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TABLE OF CONTENTS
PART I
Page
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Items 1. & 2. Business and Properties .............................. 1
A. Ocean Transportation ....................................... 2
(1) Freight Services ..................................... 2
(2) Vessels .............................................. 3
(3) Terminals ............................................ 3
(4) Other Services ....................................... 5
(5) Competition .......................................... 6
(6) Labor Relations ...................................... 7
(7) Rate Regulation ...................................... 7
B. Property Development and Management ........................ 8
(1) General .............................................. 8
(2) Planning and Zoning .................................. 9
(3) Residential Projects ................................. 10
(4) Commercial and Industrial Properties ................. 11
C. Food Products .............................................. 14
(1) Production ........................................... 14
(2) Sugar Refining; Marketing of Sugar
and Coffee ........................................... 16
(3) Competition and Sugar Legislation .................... 17
(4) Properties and Water ................................. 20
D. Employees and Labor Relations .............................. 21
E. Energy ..................................................... 23
Item 3. Legal Proceedings .......................................... 25
Item 4. Submission of Matters to a Vote of
Security Holders ........................................... 26
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters ................................ 26
Item 6. Selected Financial Data .................................... 27
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations .............. 27
Item 8. Financial Statements and Supplementary Data ................ 27
Page
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Item 9. Changes in and Disagreements With
Accountants on Accounting and Financial
Disclosure ................................................. 28
PART III
Item 10. Directors and Executive Officers of
the Registrant ............................................. 28
A. Directors .................................................. 28
B. Executive Officers of the Registrant ....................... 28
Item 11. Executive Compensation ..................................... 30
Item 12. Security Ownership of Certain Beneficial
Owners and Management ...................................... 30
Item 13. Certain Relationships and Related
Transactions ................................................30
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K .................................... 30
A. Financial Statements ....................................... 30
B. Financial Statement Schedules .............................. 31
C. Exhibits Required by Item 601 of
Regulation S-K ............................................. 31
D. Reports on Form 8-K ........................................ 40
Signatures .......................................................... 41
Independent Auditors' Report ........................................ 43
Schedule I ...........................................................44
Independent Auditors' Consent ....................................... 48
ALEXANDER & BALDWIN, INC.
-------------------------
FORM 10-K
---------
ANNUAL REPORT FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1996
PART I
------
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
- ---------------------------------------
Alexander & Baldwin, Inc. ("A&B") is a diversified corporation with most
of its operations centered in Hawaii. It was founded in 1870 and incorporated
in 1900. Ocean transportation operations and related shoreside operations of
A&B are conducted by a wholly-owned subsidiary, Matson Navigation Company, Inc.
("Matson"), and several Matson subsidiaries, all of which are headquartered in
San Francisco. Real property and food products operations are conducted by a
wholly-owned subsidiary of A&B, A&B-Hawaii, Inc. ("ABHI"), and several ABHI
subsidiaries, including California and Hawaiian Sugar Company, Inc. ("C&H"),
all of which are headquartered in Hawaii or California.
The industry segments of A&B are as follows:
A. Ocean Transportation - carrying freight, primarily between various
--------------------
United States Pacific Coast ports, major Hawaii ports and Guam;
providing terminal, stevedoring, tugboat and container equipment
maintenance services in certain of those ports; and arranging United
States Mainland intermodal transportation.
B. Property Development and Management - developing real property in
-----------------------------------
Hawaii and on the U.S. Mainland; selling residential properties in
Hawaii; and managing, leasing, selling and purchasing commer-
cial/industrial properties in Hawaii and on the U.S. Mainland.
C. Food Products - growing sugar cane and coffee in Hawaii; producing
-------------
raw sugar, molasses and green coffee; refining raw sugar, and
marketing and distributing refined sugar products, primarily in the
western United States; marketing and distributing roasted coffee and
green coffee; providing sugar and molasses hauling and storage,
general freight and petroleum hauling in Hawaii; and generating and
selling electricity.
For information about the revenue, operating profits and identifiable
assets of A&B's industry segments for the three years ended December 31, 1996,
see "Industry Segment Information" on page 26 of the Alexander & Baldwin, Inc.
1996 Annual Report ("1996 Annual Report"), which information is incorporated
herein by reference.
DESCRIPTION OF BUSINESS AND PROPERTIES
A. OCEAN TRANSPORTATION
--------------------
(1) FREIGHT SERVICES
----------------
Matson's Hawaii Service offers containership freight services
between the ports of Los Angeles, Oakland, Seattle, and the major ports in
Hawaii, which are located on the islands of Oahu, Kauai, Maui and Hawaii.
Roll-on/roll-off service is provided between Los Angeles and the major ports in
Hawaii. Container cargo also is received at and delivered to Portland, Oregon,
and moved overland between Portland and Seattle at no extra charge.
Matson is the principal carrier of ocean cargo between the
United States Pacific Coast and Hawaii. In 1996, Matson carried 152,109
containers (compared with 157,154 containers in 1995) and 83,097 motor vehicles
(compared with 107,135 in 1995) between those destinations. Principal
westbound cargoes carried by Matson to Hawaii include dry containers of mixed
commodities, refrigerated cargoes, packaged foods, building materials and motor
vehicles. Principal eastbound cargoes carried by Matson from Hawaii include
household goods, canned pineapple, refrigerated containers of fresh pineapple,
motor vehicles and molasses. The preponderance of Matson's Hawaii Service
revenue is derived from the westbound carriage of containerized freight and
motor vehicles.
Matson's Pacific Coast Service provides containership freight
service between the ports of Los Angeles, Oakland, Seattle and Vancouver,
British Columbia. In 1996, Matson carried 38,237 containers (compared with
26,278 in 1995) in the Pacific Coast Service. Matson's Mid-Pacific Service
offers container and conventional freight service between the United States
Pacific Coast and the ports of Kwajalein, Ebeye and Majuro in the Republic of
the Marshall Islands and Johnston Island, all via Honolulu.
In February 1996, Matson inaugurated its Guam Service, which
complements Matson's Hawaii Service by providing westbound containership
freight service from the United States Pacific Coast and Hawaii to Guam and
Micronesia. The new service is a component of a strategic alliance between
Matson and APL Limited ("APL") pursuant to which, in February 1996, they began
the Pacific Alliance Service between the United States Pacific Coast and
Hawaii, Guam, Japan, and South Korea. Under the terms of the alliance, in
December 1995 and early 1996 Matson purchased from APL, for $168 million, six
containerships, shoreside spare parts and assets related to APL's Guam Service;
operates four of those vessels and one Matson vessel in the Pacific Alliance
Service; and charters back to APL for 10 years cargo space for APL's continuing
ocean cargo service from Asian ports to the United States. In 1996, Matson
carried 15,249 containers and 3,729 automobiles in the Pacific Alliance
Service.
See "Rate Regulation" below with respect to Matson's freight
rates.
(2) VESSELS
-------
Matson's fleet consists of eleven containerships (including
the six containerships purchased from APL), four combination
container/trailerships, one roll-on/roll-off barge, two container barges
equipped with cranes which serve the neighbor islands of Hawaii and one con-
tainer barge equipped with cranes in the Mid-Pacific Service.
The nineteen vessels in Matson's fleet represent an
investment of approximately $834,500,000 during the past 27 years. With four
exceptions, the current fleet has been acquired through the Matson Capital
Construction Fund, established under Section 607 of the Merchant Marine Act,
1936, as amended. The exceptions are three steam-powered containerships
purchased from APL in 1995 and 1996, and a combination container/trailership
which Matson continues to operate under a charter for a 25-year term ending in
1998, with options to renew the charter for a total of up to five years and to
purchase the vessel at the end of the charter at fair market value.
Matson's fleet units are described in the list on the
following page.
