Honolulu, Hawaii<br>
January 24, 2002<br>
<br>
28<br>
<br>
<br>
<br>
ALEXANDER & BALDWIN, INC.<br>
CONSOLIDATED STATEMENTS OF INCOME<br>
(In thousands, except per-share amounts)<br>
<br>
<br>
<br>
Year Ended December 31,<br>
-------------------------------<br>
2001 2000 1999<br>
---------- ---------- --------<br>
<br>
Revenue:<br>
Ocean transportation....................................................... $ 787,173 $ 839,535 $768,414<br>
Property leasing........................................................... 70,247 61,710 53,416<br>
Property sales............................................................. 88,911 46,158 47,894<br>
Food products.............................................................. 105,976 102,229 113,680<br>
Gain on sale of investments................................................ 125,478 -- --<br>
Interest and dividends..................................................... 12,288 19,014 16,594<br>
---------- ---------- --------<br>
Total revenue............................................................ 1,190,073 1,068,646 999,998<br>
---------- ---------- --------<br>
Costs and Expenses:<br>
Cost of transportation services............................................ 656,795 687,223 628,104<br>
Cost of property sales and leasing services................................ 101,000 47,366 51,764<br>
Cost of agricultural goods and services.................................... 98,718 98,820 105,052<br>
Selling, general and administrative........................................ 99,097 88,270 86,354<br>
Impairment loss on long-lived assets and investments....................... 28,600 -- 15,410<br>
Interest expense........................................................... 18,658 24,252 17,774<br>
---------- ---------- --------<br>
Total costs and expenses................................................. 1,002,868 945,931 904,458<br>
---------- ---------- --------<br>
Income From Continuing Operations Before Income Taxes and Cumulative<br>
Effect of Change in Accounting Method..................................... 187,205 122,715 95,540<br>
Income taxes............................................................... 67,392 44,391 32,961<br>
---------- ---------- --------<br>
Income From Continuing Operations Before Cumulative Effect of Change In<br>
Accounting Method......................................................... 119,813 78,324 62,579<br>
Discontinued operations, net of income taxes (See Notes 2 and 3)........... (9,185) -- --<br>
Cumulative effect of change in accounting method, net of income taxes<br>
(See Note 2)............................................................. -- 12,250 --<br>
---------- ---------- --------<br>
Net Income.................................................................. 110,628 90,574 62,579<br>
Unrealized holding gains (losses) and reclassification of realized gains on<br>
securities (net of income taxes of $36,371, $7,525, and $8,088).......... (61,937) 12,476 (13,868)<br>
---------- ---------- --------<br>
Comprehensive Income........................................................ $ 48,691 $ 103,050 $ 48,711<br>
========== ========== ========<br>
Basic Earnings per Share of Common Stock:<br>
From continuing operations before cumulative effect of change in accounting $ 2.96 $ 1.92 $ 1.45<br>
Discontinued operations.................................................... (0.23) -- --<br>
Accounting change.......................................................... -- 0.29 --<br>
---------- ---------- --------<br>
Net income................................................................. $ 2.73 $ 2.21 $ 1.45<br>
========== ========== ========<br>
Diluted Earnings per Share of Common Stock:<br>
From continuing operations before cumulative effect of change in accounting $ 2.94 $ 1.91 $ 1.45<br>
Discontinued operations.................................................... (0.22) -- --<br>
Accounting change.......................................................... -- 0.30 --<br>
---------- ---------- --------<br>
Net income................................................................. $ 2.72 $ 2.21 $ 1.45<br>
========== ========== ========<br>
Average Common Shares Outstanding........................................... 40,535 40,898 43,206<br>
<br>
<br>
See notes to consolidated financial statements.<br>
<br>
29<br>
<br>
<br>
<br>
ALEXANDER & BALDWIN, INC.<br>
CONSOLIDATED STATEMENTS OF CASH FLOWS<br>
(In thousands)<br>
<br>
<br>
<br>
Year Ended December 31,<br>
------------------------------<br>
2001 2000 1999<br>
--------- -------- ---------<br>
<br>
Cash Flows from Operations:<br>
Net income................................................................ $ 110,628 $ 90,574 $ 62,579<br>
Adjustments to reconcile net income to net cash provided by operations:<br>
Depreciation and amortization........................................... 75,433 72,304 73,901<br>
Deferred income taxes................................................... (7,389) 17,358 8,465<br>
Gains on disposal of assets............................................. (142,567) (26,495) (13,170)<br>
Equity in (income) loss of affiliates................................... 13,166 (6,859) (3,002)<br>
Write-down of long-lived assets and investments......................... 44,797 -- 15,410<br>
Change in accounting method............................................. -- (12,250) --<br>
Changes in assets and liabilities:<br>
Accounts and notes receivable......................................... 2,250 (4,161) (6,007)<br>
Inventories........................................................... 857 (1,219) (1,326)<br>
Prepaid expenses and other assets..................................... 7,823 (7,933) (8,852)<br>
Pension and post-retirement assets and obligations.................... (21,149) (26,169) (18,174)<br>
Accounts and income taxes payable..................................... 62,205 9,305 10,436<br>
Other liabilities..................................................... (2,766) 10,235 (3,408)<br>
Real estate developments held for sale:<br>
Cost of real estate inventory sales................................... 39,831 6,088 2,509<br>
Expenditures for new real estate inventory............................ (32,151) (16,500) (9,982)<br>
--------- -------- ---------<br>
Net cash provided by operations....................................... 150,968 104,278 109,379<br>
--------- -------- ---------<br>
Cash Flows from Investing Activities:<br>
Capital expenditures for property and developments........................ (99,183) (84,201) (68,606)<br>
Receipts from disposal of income producing property, investments and other<br>
assets.................................................................. 141,909 3,877 3,688<br>
Deposits into Capital Construction Fund................................... (12,071) (12,220) (19,464)<br>
Withdrawals from Capital Construction Fund................................ 4,217 8,574 11,458<br>
(Increase) decrease in investments--net................................... (1,700) 894 (3,285)<br>
--------- -------- ---------<br>
Net cash used in investing activities................................. 33,172 (83,076) (76,209)<br>
--------- -------- ---------<br>
Cash Flows from Financing Activities:<br>
Proceeds from issuance of long-term debt.................................. 6,000 98,500 39,500<br>
Payments of long-term debt................................................ (137,000) (48,000) (30,533)<br>
Proceeds (payments) from short-term borrowings--net....................... (3,100) 10,500 (52,000)<br>
Repurchases of capital stock.............................................. (2,270) (48,260) (34,824)<br>
Proceeds from issuance of capital stock................................... 4,558 2,961 101<br>
Dividends paid............................................................ (36,488) (36,785) (38,899)<br>
--------- -------- ---------<br>
Net cash used in financing activities................................. (168,300) (21,084) (116,655)<br>
--------- -------- ---------<br>
Cash and Cash Equivalents:<br>
Net increase (decrease) for the year...................................... 15,840 118 (83,485)<br>
Balance, beginning of year................................................ 3,451 3,333 86,818<br>
--------- -------- ---------<br>
Balance, end of year...................................................... $ 19,291 $ 3,451 $ 3,333<br>
========= ======== =========<br>
Other Cash Flow Information:<br>
Interest paid, net of amounts capitalized................................. $ (19,546) $(24,663) $ (17,772)<br>
Income taxes paid, net of refunds......................................... (20,961) (31,807) (34,213)<br>
Non-cash Activities:<br>
Tax-deferred property sales............................................... 29,963 35,569 34,883<br>
Tax-deferred property purchases........................................... (42,257) (22,703) (34,907)<br>
Transfer of assets to joint venture....................................... -- -- 16,438<br>
<br>
<br>
See notes to consolidated financial statements.<br>
<br>
30<br>
<br>
<br>
<br>
ALEXANDER & BALDWIN, INC.<br>
CONSOLIDATED BALANCE SHEETS<br>
(In thousands, except per-share amount)<br>
<br>
<br>
<br>
December 31,<br>
----------------------<br>
2001 2000<br>
---------- ----------<br>
ASSETS<br>
------<br>
<br>
Current Assets<br>
Cash and cash equivalents.......................................... $ 19,291 $ 3,451<br>
Accounts and notes receivable, less allowances of $7,252 and $6,579 130,491 141,553<br>
Sugar and coffee inventories....................................... 4,875 4,435<br>
Materials and supplies inventories................................. 11,405 12,702<br>
Real estate and other assets held for sale......................... 35,584 19,324<br>
Deferred income taxes.............................................. 9,324 13,186<br>
Prepaid expenses and other assets.................................. 13,044 18,736<br>
Accrued deposits to Capital Construction Fund...................... (4,000) (4,520)<br>
---------- ----------<br>
Total current assets............................................. 220,014 208,867<br>
Investments......................................................... 33,021 183,141<br>
Real Estate Developments............................................ 47,840 62,628<br>
Property--net....................................................... 977,048 954,692<br>
Capital Construction Fund........................................... 158,737 150,405<br>
Pension Assets...................................................... 63,300 50,476<br>
Other Assets--net................................................... 44,459 55,803<br>
---------- ----------<br>
Total............................................................ $1,544,419 $1,666,012<br>
========== ==========<br>
<br>
LIABILITIES AND SHAREHOLDERS' EQUITY<br>
------------------------------------<br>
Current Liabilities<br>
Notes payable and current portion of long-term debt................ $ 19,900 $ 30,500<br>
Accounts payable................................................... 78,911 63,075<br>
Payrolls and vacation due.......................................... 17,058 18,170<br>
Uninsured claims................................................... 13,017 11,514<br>
Income taxes payable............................................... 42,899 --<br>
Post-retirement benefit obligations--current portion............... 2,317 2,213<br>
Accrued and other liabilities...................................... 21,467 27,534<br>
---------- ----------<br>
Total current liabilities........................................ 195,569 153,006<br>
---------- ----------<br>
Long-term Liabilities<br>
Long-term debt..................................................... 207,378 330,766<br>
Deferred income taxes.............................................. 338,709 387,139<br>
Post-retirement benefit obligations................................ 42,915 44,752<br>
Uninsured claims and other......................................... 49,181 56,698<br>
---------- ----------<br>
Total long-term liabilities...................................... 638,183 819,355<br>
---------- ----------<br>
Commitments and Contingencies<br>
Shareholders' Equity<br>
Capital stock--common stock without par value; authorized,<br>
150,000 shares ($.75 stated value per share); outstanding,<br>
40,529 shares in 2001 and 40,353 shares in 2000.................. 33,328 33,248<br>
Additional capital................................................. 66,659 58,007<br>
Unrealized holding gains on securities............................. -- 61,937<br>
Retained earnings.................................................. 622,615 552,637<br>
Cost of treasury stock............................................. (11,935) (12,178)<br>
---------- ----------<br>
Total shareholders' equity....................................... 710,667 693,651<br>
---------- ----------<br>
Total............................................................ $1,544,419 $1,666,012<br>
========== ==========<br>
<br>
<br>
See notes to consolidated financial statements.<br>
<br>
31<br>
<br>
<br>
<br>
ALEXANDER & BALDWIN, INC.<br>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY<br>
For the three years ended December 31, 2001<br>
(In thousands, except per-share amounts)<br>
<br>
<br>
<br>
Capital Stock<br>
--------------------------------<br>
Issued In Treasury<br>
--------------- --------------- Unrealized<br>
Stated Additional Holding Retained<br>
Shares Value Shares Cost Capital Gains Earnings<br>
------ ------- ------ -------- ---------- ---------- --------<br>
<br>
Balance, December 31, 1998............. 48,132 $36,098 4,104 $(12,551) $51,946 $ 63,329 $555,820<br>
Shares repurchased..................... (1,565) (1,173) -- -- -- -- (33,651)<br>
Stock options exercised................ 5 4 -- -- 97 -- --<br>
Issued--incentive plans................ 7 4 (51) 147 1,081 -- --<br>
Unrealized holding loss................ -- -- -- -- -- (13,868) --<br>
Net income............................. -- -- -- -- -- -- 62,579<br>
Cash dividends......................... -- -- -- -- -- -- (38,899)<br>
------ ------- ----- -------- ------- -------- --------<br>
Balance, December 31, 1999............. 46,579 34,933 4,053 (12,404) 53,124 49,461 545,849<br>
Shares repurchased..................... (2,378) (1,783) -- -- -- -- (46,477)<br>
Stock options exercised................ 126 94 -- -- 3,378 -- (524)<br>
Issued--incentive plans................ 4 4 (75) 226 1,505 -- --<br>
Unrealized holding gain................ -- -- -- -- -- 12,476 --<br>
Net income............................. -- -- -- -- -- -- 90,574<br>
Cash dividends......................... -- -- -- -- -- (36,785)<br>
------ ------- ----- -------- ------- -------- --------<br>
Balance, December 31, 2000............. 44,331 33,248 3,978 (12,178) 58,007 61,937 552,637<br>
Shares repurchased..................... (105) (79) -- -- -- -- (2,192)<br>
Stock options exercised--net........... 207 155 -- -- 6,908 -- (1,970)<br>
Issued--incentive plans................ 4 4 (70) 243 1,744 -- --<br>
Reversal of holding gains/1/........... -- -- -- -- -- (61,937) --<br>
Net income............................. -- -- -- -- -- -- 110,628<br>
Cash dividends......................... -- -- -- -- -- -- (36,488)<br>
------ ------- ----- -------- ------- -------- --------<br>
Balance, December 31, 2001............. 44,437 $33,328 3,908 $(11,935) $66,659 $ -- $622,615<br>
====== ======= ===== ======== ======= ======== ========<br>
<br>
<br>
/1/ See Note 5 for discussion of marketable equity securities sold during 2001.<br>
<br>
See notes to consolidated financial statements.<br>
<br>
32<br>
<br>
<br>
<br>
ALEXANDER & BALDWIN, INC.<br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br>
<br>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES<br>
<br>
Principles of Consolidation: The consolidated financial statements include<br>
the accounts of Alexander & Baldwin, Inc. and all wholly owned subsidiaries<br>
("Company"), after elimination of significant intercompany amounts. Significant<br>
investments in businesses, partnerships and joint ventures in which the Company<br>
does not have control are accounted for under the equity method. Generally,<br>
these are investments in businesses in which the Company's ownership is between<br>
20 and 50 percent.<br>
<br>
Segment Information: The Company has three operating segments: Ocean<br>
Transportation, Property Development and Management, and Food Products. The<br>
Company reports segment information in the same way that management assesses<br>
segment performance. Additional information regarding these segments is found<br>
in Note 14.<br>
<br>
Cash and Cash Equivalents: Cash equivalents are composed of all highly<br>
liquid investments with an original maturity of three months or less and which<br>
have no significant risk of change in value.<br>
<br>
Inventories: Raw sugar and coffee inventories are stated at the lower of<br>
cost (first-in, first-out basis) or market. Other inventories, composed<br>
principally of materials and supplies, are stated at the lower of cost<br>