As a complement to its fleet, Matson owns or has under capital
leases approximately 16,600 containers, 8,400 container chassis, 450 auto-
frames and miscellaneous other equipment. Capital expenditures by Matson in
1996 for vessels and equipment, including vessels and equipment purchased from
APL as described in "Freight Services" above, totaled approximately
$164,000,000.
MATSON NAVIGATION COMPANY, INC.
-------------------------------
FLEET - 3/1/97
--------------
Usable Cargo Capacity
-----------------------------------------------------------
Containers Vehicles Molasses
Year Maximum Maximum ------------------------------- -------------- --------
Vessel Official Year Recon- Speed Deadweight Reefer
Name Number Built structed Length (Knots) (Long Tons) 20' 24' 40' Slots TEUs (1) Autos Trailers Short Tons
- -----------------------------------------------------------------------------------------------------------------------------------
Diesel-Powered
- --------------
R.J. PFEIFFER 979814 1992 713'6" 23.0 27,100 48 171 988 300 2,229 -- -- --
MOKIHANA 655397 1983 860'2" 23.0 30,167 182 312 1,134 408 2,824
MAHIMAHI 653424 1982 860'2" 23.0 30,167 182 312 1,134 408 2,824
MANOA 651627 1982 860'2" 23.0 30,187 182 312 1,134 408 2,824
Steam-Powered
- -------------
KAUAI 621042 1980 1994 720'5-1/2" 22.5 26,308 458 538 300 1,626 44 2,600
MAUI 591709 1978 1993 720'5-1/2" 22.5 26,623 458 538 300 1,626 2,600
KAIMOKU (2) 573223 1976 1990 790'9" 21.5 14,551 276 310 121 1,020 350 54 --
KAINALU (2) 557149 1974 1990 790'9" 21.5 14,976 276 310 121 1,020 350 54 --
MATSONIA 553090 1973 1987 760'0" 21.5 22,501 683 400 329 1,620 450 56 4,300
LURLINE 549900 1973 1982 826'6" 21.5 22,221 597 345 340 1,476 220 81 2,100
EWA 530148 1972 1978 787'8" 21.0 38,656 294 861 180 2,015
CHIEF GADAO 530138 1971 1978 787'8" 21.0 37,346 230 464 597 274 1,981
LIHUE 530137 1971 1978 787'8" 21.0 38,656 286 276 681 188 1,979
MANULANI 528400 1970 720'5-1/2" 22.5 27,165 537 416 251 1,476 5,300
MANUKAI 524219 1970 720'5-1/2" 22.5 27,107 537 416 251 1,476 5,300
Other
- -----
WAIALEALE (3) 978516 1991 345'0" -- 5,621 35 230 45
ISLANDER (4) 933804 1988 372'0" -- 6,837 276 24 70 380 --
MAUNA LOA (4) 676973 1984 350'0" -- 4,658 144 72 84 316 2,100
HALEAKALA (4) 676972 1984 350'0" -- 4,658 144 72 84 316 2,100
MAOI (5) 618705 1980 75'0" 10.0 --
JOE SEVIER (5) 500799 1965 80'0" 10.0 --
- ------------------------------------------------------
(1) "Twenty-foot Equivalent Units" (includes trailers)
(2) Reserve Status
(3) Roll-on/Roll-off Barge
(4) Container Barge
(5) Tug
(3) TERMINALS
---------
Matson Terminals, Inc. ("Matson Terminals"), a wholly-owned
subsidiary of Matson, provides container stevedoring, container equipment
maintenance and other terminal services for Matson at the ports of Honolulu,
Los Angeles, Oakland and Seattle, as well as for other ocean carriers at those
ports.
Matson Terminals is among the largest container stevedoring
and terminal operators on the United States Pacific Coast. A total of 984
vessel calls were served at all Matson Terminals container facilities in 1996.
The four terminals operated by Matson Terminals are as follows:
Terminal Expiration of 1996 Usable
Terminal Size Terminal Throughput Container Crane Ship
Location (acres) Lease (# containers) Cranes (#) Ownership Berths (#)
-------- -------- ------------- -------------- ---------- --------- ----------
Honolulu, HI 108 Sept. 2016 390,917 7 Matson Terminals 3
Los Angeles, CA 86 Jan. 1999 224,252 4 Matson Terminals 3
Oakland, CA 74 Dec. 2008 133,265 3 Matson Terminals 3
Seattle, WA 32 Dec. 1999 104,875 3 Port of Seattle 2
Matson Terminals has lease agreements with the port authorities
for the use of the publicly-owned container terminal properties at these
locations, and does not anticipate any difficulty in renewing such agreements
as they expire or in finding satisfactory alternative premises. Besides owning
or leasing the shoreside cranes identified in the above table, Matson Terminals
owns or leases supporting container-handling equipment at its container
facilities and owns all of the maintenance equipment used in providing
container equipment and terminal maintenance services.
Capital expenditures for terminals and equipment totaled
approximately $7,000,000 in 1996.
(4) OTHER SERVICES
--------------
Matson Intermodal System, Inc. ("Matson Intermodal"), a
wholly-owned subsidiary of Matson, is an intermodal marketing company which
arranges North American rail and truck transportation for shippers and
carriers, frequently in conjunction with prior or subsequent ocean trans-
portation. Through volume purchases of rail and motor carrier transportation
services, and the addition of such services as shipment tracing and single-
vendor invoicing, Matson Intermodal is able to reduce transportation costs for
customers. Matson Intermodal currently has 11 offices and manages 30 equipment
depots across the United States Mainland.
Matson Services Company, Inc. ("Matson Services"), a
wholly-owned subsidiary of Matson, owns two tugboats which are employed in
Hawaiian waters under operating agreements to provide harbor assistance for
vessels calling at the islands of Hawaii and Maui.
(5) COMPETITION
-----------
Matson's Hawaii and Guam Services have one major containership
competitor which serves Long Beach, Oakland, Tacoma, Honolulu and Guam. Other
competitors in the Hawaii Service include two common carrier barge services,
unregulated proprietary and contract carriers of bulk cargoes and air cargo
services. Competitors in the Pacific Coast Service include truck, rail and
ocean carrier services.
Matson vessels are operated on schedules which make available
to shippers and consignees regular day-of-the-week sailings from the United
States Pacific Coast and day-of-the-week arrivals to Hawaii, a type of service
that is very attractive to customers because it decreases their overall
distribution costs. In addition, Matson competes by offering more compre-
hensive service to customers, supported by its scope of equipment and its
efficiency and experience in the handling of containerized cargoes, and by
competitive pricing. Although air freight competition is intense for time-
sensitive or perishable cargoes, historic and projected inroads of such
competition in cargo volume are limited by the amount of cargo space available
in passenger aircraft and by generally higher air freight rates.
The carriage of cargo between the United States Pacific Coast
and Hawaii on foreign-built and foreign-documented vessels is prohibited by
Section 27 of the Merchant Marine Act, 1920, frequently referred to as the
Jones Act. However, foreign-flag vessels bringing cargo to Hawaii from foreign
sources provide indirect competition for Matson's container freight service
between the United States Pacific Coast and Hawaii. Far East countries,
Australia and New Zealand have direct foreign-flag services to Hawaii.
In response to coordinated efforts by various interests to
convince Congress to repeal the Jones Act, a coalition of more than 400
businesses and organizations, including Matson, have formed the Maritime
Cabotage Task Force to support the retention of the Jones Act and other
cabotage laws. Repeal of the Jones Act would allow all foreign-flag vessel
operators, who would not have to abide by U.S. laws and regulations, to sail
between American ports in direct competition with Matson and other U.S.
operators who must comply with such laws and regulations. The task force
seeks to inform elected officials and the public about the economic, national
security, commercial, safety and environmental benefits of the Jones Act and
similar cabotage laws.
Matson Terminals competes with numerous other companies which
perform the same or similar services. The container stevedoring and terminal
services business is extremely competitive. The primary considerations of
ocean carriers when selecting stevedore and terminal operators are rates,
quality of service, expertise and reputation. The industry is highly capital-
intensive because of the need for expensive container-handling equipment.
Matson Intermodal competes for freight with a number of large
and small companies engaged in intermodal transportation. Matson Services
competes with other large operators of tugboats in Hawaiian waters.
(6) LABOR RELATIONS
---------------
The absence of strikes and the availability of labor through
hiring halls are important to maintenance of profitable operations by Matson.
Although Matson's operations have not been disrupted significantly by strikes
in the past 25 years, on-going labor disruptions by certain longshore
bargaining units at various U.S. Pacific Coast ports, beginning in the second
half of 1996, have adversely affected Matson's operations and operating costs
for all steamship companies calling at these ports. See "Employees and Labor
Relations" below for a description of labor agreements and certain unfunded
liabilities for multi-employer pension plans to which Matson and Matson
Terminals contribute.
(7) RATE REGULATION
---------------
In December 1996, Matson filed a 3.5% general rate increase for
the Hawaii Service that became effective on February 2, 1997. A 1.75% fuel
surcharge will continue in effect while fuel prices remain high.
The Interstate Commerce Commission Termination Act of 1995 (the
"Act"), which took effect on January 1, 1996, eliminated the Interstate
Commerce Commission and transferred jurisdiction over port-to-port rates in the
domestic offshore trades from the Federal Maritime Commission to the Surface
Transportation Board ("STB"), a new agency within the U.S. Department of
Transportation. The STB now has sole jurisdiction over water carriers
providing service in the domestic offshore trades.
Carriers under STB jurisdiction must file rates with the STB.
The Act establishes a Zone of Reasonableness ("ZOR") which, as adjusted by
reference to the Producer Price Index, will allow annual increases not
exceeding 7.5% and rate reductions not exceeding 10%, measured against the rate
in effect one year before the change. Rates which qualify for ZOR treatment
are deemed reasonable and are not subject to investigation or suspension.
Rates outside the ZOR also must be reasonable, but no regulations have been
proposed for determining reasonableness.
B. PROPERTY DEVELOPMENT AND MANAGEMENT
-----------------------------------
(1) GENERAL
-------
The property development and management operations of A&B are
conducted by ABHI, a wholly-owned subsidiary headquartered in Honolulu. A&B
and its subsidiaries own approximately 93,160 acres of land, consisting of
approximately 91,120 acres in Hawaii and approximately 2,040 acres elsewhere,
as follows:
LOCATION NO. OF ACRES
-------- ------------
Maui .................................. 69,180
Kauai ................................. 21,940
California ............................ 1,950
Texas ................................. 42
Washington ............................ 22
Nevada ................................ 18
Colorado .............................. 5
Florida ............................... 3
As described more fully in the table below, the bulk of this acreage currently
is used for agricultural and related activities, and includes pasture land
leased to ranchers, watershed and conservation reserves. The balance is used
or planned for development or other urban uses. An additional 3,200 acres on
Maui and Kauai are leased from third parties.
CURRENT USE NO. OF ACRES
----------- ------------
Sugarcane/coffee cultivation and
contributory purposes ........................... 44,100
Watershed and conservation ......................... 28,900
Other agricultural and pasture land ................ 16,400
Hawaii commercial and industrial land .............. 480
Hawaii residential, including land
zoned for hotel and apartment use ............... 1,240
------
Total in Hawaii ............................... 91,120
------
California ranch land............................... 1,900
U.S. Mainland commercial and
industrial land ................................. 140
------
TOTAL ......................................... 93,160
======
ABHI is actively involved in the entire spectrum of land
development, including planning, zoning, financing, constructing, purchasing,
managing and leasing, and selling and exchanging real property.
(2) PLANNING AND ZONING
-------------------
The entitlement process for development of property in Hawaii
is both time-consuming and costly, involving numerous State and County
regulatory approvals. For example, conversion of an agriculturally-zoned
parcel to residential zoning usually requires the following approvals:
- amendment of the County general plan to reflect the desired residential
use;
- approval by the State Land Use Commission to reclassify the parcel from
the "agricultural" district to the "urban" district;
- County approval to rezone the property to the precise residential use
desired; and,
- if the parcel is located in the Coastal Zone Management area, the
granting of a Special Management Area Permit by the County Planning Com-
mission.
The entitlement process is complicated by the conditions, restrictions and
exactions that are placed on these approvals, such as the construction of
infrastructure improvements, payment of impact fees, restrictions on the
permitted uses of the land, provision of affordable housing, and/or mandatory
fee sale of portions of the project.
ABHI actively works with regulatory agencies, commissions and
legislative bodies at various levels of government to obtain zoning
reclassification of land to its highest and best use. ABHI designates a parcel
as "fully-zoned" when all necessary government approvals have been obtained.
Approximately 1,220 acres of property in Hawaii currently are designated fully-
zoned for urban use.
As described in more detail below, work to obtain entitlements
for urban use in 1996 focused on (i) the Kukui'ula residential development on
Kauai, (ii) the proposed master-planned community at Pilot Hill Ranch in
California and (iii) obtaining Community Plan designations for various ABHI
lands on Maui. With regard to item (iii), ABHI continues to participate
actively in Maui County's decennial update of its Community Plans, a process
that began in 1992. The Community Plans serve to guide planning development
activity over the next decade. ABHI has obtained and continues to seek various
urban designations for its undeveloped lands within the following four
Community Plans where most of its Maui lands are located: Pa'ia-Haiku
Community Plan, Kihei-Makena Community Plan, Wailuku-Kahului Community Plan,
and Makawao-Pukalani-Kula ("Upcountry") Community Plan.
In 1996, the Maui County Council adopted the Upcountry Plan.
The Upcountry Plan designated 45 acres of ABHI's previously agricultural land
as single-family residential use. The Council previously adopted the Pa'ia-
Haiku Community Plan in 1995. Adoption of the remaining two Community Plans
by the Maui County Council is expected in 1997 or 1998.
(3) RESIDENTIAL PROJECTS
--------------------
ABHI is pursuing a number of residential projects in Hawaii
and on the U.S. Mainland, in particular:
(a) KUKUI'ULA. On Kauai, construction activity at the
---------
1,045-acre Kukui'ula project continues to be suspended as a result of weak
economic conditions on Kauai. The Kukui'ula project is envisioned to be the
first planned residential community on the island of Kauai. It currently is
expected to include up to 3,000 dwelling units, as well as an 18-hole golf
course, a small boat marina, hotels, commercial areas, schools and parks.
Construction of the wastewater treatment plant, mass grading and drainage, and
certain roadway improvements were completed in 1993.
In 1996, ABHI continued efforts to obtain governmental
approvals for the project. In September 1996, the Kauai County Planning
Department confirmed the validity of the Special Management Area (SMA) permit
for Phase I of the project. The initial increment of 727 acres currently is
available for development, while the remaining 318 acres are conditionally
designated urban, subject to a showing that substantial progress has been made
on providing infrastructure to the initial increment. However, renewal of
construction activity awaits improvement of the current economic conditions,
especially housing demand, on Kauai.
(b) ELEELE NANI II. Also on Kauai, sales at ABHI's Eleele
--------------
Nani II development, consisting of 146 single-family lots on 27 acres,
continued during 1996. Sales of two lots closed in 1996, leaving only four
lots available for sale.
(c) KU'AU BAYVIEW AT PA'IA SUBDIVISION. The construction of
----------------------------------
roadways and utilities for this 92 single-family house and lot project on Maui
was completed in the first quarter of 1996. Since the completion and opening
of the two model homes and a site office in April 1996, a total of 34 homes
have been sold and occupied, with an additional 18 homes in escrow awaiting
construction of the homes. To minimize standing inventory, homes generally are
not constructed until preliminary approval for take-out financing is obtained
by the buyer. As of March 5, 1997, a total of 51 homes, not including the
model homes, have been completed or are under construction. The project is
being marketed in three phases. The first two phases, composed of 64 lots,
continue to be marketed actively, and the last phase, composed of 28 lots,
is planned to be released sometime in mid-1997. Marketing incentives include
offering zero down payment loans with seller financing or guarantees.