(principally average cost) or market. Materials and supplies inventories are<br>
carried at historical cost, which is not greater than replacement cost.<br>
<br>
Property: Property is stated at cost. Expenditures for major renewals and<br>
betterments are capitalized. Replacements, maintenance and repairs that do not<br>
improve or extend asset lives are charged to expense as incurred. Gains or<br>
losses from property disposals are included in the determination of net income.<br>
As discussed in Note 2, the Company changed its accounting for drydocking costs<br>
in 2000. Costs of regularly scheduled drydocking of vessels and planned major<br>
vessel repairs performed during drydocking are capitalized and amortized over<br>
the periods benefited.<br>
<br>
Coffee Orchards: Costs of developing coffee orchards are capitalized during<br>
the development period and depreciated over the estimated productive lives. In<br>
1999, following the provisions of Statement of Financial Accounting Standards<br>
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived<br>
Assets to Be Disposed Of," the Company reduced the carrying value of its coffee<br>
orchards and field and factory processing equipment. This is described further<br>
in Note 4.<br>
<br>
Capitalized Interest: Interest costs incurred in connection with<br>
significant expenditures for real estate developments or the construction of<br>
assets are capitalized. Interest expense is shown net of capitalized interest<br>
on the Statements of Income, because the amounts are not significant.<br>
<br>
Construction Expenditures: Expenditures for real estate developments are<br>
capitalized during construction and are classified as Real Estate Developments<br>
on the Consolidated Balance Sheets. When construction is complete, the costs<br>
are reclassified as either Real Estate Held for Sale or Property, based upon<br>
the Company's intent to sell the completed asset or to hold it as an<br>
investment. Cash flows related to real estate developments are classified as<br>
either operating or investing activities, based upon the Company's intention to<br>
sell the property or to retain ownership of the property as an investment<br>
following completion of construction.<br>
<br>
Depreciation: Depreciation is computed using the straight-line method.<br>
Estimated useful lives of property are as follows:<br>
<br>
<br>
<br>
Classification Range of Life (in years)<br>
-------------- ------------------------<br>
<br>
Buildings................ 10 to 50<br>
Vessels.................. 10 to 40<br>
Marine containers........ 2 to 25<br>
Terminal facilities...... 3 to 35<br>
Machinery and equipment.. 3 to 35<br>
Utility systems and other 5 to 60<br>
<br>
<br>
33<br>
<br>
<br>
<br>
Fair Value of Financial Instruments: The fair values of cash and cash<br>
equivalents, receivables and short-term and long-term borrowings approximate<br>
their carrying values.<br>
<br>
Fair Value of Real-Estate Assets: Real estate is carried at the lower of<br>
cost or fair value. Fair values generally are determined using the expected<br>
market value for the property, less sales costs. For residential units and lots<br>
held for sale, market value is determined by reference to the sales of similar<br>
property, market studies, tax assessments and cash flows. For commercial<br>
property, market value is determined using recent comparable sales, tax<br>
assessments and cash flows. A large portion of the Company's real estate is<br>
undeveloped land located in Hawaii on the Islands of Maui and Kauai. This land<br>
has a cost basis that averages approximately $150 per acre, a value much lower<br>
than fair value.<br>
<br>
Impairments of Long-lived Assets: Long-lived assets are reviewed for<br>
possible impairment when events or circumstances indicate that the carrying<br>
value may not be recoverable. In such evaluation, the estimated future<br>
undiscounted cash flows generated by the asset are compared with the amount<br>
recorded for the asset to determine if a write-down may be required. If this<br>
review determines that the recorded value will not be recovered, the amount<br>
recorded for the asset is reduced to estimated fair value. (See Note 4.)<br>
<br>
Voyage Revenue Recognition: Voyage revenue and variable costs and expenses<br>
associated with voyages are included in income at the time each voyage leg<br>
commences. This method of accounting does not differ materially from other<br>
acceptable accounting methods. Freight rates are provided in tariffs filed with<br>
the Surface Transportation Board of the U.S. Department of Transportation.<br>
<br>
Real Estate Sales Revenue Recognition: Sales are recorded when the risks<br>
and benefits of ownership have passed to the buyers (generally on closing<br>
dates), adequate down payments have been received, and collection of remaining<br>
balances is reasonably assured.<br>
<br>
Sugar and Coffee Revenue Recognition: Revenue from bulk raw sugar sales is<br>
recorded when delivered to the cooperative of Hawaiian producers based on the<br>
estimated net return to producers in accordance with contractual agreements.<br>
Revenue from coffee is recorded when the title to the product and risk of loss<br>
passes to third parties (generally this occurs when the product is shipped or<br>
delivered to customers) and when collection is reasonably assured.<br>
<br>
Non-voyage Ocean Transportation Costs: Vessel depreciation, charter hire,<br>
terminal operating overhead and general and administrative expenses are charged<br>
to expense as incurred.<br>
<br>
Agricultural Costs: Costs of growing and harvesting sugar cane are charged<br>
to the cost of production in the year incurred and to cost of sales as raw<br>
sugar is delivered to the cooperative of Hawaiian producers as allowed in<br>
Statement of Position No. 85-3. Costs of growing coffee are charged to<br>
inventory in the year incurred and to cost of sales as coffee is sold.<br>
<br>
Employee Benefit Plans: Certain ocean transportation subsidiaries are<br>
members of the Pacific Maritime Association (PMA) and the Hawaii Stevedoring<br>
Industry Committee, which negotiate multi-employer pension plans covering<br>
certain shoreside bargaining unit personnel. The subsidiaries directly<br>
negotiate multi-employer pension plans covering other bargaining unit<br>
personnel. Pension costs are accrued in accordance with contribution rates<br>
established by the PMA, the parties to a plan or the trustees of a plan.<br>
Several trusteed, noncontributory, single-employer defined benefit plans and<br>
defined contribution plans cover substantially all other employees.<br>
<br>
Stock-based Compensation: As allowed by Statement of Financial Accounting<br>
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," the<br>
Company has elected to continue to apply the provisions of Accounting<br>
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as<br>
discussed in Note 12.<br>
<br>
Income Taxes: Deferred tax assets and liabilities are established for<br>
temporary differences between the way certain income and expense items are<br>
reported for financial reporting and tax purposes. Deferred tax assets and<br>
<br>
34<br>
<br>
<br>
<br>
liabilities are adjusted to the extent necessary to reflect tax rates expected<br>
to be in effect when the temporary differences reverse. A valuation allowance<br>
is established for deferred tax assets for which realization is not likely.<br>
<br>
Basic and Diluted Earnings per Share of Common Stock: Basic Earnings per<br>
Share is determined by dividing Net Income by the weighted-average common<br>
shares outstanding during the year. The calculation of Diluted Earnings per<br>
Share includes the effect of unexercised options to purchase the Company's<br>
stock.<br>
<br>
Comprehensive Income: Comprehensive Income includes changes from either<br>
recognized transactions or other economic events, excluding capital stock<br>
transactions, which impact Shareholders' Equity. For the Company, the only<br>
difference between Net Income and Comprehensive Income is the unrealized<br>
holding gains on securities available for sale. Comprehensive Income is not<br>
used in the calculation of Earnings per Share. (See Note 5 for a discussion of<br>
the liquidation of marketable equity securities.)<br>
<br>
Environmental Costs: Environmental expenditures that relate to current<br>
operations are expensed or capitalized, as appropriate. Expenditures that<br>
relate to an existing condition caused by past operations or events, and which<br>
do not contribute to current or future revenue generation, are charged to<br>
expense. Liabilities are recorded when environmental assessments or remedial<br>
efforts are probable and the costs can be estimated reasonably.<br>
<br>
Use of Estimates: The preparation of the consolidated financial statements<br>
in conformity with generally accepted accounting principles requires management<br>
to make estimates and assumptions that affect the amounts reported in the<br>
consolidated financial statements and accompanying notes. Future actual amounts<br>
could differ from those estimates.<br>
<br>
Impact of Newly Issued Accounting Standards: On January 1, 2001, the<br>
Company adopted SFAS No. 133, "Accounting for Derivative Instruments and<br>
Hedging Activities," as amended, which establishes the accounting and reporting<br>
standards for derivative instruments and hedging activities. The adoption of<br>
this standard did not have a material effect on the consolidated financial<br>
statements.<br>
<br>
In 2000, the Company adopted SFAS No. 140, "Accounting for Transfers and<br>
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 140<br>
provides standards for transfers and servicing of financial assets and<br>
extinguishments of liabilities using a financial-components approach that<br>
focuses on control. The adoption of this standard did not have a material<br>
effect on the consolidated financial statements.<br>
<br>
SFAS No. 141 "Business Combinations" was issued in June 2001 and became<br>
effective in July 2001. This statement requires the purchase method of<br>
accounting for business combinations. This standard will affect how the Company<br>
accounts for new business combinations, but the adoption of the standard in<br>
2001 had no effect on the Company's current year's consolidated financial<br>
statements.<br>
<br>
SFAS No. 142 "Goodwill and Other Intangible Assets" was issued in June 2001<br>
and is effective in January 2002. This statement addresses how intangible<br>
assets, including goodwill, should be accounted for in the consolidated<br>
financial statements. The new statement, which will be adopted by the Company<br>
in January, 2002, will not have a material effect on the consolidated financial<br>
statements.<br>
<br>
SFAS No. 143 "Accounting for Asset Retirement Obligations" was issued in<br>
June 2001 and becomes effective in January 2003. This statement addresses<br>
accounting and reporting for obligations and costs which will occur when<br>
long-term assets are retired. Among other things, the statement requires that<br>
the present value of the liability associated with future asset retirements be<br>
recorded on the balance sheet when an obligation has been incurred and when it<br>
can be measured. The amortization of the capitalized cost and increases in the<br>
present value of the obligation which result from the passage of time, are<br>
recorded as charges to earnings. The possible financial impacts of this<br>
standard, when it is adopted by the Company in January 2003, are not yet known,<br>
but are being assessed.<br>
<br>
Reclassifications: Certain amounts in the 2000 and 1999 consolidated<br>
financial statements have been reclassified to conform with the 2001<br>
presentation.<br>
<br>
35<br>
<br>
<br>
<br>
2. CHANGES IN ACCOUNTING METHODS<br>
<br>
2001--Adoption of New Accounting Standard for Reporting Discontinued<br>
Operations: SFAS No. 144, "Accounting for the Impairment or Disposal of<br>
Long-Lived Assets" was issued in August 2001 and becomes effective in January<br>
2002. However, as permitted by the standard, the Company adopted SFAS No. 144<br>
effective January 1, 2001. This statement replaces previous accounting<br>
standards related to asset impairments and provides guidance concerning the<br>
recognition and measurement of impairment losses for certain types of long-term<br>
assets. The statement recommends the use of probability-weighted cash flow<br>
estimations, precludes accruing future operating losses prior to asset<br>
disposal, expands the scope of "discontinued operations" to include a component<br>
of an entity, and eliminates the current exemption to consolidation when<br>
control over a subsidiary is likely to be temporary. The statement changes how<br>
the Company analyzes and accounts for asset impairments and discontinued<br>
operations, but, upon adoption, it had no immediate financial impacts. During<br>
the fourth quarter of 2001, the Company recorded a loss from the abandonment of<br>
its panelboard manufacturing facility, which it classified as Discontinued<br>
Operations. This is described in Note 3 to the consolidated financial<br>
statements.<br>
<br>
2000--Change in Accounting Method for Vessel Drydocking Costs: The Company<br>
changed its method of accounting for vessel drydocking costs, as of January 1,<br>
2000, from the accrual method to the deferral method. Drydocking costs had been<br>
accrued as a liability and an expense on an estimated basis, in advance of the<br>
next scheduled drydocking. Subsequent payments for drydocking were charged<br>
against the accrued liability. Under the deferral method, actual drydocking<br>
costs are capitalized when incurred and amortized over the period benefited;<br>
generally, this is the period between scheduled drydockings. This method<br>
eliminates the uncertainty of estimating these costs. This change was made to<br>
conform with prevailing industry accounting practices. The cumulative effect of<br>
this accounting change, as of January 1, 2000, is shown separately in the<br>
Consolidated Statements of Income and increased net income by $12,250,000 (net<br>
of income tax expense of $7,668,000), or $0.29 per basic share.<br>
<br>
The effect of this change in accounting method on the balance sheets, as of<br>
December 31, 2000, was to increase other assets by $4,765,000, eliminate<br>
drydocking reserves of $15,153,000, increase deferred taxes by $7,668,000, and<br>
increase shareholders' equity by $12,250,000. Had this change been applied<br>
retroactively, the impact on net income for 1999 would not have been materially<br>
different from reported net income.<br>
<br>
2000--Change in Accounting for Certain Revenues and Expenses: The Company<br>
changed its method of presentation for certain freight services that are<br>
performed by third parties and billed by the Company to its customers. The<br>
expenses and related revenue for these services previously were reported on a<br>
net basis and were not reflected in the Consolidated Statements of Income.<br>
Accordingly, operating revenue and expenses for 2000 and 1999 were increased by<br>
$38,059,000 and $31,874,000, respectively. For 2001, the amount billed for<br>
these services was approximately $32,764,000.<br>
<br>
The Company also changed its method of presentation for common area<br>
maintenance (CAM) costs. These costs, which are incurred by the Company but<br>
which are charged to tenants under various lease arrangements, previously were<br>
netted against Property Leasing Revenue. The Company now records CAM amounts in<br>
Costs of Leasing Services in the Consolidated Statements of Income.<br>
Accordingly, Property Leasing Revenue and Costs of Leasing Services for 2000<br>
and 1999 were increased by $11,246,000 and $8,852,000, respectively. For 2001,<br>
the CAM costs totaled $12,207,000.<br>
<br>
These two changes were in response to the Securities and Exchange<br>
Commission's Staff Accounting Bulletin No. 101, "Revenue Recognition in<br>
Financial Statements," which provides guidance about the classification, on a<br>
gross basis, of revenues and expenses. These changes had no effect on earnings<br>
or segment operating profit.<br>
<br>
3. DISCONTINUED OPERATIONS<br>
<br>
The Company ceased the operations of and abandoned its panelboard<br>
manufacturing business operated by Hawaiian DuraGreen, Inc., a wholly-owned<br>
subsidiary ("DuraGreen"). This subsidiary constructed a production<br>
<br>
36<br>
<br>
<br>
<br>
facility during 1999 and 2000 with an initial capital investment of<br>
approximately $12,500,000. DuraGreen produced a panelboard product using<br>
bagasse, a byproduct in the production of raw cane-sugar, for use in various<br>
furniture and construction applications. After nearly a year of production<br>
issues, poor operating results and weaknesses in the panelboard market,<br>
management determined that the Company's investment in the business will not be<br>
recovered and profitability could not be achieved. The 2001 loss from<br>
Discontinued Operations includes operating losses and closure costs of<br>
$2,964,000 and a $11,387,000 write-down of the production assets to their<br>
estimated salvage value, net of a total income tax benefit of approximately<br>
$5,166,000. There were no operations in prior years. The Consolidated Balance<br>
Sheet at December 31, 2000 included assets of $11,616,000 for DuraGreen. This<br>
amount principally was machinery and equipment.<br>
<br>
4. IMPAIRMENT OF LONG-LIVED ASSETS AND INVESTMENTS<br>
<br>
2001--As described in Note 5, the Company holds common and preferred stock<br>
holdings in C&H Sugar Company, Inc. ("C&H"). As a result of operating losses<br>
and declining cash flows at C&H, combined with adverse market changes, the<br>
Company concluded that C&H's estimated future earnings and cash flows would not<br>
allow recovery of the carrying value of the Company's investments. This loss in<br>
value was considered an "other than temporary" impairment condition;<br>
accordingly, the carrying values of the investments were written down by<br>
$28,600,000 during the fourth quarter of 2001. The loss includes a write-down<br>
of the common stock and junior preferred stock values to zero, and a write-down<br>
of the senior preferred stock to approximately $11,500,000. The amount of the<br>
write-down was based on the valuation of the common, and junior and senior<br>
preferred stocks, as conducted by an independent valuation firm. Accepted<br>
valuation practices were utilized in determining these investments' fair<br>
values, including the market and income approaches, discounted cash flow<br>
method, and market yield analysis. The valuation considered the Company's<br>
minority position, the illiquidity of these types of investments in the public<br>
market, the ability of future cash flows to fund future debt and preferred<br>
obligations, and sugar industry conditions. The Company has no current plans to<br>
divest or sell its investments in C&H.<br>
<br>
2001--The Company wrote off $4,823,000 for power generation equipment that<br>
is being removed from service. This equipment was no longer needed in the<br>
Company's cane sugar refining operations on Maui, due to changes in factory and<br>
power generation processes.<br>
<br>
1999--The Company began growing coffee in Hawaii in 1987 as an alternative<br>
crop to sugar cane. Since inception, the Company's coffee operation generated<br>
operating losses and negative cash flows. During the second half of 1999, the<br>
Company significantly reduced the coffee workforce and changed its coffee<br>
marketing and selling plans. To exacerbate the problem, coffee commodity prices<br>
dropped significantly in 1999, due to an oversupply of coffee in the<br>
marketplace. Because of continuing cash-flow losses, the ongoing viability of<br>
the coffee operation was evaluated again. As a result, the Company determined<br>
that the estimated future cash flows of the coffee operation were less than the<br>
carrying value of its productive assets, consisting mainly of orchards and<br>
field and processing equipment. Accordingly, a $15,410,000 (pre-tax) charge was<br>
recorded to write down these productive assets to their fair value (i.e.,<br>
present value of estimated future cash flows).<br>
<br>
37<br>
<br>
<br>
<br>
5. INVESTMENTS<br>
<br>
At December 31, 2001 and 2000, investments consisted principally of<br>
marketable equity securities, equity in affiliated companies, limited<br>
partnership interests and purchase-money mortgages, as follows:<br>
<br>
<br>
<br>
2001 2000<br>
------- --------<br>
(in thousands)<br>
<br>
Equity in Affiliated Companies:<br>
SSA Terminals, LLC (SSAT).................................... $16,033 $ 21,867<br>
C&H Sugar Company, Inc. (C&H)................................ 11,504 41,705<br>
Sea Star Line, LLC (Sea Star)................................ 1,854 7,586<br>
Other........................................................ 300 300<br>
Marketable Equity Securities..................................... -- 108,069<br>
Limited Partnership Interests, Purchase-money Mortgages and Other 3,330 3,614<br>
------- --------<br>
Total Investments................................................ $33,021 $183,141<br>
======= ========<br>
<br>
<br>
Marketable Equity Securities: The marketable equity securities are<br>
classified as "available for sale" and are stated at quoted market values as<br>
traded on national exchanges. The unrealized holding gains on these securities<br>
and the reclassification of gains previously included in Comprehensive Income,<br>
net of deferred income taxes, have been recorded as a separate component of<br>
Shareholders' Equity and are included in Comprehensive Income.<br>
<br>
In May, 2001, BNP Paribas SA, France's largest bank, announced that, subject<br>
to regulatory, shareholder and other approvals, it would purchase the remaining<br>
55 percent of BancWest Corporation ("BancWest") which it did not already own<br>
for $35 per share. This offer was 40% higher than the market price of<br>
BancWest's stock at the time of the offer. When the offer was made, the Company<br>
owned 3,385,788 shares of BancWest. The transaction closed during the fourth<br>
quarter of 2001. As a result of the sale, the Company received cash of<br>
$118,503,000, recorded a pre-tax gain of $110,338,000, and recognized an<br>
after-tax gain of approximately $68,410,000 ($1.69 per basic share.)<br>
<br>
During 2001, the Company also divested its holdings in Pacific Century<br>
Financial Corporation ("Pacific Century"). This was completed through the<br>
donation of 360,000 shares to the Company's charitable foundation and the sales<br>
of 749,000 shares of the stock. The fair value of the donated stock was<br>
approximately $7,500,000 and the historical cost basis was approximately<br>
$500,000. The net expense related to this contribution was $500,000 and is<br>
included in "Selling general and administrative expenses" in the 2001<br>
consolidated financial statements. The Company received $16,219,000 for the<br>
sales of the shares, recognized a pre-tax gain of $15,140,000 and recorded an<br>
after-tax gain of $9,378,000 ($0.23 per basic share).<br>
<br>
The changes in the net unrealized holding gains (losses) for the three years<br>
ended December 31, 2001 were as follows:<br>
<br>
<br>
<br>
2001 2000 1999<br>
-------- ------- --------<br>
(in thousands)<br>
<br>
Holding gains (losses) arising during year,<br>
net of deferred income tax.................. $ 15,851 $12,476 $(13,868)<br>
Reclassification of gains previously included<br>
in Comprehensive Income, net of income tax.. (77,788) -- --<br>
-------- ------- --------<br>
Total........................................ $(61,937) $12,476 $(13,868)<br>
======== ======= ========<br>
<br>
<br>
As described above, the marketable equity investments were divested during<br>
2001. Accordingly there was no balance in unrealized holdings at year-end 2001.<br>
The components of the net unrealized holding gains, as noted on the<br>
Consolidated Balance Sheet at December 31, 2000, were as follows:<br>
<br>
<br>
<br>
2000<br>
--------------<br>
(in thousands)<br>
<br>
Market value................ $108,069<br>
Less historical cost........ 9,761<br>
--------<br>
Unrealized holding gains.... 98,308<br>
Less deferred income taxes.. 36,371<br>
--------<br>
Net unrealized holding gains $ 61,937<br>
========<br>
<br>
<br>
38<br>
<br>
<br>
<br>
Equity in Affiliated Companies: In 1998, the Company sold a majority<br>
interest in C&H. Following the sale, the Company retained approximately 36<br>
percent of the common stock, 40 percent of the junior preferred stock and all<br>
of the senior preferred stock of C&H. Dividends on the senior and junior<br>
preferred stocks are cumulative. Through December 2003, dividends on the senior<br>
preferred stock may be paid either in cash or by issuance of additional shares<br>
of senior preferred stock. C&H must redeem from the Company, at one thousand<br>
dollars per share, the outstanding senior preferred stock in December 2009 and<br>
outstanding junior preferred stock in December 2010. C&H was included in the<br>
consolidated results of the Company up to the date of the sale. The Company<br>
accounts for its investment in C&H under the equity method. See Note 4 for a<br>
discussion of the 2001 impairment loss related to this investment which<br>
resulted from an other than temporary decline in value. Financial information<br>
for C&H as of and for the years ended December 31, 2001 and 2000 follows:<br>
<br>
Condensed Balance Sheets<br>
<br>
<br>
2001 2000<br>
-------- --------<br>
(in thousands)<br>
<br>
Assets:<br>
Current......................................... $103,699 $125,735<br>
Property and other.............................. 116,293 129,529<br>
-------- --------<br>
Total............................................. $219,992 $255,264<br>
======== ========<br>
Liabilities and Shareholders' Equity:<br>
Current......................................... $ 35,030 $ 63,470<br>
Long-term debt and other........................ 139,737 124,941<br>
Shareholders' equity, including preferred stock. 45,225 66,853<br>
-------- --------<br>
Total............................................. $219,992 $255,264<br>
======== ========<br>
<br>
<br>
Condensed Statements of Income<br>
<br>
<br>
2001 2000<br>
-------- --------<br>
(in thousands)<br>
<br>
<br>
Revenue........... $427,350 $413,153<br>
Cost and Expenses. 433,864 409,839<br>
-------- --------<br>
Net (Loss) Income. $ (6,514) $ 3,314<br>
======== ========<br>
<br>
<br>
Matson, a wholly owned subsidiary of the Company, has a minority interest<br>
investment in a limited liability corporation (LLC) with Saltchuk Resources,<br>
Inc. and International Shipping Agency, Inc., named Sea Star Line, LLC, which<br>
operates an ocean transportation service between Florida and Puerto Rico.<br>
Matson has guaranteed obligations of $31,500,000 of this unconsolidated<br>
affiliate and chartered two vessels to Sea Star Line, LLC. Subsequent to 2001<br>
year-end, Matson sold the two vessels to Sea Star for an aggregate sales price<br>
of $17,000,000, which was the approximate carrying value of the vessels at 2001<br>
year end. This amount is included in "Real estate and other assets held for<br>
sale" on the Consolidated Balance Sheet at December 31, 2001. This investment<br>
represents a minority interest and is accounted for under the equity method.<br>
<br>
Matson is part owner of an LLC with Stevedoring Services of America, named<br>
SSA Terminals, LLC, which provides stevedoring and terminal services at six<br>
terminals in three West Coast ports to the Company and other shipping lines.<br>
This investment represents a minority interest and is accounted for under the<br>
equity method. During 1999, Matson contributed assets with a value of<br>
$16,438,000 in connection with the formation of SSAT. The "Cost of<br>
transportation services" included approximately $89,551,000, $99,151,000 and<br>
$46,856,000, for 2001, 2000 and 1999, respectively, paid to this unconsolidated<br>
affiliate for terminal services.<br>
<br>
The Company's equity in income (loss) of unconsolidated affiliates for the<br>
three years ended December 31, 2001 was $(8,778,000), $6,859,000, and<br>
$3,002,000, respectively.<br>
<br>
Limited Partnership Interests and Purchase-money Mortgages: The investments<br>
in limited partnerships are recorded at the lower of cost or fair value and<br>
purchase-money mortgages are recorded at cost. The purchase-money mortgages are<br>
intended to be held to maturity. The values of the investments in limited<br>
partnerships are assessed annually.<br>
<br>
39<br>
<br>
<br>
<br>
See Note 7 for a discussion of fair values of investments in the Capital<br>
Construction Fund.<br>
<br>
6. PROPERTY<br>
<br>
Property on the Consolidated Balance Sheets includes the following:<br>
<br>
<br>
<br>
2001 2000<br>
---------- ----------<br>
(in thousands)<br>
<br>
Vessels....................................... $ 694,618 $ 770,352<br>
Machinery and equipment....................... 545,298 534,894<br>
Buildings..................................... 317,068 271,314<br>
Land.......................................... 104,135 95,195<br>
Water, power and sewer systems................ 87,915 80,084<br>
Other property improvements................... 67,645 56,355<br>
---------- ----------<br>
Total..................................... 1,816,679 1,808,194<br>
Less accumulated depreciation and amortization 839,631 853,502<br>
---------- ----------<br>
Property--net............................. $ 977,048 $ 954,692<br>
========== ==========<br>
<br>
<br>
7. CAPITAL CONSTRUCTION FUND<br>
<br>
Matson is party to an agreement with the United States government which<br>
established a Capital Construction Fund (CCF) under provisions of the Merchant<br>
Marine Act, 1936, as amended. The agreement has program objectives for the<br>
acquisition, construction or reconstruction of vessels and for repayment of<br>
existing vessel indebtedness. Deposits to the CCF are limited by certain<br>
applicable earnings. Such deposits are federal income tax deductions in the<br>
year made; however, they are taxable, with interest payable from the year of<br>
deposit, if withdrawn for general corporate purposes or other non-qualified<br>
purposes, or upon termination of the agreement. Qualified withdrawals for<br>
investment in vessels and certain related equipment do not give rise to a<br>
current tax liability, but reduce the depreciable bases of the vessels or other<br>
assets for income tax purposes.<br>
<br>
Amounts deposited into the CCF are a preference item for calculating federal<br>
alternative minimum taxable income. Deposits not committed for qualified<br>
purposes within 25 years from the date of deposit, will be treated as<br>
non-qualified withdrawals over the subsequent five years. As of December 31,<br>
2001, the oldest CCF deposits date from 1994. Management believes that all<br>
amounts on deposit in the CCF at the end of 2001 will be used or committed for<br>
qualified purposes prior to the expiration of the applicable 25-year periods.<br>
<br>
Under the terms of the CCF agreement, Matson may designate certain qualified<br>
earnings as "accrued deposits" or may designate, as obligations of the CCF,<br>
qualified withdrawals to reimburse qualified expenditures initially made with<br>
operating funds. Such accrued deposits to and withdrawals from the CCF are<br>
reflected on the Consolidated Balance Sheets either as obligations of the<br>
Company's current assets or as receivables from the CCF.<br>
<br>
The Company has classified its investments in the CCF as "held-to-maturity"<br>
and, accordingly, has not reflected temporary unrealized market gains and<br>
losses on the Consolidated Balance Sheets or Consolidated Statements of<br>
Income. The long-term nature of the CCF program supports the Company's<br>
intention to hold these investments to maturity.<br>
<br>
40<br>
<br>
<br>
<br>
At December 31, 2001 and 2000, the balances on deposit in the CCF are<br>
summarized as follows:<br>
<br>
<br>
<br>
2001 2000<br>
----------------------------- -----------------------------<br>
(in thousands)<br>
Amortized Fair Unrealized Amortized Fair Unrealized<br>
Cost Value Gain Cost Value Gain (Loss)<br>
--------- -------- ---------- --------- -------- -----------<br>
<br>
Mortgage-backed securities $ 26,180 $ 26,983 $ 803 $ 32,302 $ 32,281 $(21)<br>
Cash and cash equivalents. 128,557 129,161 604 113,583 113,871 288<br>
Accrued deposits.......... 4,000 4,000 -- 4,520 4,520 --<br>
-------- -------- ------ -------- -------- ----<br>
Total..................... $158,737 $160,144 $1,407 $150,405 $150,672 $267<br>
======== ======== ====== ======== ======== ====<br>
<br>
<br>
Fair value of the mortgage-backed securities was determined by an outside<br>
investment management company, based on experience trading identical or<br>
substantially similar securities. No central exchange exists for these<br>
securities; they are traded over-the-counter. The Company earned $2,476,000 in<br>
2001, $2,654,000 in 2000, and $3,152,000 in 1999 on its investments in<br>
mortgage-backed securities. The fair values of other CCF investments are based<br>
on quoted market prices. These other investments mature no later than January<br>
9, 2004. One security classified as "held to maturity" was sold during 2001 for<br>
a loss of $42,800. In 2000, three securities classified as "held-to-maturity"<br>
were sold for a combined loss of $48,400. These securities no longer met<br>
authorized credit requirements.<br>
<br>
8. NOTES PAYABLE AND LONG-TERM DEBT<br>
<br>
At December 31, 2001 and 2000, long-term debt consisted of the following:<br>
<br>
<br>
<br>
2001 2000<br>
-------- --------<br>
(in thousands)<br>
<br>
Commercial paper, 2001 high 6.79%, low 1.88%........................ $ 99,878 $ 99,766<br>
Bank variable rate loans, due after 2001, 2001 high 7.13%, low 2.17% 17,400 136,500<br>