(d) HAIKU MAUKA. Also on Maui, Haiku Mauka, a 92-acre, 39-
-----------
lot agricultural lot residential subdivision, was sold out in January 1997.
(e) KAUHIKOA HILL RANCH. Site work was substantially
-------------------
completed in 1996 for this 24-acre, 9-lot agricultural lot residential
subdivision, adjacent to the Haiku Mauka project. Marketing activities
commenced in January 1997.
(f) HAIKU MAKAI AND MAUNAOLU. In 1996, construction plans
------------------------
were submitted for these 28-lot and 38-lot, respectively, agricultural lot
residential subdivision projects on Maui.
(g) KAHULUI IKENA. Since the completion of this 102-unit
-------------
Maui condominium project in June 1995, a total of 53 units have been sold to
date (21 units in 1995, 31 units in 1996, and 1 unit in January 1997). An
additional nine units are currently in escrow. Marketing incentives include
offering rent-to-own options, seller credits, seller financing and zero down
payment programs.
(h) PILOT HILL RANCH. On January 23, 1996, the El Dorado
----------------
County Board of Supervisors adopted the new General Plan for El Dorado County,
near Sacramento, California. The new General Plan incorporates ABHI's
development plan proposals for the Pilot Hill Ranch project. Pilot Hill Ranch
is intended to be developed as a 1,800-acre planned residential community,
consisting of approximately 975 single- and multi-family homes, a golf course,
parks and 15 acres of commercial development. A lawsuit filed in 1996 to block
implementation of the General Plan is still pending. A Specific Plan for the
development of Pilot Hill Ranch (equivalent to a zoning application) was
submitted to the El Dorado County Planning Department in March 1997.
(4) COMMERCIAL AND INDUSTRIAL PROPERTIES
------------------------------------
An important source of property revenue is the lease rental
income A&B and its subsidiaries receive from various ground leases on 11,000
acres of land (including agricultural and pasture lands) and 2.84 million
leasable square feet of industrial and commercial building space.
(a) HAWAII COMMERCIAL/INDUSTRIAL PROPERTIES
---------------------------------------
In Hawaii, most of the income-producing commercial and indus-
trial properties owned by A&B and its subsidiaries are located in the central
Kahului area of Maui. They consist primarily of two shopping centers and two
office buildings, as well as several separate commercial and industrial
properties. Together with the Stangenwald Building, a six-story office
building located in downtown Honolulu that was acquired in December 1996
pursuant to the tax-deferred exchange provisions of Section 1031 of the
Internal Revenue Code, these properties are as follows:
LEASABLE AREA
PROPERTY LOCATION TYPE (SQUARE FT.)
-------- -------- ---- ------------
Maui Mall Kahului, Maui Retail shopping 190,800
center
Kahului Shopping Kahului, Maui Retail shopping 112,100
Center center
Wakea Business Kahului, Maui Warehouse/ 61,500
Center Retail
Kahului Office Kahului, Maui Office 51,700
Building
Kahului Office Kahului, Maui Office 29,800
Center
Apex Building Kahului, Maui Retail 28,000
Stangenwald Honolulu, Oahu Office 28,000
Building
In addition to the above-described properties, a number of
other commercial and industrial projects are being developed on Maui and Kauai,
including:
(1) TRIANGLE SQUARE. Development continues at this
---------------
11-acre retail/commercial site in Kahului, Maui. Three lots have been leased
so far, and the Apex Building, containing 28,000 square feet, is currently 75%
occupied by retail users. Additional ground leases and construction are
planned for the balance of Triangle Square, with marketing and leasing activity
in progress in 1997.
(2) MAUI BUSINESS PARK. Construction of the 42-acre,
------------------
Phase 1A of the Maui Business Park, a light industrial/commercial subdivision
located near Maui's primary airport and harbor, was completed in December 1996.
Maui Business Park is planned eventually to comprise a total of four phases,
aggregating about 240 acres, to be developed over the next 20 years.
Construction of the Maui Marketplace, a 295,000 square-foot value retail
shopping center, being built on a total of approximately 20 acres acquired by
purchase and lease by a Hawaii-based developer in 1995, is scheduled to be
completed in the second quarter of 1997. Some of the tenants that have signed
leases for the Maui Marketplace include The Sports Authority, Border's Books
and Music, Eagle Hardware and Garden, Office Max, Liberty House Home Outlet,
Bank of Hawaii and Burger King. To date, a total of 13 out of 34 lots in
Phase 1A (including the Maui Marketplace) have been sold or leased. This
represents an absorption of 68% of the 37.4 salable acres.
(3) PORT ALLEN INDUSTRIAL SUBDIVISION. On Kauai, one
---------------------------------
industrial lot remains available for sale.
(b) U.S. MAINLAND COMMERCIAL/INDUSTRIAL PROPERTIES
----------------------------------------------
On the U.S. Mainland, A&B and its subsidiaries own a portfolio
of commercial and industrial properties, acquired primarily by way of tax-
deferred exchanges under Section 1031 of the Internal Revenue Code, comprising
a total of approximately 2.17 million square feet of leasable area, as follows:
LEASABLE AREA
PROPERTY LOCATION TYPE (SQUARE FT.)
-------- -------- ---- ------------
10500 Ridgeview Cupertino, CA Research and 246,000
Court (fka DEC development
Facility)
Moulton Plaza Laguna Hills, CA Retail 134,000
LinPac Building City of Warehouse/ 126,000
Industry, CA Distribution
Spinnaker II Fremont, CA Research and 98,500
development
Market Square Greeley, CO Retail 43,300
Professional Gainesville, FL Office 24,000
Center Office
Plaza
Airport Square Reno, NV Retail 168,000
Great Southwest Grand Prairie, TX Warehouse/ 901,400
Industrial Industrial
Valley Freeway Kent, WA Warehouse/ 229,100
Corporate Park Industrial
4225 Roosevelt Seattle, WA Office/Medical 106,500
Building
Island Village Bainbridge Retail 97,200
Shopping Center Island, WA
The Great Southwest Industrial property in Dallas, Texas
benefited from a strong leasing market, achieving a 100% occupancy rate in
1996. The resurgence of new construction in the area has increased the amount
of competitive space, but will have minimal impact on the property in 1997, due
to few lease expirations.
Washington State's economic expansion is expected to continue to
benefit A&B's three Seattle-area properties. The 4225 Roosevelt Building,
Valley Freeway Corporate Park and Island Village Shopping Center are operating
at 100% occupancy.
In California, the Cupertino and Fremont markets continue to
experience high occupancy rates, due to the expansion of computer software and
hardware tenants. The 10500 Ridgeview Court property (fka DEC Facility) in
Cupertino has been leased to Hewlett-Packard Company and Digital Equipment
through August 2000. An advance lease commitment beginning in March 1998 for
the Spinnaker II property in Fremont will provide 100% occupancy through March
2000. Moulton Plaza, located in Laguna Hills in Southern California, is being
challenged by increased retail developments in its vicinity, but above-average
population gains are expected for this area. Marketing activity for the LinPac
Building in the City of Industry will initiate in 1997 in anticipation of the
February 1998 lease expiration of the existing tenant.
The Airport Square shopping center in Reno continues to benefit
from Nevada's above-average population growth. Occupancy at this center is
expected to average 97% in 1997.
The U.S. Mainland leased property portfolio had an average 97%
occupancy in 1996, the level that has been maintained since 1994. Overall
occupancy rates for improved properties in the Hawaii leased property portfolio
averaged 86% in 1996, compared with 90% in 1995. The decrease was due to weak
economic conditions and competing retail space.