Term loans:<br>
7.38%, payable through 2007....................................... 45,000 52,500<br>
7.42%, payable through 2010....................................... 20,000 20,000<br>
7.43%, payable through 2007....................................... 15,000 15,000<br>
7.57%, payable through 2009....................................... 15,000 15,000<br>
7.55%, payable through 2009....................................... 15,000 15,000<br>
7.65%, payable through 2001....................................... -- 7,500<br>
-------- --------<br>
Total............................................................... 227,278 361,266<br>
Less current portion................................................ 19,900 30,500<br>
-------- --------<br>
Long-term debt...................................................... $207,378 $330,766<br>
======== ========<br>
<br>
<br>
Commercial Paper: At December 31, 2001, $99,878,000 of commercial paper<br>
notes was outstanding under a commercial paper program used by a subsidiary to<br>
finance the construction of a vessel. Maturities ranged from 6 to 56 days. The<br>
borrowings outstanding under this program are classified as long-term because<br>
the subsidiary intends to continue the program and, eventually, to repay the<br>
borrowings with qualified withdrawals from the Capital Construction Fund.<br>
<br>
Variable Rate Loans: The Company has a revolving credit and term loan<br>
agreement with six commercial banks, whereby it may borrow up to $185,000,000<br>
under revolving loans through November 2004, at market rates of interest. Any<br>
revolving loan outstanding on that date may be converted into a term loan,<br>
which would be payable in four equal quarterly installments. The agreement<br>
contains certain restrictive covenants, the most significant of which requires<br>
the maintenance of an interest coverage ratio of 2:1 and total debt to earnings<br>
before interest, depreciation,<br>
amortization and taxes of 3:1. At December 31, 2000, $113,500,000 was<br>
outstanding under this agreement. No amount was drawn on this facility at<br>
December 31, 2001.<br>
<br>
The Company has an uncommitted $70,000,000 short-term revolving credit<br>
agreement with a commercial bank. The agreement extends through November 2002,<br>
but may be canceled by the bank or the Company at any time. The<br>
<br>
41<br>
<br>
<br>
<br>
amount which the Company may draw under the facility is reduced by the amount<br>
drawn against the bank under the previously referenced $185,000,000 multi-bank<br>
facility, in which it is a participant, and by letters of credit issued under<br>
the $70,000,000 uncommitted facility. At December 31, 2001 and 2000, $5,000,000<br>
and $7,500,000, respectively, were outstanding under this agreement. Under the<br>
borrowing formula for this facility, the Company could have borrowed an<br>
additional $59,477,000 at December 31, 2001.<br>
<br>
Matson has two revolving credit agreements totaling $90,000,000 with<br>
commercial banks. The first facility is a $50,000,000 two-year revolving credit<br>
agreement which expires in September 2003. At December 31, 2001, no amounts<br>
were drawn on this facility. At December 31, 2000, $15,500,000 was outstanding.<br>
The second facility is a two-year $40,000,000 revolving credit agreement which<br>
was entered into during 2001 and which expires in January 2003. At December 31,<br>
2001, $12,400,000 was drawn on this new facility.<br>
<br>
Matson also has a $25,000,000 one-year revolving credit agreement with a<br>
commercial bank, expiring in November 2002, which serves as a commercial paper<br>
liquidity back-up line. At December 31, 2001 and 2000, no amounts were<br>
outstanding under this agreement.<br>
<br>
Other Debt Agreements: During 2001, the Company completed a private shelf<br>
agreement for $50,000,000, which expires in April 2004. At December 31, 2001,<br>
no amount had been drawn on this facility. Also in 2001, Matson entered into a<br>
$50,000,000 private shelf offering which expires in June 2004. No amounts were<br>
drawn on that facility at year end. An uncommitted $25,000,000 revolving credit<br>
agreement with a commercial bank expired in May 2001.<br>
<br>
Long-term Debt Maturities: At December 31, 2001, maturities and planned<br>
prepayments of all long-term debt during the next five years are $19,900,000<br>
for 2002, $9,643,000 for 2003, $12,500,000 for 2004, $17,500,000 for 2005 and<br>
$17,500,000 for 2006.<br>
<br>
Interest Rate Risk: The Company is exposed to changes in U.S. interest<br>
rates, primarily as a result of its borrowing and investing activities used to<br>
maintain liquidity and to fund business operations. In order to manage its<br>
exposure to changes in interest rates, the Company utilizes a balanced mix of<br>
debt maturities, along with both fixed-rate and variable-rate debt. The Company<br>
does not hedge its interest rate exposure. The nature and amount of the<br>
Company's long-term and short-term debt can be expected to fluctuate as a<br>
result of future business requirements, market conditions and other factors.<br>
The following table summarizes the Company's debt obligations at December 31,<br>
2001, presenting principal cash flows and related interest rates by expected<br>
fiscal year of maturity. Variable interest rates represent the weighted-average<br>
rates of the portfolio at December 31, 2001. The Company estimates that the<br>
carrying value of its debt is not materially different from its fair value.<br>
<br>
<br>
<br>
Expected Fiscal Year of Maturity at December 31, 2001<br>
---------------------------------------------------------------<br>
2002 2003 2004 2005 2006 Thereafter Total<br>
------- ------ ------- ------- ------- ---------- --------<br>
(dollars in thousands)<br>
<br>
Fixed rate........... $ 7,500 $9,643 $12,500 $17,500 $17,500 $ 45,357 $110,000<br>
Average interest rate 7.17% 7.33% 7.38% 7.42% 7.45% 7.49% --<br>
Variable rate........ $12,400 -- -- -- -- $104,878 $117,278<br>
Average interest rate 2.20% -- -- -- -- 2.04% --<br>
<br>
<br>
9. LEASES<br>
<br>
The Company as Lessee: Principal operating leases include land, office and<br>
terminal facilities, containers and equipment, leased for periods which expire<br>
between 2003 and 2052. Management expects that, in the normal course of<br>
business, most operating leases will be renewed or replaced by other similar<br>
leases.<br>
<br>
Rental expense under operating leases totaled $19,748,000, $19,741,000, and<br>
$28,343,000 for the years ended December 31, 2001, 2000, and 1999, respectively.<br>
<br>
42<br>
<br>
<br>
<br>
Future minimum payments under operating leases as of December 31, 2001 were<br>
as follows:<br>
<br>
<br>
<br>
Operating<br>
Leases<br>
--------------<br>
(in thousands)<br>
<br>
2002........................ $ 12,843<br>
2003........................ 12,699<br>
2004........................ 12,556<br>
2005........................ 8,848<br>
2006........................ 7,814<br>
Thereafter.................. 91,761<br>
--------<br>
Total minimum lease payments $146,521<br>
========<br>
<br>
<br>
The Company is obligated to pay terminal facility rent equal to the<br>
principal and interest on Special Facility Revenue Bonds issued by the<br>
Department of Transportation of the State of Hawaii. Interest on the bonds is<br>
payable semi-annually and principal, in the amount of $16,500,000, is due in<br>
2013. An accrued liability of $10,431,000 and $9,887,000 at December 31, 2001<br>
and 2000, respectively, included in other long-term liabilities, provides for a<br>
pro-rata portion of the principal due on these bonds.<br>
<br>
The Company as Lessor: The Company leases land, buildings, land<br>
improvements, and five vessels under operating leases. Two of the vessels were<br>
chartered to an unconsolidated affiliate and were sold to that affiliate in<br>
January 2002 (see Note 5). The historical cost of and accumulated depreciation<br>
on leased property at December 31, 2001 and 2000 were as follows:<br>
<br>
<br>
<br>
2001 2000<br>
-------- --------<br>
(in thousands)<br>
<br>
Leased property..................... $653,200 $621,860<br>
Less accumulated amortization....... 173,269 154,467<br>
-------- --------<br>
Property under operating leases--net $479,931 $467,393<br>
======== ========<br>
<br>
<br>
Total rental income under these operating leases for the three years ended<br>
December 31, 2001 was as follows:<br>
<br>
<br>
<br>
2001 2000 1999<br>
-------- -------- -------<br>
(in thousands)<br>
<br>
Minimum rentals........................... $105,251 $ 98,607 $93,275<br>
Contingent rentals (based on sales volume) 2,481 1,917 1,244<br>
-------- -------- -------<br>
Total..................................... $107,732 $100,524 $94,519<br>
======== ======== =======<br>
<br>
<br>
Future minimum rental income on non-cancelable leases at December 31, 2001<br>
was as follows:<br>
<br>
<br>
<br>
Operating<br>
Leases<br>
--------------<br>
(in thousands)<br>
<br>
2002...... $ 96,807<br>
2003...... 90,028<br>
2004...... 81,757<br>
2005...... 75,112<br>
2006...... 26,586<br>
Thereafter 151,375<br>
--------<br>
Total..... $521,665<br>
========<br>
<br>
<br>
43<br>
<br>
<br>
<br>
10. EMPLOYEE BENEFIT PLANS<br>
<br>
The Company has funded single-employer defined benefit pension plans which<br>
cover substantially all non-bargaining unit employees.<br>
<br>
In addition, the Company has plans that provide certain retiree health care<br>
and life insurance benefits to substantially all salaried and to certain hourly<br>
employees. Employees are generally eligible for such benefits upon retirement<br>
and completion of a specified number of years of credited service. The Company<br>
does not pre-fund these benefits and has the right to modify or terminate<br>
certain of these plans in the future. Certain groups of retirees pay a portion<br>
of the benefit costs.<br>
<br>
The status of the funded defined benefit pension plans and the unfunded<br>
accumulated post-retirement benefit plans, at December 31, 2001, 2000, and 1999<br>
is shown in the table on page 46.<br>
<br>
The net periodic benefit cost for the defined benefit pension plans and the<br>
post-retirement health care and life insurance benefit plans during 2001, 2000,<br>
and 1999 is summarized in the table on page 46.<br>
<br>
The assumptions used to determine the benefit information were as follows:<br>
<br>
<br>
<br>
Other Post-retirement<br>
Pension Benefits Benefits<br>
---------------- ---------------------<br>
2001 2000 1999 2001 2000 1999<br>
---- ---- ---- ---- ---- ----<br>
<br>
Discount rate................. 7.25% 7.75% 7.75% 7.25% 7.75% 7.75%<br>
Expected return on plan assets 9.00% 9.00% 9.00% -- -- --<br>
Rate of compensation increase. 4.25% 4.25% 4.25% 4.25% 4.25% 4.25%<br>
<br>
<br>
For the 2001 post-retirement benefit measurement purposes, a ten percent<br>
annual rate of increase in the per capita cost of covered health care benefits<br>
was assumed through 2001. The rate was assumed to decrease by one percent per<br>
year through 2005 and then remain at five percent thereafter. For the 2000<br>
measurement purposes, a ten percent annual rate of increase was assumed through<br>
2001, after which a constant five percent rate was assumed. Unrecognized gains<br>
and losses of the post-retirement benefit plans are amortized over five years.<br>
<br>
If the assumed health care cost trend rate were increased or decreased by<br>
one percentage point, the accumulated post-retirement benefit obligation, as of<br>
December 31, 2001, 2000, and 1999 and the net periodic post-retirement benefit<br>
cost for 2001, 2000 and 1999, would have increased or decreased as follows:<br>
<br>
<br>
<br>
Other Post-retirement Benefits<br>
One Percentage Point<br>
----------------------------------------------<br>
Increase Decrease<br>
-------------------- -------------------------<br>
2001 2000 1999 2001 2000 1999<br>
------ ------ ------ ------- ------- -------<br>
(in thousands)<br>
<br>
Effect on total of service and interest cost components $ 296 $ 196 $ 416 $ (244) $ (226) $ (347)<br>
Effect on post-retirement benefit obligation........... $3,856 $1,664 $4,062 $(3,199) $(2,278) $(3,388)<br>
<br>
<br>
The assets of the defined benefit pension plans consist principally of<br>
listed stocks and bonds. Contributions are determined annually for each plan by<br>
the Company's pension administrative committee, based upon the actuarially<br>
determined minimum required contribution under the Employee Retirement Income<br>
Security Act of 1974 (ERISA), as amended, and the maximum deductible<br>
contribution allowed for tax purposes. For the plans covering employees who are<br>
members of collective bargaining units, the benefit formulas are determined<br>
according to the collective bargaining agreements, either using career average<br>
pay as the base or a flat dollar amount per year of service. The benefit<br>
formulas for the remaining defined benefit plans are based on final average pay.<br>
<br>
The Company has non-qualified supplemental pension plans covering certain<br>
employees and retirees, which provide for incremental pension payments from the<br>
Company's general funds, so that total pension benefits would be substantially<br>
equal to amounts that would have been payable from the Company's qualified<br>
pension plans if it were<br>
<br>
44<br>
<br>
<br>
<br>
not for limitations imposed by income tax regulations. The obligation, included<br>
with other non-current liabilities, relating to these unfunded plans, totaled<br>
$13,807,000 and $12,597,000 at December 31, 2001 and 2000, respectively.<br>
<br>
Total contributions to the multi-employer pension plans covering personnel<br>
in shoreside and seagoing bargaining units were $4,028,000 in 2001, $3,027,000<br>
in 2000, and $4,367,000 in 1999. Union collective bargaining agreements provide<br>
that total employer contributions during the terms of the agreements must be<br>
sufficient to meet the normal costs and amortization payments required to be<br>
funded during those periods. Contributions are generally based on union labor<br>
paid or cargo volume. A portion of such contributions is for unfunded accrued<br>
actuarial liabilities of the plans being funded over periods of 25 to 40 years,<br>
which began between 1967 and 1976.<br>
<br>
The multi-employer plans are subject to the plan termination insurance<br>
provisions of ERISA and are paying premiums to the Pension Benefit Guarantee<br>
Corporation (PBGC). The statutes provide that an employer who withdraws from,<br>
or significantly reduces its contribution obligation to, a multi-employer plan<br>
generally will be required to continue funding its proportional share of the<br>
plan's unfunded vested benefits.<br>
<br>
Under special rules approved by the PBGC and adopted by the Pacific Coast<br>
longshore plan in 1984, the Company could cease Pacific Coast cargo-handling<br>
operations permanently and stop contributing to the plan without any withdrawal<br>
liability, provided that the plan meets certain funding obligations as defined<br>
in the plan. The estimated withdrawal liabilities under the Hawaii longshore<br>
plan and the seagoing plans aggregated approximately $2,465,000 as of December<br>
31, 2001, based on estimates by plan actuaries. Management has no present<br>
intention of withdrawing from and does not anticipate termination of any of the<br>
aforementioned plans.<br>
<br>
45<br>
<br>
<br>
<br>
<br>
<br>
Pension Benefits Other Post-retirement Benefits<br>
------------------------------- -----------------------------<br>
2001 2000 1999 2001 2000 1999<br>
--------- --------- --------- -------- -------- --------<br>
(in thousands)<br>
<br>
Change in Benefit Obligation<br>
Benefit obligations at beginning of year...... $ 235,000 $ 218,189 $ 229,573 $ 37,910 $ 47,836 $ 55,298<br>
Service cost.................................. 4,844 4,877 5,705 443 504 892<br>
Interest cost................................. 17,549 16,882 15,013 2,720 2,939 3,460<br>
Plan participants' contributions.............. -- -- -- 1,137 1,165 1,423<br>
Actuarial (gain) loss......................... 13,130 (2,016) (25,177) 2,314 (2,652) (8,198)<br>
Benefits paid................................. (14,094) (13,146) (12,109) (3,452) (3,635) (4,320)<br>
Amendments.................................... 498 1,137 10,129 -- -- --<br>
Settlements................................... -- 8,602 (1,304) -- (8,247) --<br>
Curtailments.................................. -- -- (3,823) -- -- (719)<br>
Special or contractual termination benefits... -- 475 182 -- -- --<br>
--------- --------- --------- -------- -------- --------<br>
Benefit obligation at end of year............. 256,927 235,000 218,189 41,072 37,910 47,836<br>
--------- --------- --------- -------- -------- --------<br>
Change in Plan Assets<br>
Fair value of plan assets at beginning of year 364,299 381,090 338,267 -- -- --<br>
Actual return on plan assets.................. (35,747) (3,645) 56,236 -- -- --<br>
Settlements................................... -- -- (1,304) -- -- --<br>
Employer contribution......................... 135 -- -- -- -- --<br>
Benefits paid................................. (14,094) (13,146) (12,109) -- -- --<br>
--------- --------- --------- -------- -------- --------<br>
Fair value of plan assets at end of year...... 314,593 364,299 381,090 -- -- --<br>
--------- --------- --------- -------- -------- --------<br>
Accrued Asset (Obligation)<br>
Plan assets less benefit obligation........... 57,666 129,299 162,901 (41,072) (37,910) (47,836)<br>
Unrecognized net actuarial gain............... (4,963) (91,307) (135,670) (4,232) (9,134) (15,841)<br>
Unrecognized transition asset................. -- (63) (183) -- -- --<br>
Unrecognized prior service cost............... 10,597 12,547 13,939 72 79 32<br>
--------- --------- --------- -------- -------- --------<br>
Accrued asset (obligation).................... $ 63,300 $ 50,476 $ 40,987 $(45,232) $(46,965) $(63,645)<br>
========= ========= ========= ======== ======== ========<br>
Components of Net Periodic<br>
Benefit Cost/(Income)<br>
Service cost.................................. $ 4,844 $ 4,877 $ 5,705 $ 443 $ 504 $ 892<br>
Interest cost................................. 17,549 16,882 15,013 2,720 2,939 3,460<br>
Expected return on plan assets................ (32,107) (33,651) (29,922) -- -- --<br>
Recognition of net gain....................... (5,360) (9,083) (4,251) (2,522) (2,872) (2,644)<br>
Amortization of prior service cost............ 2,448 2,528 905 7 7 8<br>
Amortization of unrecognized transition asset. (63) (119) (713) -- -- --<br>
Recognition of settlement (gain)/loss......... -- 8,602 (53) -- (14,800) --<br>
Recognition of curtailment gain............... -- -- (3,641) -- -- (292)<br>
--------- --------- --------- -------- -------- --------<br>
Net periodic benefit cost/(income)............ $ (12,689) $ (9,964) $ (16,957) $ 648 $(14,222) $ 1,424<br>
========= ========= ========= ======== ======== ========<br>
Cost of termination benefits recognized....... $ -- $ 475 $ 182 $ -- $ -- $ --<br>
========= ========= ========= ======== ======== ========<br>
<br>
<br>
46<br>
<br>
<br>
<br>
11. INCOME TAXES<br>
<br>
The income tax expense for the three years ended December 31, 2001 consisted<br>
of the following:<br>
<br>
<br>
<br>
2001 2000 1999<br>
------- ------- -------<br>
(in thousands)<br>
<br>
Current:<br>
Federal......... $65,881 $26,186 $21,035<br>
State........... 8,900 847 3,461<br>
------- ------- -------<br>
Current........... 74,781 27,033 24,496<br>
Deferred.......... (7,389) 17,358 8,465<br>
------- ------- -------<br>
Income tax expense $67,392 $44,391 $32,961<br>
======= ======= =======<br>
<br>
<br>
Income tax expense for the three years ended December 31, 2001 differs from<br>
amounts computed by applying the statutory federal rate to pre-tax income, for<br>
the following reasons:<br>
<br>
<br>
<br>
2001 2000 1999<br>
------- ------- -------<br>
(in thousands)<br>
<br>
Computed federal income tax expense............. $65,522 $42,950 $33,439<br>
State tax on income, less applicable federal tax 5,285 2,968 3,790<br>
Low-income housing credits...................... (859) (1,124) (1,161)<br>
Dividend exclusion.............................. (867) (954) (860)<br>
Prior years' tax settlement..................... -- -- (2,815)<br>
Fair market value over cost of donations........ (1,481) -- --<br>
Other--net...................................... (208) 551 568<br>
------- ------- -------<br>
Income tax expense.............................. $67,392 $44,391 $32,961<br>
======= ======= =======<br>
<br>
<br>
The tax effects of temporary differences that give rise to significant<br>
portions of the net deferred tax liability at December 31, 2001 and 2000 were<br>
as follows:<br>
<br>
<br>
<br>
2001 2000<br>
-------- --------<br>
(in thousands)<br>
<br>
Property basis and depreciation............... $166,810 $180,895<br>
Tax-deferred gains on real estate transactions 106,993 104,033<br>
Capital Construction Fund..................... 61,998 58,704<br>
Unrealized holding gains on securities........ -- 36,371<br>
Pensions...................................... 24,720 19,447<br>
Post-retirement benefits...................... (17,331) (17,900)<br>
Insurance reserves............................ (9,301) (10,740)<br>
Other--net.................................... (4,504) 3,143<br>
-------- --------<br>
Total......................................... $329,385 $373,953<br>
======== ========<br>
<br>
<br>
The Internal Revenue Service (IRS) completed its examination of the<br>
Company's tax returns through 1997. The IRS is currently auditing the Company's<br>
tax returns for 1998 and 1999. Management believes that the outcome of the<br>
current audit will not have a material effect on the Company's financial<br>
position or results of operations.<br>
<br>
12. STOCK OPTIONS<br>
<br>
Employee Stock Option Plans: The Company has two stock option plans under<br>
which key employees are granted options to purchase shares of the Company's<br>
common stock. There are no longer any outstanding options under a third plan,<br>
which terminated in 1993.<br>
<br>
47<br>
<br>
<br>
<br>
Adopted in 1998, the Company's 1998 Stock Option/Stock Incentive Plan ("1998<br>
Plan") provides for the issuance of non-qualified stock options to employees of<br>
the Company. Under the 1998 Plan, option prices may not be less than the fair<br>
market value of the Company's common stock on the dates of grant, the options<br>
become exercisable over periods determined, at the dates of grant, by the<br>
committee that administers the plan (generally ratably over three years), and<br>
the options generally expire ten years from the date of grant. Payments for<br>
options exercised may be made in cash or in shares of the Company's stock. If<br>
an option to purchase shares is exercised within five years of the date of<br>
grant and if payment is made in shares of the Company's stock, the option<br>
holder may receive, under a reload feature, a new stock option grant for such<br>
number of shares as is equal to the number surrendered, with an option price<br>
not less than the greater of the fair market value of the Company's stock on<br>
the date of exercise or one and one-half times the original option price.<br>
<br>
Adopted in 1989, the Company's 1989 Stock Option/Stock Incentive Plan ("1989<br>
Plan") is substantially the same as the 1998 Plan, except that each option is<br>
generally exercisable in-full one year after the date granted. The 1989 Plan<br>
terminated in January 1999, but options granted through 1998 remain exercisable.<br>
<br>
The 1998 and 1989 Plans also permit the issuance of shares of the Company's<br>
common stock as a reward for past service rendered to the Company or one of its<br>
subsidiaries or as an incentive for future service with such entities. The<br>
recipients' interest in such shares may be vested fully upon issuance or may<br>
vest in one or more installments, upon such terms and conditions as are<br>
determined by the committee which administers the plans. The number of<br>
incentive shares issued during 2001 or outstanding at the end of the year was<br>
not material.<br>
<br>
Director Stock Option Plans: The Company has two Directors' stock option<br>
plans. Under the 1998 Non-Employee Director Stock Option Plan ("1998 Directors'<br>
Plan"), each non-employee Director of the Company, elected at an Annual Meeting<br>
of Shareholders, is automatically granted, on the date of each such Annual<br>
Meeting, an option to purchase 3,000 shares of the Company's common stock at<br>
the fair market value of the shares on the date of grant. Each option to<br>
purchase shares becomes exercisable in three successive annual installments of<br>
1,000 shares beginning one year after the date granted.<br>
<br>
The 1989 Non-Employee Directors Stock Option Plan ("1989 Directors' Plan")<br>
is substantially the same as the 1998 Directors' Plan, except that each option<br>
generally becomes exercisable in-full one year after the date granted. This<br>
plan terminated in January 1999, but options granted through termination remain<br>
exercisable.<br>
<br>
Changes in shares and the weighted average exercise prices for the three<br>
years ended December 31, 2001, were as follows:<br>
<br>
<br>
Employee Plans Directors' Plans<br>
------------------ -------------------- Weighted<br>
1998 1989 Average<br>
1998 1989 1983 Directors' Directors' Total Exercise<br>
Plan Plan Plan Plan Plan Shares Price<br>
----- ----- ---- ---------- ---------- ------ --------<br>
(shares in thousands)<br>
<br>
December 31, 1998 100 3,263 161 - 204 3,728 $26.69<br>
Granted.......... 515 - - 24 - 539 $20.65<br>
Exercised........ - (4) - - - (4) $22.02<br>
Canceled......... (2) (373) (161) - (15) (551) $29.16<br>
----- ----- ---- -- --- ----- ------<br>
December 31, 1999 613 2,886 - 24 189 3,712 $25.43<br>
Granted.......... 511 - - 24 - 535 $21.70<br>
Exercised........ (7) (139) - - - (146) $23.79<br>
Canceled......... (31) (340) - - (21) (392) $29.49<br>
----- ----- ---- -- --- ----- ------<br>
December 31, 2000 1,086 2,407 - 48 168 3,709 $24.52<br>
Granted.......... 590 - - 24 - 614 $27.23<br>
Exercised........ (35) (244) - - - (279) $23.53<br>
Canceled......... (14) (21) - - (21) (56) $25.81<br>
----- ----- ---- -- --- ----- ------<br>
December 31, 2001 1,627 2,142 - 72 147 3,988 $24.99<br>
----- ----- ---- -- --- ----- ------<br>
Exercisable...... 550 2,142 - 24 147 2,863 $25.19<br>
----- ----- ---- -- --- ----- ------<br>
<br>
<br>
48<br>
<br>
<br>
<br>
As of December 31, 2001, the Company had reserved 431,000 and 58,000 shares<br>
of its common stock for the exercise of options under the 1998 Plan and 1998<br>
Directors' Plan, respectively. Additional information about stock options<br>
outstanding as of 2001 year-end is summarized below:<br>
<br>
<br>
<br>
Weighted Weighted<br>
Shares Average Weighted Shares Average<br>
Outstanding Remaining Average Exercisable Price of<br>
as of Contractual Exercise as of Exercisable<br>
Range of Exercise Price 12/31/2001 Years Price 12/31/2001 Options<br>
- ----------------------- ----------- ----------- -------- ----------- -----------<br>
(shares in thousands)<br>
<br>
$0.00.............. 16 9.1 $ 0.00 -- --<br>
$20.01 - 22.00..... 1,170 6.3 $21.31 682 $21.31<br>
$22.01 - 24.00..... 445 4.3 $23.07 360 $23.05<br>
$24.01 - 26.00..... 382 1.6 $24.37 378 $24.36<br>
$26.01 - 28.00..... 1,025 3.3 $27.05 1,025 $27.05<br>
$28.01 - 30.00..... 852 5.7 $28.33 320 $28.35<br>
$30.01 - 34.88..... 98 0.8 $33.51 98 $33.51<br>
----- --- ------ ----- ------<br>
$ 0.00 - 34.88..... 3,988 4.7 $24.99 2,863 $25.19<br>
----- --- ------ ----- ------<br>
<br>
<br>
Accounting Method for Stock-based Compensation: The Company applies<br>
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to<br>
Employees," and related Interpretations, to account for its stock-based<br>
compensation plans. Accordingly, no compensation cost is recognized in the<br>
Company's income statement for stock option plans at the time grants are<br>
awarded. Pro forma information regarding net income and earnings per share is<br>
required, using the fair value method, by SFAS No. 123, "Accounting for<br>
Stock-based Compensation."<br>
<br>
The fair value of options granted for each of the three years ended December<br>
31, 2001, reported below, has been estimated using a Black-Scholes option<br>
pricing model. This model was developed for use in estimating the fair value of<br>
traded options which do not have vesting requirements and which are fully<br>
transferable. The Company's options have characteristics significantly<br>
different from those of traded options. The following assumptions were used in<br>
determining the pro forma amounts:<br>
<br>
<br>
<br>
2001 2000 1999<br>
---- ---- ----<br>
<br>
Stock volatility........................ 25.2% 25.0% 24.8%<br>
Expected term from grant date (in years) 6.2 6.7 6.5<br>
Risk-free interest rate................. 4.5% 6.0% 5.0%<br>
Forfeiture discount..................... 2.6% 0.3% 0.2%<br>
Dividend yield.......................... 3.3% 3.4% 4.0%<br>
<br>
<br>
Based upon the above assumptions, the computed annual weighted average fair<br>
value of employee stock options granted during 2001, 2000, and 1999 was $6.22,<br>
$5.54, and $4.63, respectively, per option.<br>
<br>
Had compensation cost for the stock options granted during the past three<br>
years been based on the estimated fair value at grant dates, as prescribed by<br>
SFAS No. 123, the Company's pro forma net income and net income per share would<br>
have been as follows:<br>
<br>
<br>
<br>
2001 2000 1999<br>
-------- ------- -------<br>
(in thousands, except per share amounts)<br>
<br>
Net Income:<br>
As reported......... $110,628 $90,574 $62,579<br>
Pro forma........... $108,848 $89,060 $61,108<br>
Net Income Per Share:<br>
Basic, as reported.. $ 2.73 $ 2.21 $ 1.45<br>
Basic, pro forma.... $ 2.69 $ 2.18 $ 1.41<br>
Diluted, as reported $ 2.72 $ 2.21 $ 1.45<br>
Diluted, pro forma.. $ 2.67 $ 2.17 $ 1.42<br>
<br>
<br>
49<br>
<br>
<br>
<br>
The pro forma disclosures of net income and earnings per share are not<br>
likely to be representative of the pro forma effects on future net income or<br>
earnings per share, because the number of future shares which may be issued is<br>
not known, shares vest over several years, and assumptions used to determine<br>
the fair value can vary significantly.<br>
<br>
Shareholder Rights Plan: The Company has a Shareholder Rights Plan,<br>
designed to protect the interests of shareholders in the event an attempt is<br>
made to acquire the Company. The rights initially will trade with the Company's<br>
outstanding common stock and will not be exercisable absent certain<br>
acquisitions or attempted acquisitions of specified percentages of such stock.<br>
If exercisable, the rights generally entitle shareholders (other than the<br>
acquiring party) to purchase additional shares of the Company's stock or shares<br>
of an acquiring company's stock at prices below market value.<br>
<br>
13. RELATED PARTY TRANSACTIONS, COMMITMENTS AND CONTINGENCIES<br>
<br>
At December 31, 2001, the Company and its subsidiaries had an unspent<br>
balance of total appropriations for capital expenditures of approximately<br>
$77,633,000. However, there are no contractual obligations to spend this entire<br>
amount.<br>
<br>
The Company has arranged for standby letters of credit totaling $26,019,000.<br>
This includes letters of credit, totaling approximately $13,959,000, which<br>
enable the Company to qualify as a self-insurer for state and federal workers'<br>
compensation liabilities. The amount also includes a letter of credit of<br>
$6,112,000 for workers' compensation claims incurred by C&H employees, under a<br>
now-closed self-insurance plan, prior to December 24, 1998 (see Note 5). The<br>
Company only would be called upon to honor this letter of credit in the event<br>
of C&H's insolvency. The obligation to provide this letter of credit expires on<br>
December 24, 2003. The remaining letters of credit are for insurance-related<br>
matters, construction performance guarantees and other routine operating<br>
matters.<br>
<br>
C&H is a party to a sugar supply contract with Hawaiian Sugar &<br>
Transportation Cooperative (HS&TC), a raw sugar marketing and transportation<br>
cooperative that the Company uses to market and transport its sugar to C&H.<br>
Under the terms of this contract, which expires in June 2003, C&H (an<br>
unconsolidated entity in which the Company has a minority ownership equity<br>
interest--see Notes 4 and 5) is obligated to purchase, and HS&TC is obligated<br>
to sell, all of the raw sugar delivered to HS&TC by the Hawaii sugar growers,<br>
at prices determined by the quoted domestic sugar market. The Company delivered<br>
to HS&TC raw sugar totaling $70,149,000, $64,455,000, and $83,412,000, during<br>
2001, 2000, and 1999, respectively. The Company has guaranteed up to<br>
$15,000,000 of HS&TC's $30,000,000 working capital line. The facility is fully<br>
collateralized by raw-sugar inventory. At December 31, 2001, HS&TC had borrowed<br>
$2,500,000 under that facility.<br>
<br>
The State of Hawaii, Department of Taxation (State) has informed the<br>
Company that it believes a portion of the Company's ocean transportation<br>
revenue is subject to the Public Service Company tax. The Company strongly<br>
disagrees with the State's tax position. If the State were to prevail fully,<br>
the amount of the claim could be material. Management believes, after<br>
consultation with legal counsel, that the ultimate disposition of this matter<br>
will not have a material adverse effect on the Company's results of operations<br>
or financial position.<br>
<br>
Note 5 contains additional information about transactions with<br>
unconsolidated affiliates, which affiliates are also related parties, due to<br>
the Company's minority interest investments.<br>
<br>