C. FOOD PRODUCTS
-------------
(1) PRODUCTION
----------
A&B has been engaged in activities relating to the production
of cane sugar and molasses in Hawaii since 1870. A&B's food products
operations are conducted by ABHI. During 1996, ABHI operated two sugar
plantations, Hawaiian Commercial & Sugar Company ("HC&S") on the island of Maui
and McBryde Sugar Company, Limited ("McBryde") on the island of Kauai. As
planned, however, sugar production at McBryde ceased upon completion of the
1996 harvest in September 1996. Continuing losses in McBryde's sugar
operations necessitated this action. Island Coffee Company, Inc. ("Island
Coffee"), a wholly-owned subsidiary of McBryde, continues to grow coffee on
the island of Kauai.
ABHI is Hawaii's largest producer of raw sugar, producing
221,328 tons of raw sugar (including 20,310 tons from McBryde's last harvest)
in 1996, or 51% of the raw sugar produced in Hawaii. Total Hawaii sugar pro-
duction, in turn, amounted to approximately six percent of total United States
sugar production.
HC&S harvested 17,183 acres of sugar cane in 1996, compared
with 17,661 acres in 1995. Yields averaged 11.7 tons of sugar per acre in
1996, a 0.5 ton per acre improvement over 1995 levels. The improvement in
yield reflects the early beneficial impact of a number of improvements in
cultivation practices taken to deal with a reduction in yield in 1995. The
average cost per ton of sugar produced at HC&S, including the cost of power
production, was $410.31 in 1996, compared with $429.50 in 1995. Continuing
cost reduction programs have been successful in minimizing total cost
increases. As a by-product of sugar production, HC&S also produced 65,525
tons of molasses in 1996, compared with 63,339 tons in 1995. In its last
harvest, McBryde harvested 3,898 acres of sugar cane and produced 8,754 tons of
molasses in 1996, compared with 3,237 acres and 9,219 tons in 1995. The
average yield at McBryde in 1996 was 5.2 tons of sugar per acre, down from 7.4
tons in 1995.
HC&S produces electricity for its own use and for sale to the
electric utility company on Maui by burning bagasse (sugarcane fiber), by
hydroelectric power generation and, when necessary, by burning fossil fuels.
Prior to cessation of sugar operations in September 1996, McBryde also produced
electricity for its sugar and coffee (through its Island Coffee subsidiary)
operations, and for sale to the electric utility on Kauai, by burning bagasse
and fossil fuels and by hydroelectric generation. With the closure of its
sugar mill, McBryde continues to produce electricity by hydroelectric power
generation.
The price for the power sold by HC&S and McBryde is equal to
the utility companies' "avoided cost" of not producing such power themselves.
In addition, HC&S receives a capacity payment to provide certain power to the
local utility. In 1996, HC&S sold 82,447 megawatt hours ("MWH") of electric
power, and McBryde sold 25,227 MWH. Revenue from the sale of electricity
depends on the amount of power produced and sold, as well as the average price
of fuel. (See "Energy" below.)
During 1996, Island Coffee had approximately 4,000 acres of
coffee trees under cultivation. The harvest of the 1996 coffee crop is
expected to yield nearly 2.4 million pounds of green coffee, compared with 1.8
million pounds in 1995. Coffee production is expected to continue to increase
during the next few years.
Kahului Trucking & Storage, Inc., a subsidiary of ABHI,
provides sugar and molasses hauling and storage, petroleum hauling, mobile
equipment maintenance and repair services, and self-service storage facilities
on Maui. Kauai Commercial Company, Incorporated, another subsidiary of ABHI,
provides similar services on Kauai, as well as general trucking services.
(2) SUGAR REFINING; MARKETING OF SUGAR AND COFFEE
---------------------------------------------
Virtually all of the raw sugar produced in Hawaii is purchased,
refined, and marketed by C&H. C&H processes the raw cane sugar into a full
line of refined sugar products for the grocery market, and a full range of
industrial refined sugar products for industrial bakers, confectioners and food
processors. C&H is the leading sugar brand in the western United States.
Marketing of C&H's refined products is conducted by C&H's sales staff and a
network of brokers under exclusive representation agreements. The refined
products are marketed primarily in the western and central United States.
C&H's profit margins improved significantly in 1996 as a result
of a comprehensive restructuring initiated at the end of 1995 and implemented
in 1996, and the firming of refined sugar selling prices in both the retail and
industrial markets. A better balance between domestic production and
consumption of refined sugar, and between supplies of cane and beet sugar
available in the U.S. domestic market, led to the firming of refined sugar
prices.
Problems still persist in the manner in which the U.S. Depart-
ment of Agriculture administers the domestic sugar support program, to the
continuing detriment of U.S. cane refiners. The program was renewed in early
1996 with little change. Unless the government reforms its administration of
the sugar program, the financial hardships experienced by the cane refining
industry prior to 1996, as a result of the sugar program, could occur again.
Insufficient supplies of raw cane sugar resulting from inadequate administra-
tion of the sugar program, for example, would adversely affect cane refiners.
Consumer sugar sales are seasonal in nature and, as a result,
C&H's financial results are expected to be better in the third and fourth
quarters of each fiscal year, compared with the first two quarters.
C&H has a ten-year supply contract, ending in 2003, with
Hawaiian Sugar & Transportation Cooperative ("HS&TC"), a cooperative consisting
of the major sugarcane growers in Hawaii (including HC&S), for C&H to acquire
substantially all raw sugar produced in Hawaii. There are no minimum supply
guarantees on the part of HS&TC. During 1996, the supply contract with HS&TC
provided 63% of the raw sugar used by C&H. In recent years, a number of Hawaii
sugarcane growers have exited the business. There is no certainty that the
companies now producing sugar cane in Hawaii will be doing so in the future.
In 1997, C&H will continue to purchase significant amounts of raw sugar from
foreign sources, including Australia, Central and South America, the
Philippines and Taiwan, to supplement its purchases under the supply contract
with HS&TC.
At Island Coffee, coffee marketing efforts currently are being
directed toward developing a market for premium-priced, Kauai-grown green
coffee. Most of the 1996 coffee crop is being marketed on the U.S. Mainland
and in Asia as green (unroasted) coffee. Island Coffee has a supply agreement
with Nestle Beverage Company, ending in 1998, pursuant to which Nestle Beverage
Company purchases 25% of Island Coffee's annual green coffee production. In
addition to the sale of green coffee, Island Coffee produces and sells a
roasted, packaged coffee product in Hawaii under the "Kauai Coffee" trademark.
(3) COMPETITION AND SUGAR LEGISLATION
---------------------------------
Hawaiian sugar growers produce more sugar per acre than other
major producing areas of the world, but that advantage is partially offset by
Hawaii's high labor costs and the distance to the U.S. Mainland market. C&H's
refined sugar is marketed primarily west of Chicago. This is also the largest
beet sugar growing and processing area and, as a result, the only market area
in the United States which produces more sugar than it consumes. Sugar from
sugar beets is the greatest source of competition for C&H. Competition from
high fructose corn syrup ("HFCS") has stabilized, as sweetener markets in which
the use of HFCS is economical have become saturated. The use of non-caloric
(artificial) sweeteners accounts for a small percentage of the domestic
sweetener market. Although the use of artificial sweeteners is expected to
continue to grow, such increased use is not expected to affect sugar markets
significantly in the near future.
Worldwide, most sugar is consumed in the country of origin.
Only about a quarter of world sugar is involved in international trade. A much
smaller amount is traded at the world sugar market price (the other sugar
involved in international trade is traded at negotiated prices under bilateral
trade agreements). Due to protective legislation, raw cane sugar prices in the
U.S. generally are substantially higher than the world price, and the amount of
foreign sugar allowed into the U.S. under import quotas is regulated by the
U.S. government. Such foreign sugar sells at U.S. domestic prices. As a
result, the world sugar price does not have material relevance to U.S. sugar
producers and refiners.