The Company and certain subsidiaries are parties to various legal actions<br>
and are contingently liable in connection with claims and contracts arising in<br>
the normal course of business, the outcome of which, in the opinion of<br>
management after consultation with legal counsel, will not have a material<br>
adverse effect on the Company's financial position or results of operations.<br>
<br>
14. INDUSTRY SEGMENTS<br>
<br>
Operating segments are defined as components of an enterprise about which<br>
separate financial information is available that is evaluated regularly by the<br>
chief operating decision maker, or decision-making group, in deciding how to<br>
allocate resources and in assessing performance. The Company's chief operating<br>
decision-making group is<br>
<br>
50<br>
<br>
<br>
<br>
made up of the president and lead executives of the Company and each of the<br>
Company's segments. The lead executive for each operating segment manages the<br>
profitability, cash flows and assets of his or her respective segment's various<br>
product or service lines and businesses. The operating segments are managed<br>
separately, because each operating segment represents a strategic business unit<br>
that offers different products or services and serves different markets.<br>
<br>
The Company's reportable operating segments include Ocean Transportation,<br>
Property Development and Management and Food Products. The Ocean Transportation<br>
segment carries freight between various United States West Coast, Hawaii and<br>
other Pacific ports; holds investments in ocean transportation and terminal<br>
service businesses (see Note 5); and provides terminal and cargo logistics<br>
services. The Property Development and Management segment develops, manages and<br>
sells residential, commercial and industrial properties. The Food Products<br>
segment grows and processes raw sugar and molasses; invests in a sugar refining<br>
and marketing business (see Note 5); grows, mills and markets coffee; and<br>
generates and sells electricity.<br>
<br>
The accounting policies of the operating segments are the same as those<br>
described in the summary of significant policies. Reportable segments are<br>
measured based on operating profit, exclusive of non-operating or unusual<br>
transactions, interest expense, general corporate expenses and income taxes.<br>
<br>
<br>
51<br>
<br>
<br>
<br>
Industry segment information for each of the five years ended December 31,<br>
2001 is summarized below:<br>
<br>
<br>
<br>
For the Year<br>
----------------------------------------------------------<br>
2001 2000 1999 1998 1997<br>
---------- ---------- ---------- ---------- ----------<br>
(in thousands)<br>
<br>
Revenue:<br>
Ocean transportation.................................. $ 796,840 $ 850,692 $ 778,535 $ 748,121 $ 720,962<br>
Property development and management:<br>
Leasing............................................. 70,685 62,105 53,910 44,433 43,606<br>
Sales............................................... 89,156 46,322 48,036 82,382 35,916<br>
Food products......................................... 104,376 106,341 116,362 465,661 486,912<br>
Other................................................. 129,016 3,186 3,155 2,878 2,815<br>
---------- ---------- ---------- ---------- ----------<br>
Total revenue...................................... $1,190,073 $1,068,646 $ 999,998 $1,343,475 $1,290,211<br>
========== ========== ========== ========== ==========<br>
Operating Profit:<br>
Ocean transportation.................................. $ 62,264 $ 93,732 $ 83,778 $ 66,298 $ 80,385<br>
Property development and management:<br>
Leasing............................................. 34,139 30,120 27,497 22,634 24,559<br>
Sales............................................... 17,926 24,228 17,402 21,663 13,262<br>
Food products......................................... 5,660 7,522 11,310 21,327 27,083<br>
Other................................................. 127,635 2,974 2,944 2,696 2,639<br>
---------- ---------- ---------- ---------- ----------<br>
Total operating profit............................. 247,624 158,576 142,931 134,618 147,928<br>
Write-down of long-lived assets....................... (28,600) -- (15,410) (20,216) --<br>
Loss on partial sale of subsidiary.................... -- -- -- (19,756) --<br>
Insurance settlement.................................. -- -- -- -- 19,965<br>
Interest expense, net................................. (18,658) (24,252) (17,774) (24,799) (28,936)<br>
General corporate expenses............................ (13,161) (11,609) (14,207) (14,552) (11,745)<br>
---------- ---------- ---------- ---------- ----------<br>
Income from continuing operations before income<br>
taxes and accounting changes...................... $ 187,205 $ 122,715 $ 95,540 $ 55,295 $ 127,212<br>
========== ========== ========== ========== ==========<br>
Identifiable Assets:<br>
Ocean transportation.................................. $ 888,161 $ 911,109 $ 894,607 $ 898,277 $ 930,636<br>
Property development and management................... 476,126 440,416 384,515 338,090 317,622<br>
Food products......................................... 139,695 197,143 173,069 261,712 382,109<br>
Other................................................. 40,437 117,344 109,269 107,561 74,431<br>
---------- ---------- ---------- ---------- ----------<br>
Total assets....................................... $1,544,419 $1,666,012 $1,561,460 $1,605,640 $1,704,798<br>
========== ========== ========== ========== ==========<br>
Capital Expenditures:<br>
Ocean transportation.................................. $ 59,669 $ 40,190 $ 19,232 $ 60,403 $ 20,828<br>
Property development and management/1/................ 72,050 44,821 66,752 107,408 30,790<br>
Food products......................................... 9,454 21,677 17,271 18,237 18,806<br>
Other................................................. 267 216 258 441 242<br>
---------- ---------- ---------- ---------- ----------<br>
Total capital expenditures......................... $ 141,440 $ 106,904 $ 103,513 $ 186,489 $ 70,666<br>
========== ========== ========== ========== ==========<br>
Depreciation and Amortization:<br>
Ocean transportation.................................. $ 55,359 $ 54,586 $ 56,174 $ 61,543 $ 62,192<br>
Property development and management................... 10,486 8,972 7,299 6,357 6,281<br>
Food products.......................................... 9,118 8,285 9,962 20,086 19,538<br>
Other.................................................. 470 461 466 514 547<br>
---------- ---------- ---------- ---------- ----------<br>
Total depreciation and amortization................ $ 75,433 $ 72,304 $ 73,901 $ 88,500 $ 88,558<br>
========== ========== ========== ========== ==========<br>
<br>
- --------<br>
See Note 2 for information regarding changes in presentation for certain<br>
revenues and expenses.<br>
See Note 3 for information regarding discontinued operations.<br>
See Note 4 for discussion of the write-down of long-lived assets and<br>
investments.<br>
See Note 5 for discussion of the partial sale of California and Hawaiian Sugar<br>
Company, Inc.<br>
<br>
/1/ Includes tax-deferred property purchases which are considered non-cash<br>
transactions in the Consolidated Statements of Cash Flows; excludes capital<br>
expenditures for real estate developments held for sale.<br>
<br>
52<br>
<br>
<br>
<br>
15. QUARTERLY INFORMATION (Unaudited)<br>
<br>
Segment results by quarter for 2001 are listed below:<br>
<br>
<br>
<br>
2001<br>
---------------------------------------<br>
Q1 Q2 Q3 Q4<br>
-------- -------- -------- --------<br>
(in thousands, except per-share amounts)<br>
<br>
Revenue:<br>
Ocean transportation............................... $196,609 $203,212 $207,828 $189,191<br>
Property development and management:...............<br>
Leasing.......................................... 17,096 17,490 18,103 17,996<br>
Sales............................................ 43,084 29,155 5,063 11,854<br>
Food products...................................... 18,185 28,076 32,268 25,847<br>
Other.............................................. 857 16,188 803 111,168<br>
-------- -------- -------- --------<br>
Total revenue.................................... $275,831 $294,121 $264,065 $356,056<br>
======== ======== ======== ========<br>
Operating Profit (Loss):<br>
Ocean transportation............................... $ 17,455 $ 18,713 $ 24,245 $ 1,851<br>
Property development and management:<br>
Leasing.......................................... 8,740 8,679 8,704 8,016<br>
Sales............................................ 12,216 3,551 (405) 2,564<br>
Food products/1/................................... 5,802 1,509 2,235 (3,886)<br>
Other.............................................. 840 16,107 767 109,921<br>
-------- -------- -------- --------<br>
Total operating profit........................... 45,053 48,559 35,546 118,466<br>
Impairment loss on Investments/1/.................... -- -- -- (28,600)<br>
Interest Expense..................................... (5,779) (4,870) (4,330) (3,679)<br>
General Corporate Expenses........................... (3,791) (3,191) (2,878) (3,301)<br>
-------- -------- -------- --------<br>
Income From Continuing Operations before Income Taxes 35,483 40,498 28,338 82,886<br>
Income taxes....................................... (12,603) (15,496) (10,475) (28,818)<br>
-------- -------- -------- --------<br>
Income From Continuing Operations.................... 22,880 25,002 17,863 54,068<br>
Discontinued Operations (net of income taxes)/2/..... (446) (488) (551) (7,700)<br>
-------- -------- -------- --------<br>
Net Income........................................... $ 22,434 $ 24,514 $ 17,312 $ 46,368<br>
======== ======== ======== ========<br>
Earnings Per Share:<br>
Basic.............................................. $ 0.55 $ 0.61 $ 0.42 $ 1.15<br>
Diluted............................................ $ 0.55 $ 0.60 $ 0.42 $ 1.15<br>
<br>
<br>
/1/ See Note 4 for discussion of the write-down of the Company's investment in<br>
C&H and certain power equipment.<br>
/2/ See Note 3 for discussion of discontinued operations.<br>
<br>
Fourth quarter 2001 results include the sale of the Company's BancWest stock<br>
holdings (see Note 5; amount included in the "Other" segment), the impairment<br>
loss related to the Company's investment in C&H (see Note 4) and a write-off of<br>
power generation assets (see Note 4). In addition, the Company discontinued and<br>
abandoned its panelboard business and restated previously reported quarters<br>
(see Notes 2 and 3).<br>
<br>
53<br>
<br>
<br>
<br>
Segment results by quarter for 2000 are listed below:<br>
<br>
<br>
<br>
2000<br>
---------------------------------------<br>
Q1 Q2 Q3 Q4<br>
-------- -------- -------- --------<br>
(in thousands, except per-share amounts)<br>
<br>
Revenue:.............................................................<br>
Ocean transportation/1/.......................................... $200,225 $213,584 $220,759 $216,124<br>
Property development and management:<br>
Leasing/1/.................................................... 14,518 15,287 15,522 16,778<br>
Sales......................................................... 3,052 24,987 14,435 3,848<br>
Food products.................................................... 13,666 34,504 34,294 23,877<br>
Other............................................................ 764 798 776 848<br>
-------- -------- -------- --------<br>
Total revenue................................................. $232,225 $289,160 $285,786 $261,475<br>
======== ======== ======== ========<br>
Operating Profit (Loss):<br>
Ocean transportation............................................. $ 19,893 $ 27,914 $ 26,106 $ 19,819<br>
Property development and management:.............................<br>
Leasing....................................................... 7,184 7,606 7,467 7,863<br>
Sales......................................................... 701 18,917 5,472 (862)<br>
Food products.................................................... 2,068 (2,060) 2,901 4,613<br>
Other............................................................ 709 764 745 756<br>
-------- -------- -------- --------<br>
Total operating profit........................................ 30,555 53,141 42,691 32,189<br>
Interest Expense..................................................... (5,347) (5,959) (6,661) (6,285)<br>
General Corporate Expenses........................................... (3,502) (2,706) (2,392) (3,009)<br>
-------- -------- -------- --------<br>
Income Before Income Taxes and Accounting Change..................... 21,706 44,476 33,638 22,895<br>
Income taxes..................................................... (7,525) (16,233) (12,284) (8,349)<br>
Change in accounting method (net of income taxes of $7,668)/1/... 12,250 -- -- --<br>
-------- -------- -------- --------<br>
Net Income........................................................... $ 26,431 $ 28,243 $ 21,354 $ 14,546<br>
======== ======== ======== ========<br>
Earnings Per Share:<br>
Basic............................................................ $ 0.63 $ 0.69 $ 0.53 $ 0.36<br>
Diluted.......................................................... $ 0.63 $ 0.69 $ 0.52 $ 0.36<br>
<br>
- --------<br>
/1/ See Note 2 for discussion of changes in presentation and accounting method<br>
<br>
54<br>
<br>
<br>
<br>
16. PARENT COMPANY CONDENSED FINANCIAL INFORMATION<br>
<br>
Set forth below are the unconsolidated condensed financial statements of<br>
Alexander & Baldwin, Inc. (Parent Company). The significant accounting policies<br>
used in preparing these financial statements are substantially the same as<br>
those used in the preparation of the consolidated financial statements as<br>
described in Note 1, except that, for purposes of the tables presented in this<br>
footnote, subsidiaries are carried under the equity method.<br>
<br>
The following table presents the Parent Company's condensed Balance Sheets<br>
as of December 31, 2001 and 2000:<br>
<br>
<br>
<br>
2001 2000<br>
---------- ----------<br>
(in thousands)<br>
<br>
ASSETS<br>
Current Assets:<br>
Cash and cash equivalents........................ $ 15,509 $ 126<br>
Accounts and notes receivable, net............... 11,971 10,065<br>
Prepaid expenses and other....................... 13,157 1923,432<br>
---------- ----------<br>
Total current assets.......................... 40,637 23,623<br>
---------- ----------<br>
Investments:<br>
Subsidiaries consolidated, at equity............. 545,819 678,636<br>
Other............................................ 1,630 110,714<br>
---------- ----------<br>
Total investments............................. 547,449 789,350<br>
---------- ----------<br>
Property, at Cost.................................... 367,332 348,774<br>
Less accumulated depreciation and amortization... 167,445 161,246<br>
---------- ----------<br>
Property--net................................. 199,887 187,528<br>
---------- ----------<br>
Due from Subsidiaries................................ 162,118 46,706<br>
---------- ----------<br>
Other Assets......................................... 31,592 27,973<br>
---------- ----------<br>
Total......................................... $ 981,683 $1,075,180<br>
========== ==========<br>
<br>
LIABILITIES AND SHAREHOLDERS' EQUITY<br>
Current Liabilities:<br>
Current portion of long-term debt................ $ 7,500 $ 7,500<br>
Accounts payable................................. 4,157 2,784<br>
Income taxes payable............................. 55,034 1,000<br>
Other............................................ 15,572 22,693<br>
---------- ----------<br>
Total current liabilities..................... 82,263 33,977<br>
---------- ----------<br>
Long-term Debt....................................... 107,500 231,000<br>
---------- ----------<br>
Other Long-term Liabilities.......................... 16,184 14,762<br>
---------- ----------<br>
Deferred Income Taxes................................ 65,069 101,790<br>
---------- ----------<br>
Commitments and Contingencies<br>
Shareholders' Equity:<br>
Capital stock.................................... 33,328 33,248<br>
Additional capital............................... 66,659 58,007<br>
Unrealized holding gains on securities........... -- 61,937<br>
Retained earnings................................ 622,615 552,637<br>
Cost of treasury stock........................... (11,935) (12,178)<br>
---------- ----------<br>
Total shareholders' equity.................... 710,667 693,651<br>
---------- ----------<br>
Total......................................... $ 981,683 $1,075,180<br>
========== ==========<br>
<br>
<br>
55<br>
<br>
<br>
<br>
The following table presents the Parent Company's condensed Statements of<br>
Income for the years ended December 31, 2001, 2000 and 1999:<br>
<br>
<br>
<br>
2001 2000 1999<br>
-------- -------- --------<br>
(in thousands)<br>
<br>
Revenue:<br>
Food products............................................................................... $ 84,428 $ 77,190 $ --<br>
Property leasing............................................................................ 16,422 14,397 10,999<br>
Property sales.............................................................................. 15,569 19,732 803<br>
Interest, dividends and other............................................................... 131,672 5,055 3,180<br>
-------- -------- --------<br>
Total revenue............................................................................. 248,091 116,374 14,982<br>
-------- -------- --------<br>
Costs and Expenses:<br>
Cost of agricultural goods and services..................................................... 78,491 77,302 --<br>
Cost of property sales and leasing services................................................. 16,764 8,194 4,808<br>
Selling, general and administrative......................................................... 13,160 11,609 9,686<br>
Interest and other.......................................................................... 20,852 20,220 1,770<br>
Income taxes................................................................................ 42,272 (1,273) (3,271)<br>
-------- -------- --------<br>
Total costs and expenses.................................................................. 171,539 116,052 12,993<br>
-------- -------- --------<br>
Income Before Equity in Net Income of Subsidiaries Consolidated............................... 76,552 322 1,989<br>
Equity in Net Income of Subsidiaries Consolidated............................................. 43,261 90,252 60,590<br>
Equity in Net Loss from Discontinued Operations of Subsidiaries Consolidated.................. (9,185) -- --<br>
-------- -------- --------<br>
Net Income.................................................................................... 110,628 90,574 62,579<br>
Unrealized holding gains (losses) and reclassification of realized gains on securities, net of<br>
income taxes................................................................................. (61,937) 12,476 (13,868)<br>
-------- -------- --------<br>
Comprehensive Income.......................................................................... $ 48,691 $103,050 $ 48,711<br>
======== ======== ========<br>
<br>
<br>
56<br>
<br>
<br>
<br>
The following table presents the Parent Company's condensed Statements of<br>
Cash Flows for the years ended December 31, 2001, 2000 and 1999:<br>
<br>
<br>
<br>
2001 2000 1999<br>
--------- --------- --------<br>
(in thousands)<br>
<br>
Cash Flows from Operations........................... $ 6,180 $ (5,634) $ 3,579<br>
--------- --------- --------<br>
Cash Flows from Investing Activities:<br>
Capital expenditures............................... (22,800) (18,107) (1,346)<br>
Proceeds from disposal of property and investments. 138,222 3,705 --<br>
Dividends received from subsidiaries............... 40,000 50,000 50,000<br>
--------- --------- --------<br>
Net cash provided by investing activities.......... 155,422 35,598 48,654<br>
--------- --------- --------<br>
Cash Flows from Financing Activities:<br>
Increase (decrease) in intercompany payable........ 11,481 (8,507) 20,757<br>
Proceeds from (repayments of) long-term debt, net.. (123,500) 60,500 --<br>
Proceeds from issuance of capital stock............ 4,558 2,961 101<br>
Repurchases of capital stock....................... (2,270) (48,260) (34,824)<br>
Dividends paid..................................... (36,488) (36,785) (38,899)<br>
--------- --------- --------<br>
Net cash used in financing activities.............. (146,219) (30,091) (52,865)<br>
--------- --------- --------<br>
Cash and Cash Equivalents:<br>
Net increase (decrease) for the year............... 15,383 (127) (632)<br>
Balance, beginning of year......................... 126 253 885<br>
--------- --------- --------<br>
Balance, end of year............................... $ 15,509 $ 126 $ 253<br>
========= ========= ========<br>
Other Cash Flow Information:<br>
Interest paid, net of amounts capitalized.......... $ (14,386) $ (16,485) $ (303)<br>
Income taxes paid.................................. (20,961) (31,807) (34,213)<br>
<br>
Other Non-cash Information:<br>
Depreciation expense............................... (12,216) (11,037) (2,550)<br>
Tax-deferred property sales........................ 12,415 18,692 --<br>
Tax-deferred property purchases.................... (12,076) (18,459) --<br>
<br>
<br>
General Information and Principles of Consolidation: Alexander & Baldwin,<br>
Inc. ("Parent Company"), headquartered in Honolulu Hawaii, is engaged in the<br>
operations that are described in Note 14, "Industry Segments." Due to a merger,<br>
one of the Company's wholly owned subsidiaries, A&B-Hawaii, Inc., is included<br>
in the Parent Company's financial statements effective January 1, 2000.<br>
Previously, A&B-Hawaii, Inc. was accounted for in the Parent Company financial<br>
statements using the equity method.<br>
<br>
Investments: Other investments on the Parent Company Balance Sheet at<br>
December 31, 2000, consisted primarily of marketable equity securities that<br>
were liquidated during 2001 (see Note 5).<br>
<br>
Long-term Debt: The Parent Company's long term debt at December 31, 2001<br>
consisted of all the debt that is described in Footnote 8, with the exceptions<br>
of $99,878,000 of commercial paper notes and $12,400,000 of variable rate<br>
loans. At December 31, 2001, maturities and planned prepayments of all<br>
long-term debt during the next five years are $7,500,000 for 2002, $9,643,000<br>
for 2003, $12,500,000 for 2004, $17,500,000 for 2005 and $17,500,000 for 2006.<br>
<br>
Other Long-term Liabilities: Other Long-term Liabilities at December 31,<br>
2001 and 2000 consisted principally of deferred compensation, executive benefit<br>
plans and self-insurance liabilities.<br>
<br>
Additional Information: Additional information related to the Parent<br>
Company is described in the foregoing notes to the consolidated financial<br>
statements.<br>
<br>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND<br>
FINANCIAL DISCLOSURE<br>
<br>
Not applicable.<br>
<br>
57<br>
<br>
<br>
<br>
PART III<br>
<br>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT<br>
<br>
A. Directors<br>
<br>
For information about the directors of A&B, see the section captioned<br>
"Election of Directors" in A&B's proxy statement dated March 11, 2002 ("A&B's<br>
2002 Proxy Statement"), which section is incorporated herein by reference.<br>
<br>
B. Executive Officers of the Registrant<br>
<br>
The name of each executive officer of A&B (in alphabetical order), age (in<br>
parentheses) as of March 31, 2002, and present and prior positions with A&B and<br>
business experience for the past five years are given below.<br>
<br>
Generally, the term of office of executive officers is at the pleasure of<br>
the Board of Directors. For a discussion of compliance with Section 16(a) of<br>
the Securities Exchange Act of 1934 by A&B's directors and executive officers,<br>
see the subsection captioned "Section 16(a) Beneficial Ownership Reporting<br>
Compliance" in A&B's 2002 Proxy Statement, which subsection is incorporated<br>
herein by reference. For a discussion of severance agreements between A&B and<br>
certain of A&B's executive officers, see the subsection captioned "Severance<br>
Agreements" in A&B's 2002 Proxy Statement, which subsection is incorporated<br>
herein by reference.<br>
<br>
James S. Andrasick (58)<br>
Senior Vice President, Chief Financial Officer and Treasurer of A&B,<br>
6/00-present; President and Chief Operating Officer, C. Brewer and Company,<br>
Limited, 9/92-3/00.<br>
<br>
Meredith J. Ching (45)<br>
Vice President (Government & Community Relations) of A&B, 10/92-present;<br>
Vice President of A&B-Hawaii, Inc. ("ABHI") (Government & Community Relations),<br>
10/92-12/99; first joined A&B or a subsidiary in 1982.<br>
<br>
Matthew J. Cox (40)<br>
Senior Vice President, Chief Financial Officer and Controller of Matson,<br>
6/01-present; Executive Vice President and Chief Financial Officer,<br>
Distribution Dynamics, Inc., 8/99-6/01; Vice President, American President<br>
Lines, Ltd., 12/86-7/99.<br>
<br>
W. Allen Doane (54)<br>
President and Chief Executive Officer of A&B, and Director of A&B and<br>
Matson, 10/98-present; Vice Chairman of Matson, 12/98-present; Executive Vice<br>
President of A&B, 8/98-10/98; Director of ABHI, 4/97-12/99; Chief Executive<br>
Officer of ABHI, 1/97-12/99; President of ABHI, 4/95-12/99; first joined A&B or<br>
a subsidiary in 1991.<br>
<br>
John F. Gasher (68)<br>
Vice President (Human Resources) of A&B, 12/99-present; Vice President<br>
(Human Resources Development) of ABHI, 1/97-12/99; first joined A&B or a<br>
subsidiary in 1960.<br>
<br>
G. Stephen Holaday (57)<br>
Vice President of A&B, 12/99-present; Senior Vice President of ABHI,<br>
4/89-12/99; Vice President and Controller of A&B, 4/93-1/96; first joined A&B<br>
or a subsidiary in 1983.<br>
<br>
58<br>
<br>
<br>
<br>
John B. Kelley (56)<br>
Vice President (Investor Relations) of A&B, 8/01-present; Vice President<br>
(Corporate Planning & Investor Relations) of A&B, 10/99-8/01; Vice President<br>
(Investor Relations) of A&B, 1/95-10/99; Vice President of ABHI, 9/89-12/99;<br>
first joined A&B or a subsidiary in 1979.<br>
<br>
Stanley M. Kuriyama (48)<br>
Vice President (Properties Group) of A&B, 2/99-present; Chief Executive<br>
Officer and Vice Chairman of A&B Properties, Inc., 12/99-present; Executive<br>
Vice President of ABHI, 2/99-12/99; Vice President of ABHI, 1/92-1/99; first<br>
joined A&B or a subsidiary in 1992.<br>
<br>
Michael J. Marks (63)<br>
Vice President and General Counsel of A&B, 9/80-present; Secretary of A&B,<br>
8/84-1/99; Senior Vice President and General Counsel of ABHI, 4/89-12/99; first<br>
joined A&B or a subsidiary in 1975.<br>
<br>
C. Bradley Mulholland (60)<br>
Executive Vice President of A&B, 8/98-present; President of Matson,<br>
5/90-present; Chief Executive Officer of Matson, 4/92-present; Director of A&B,<br>
4/91-present; Director of Matson, 7/89-present; Director of ABHI, 4/91-12/99;<br>
first joined Matson in 1965.<br>
<br>
Alyson J. Nakamura (36)<br>
Secretary of A&B, 2/99-present; Assistant Secretary of A&B, 6/94-1/99;<br>
Secretary of ABHI, 6/94-12/99; first joined A&B or a subsidiary in 1994.<br>
<br>
Raymond L. Smith (47)<br>
Chief Operating Officer of Matson, 11/01-present; Chief Executive Officer,<br>
Ampent, 3/01-10/01; Chief Executive Officer, Fritz Companies, Inc., 1/99-11/00;<br>
President, United States Fleet Leasing, 2/93-1/99.<br>
<br>
Thomas A. Wellman (43)<br>
Controller of A&B, 1/96-present; Assistant Treasurer, 1/96-12/99,<br>
6/00-present; Treasurer of A&B, 1/00-5/00; Vice President of ABHI, 1/96-12/99;<br>
Controller of ABHI, 11/91-12/99; first joined A&B or a subsidiary in 1989.<br>
<br>
ITEM 11. EXECUTIVE COMPENSATION<br>
<br>
See the section captioned "Executive Compensation" in A&B's 2002 Proxy<br>
Statement, which section is incorporated herein by reference.<br>
<br>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT<br>
<br>
See the section captioned "Security Ownership of Certain Shareholders" and<br>
the subsection titled "Security Ownership of Directors and Executive Officers"<br>
in A&B's 2002 Proxy Statement, which section and subsection are incorporated<br>
herein by reference.<br>
<br>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS<br>
<br>
See the subsection captioned "Certain Relationships and Transactions" in<br>
A&B's 2002 Proxy Statement, which subsection is incorporated herein by<br>
reference.<br>
<br>
59<br>
<br>
<br>
<br>
PART IV<br>
<br>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K<br>
<br>
A. Financial Statements<br>
<br>
The financial statements are set forth in Item 8 ("Financial Statements and<br>
Supplementary Data") above.<br>
<br>
B. Financial Statement Schedules<br>
<br>
The financial schedules for Alexander & Baldwin, Inc. (Parent Company) are<br>
set forth in Note 16 of Item 8 ("Financial Statements and Supplementary Data")<br>
above. All other schedules are omitted because of the absence of the conditions<br>
under which they are required or because the information called for is included<br>
in the financial statements or notes thereto.<br>
<br>
C. Exhibits Required by Item 601 of Regulation S-K<br>
<br>
Exhibits not filed herewith are incorporated by reference to the exhibit<br>
number and previous filing shown in parentheses. All previous exhibits were<br>
filed with the Securities and Exchange Commission in Washington, D.C. Exhibits<br>
filed pursuant to the Securities Exchange Act of 1934 were filed under file<br>
number 0-565. Shareholders may obtain copies of exhibits for a copying and<br>
handling charge of $0.15 per page by writing to Alyson J. Nakamura, Secretary,<br>
Alexander & Baldwin, Inc., P. O. Box 3440, Honolulu, Hawaii 96801.<br>
<br>
3. Articles of incorporation and bylaws.<br>
<br>
3.a. Restated Articles of Association of Alexander & Baldwin, Inc., as<br>
restated effective May 5, 1986, together with Amendments dated April 28,<br>
1988 and April 26, 1990 (Exhibits 3.a.(iii) and (iv) to A&B's Form 10-Q<br>
for the quarter ended March 31, 1990).<br>
<br>
3.b. Revised Bylaws of Alexander & Baldwin, Inc. (as Amended Effective<br>
February 22, 2001) (Exhibit 3.b.(i) to A&B's Form 10-K for the year<br>
ended December 31, 2000).<br>
<br>
4. Instruments defining rights of security holders, including indentures.<br>
<br>
4.a. Equity.<br>
<br>
4.a. Rights Agreement, dated as of June 25, 1998 between Alexander &<br>
Baldwin, Inc. and ChaseMellon Shareholder Services, L.L.C. and Press<br>
Release of Alexander & Baldwin, Inc. (Exhibits 4 and 99 to A&B's Form<br>
8-K dated June 25, 1998).<br>
<br>
4.b. Debt.<br>
<br>
4.b. Third Amended and Restated Revolving Credit and Term Loan<br>
Agreement, dated November 19, 2001, among Alexander & Baldwin, Inc. and<br>
First Hawaiian Bank, Bank of America, N.A., Bank of Hawaii, The Bank of<br>
New York, Wells Fargo Bank, National Association, American Savings Bank,<br>
F.S.B., and First Hawaiian Bank, as Agent.<br>
<br>
10. Material contracts.<br>
<br>
10.a. (i) Issuing and Paying Agent Agreement between Matson Navigation<br>
Company, Inc. and U.S. Bank National Association, as<br>
successor-in-interest to Security Pacific National Trust (New York),<br>
with respect to Matson Navigation Company, Inc.'s $150 million<br>
commercial paper program dated September 18, 1992 (Exhibit<br>
10.b.1.(xxviii) to A&B's Form 10-Q for the quarter ended September 30,<br>
1992).<br>
<br>
60<br>
<br>
<br>
<br>
(ii) Note Agreement among Alexander & Baldwin, Inc., A&B-Hawaii, Inc.<br>
and The Prudential Insurance Company of America, effective as of<br>
December 20, 1990 (Exhibit 10.b.(ix) to A&B's Form 10-K for the year<br>
ended December 31, 1990).<br>
<br>
(iii) Note Agreement among Alexander & Baldwin, Inc., A&B-Hawaii, Inc.<br>
and The Prudential Insurance Company of America, dated as of June 4,<br>
1993 (Exhibit 10.a.(xiii) to A&B's Form 8-K dated June 4, 1993).<br>
<br>
(iv) Amendment dated as of May 20, 1994 to the Note Agreements among<br>
Alexander & Baldwin, Inc., A&B-Hawaii, Inc. and The Prudential Insurance<br>
Company of America, dated as of December 20, 1990 and June 4, 1993<br>
(Exhibit 10.a.(xviv) to A&B's Form 10-Q for the quarter ended June 30,<br>
1994).<br>
<br>
(v) Amendment dated January 23, 1995 to the Note Agreement among<br>
Alexander & Baldwin, Inc., A&B-Hawaii, Inc. and The Prudential Insurance<br>
Company of America, dated as of December 20, 1990 (Exhibit 10.a.(xvi) to<br>
A&B's Form 10-K for the year ended December 31, 1994).<br>
<br>
(vi) Amendment dated as of June 30, 1995 to the Note Agreements, among<br>
Alexander & Baldwin, Inc., A&B-Hawaii, Inc. and The Prudential Insurance<br>
Company of America, dated as of December 20, 1990 and June 4, 1993<br>
(Exhibit 10.a.(xxvii) to A&B's Form 10-Q for the quarter ended June 30,<br>
1995).<br>
<br>
(vii) Amendment dated as of November 29, 1995 to the Note Agreements<br>
among Alexander & Baldwin, Inc., A&B-Hawaii, Inc. and The Prudential<br>
Insurance Company of America, dated as of December 20, 1990 and June 4,<br>
1993 (Exhibit 10.a.(xvii) to A&B's Form 10-K for the year ended December<br>
31, 1995).<br>
<br>
(viii) Revolving Credit Agreement between Alexander & Baldwin, Inc.,<br>
A&B-Hawaii, Inc., and First Hawaiian Bank, dated December 30, 1993<br>
(Exhibit 10.a.(xx) to A&B's Form 10-Q for the quarter ended September<br>
30, 1994).<br>
<br>
(ix) Amendment dated August 31, 1994 to the Revolving Credit Agreement<br>
between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and First Hawaiian<br>
Bank dated December 30, 1993 (Exhibit 10.a.(xxi) to A&B's Form 10-Q for<br>
the quarter ended September 30, 1994).<br>
<br>
(x) Second Amendment dated March 29, 1995 to the Revolving Credit<br>
Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and First<br>
Hawaiian Bank, dated December 30, 1993 (Exhibit 10.a.(xxiii) to A&B's<br>
Form 10-Q for the quarter ended March 31, 1995).<br>