The U.S. Congress historically has sought, through legislation,
to assure a reliable domestic supply of sugar at stable and reasonable prices.
Congress's most recent renewal of protective legislation for domestic sugar is
provided by the Federal Agriculture Improvement and Reform Act, which was
signed into law in the first quarter of 1996 (the "1996 Act"). The 1996 Act
provides a sugar loan program for the 1996 through 2002 crops, with a loan rate
(support price) of 18 cents per pound for raw sugar, the same as that provided
by the 1990 Farm Bill. When the import quota is 1.5 million tons or less, the
loans are recourse, meaning the producer is liable for any losses the
government incurs in remarketing any sugar forfeited by the producer. When the
import quota is greater than 1.5 million tons, the loans are non-recourse, but
in the event of forfeiture the producer must pay a one-cent-per-pound penalty
for the sugar forfeited to the government. The 1996 Act also eliminated
marketing allotments, thereby removing the means of limiting domestic
production. The 1.25-million-ton minimum import quota set under the General
Agreement on Tariff and Trade ("GATT") is retained in the 1996 Act.
The loan rate represents the value of sugar given as collateral
for government price-support loans. The government is required to administer
the sugar program at no net cost, and this is accomplished by adjusting fees
and quotas for imported sugar to maintain the domestic price at a level that
prevents producers from defaulting on loans. The target price established by
the government is known as the market stabilization price and is based on the
loan rate plus transportation costs, interest and an incentive factor. The
market stabilization price was 21.8 cents per pound in 1988-89 and 21.9 cents
per pound in 1990-91. No market stabilization price has been announced since
1990-91. The actual U.S. domestic sugar price (measured by the closing price
of the quoted spot contract) averaged 21.62 cents per pound in 1993, 22.03
cents per pound in 1994, 23.03 cents per pound in 1995 (reaching a high of
25.00 cents per pound in June and July), and 22.36 cents per pound in 1996.
The abnormally high average raw sugar price in 1995 was due to flaws in the
existing federal sugar legislation and in the administration of the U.S. sugar
program. The inflated cost of raw sugar continued throughout 1996, but
fortunately did not reach 1995 levels. The foregoing average prices are based
on the average daily New York Contract #14 price for domestic raw sugar. A
chronological chart of these prices is shown below.
[The printed document includes a graph of the prices; the data points for this
graph are shown below.]
U.S. Raw Sugar Prices
(New York Contract #14)
(Average Cents per pound)
1994 1995 1996
---- ---- ----
January 22.00 22.66 22.39
February 21.94 22.67 22.58
March 21.95 22.46 22.57
April 22.04 22.78 22.59
May 22.18 23.10 22.59
June 22.45 23.50 22.49
July 22.72 24.47 21.80
August 21.90 23.37 22.35
September 21.78 23.21 22.38
October 21.52 22.92 22.36
November 21.57 22.60 22.12
December 22.31 22.70 22.10
Under the long-term raw sugar supply agreement between C&H and
HS&TC, the participating growers sell their raw sugar to C&H at a price equal
to the No. 14 Contract settlement price, less a discount and less costs of
sugar vessel discharge and stevedoring. This price becomes a cost to
C&H and, after deducting the marketing, operating, distribution, transportation
and interest costs of HS&TC, reflects the gross revenue to the Hawaii sugar
growers, including HC&S. The No. 14 price is established by, among other
things, the supply of and demand for all forms of domestically-produced
sweeteners, government policies regarding the U.S. sugar import quota, as well
as by potential changes in international trade programs which might affect the
U.S. sugar program.
Liberalized international trade agreements, such as the GATT,
include provisions relating to agriculture, but these agreements will not
affect the U.S. sugar or sweetener industries materially. A "side" agreement
that modified the North American Free Trade Agreement ("AFTA") alleviated some
of the cane refiners' and sugar producers' concerns over NAFTA provisions which
could have allowed Mexico to export large quantities of sugar to the U.S.
starting in five years. Under the side agreement, if Mexico is projected to be
a net surplus producer of sugar, i.e., its production of sugar is expected to
exceed its consumption of both sugar and HFCS, then it is limited to 25,000
tons of sugar exports, in any form, to the U.S. This export ceiling increases
to 250,000 tons of sugar in the year 2000, and is eliminated in the year 2007.
(4) PROPERTIES AND WATER
--------------------
C&H's refining operations are located at Crockett, California.
The Crockett refinery is one of the largest in the world, and is the only cane
sugar refinery on the United States West Coast. It is ideally located next to
a deep-water port, a major rail line and an interstate highway. The refinery
and administrative offices occupy a complex of buildings that contains approxi-
mately 1,310,000 square feet and is located on approximately 55 acres. C&H
leases approximately 42 acres from the California State Lands Commission under
long-term ground leases, and owns the remaining area. The Lease Agreement with
the State of California covering the main refinery and wharf facilities expires
in 2022, and the Lease Agreement covering the area where the secondary water
treatment facility is located expires in 2024.
In December 1996, C&H closed its smaller sugar refining and
distribution facility in Aiea, Hawaii that primarily produced liquid sugar for
the local beverage industry. The closure was in response to reduced supplies
of raw sugar on the island of Oahu and increased competition from high fructose
corn sweeteners. C&H will transfer the Aiea refinery's leased equipment to the
Crockett refinery. In the City of Commerce, California, C&H owns and operates
a bulk sugar receiving and distribution facility. The facility is located on a
four-acre parcel owned by C&H.
The HC&S sugar plantation, the largest in Hawaii, consists of
approximately 43,800 acres of land, including 2,000 acres leased from the State
of Hawaii and 1,300 acres under lease from private parties. Approximately
36,000 acres are under cultivation and completely irrigated, and the balance
either is used for contributory purposes, such as roads and plant sites, or is
not suitable for cultivation.
McBryde owns approximately 22,000 acres of land on Kauai, of
which approximately 13,000 acres are used for watershed and other conservation
uses, approximately 4,000 acres are used by Island Coffee for coffee, and the
remaining acreage is leased to various agriculture enterprises for cultivation
of a variety of crops and for pasturage. In connection with cessation of sugar
production operations in September 1996, McBryde terminated leases covering
approximately 7,000 acres of land.
Large quantities of water are necessary to grow sugar cane.
Because of the importance of water, access to water, reliable sources of supply
and efficient irrigation systems are crucial for the successful growing of
sugar cane. A&B's plantations use a "drip" irrigation system that distributes
water to the cane roots through small holes in plastic tubes. A total of
34,326 acres, 96% of HC&S's cane lands, currently are drip irrigated. The drip
method has improved yields in the fields, allowed increased mechanization of
field operations, resulted in added acres under cultivation, and helped
mitigate the effects of drought.
ABHI also owns 16,000 acres of watershed lands on Maui which
supply part of the irrigation water used by HC&S. ABHI also held water
licenses to 38,000 acres owned by the State of Hawaii, which over the years
supplied approximately one-third of the irrigation water used by HC&S. The
last of these four water license agreements expired in 1986, and all four
agreements have been extended as revocable permits that are renewable annually.
The State Board of Land and Natural Resources has indicated its intention to
replace these four permits with long-term licenses. The issuance of such
licenses currently is pending a hearing before the State Board of Land and
Natural Resources.
D. EMPLOYEES AND LABOR RELATIONS
-----------------------------
As of December 31, 1996, A&B and its subsidiaries had approximately
2,960 regular full-time employees, 4% fewer than at the start of 1996. About
1,112 regular full-time employees were engaged in the growing of sugar cane and
coffee and the production of raw sugar and green coffee, 563 were engaged in
the refining and marketing of sugar, 1,061 were engaged in ocean transporta-
tion, 40 were engaged in property development and management, and the balance
was in administration and miscellaneous operations. Approximately 61% were
covered by collective bargaining agreements with unions.