<br>
(xi) Third Amendment dated November 30, 1995 to the Revolving Credit<br>
Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and First<br>
Hawaiian Bank, dated December 30, 1993 (Exhibit 10.a.(xvii) to A&B's<br>
Form 10-K for the year ended December 31, 1996).<br>
<br>
(xii) Fourth Amendment dated November 25, 1996 to the Revolving Credit<br>
Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and First<br>
Hawaiian Bank, dated December 30, 1993 (Exhibit 10.a.(xviii) to A&B's<br>
Form 10-K for the year ended December 31, 1996).<br>
<br>
(xiii) Fifth Amendment dated November 28, 1997 to the Revolving Credit<br>
Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and First<br>
Hawaiian Bank, dated December 30, 1993 (Exhibit 10.a.(xix) to A&B's Form<br>
10-K for the year ended December 31, 1997).<br>
<br>
(xiv) Sixth Amendment dated November 30, 1998 to the Revolving Credit<br>
Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and First<br>
Hawaiian Bank, dated December 30, 1993 (Exhibit 10.a.(xiv) to A&B's Form<br>
10-K for the year ended December 31, 1998).<br>
<br>
(xv) Seventh Amendment dated November 23, 1999 to the Revolving Credit<br>
Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and First<br>
Hawaiian Bank, dated December 30, 1993 (Exhibit 10.a.(xv) to A&B's Form<br>
10-K for the year ended December 31, 1999).<br>
<br>
<br>
61<br>
<br>
<br>
<br>
(xvi) Eighth Amendment dated May 3, 2000 to the Revolving Credit<br>
Agreement ("Agreement") between Alexander & Baldwin, Inc. and First<br>
Hawaiian Bank, dated December 30, 1993 (A&B-Hawaii, Inc., an original<br>
party to the Agreement, was merged into Alexander & Baldwin, Inc.<br>
effective December 31, 1999) (Exhibit 10.a.(xxvii) to A&B's Form 10-Q<br>
for the quarter ended June 30, 2000).<br>
<br>
(xvii) Ninth Amendment dated November 16, 2000 to the Revolving Credit<br>
Agreement between Alexander & Baldwin, Inc. and First Hawaiian Bank,<br>
dated December 30, 1993 (Exhibit 10.a.(xvii) to A&B's Form 10-K for the<br>
year ended December 31, 2000).<br>
<br>
(xviii) Tenth Amendment dated November 30, 2001 to the Revolving Credit<br>
Agreement between Alexander & Baldwin, Inc. and First Hawaiian Bank,<br>
dated December 30, 1993.<br>
<br>
(xix) Private Shelf Agreement between Alexander & Baldwin, Inc.,<br>
A&B-Hawaii, Inc., and Prudential Insurance Company of America, dated as<br>
of August 2, 1996 (Exhibit 10.a.(xxxiii) to A&B's Form 10-Q for the<br>
quarter ended September 30, 1996).<br>
<br>
(xx) First Amendment, dated as of February 5, 1999, to the Private Shelf<br>
Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and<br>
Prudential Insurance Company of America, dated as of August 2, 1996<br>
(Exhibit 10.a.(xxii) to A&B's Form 10-K for the year ended December 31,<br>
1998).<br>
<br>
(xxi) Private Shelf Agreement between Alexander & Baldwin, Inc. and<br>
Prudential Insurance Company of America, dated as of April 25, 2001<br>
(Exhibit 10.a.(xlvii) to A&B's Form 10-Q for the quarter ended June 30,<br>
2001).<br>
<br>
(xxii) Amendment, dated as of April 25, 2001, to the Note Agreement<br>
among Alexander & Baldwin, Inc., A&B-Hawaii, Inc. and The Prudential<br>
Insurance Company of America, dated as of June 4, 1993, and the Private<br>
Shelf Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and<br>
Prudential Insurance Company of America, dated as of August 2, 1996<br>
(Exhibit 10.a.(xlviii) to A&B's Form 10-Q for the quarter ended June 30,<br>
2001).<br>
<br>
(xxiii) Private Shelf Agreement between Matson Navigation Company, Inc.<br>
and Prudential Insurance Company of America, dated as of June 29, 2001<br>
(Exhibit 10.a.(xlix) to A&B's Form 10-Q for the quarter ended June 30,<br>
2001).<br>
<br>
(xxiv) Amended and Restated Asset Purchase Agreement, dated as of<br>
December 24, 1998, by and among California and Hawaiian Sugar Company,<br>
Inc., A&B-Hawaii, Inc., McBryde Sugar Company, Limited and Sugar<br>
Acquisition Corporation (without exhibits or schedules) (Exhibit<br>
10.a.1.(xxxvi) to A&B's Form 8-K dated December 24, 1998).<br>
<br>
(xxv) Amended and Restated Stock Sale Agreement, dated as of December<br>
24, 1998, by and between California and Hawaiian Sugar Company, Inc. and<br>
Citicorp Venture Capital, Ltd. (without exhibits) (Exhibit<br>
10.a.1.(xxxvii) to A&B's Form 8-K dated December 24, 1998).<br>
<br>
(xxvi) Pro forma financial information relative to the Amended and<br>
Restated Asset Purchase Agreement, dated as of December 24, 1998, by and<br>
among California and Hawaiian Sugar Company, Inc., A&BHawaii, Inc.,<br>
McBryde Sugar Company, Limited and Sugar Acquisition Corporaion, and the<br>
Amended and Restated Stock Sale Agreement, dated as of December 24,<br>
1998, by and between California and Hawaiian Sugar Company, Inc. and<br>
Citicorp Venture Capital, Ltd. (Exhibit 10.a.1.(xxxviii) to A&B's Form<br>
8-K dated December 24, 1998).<br>
<br>
*10.b.1. (i) Alexander & Baldwin, Inc. 1989 Stock Option/Stock Incentive<br>
Plan (Exhibit 10.c.1.(ix) to A&B's Form 10-K for the year ended December<br>
31, 1988).<br>
<br>
(ii) Amendment No. 1 to the Alexander & Baldwin, Inc. 1989 Stock<br>
Option/Stock Incentive Plan (Exhibit 10.b.1.(xxvi) to A&B's Form 10-Q<br>
for the quarter ended June 30, 1992).<br>
<br>
- --------<br>
* All exhibits listed under 10.b.1. are management contracts or compensatory<br>
plans or arrangements.<br>
<br>
62<br>
<br>
<br>
<br>
(iii) Amendment No. 2 to the Alexander & Baldwin, Inc. 1989 Stock<br>
Option/Stock Incentive Plan (Exhibit 10.b.1.(iv) to A&B's Form 10-Q for<br>
the quarter ended March 31, 1994).<br>
<br>
(iv) Amendment No. 3 to the Alexander & Baldwin, Inc. 1989 Stock<br>
Option/Stock Incentive Plan (Exhibit 10.b.1.(ix) to A&B's Form 10-K for<br>
the year ended December 31, 1994).<br>
<br>
(v) Amendment No. 4 to the Alexander & Baldwin, Inc. 1989 Stock<br>
Option/Stock Incentive Plan (Exhibit 10.b.1.(v) to A&B's Form 10-K for<br>
the year ended December 31, 2000).<br>
<br>
(vi) Alexander & Baldwin, Inc. 1989 Non-Employee Director Stock Option<br>
Plan (Exhibit 10.c.1.(x) to A&B's Form 10-K for the year ended December<br>
31, 1988).<br>
<br>
(vii) Amendment No. 1 to the Alexander & Baldwin, Inc. 1989 Non-Employee<br>
Director Stock Option Plan (Exhibit 10.b.1.(xxiv) to A&B's Form 10-K for<br>
the year ended December 31, 1991).<br>
<br>
(viii) Amendment No. 2 to the Alexander & Baldwin, Inc. 1989<br>
Non-Employee Director Stock Option Plan (Exhibit 10.b.1.(xxvii) to A&B's<br>
Form 10-Q for the quarter ended June 30, 1992).<br>
<br>
(ix) Amendment No. 3 to the Alexander & Baldwin, Inc. 1989 Non-Employee<br>
Director Stock Option Plan (Exhibit 10.b.1.(ix) to A&B's Form 10-K for<br>
the year ended December 31, 2000).<br>
<br>
(x) Alexander & Baldwin, Inc. 1998 Stock Option/Stock Incentive Plan<br>
(Exhibit 10.b.1.(xxxii) to A&B's Form 10-Q for the quarter ended March<br>
31, 1998).<br>
<br>
(xi) Amendment No. 1 to the Alexander & Baldwin, Inc. 1998 Stock<br>
Option/Stock Incentive Plan (Exhibit 10.b.1.(xi) to A&B's Form 10-K for<br>
the year ended December 31, 2000).<br>
<br>
(xii) Alexander & Baldwin, Inc. 1998 Non-Employee Director Stock Option<br>
Plan (Exhibit 10.b.1.(xxxiii) to A&B's Form 10-Q for the quarter ended<br>
March 31, 1998).<br>
<br>
(xiii) Amendment No. 1 to the Alexander & Baldwin, Inc. 1998<br>
Non-Employee Director Stock Option Plan (Exhibit 10.b.1.(xiii) to A&B's<br>
Form 10-K for the year ended December 31, 2000).<br>
<br>
(xiv) Alexander & Baldwin, Inc. Non-Employee Director Stock Retainer<br>
Plan, dated June 25, 1998 (Exhibit 10.b.1.(xxxiv) to A&B's Form 10-Q for<br>
the quarter ended June 30, 1998).<br>
<br>
(xv) Amendment No. 1 to Alexander & Baldwin, Inc. Non-Employee Director<br>
Stock Retainer Plan, effective December 9, 1999 (Exhibit 10.b.1.(xi) to<br>
A&B's Form 10-K for the year ended December 31, 1999).<br>
<br>
(xvi) Second Amended and Restated Employment Agreement between Alexander<br>
& Baldwin, Inc. and R. J. Pfeiffer, effective as of October 25, 1990<br>
(Exhibit 10.c.1.(xiii) to A&B's Form 10-K for the year ended December<br>
31, 1990).<br>
<br>
(xvii) A&B Deferred Compensation Plan for Outside Directors (Exhibit<br>
10.c.1.(xviii) to A&B's Form 10-K for the year ended December 31, 1985).<br>
<br>
(xviii) Amendment No. 1 to A&B Deferred Compensation Plan for Outside<br>
Directors, effective October 27, 1988 (Exhibit 10.c.1.(xxix) to A&B's<br>
Form 10-Q for the quarter ended September 30, 1988).<br>
<br>
(xix) A&B Life Insurance Plan for Outside Directors (Exhibit<br>
10.c.1.(xix) to A&B's Form 10-K for the year ended December 31, 1985).<br>
<br>
(xx) A&B Excess Benefits Plan, Amended and Restated effective February<br>
1, 1995 (Exhibit 10.b.1.(xx) to A&B's Form 10-K for the year ended<br>
December 31, 1994).<br>
<br>
(xxi) Amendment No. 1 to the A&B Excess Benefits Plan, dated June 26,<br>
1997 (Exhibit 10.b.1.(xxxi) to A&B's Form 10-Q for the quarter ended<br>
June 30, 1997).<br>
<br>
(xxii) Amendment No. 2 to the A&B Excess Benefits Plan, dated December<br>
10, 1997 (Exhibit 10.b.1.(xx) to A&B's Form 10-K for the year ended<br>
December 31, 1997).<br>
<br>
63<br>
<br>
<br>
<br>
(xxiii) Amendment No. 3 to the A&B Excess Benefits Plan, dated April 23,<br>
1998 (Exhibit 10.b.1.(xxxv) to A&B's Form 10-Q for the quarter ended<br>
June 30, 1998).<br>
<br>
(xxiv) Amendment No. 4 to the A&B Excess Benefits plan, dated June 25,<br>
1998 (Exhibit 10.b.1.(xxxvi) to A&B's Form 10-Q for the quarter ended<br>
June 30, 1998).<br>
<br>
(xxv) Amendment No. 5 to the A&B Excess Benefits Plan, dated December 9,<br>
1998 (Exhibit 10.b.1.(xxii) to A&B's Form 10-K for the year ended<br>
December 31, 1998).<br>
<br>
(xxvi) Amendment No. 6 to the A&B Excess Benefits Plan, dated October<br>
25, 2000 (Exhibit 10.b.1.(xxviii) to A&B's Form 10-K for the year ended<br>
December 31, 2000).<br>
<br>
(xxvii) Restatement of the A&B Executive Survivor/Retirement Benefit<br>
Plan, effective February 1, 1995 (Exhibit 10.b.1.(xxii) to A&B's Form<br>
10-K for the year ended December 31, 1994).<br>
<br>
(xxviii) Amendment No. 1 to the A&B Executive Survivor/Retirement<br>
Benefit Plan, dated October 25, 2000 (Exhibit 10.b.1.(xxx) to A&B's Form<br>
10-K for the year ended December 31, 2000).<br>
<br>
(xxix) Restatement of the A&B 1985 Supplemental Executive Retirement<br>
Plan, effective February 1, 1995 (Exhibit 10.b.1.(xxiv) to A&B's Form<br>
10-K for the year ended December 31, 1994).<br>
<br>
(xxx) Amendment No. 1 to the A&B 1985 Supplemental Executive Retirement<br>
Plan, dated August 27, 1998 (Exhibit 10.b.1.(xliii) to A&B's Form 10-Q<br>
for the quarter ended September 30, 1998).<br>
<br>
(xxxi) Amendment No. 2 to the A&B 1985 Supplemental Executive Retirement<br>
Plan, dated October 25, 2000 (Exhibit 10.b.1.(xxxiii) to A&B's Form 10-K<br>
for the year ended December 31, 2000).<br>
<br>
(xxxii) Restatement of the A&B Retirement Plan for Outside Directors,<br>
effective February 1, 1995 (Exhibit 10.b.1.(xxvi) to A&B's Form 10-K for<br>
the year ended December 31, 1994).<br>
<br>
(xxxiii) Amendment No. 1 to the A&B Retirement Plan for Outside<br>
Directors, dated August 27, 1998 (Exhibit 10.b.1.(xlii) to A&B's Form<br>
10-Q for the quarter ended September 30, 1998).<br>
<br>
(xxxiv) Amendment No. 2 to the A&B Retirement Plan for Outside<br>
Directors, dated October 25, 2000 (Exhibit 10.b.1.(xxxvi) to A&B's Form<br>
10-K for the year ended December 31, 2000).<br>
<br>
(xxxv) Form of Severance Agreement entered into with certain executive<br>
officers, as amended and restated effective August 24, 2000 (Exhibit<br>
10.b.1.(xli) to A&B's Form 10-Q for the quarter ended September 30,<br>
2000).<br>
<br>
(xxxvi) Alexander & Baldwin, Inc. One-Year Performance Improvement<br>
Incentive Plan, as restated effective October 22, 1992 (Exhibit<br>
10.b.1.(xxi) to A&B's Form 10-K for the year ended December 31, 1992).<br>
<br>
(xxxvii) Amendment No. 1 to the Alexander & Baldwin, Inc. One-Year<br>
Performance Improvement Incentive Plan, dated December 13, 2001.<br>
<br>
(xxxviii) Alexander & Baldwin, Inc. Three-Year Performance Improvement<br>
Incentive Plan, as restated effective October 22, 1992 (Exhibit<br>
10.b.1.(xxii) to A&B's Form 10-K for the year ended December 31, 1992).<br>
<br>
(xxxix) Alexander & Baldwin, Inc. Deferred Compensation Plan effective<br>
August 25, 1994 (Exhibit 10.b.1.(xxv) to A&B's Form 10-Q for the quarter<br>
ended September 30, 1994).<br>
<br>
(xl) Amendment No. 1 to the Alexander & Baldwin, Inc. Deferred<br>
Compensation Plan, effective July 1, 1997 (Exhibit 10.b.1.(xxxii) to<br>
A&B's Form 10-Q for the quarter ended June 30, 1997).<br>
<br>
(xli) Amendment No. 2 to the Alexander & Baldwin, Inc. Deferred<br>
Compensation Plan, dated June 25, 1998 (Exhibit 10.b.1.(xxxvii) to A&B's<br>
Form 10-Q for the quarter ended June 30, 1998).<br>
<br>
<br>
64<br>
<br>
<br>
<br>
(xlii) Amendment No. 3 to the Alexander & Baldwin, Inc. Deferred<br>
Compensation Plan, dated October 25, 2000 (Exhibit 10.b.1.(xliii) to<br>
A&B's Form 10-K for the year ended December 31, 2000).<br>
<br>
(xliii) Alexander & Baldwin, Inc. Restricted Stock Bonus Plan, as<br>
restated effective April 28, 1988 (Exhi-bit 10.c.1.(xi) to A&B's Form<br>
10-Q for the quarter ended June 30, 1988).<br>
<br>
(xliv) Amendment No. 1 to the Alexander & Baldwin, Inc. Restricted Stock<br>
Bonus Plan, effective December 11, 1997 (Exhibit 10.b.1.(ii) to A&B's<br>
Form 10-K for the year ended December 31, 1997).<br>
<br>
(xlv) Amendment No. 2 to the Alexander & Baldwin, Inc. Restricted Stock<br>
Bonus Plan, dated June 25, 1998 (Exhibit 10.b.1.(xxxviii) to A&B's Form<br>
10-Q for the quarter ended June 30, 1998).<br>
<br>
11. Statement re computation of per share earnings.<br>
<br>
21. Subsidiaries.<br>
<br>
21. Alexander & Baldwin, Inc. Subsidiaries as of February 14, 2002.<br>
<br>
23. Consent of Deloitte & Touche LLP dated March 11, 2002 (included as the<br>
last page of A&B's Form 10-K for the year ended December 31, 2001).<br>
<br>
D. Reports on Form 8-K<br>
<br>
No reports on Form 8-K were filed during the quarter ended December 31, 2001.<br>
<br>
65<br>
<br>
<br>
<br>
SIGNATURES<br>
<br>
Pursuant to the requirements of Section 13 or 15(d) of the Securities<br>
Exchange Act of 1934, the registrant has duly caused this report to be signed<br>
on its behalf by the undersigned, thereunto duly authorized.<br>
<br>
ALEXANDER & BALDWIN, INC.<br>
(Registrant)<br>
<br>
Date: March 11, 2002<br>
/s/ W. ALLEN DOANE<br>
By_________________________________<br>
W. Allen Doane, President<br>
and Chief Executive Officer<br>
<br>
Pursuant to the requirements of the Securities Exchange Act of 1934, this<br>
report has been signed below by the following persons on behalf of the<br>
registrant in the capacities and on the dates indicated.<br>
<br>
Signature Title Date<br>
--------- ----- ----<br>
<br>
/s/ W. ALLEN DOANE President and Chief March 11, 2002<br>
- ----------------------------- Executive Officer and<br>
W. Allen Doane Director<br>
<br>
/s/ JAMES S. ANDRASICK Senior Vice President, March 11, 2002<br>
- ----------------------------- Chief Financial Officer<br>
James S. Andrasick and Treasurer<br>
<br>
/s/ THOMAS A. WELLMAN Controller and March 11, 2002<br>
- ----------------------------- Assistant Treasurer<br>
Thomas A. Wellman<br>
<br>
/s/ CHARLES M. STOCKHOLM Chairman of the Board March 11, 2002<br>
- ----------------------------- and Director<br>
Charles M. Stockholm<br>
<br>
/s/ MICHAEL J. CHUN Director March 11, 2002<br>
- -----------------------------<br>
Michael J. Chun<br>
<br>
/s/ LEO E. DENLEA, JR. Director March 11, 2002<br>
- -----------------------------<br>
Leo E. Denlea, Jr.<br>
<br>
/s/ WALTER A. DODS, JR. Director March 11, 2002<br>
- -----------------------------<br>
Walter A. Dods, Jr.<br>
<br>
/s/ CHARLES G. KING Director March 11, 2002<br>
- -----------------------------<br>
Charles G. King<br>
<br>
66<br>
<br>
<br>
<br>
Signature Title Date<br>
--------- ----- ----<br>
<br>
/s/ CARSON R. MCKISSICK Director March 11, 2002<br>
- -----------------------------<br>
Carson R. McKissick<br>
<br>
/s/ C. BRADLEY MULHOLLAND Director March 11, 2002<br>
- -----------------------------<br>
C. Bradley Mulholland<br>
<br>
/s/ LYNN M. SEDWAY Director March 11, 2002<br>
- -----------------------------<br>
Lynn M. Sedway<br>
<br>
/s/ MARYANNA G. SHAW Director March 11, 2002<br>
- -----------------------------<br>
Maryanna G. Shaw<br>
<br>
67<br>
<br>
<br>
<br>
INDEPENDENT AUDITORS' CONSENT<br>
<br>
We consent to the incorporation by reference in Registration Statements<br>
33-31922, 33-31923, 33-54825, and 333-69197 of Alexander & Baldwin, Inc. and<br>
subsidiaries on Form S-8 of our report dated January 24, 2002, appearing in the<br>
Annual Report on Form 10-K of Alexander & Baldwin, Inc. and subsidiaries for<br>
the year ended December 31, 2001.<br>
<br>
/s/ Deloitte & Touche, LLP<br>
<br>
Deloitte & Touche LLP<br>
Honolulu, Hawaii<br>
March 11, 2002<br>
<br>
68<br>
<br>
<br>
<br>
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