As a result of the work force reduction at C&H implemented in late
1995 and early 1996, approximately 201 regular full-time employees, comprising
25% of the C&H work force, were laid off. In addition, as a result of the
September 1996 shutdown of sugar operations at McBryde, approximately 110
McBryde employees were laid off in 1996. The remaining McBryde employees,
approximately 68 in number, are now employed by Island Coffee.
As of December 31, 1996, Matson and its subsidiaries had approxi-
mately 1,061 regular full-time employees, 320 seagoing employees and 394 casual
employees. Approximately 36% of the regular full-time employees, all of the
seagoing employees and all of the casual employees were covered by collective
bargaining agreements. The casual employees are United States Pacific Coast
longshoremen who are employed through hiring halls and are not full-time
employees of either Matson or Matson Terminals.
Employees of Matson and Matson Terminals are represented by 10
different unions, and Matson and Matson Terminals are parties to 94 separate
collective bargaining agreements. Matson's seagoing employees are represented
by six unions. Matson and Matson Terminals are members of the Pacific Maritime
Association ("PMA"), and Matson Terminals is a member of the Hawaii Stevedoring
Industry Committee and the Hawaii Employers Council, through which various
collective bargaining agreements are negotiated. Matson is a member of the
Maritime Service Committee ("MSC") for collective bargaining with three unions
representing licensed deck, engineer and radio officers for Matson vessels.
Historically, collective bargaining with the longshore and seagoing
unions has been complex and difficult. However, Matson and Matson Terminals
consider their respective relations with the International Longshoremen's and
Warehousemen's Union ("ILWU"), other unions and their non-union employees
generally to have been satisfactory.
During 1996, collective bargaining agreements with the ILWU on the
U.S. Pacific Coast, ILWU longshore workers in Hawaii, clerical bargaining units
in Honolulu and Oakland, and the three unions representing unlicensed crew
members were renewed for three-year terms. Although the U.S. Pacific Coast
agreement was ratified by a majority of the union membership, certain ILWU
units oppose provisions of the agreement and have created disruptions at U.S.
Pacific Coast ports. The PMA, representing the employers, and the ILWU are
continuing discussions to resolve this problem. Agreements with two other
Hawaii ILWU units and two International Brotherhood of Teamsters units in
Oakland are expected to be renewed in 1997 for three-year terms effective
retroactively to mid-1996.
In 1995 and 1996, the ILWU petitioned the National Labor Relations
Board ("NLRB"), requesting that it be certified as the bargaining agent for
office clerical employees at Los Angeles and for employees who plan and
supervise the loading of ships at Los Angeles and at Seattle. The ILWU
subsequently was recognized as the bargaining agent for the clerical employees
at Los Angeles and for the vessel planners at Los Angeles, but collective
bargaining agreements covering those employees have not yet been concluded. A
ruling in January 1997 by the NLRB Acting Regional Director, that the employees
at Seattle are supervisors not subject to the National Labor Relations Act, has
been appealed by the union to the NLRB in Washington, D.C.
Matson contributed during 1996 to multi-employer pension plans for
vessel crews. If Matson were to withdraw from or significantly reduce its
obligation to contribute to one of the plans, Matson would review and evaluate
data, actuarial assumptions, calculations and other factors used in determining
its withdrawal liability, if any, and, in the event of material disagreement
with such determination, would pursue the various means available to it under
federal law for the adjustment or removal of its withdrawal liability. Matson
Terminals participates in a multi-employer pension plan for its Hawaii long-
shore employees. For a discussion of withdrawal liabilities under the Hawaii
longshore and seagoing plans, see Note 5 to A&B's financial statements on
page 37 of the 1996 Annual Report, which Note is incorporated herein by
reference.
Matson pays, through Matson Terminals on the basis of cargo tons
carried, and Matson Terminals contributes as a direct employer, to a
multi-employer pension plan for Pacific Coast longshoremen. Under special
withdrawal liability rules in the plan, Matson Terminals could cease United
States Pacific Coast cargo handling operations permanently and stop making
contributions to the plan without any withdrawal liability.
As of December 31, 1996, HC&S had approximately 873 employees covered
by two collective bargaining agreements with the ILWU. These agreements
expired on January 31, 1997, were extended temporarily with a 72-hour cancella-
tion clause, and are in the process of being renegotiated. Kahului Trucking &
Storage, Inc. had three ILWU bargaining units covering 38 employees. Two of
the collective bargaining agreements have been renegotiated and expire June 30,
1999. The other agreement currently is being renegotiated. Kauai Commercial
Company, Incorporated had 40 employees represented by the ILWU. The two
collective bargaining agreements were extended to April 30, 1997 and are in the
process of being renegotiated. Negotiations with the ILWU on a collective
bargaining agreement for the 50 production unit employees of Island Coffee are
expected to commence soon.
Of the 406 bargaining unit employees of C&H at Crockett, California
at year-end 1996 (reflecting the C&H lay-off in early 1996), 322 were members
of Sugar Workers Union No. 1, AFL-CIO Seafarers International Union of North
America and 84 employees were members of the ILWU. Contracts covering these
employees extend through May 31, 1998.
E. ENERGY
------
Matson and Matson Terminals purchase bunker fuel oil, lubricants,
gasoline and diesel fuel for their operations. In 1996, Matson vessels
consumed approximately 2.25 million barrels of bunker fuel oil, which is
Matson's largest energy-related expense.
Bunker fuel prices started 1996 at $115.40 per metric ton and ended
the year at $127.50 per metric ton. A low of $81.00 per metric ton occurred in
June, and a high of $132.25 per metric ton occurred in December. Sufficient
fuel for Matson's requirements is expected to be available in 1997.
As is the practice throughout Hawaii, HC&S uses bagasse, the residual
fiber of the sugarcane plant, as a fuel to generate steam for the production of
most of the electrical power for sugar mill and irrigation pumping operations.
Until cessation of its sugar operations in September 1996, McBryde also
generated steam power by burning bagasse. In addition to bagasse, supplemental
fuel is required to produce power, principally for pumping irrigation water
during the factory shutdown period when bagasse is not being produced. No. 6
(heavy) oil and coal have been the supplemental fuels most commonly used by the
sugar factories. However, in 1992, the suppliers of oil to the ABHI sugar
plantations announced they would discontinue regular heavy oil shipments as a
result of unlimited liability concerns arising from federal and state
environmental laws. Currently, heavy oil is being transported to HC&S on a
space-available basis. As a result of the oil-availability problem, HC&S con-
verted its factories to use diesel fuel and increased its use of coal. In
1996, HC&S produced 239,498 MWH of electric power and sold 82,447 MWH, compared
with 1995's power production of 253,985 MWH and sales of 98,031 MWH. HC&S's
oil use increased to 189,938 barrels in 1996 from the 143,090 barrels used in
1995. Coal use for power generation decreased, from 67,208 short tons in 1995
to 42,534 short tons in 1996.
In 1996, power production at McBryde was 44,451 MWH, down from
46,532 MWH in 1995. Power sales in 1996 of 25,227 MWH were up from 19,625 MWH
in 1995, principally due to reduced requirements for irrigation pumping.
Following cessation of its sugar operations, McBryde continues to generate and
sell hydroelectric power which is excess to its and Island Coffee's needs.
Steam-generated power no longer is produced by McBryde on Kauai.
C&H relies primarily on steam to power its Crockett refinery.
Natural gas and electricity also are used, to a lesser extent, for refinery
operations. C&H obtains its steam from a 240 MW cogeneration plant, located
adjacent to its refinery, that was placed into operation by a third party in
May 1996. Pursuant to an agreement between C&H and the third party that
expires in 2026, C&H purchases the steam at prices that reflect a discount
to the prevailing market price for natural gas, thereby reducing C&H's total
energy costs. The cogeneration plant also allowed C&H to shut down its own,
less efficient steam-generating plant, thereby avoiding certain material
capital improvements to that plant. In 1996, C&H purchased 19,181,420 therms
of steam from the cogeneration plant.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
See "Business and Properties - Ocean Transportation - Rate Regulation"
above for a discussion of rate and other regulatory matters in which Matson is
routinely involved.
In June 1990, Matson Terminals filed a complaint in the Superior Court of
California against Home Insurance Company, Hobbs Group, Inc. and Arkwright-
Boston Insurance Company for breach of contract and negligence. The complaint
sought recovery of damages sustained at Matson Terminals' Oakland terminal as a
result of the October 1989 Loma Prieta earthquake. The court awarded Matson
Terminals $23,516,000, which included $11,250,000 in punitive damages, together
with interest. The court's award was unanimously affirmed by the Court of
Appeal on October 1, 1996. Home Insurance Company's request for a rehearing
was denied, and its petition for review with the California Supreme Court was
denied on January 22, 1997. On February 13, 1997, Home Insurance Company paid
$33,650,000 to Matson Terminals to settle the lawsuit.
In February 1992, Pan Ocean Shipping Co., Ltd. ("Pan Ocean") served on
Matson an amended complaint alleging that a Matson vessel negligently
discharged contaminated ballast water into Los Angeles harbor on January 9,
1991. Pan Ocean admits that a vessel owned and operated by Pan Ocean dis-
charged fuel oil into Los Angeles harbor on January 8, 1991. Pan Ocean is
seeking contribution and indemnification for the in-harbor clean-up charges
which it alleged to be between $16,000,000 and $19,000,000. On April 12, 1993,
Pan Ocean amended its complaint to allege fraud and seek unspecified punitive
damages. The parties have stipulated to binding arbitration before a Special
Master appointed by the United States District Court for the Central District
of California. The Special Master's findings will be incorporated into a
judgment by the United States District Court, which judgment may be appealed to
the Ninth Circuit Court of Appeals only on the issues of punitive damages and
misconduct of the Special Master. Arbitration hearings, which commenced
January 13, 1994, are ongoing. Management continues to believe, after
consultation with legal counsel and given the Protection and Indemnity coverage
under Matson's insurance policy in effect at the time of the alleged conduct,
that any ultimate liability in connection with this action will not have a
material adverse effect on Matson's financial condition.
On November 1, 1994, the Division of Water Quality, Department of
Wastewater Management, City and County of Honolulu ("City and County") issued a
Cease and Desist Order to C&H, alleging violations of a City and County
ordinance arising out of C&H's discharge of industrial wastewater from its
liquid sugar refinery into the City and County's sewer system. Two subsequent
Amended Orders, among other things, permitted C&H to discharge wastewater into
the sewer system, provided C&H did not violate its permit, and imposed a fine
on C&H in the amount of $1,650,000, which was suspended, provided C&H comply
with the Amended Order. In May 1995, C&H presented a settlement proposal to
the City and County pursuant to which, among other things, C&H and the City
and County agreed that certain modifications completed at the refinery had
alleviated the unanticipated operational difficulties that led to the issuance
of the Amended Orders. On March 4, 1996, the City and County accepted the
terms and conditions of C&H's proposal, which are contained in a Consent
Agreement pursuant to which the fine was rescinded. The Consent Agreement
resolves all issues raised in the Amended Orders and Docket No. 94-021,
including the Petitions to Appeal filed by C&H.
A&B and its subsidiaries are parties to, or may be contingently liable in
connection with, other legal actions arising in the normal conduct of their
businesses, the outcomes of which, in the opinion of management after consulta-
tion with counsel, would not have a material adverse effect on A&B's financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
For the information about executive officers of A&B required to be
included in this Part I, see paragraph B of "Directors and Executive Officers
of the Registrant" in Part III below, which is incorporated into Part I by
reference.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
This information is contained in the sections captioned "Common Stock"
and "Dividends" on pages 21 and 22, respectively, of the 1996 Annual Report,
which sections are incorporated herein by reference.
At February 14, 1997, there were 5,840 record holders of A&B common
stock. In addition, Cede & Co., which appears as a single record holder,
represents the holdings of thousands of beneficial owners of A&B common stock.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
Information for the years 1986 through 1996 is contained in the compara-
tive table captioned "Eleven-Year Summary of Selected Financial Data" on pages
24 and 25 of the 1996 Annual Report, which information is incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
A&B's financial statements, including the results of operations discussed
herein, are based on the historical-cost method of accounting, in accordance
with generally accepted accounting principles. If estimated current costs of
property and inventory were applied to reflect the effects of inflation on
A&B's businesses, total assets would be higher and net income lower than shown
by the historical-cost financial statements. However, the carrying values of
current assets (other than inventories, real estate held for sale, deferred
income taxes and prepaid and other assets) and of debt instruments are
reasonable estimates of their fair values. Investments in marketable
securities are stated in the financial statements at market values in
accordance with Statement of Financial Accounting Standards No. 115. Certain
investments held in the Capital Construction Fund at amortized cost exceeded
their fair values at December 31, 1996 and 1995. This matter is described more
fully in Note 4 on page 36 of the 1996 Annual Report, which Note is
incorporated herein by reference.
Additional information applicable to this Item 7 is contained in the
section captioned "Management's Discussion and Analysis" on pages 27 through 29
of the 1996 Annual Report, which section is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
This information is contained in the financial statements and
accompanying notes on pages 30 through 41 of the 1996 Annual Report, the
Independent Auditors' Report on page 23 of the 1996 Annual Report, the Industry
Segment Information for the years ended December 31, 1996, 1995 and 1994
appearing on page 26 of the 1996 Annual Report and incorporated into the
financial statements by Note 12 thereto, and the section captioned "Quarterly
Results (Unaudited)" on page 22 of the 1996 Annual Report, all of which are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ---------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
Not applicable.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
A. DIRECTORS
---------
For information about the directors of A&B, see the section captioned
"Election of Directors" on pages 2 and 3 of A&B's proxy statement dated
March 10, 1997 ("A&B's 1997 Proxy Statement"), which section is incorporated
herein by reference.
B. EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The name of each executive officer of A&B (in alphabetical order),
age (in parentheses) as of March 31, 1997, and present and prior positions with
A&B and business experience for the past five years are given below.
Generally, the term of office of executive officers is at the
pleasure of the Board of Directors. For a discussion of compliance with
Section 16(a) of the Securities Exchange Act of 1934 by A&B's directors and
executive officers, see the subsection captioned "Section 16(a) Beneficial
Ownership Reporting Compliance" on page 6 of A&B's 1997 Proxy Statement, which
subsection is incorporated herein by reference. For a discussion of severance
agreements between A&B and certain of A&B's executive officers, see the sub-
section captioned "Severance Agreements" on page 12 of A&B's 1997 Proxy
Statement, which subsection is incorporated herein by reference.
Meredith J. Ching (40)
- ----------------------
Vice President (Government & Community Relations) of A&B, 10/92-present;
Vice President of ABHI (Government & Community Relations), 10/92-present; Vice
President of ABHI (Natural Resources Development & Government Affairs), 4/89-
9/92; first joined A&B or a subsidiary in 1982.
John C. Couch (57)
- ------------------
Chairman of the Board (4/95-present), Chief Executive Officer (4/92-
present) and President (4/91-present) of A&B; Chairman of the Boards (4/95-
present) of ABHI and Matson; Chief Executive Officer (4/89-12/96) and President
(4/89-4/95) of ABHI; previously held various executive officer positions with
A&B and Matson; first joined A&B or a subsidiary in 1976.
W. Allen Doane (49)
- -------------------
Chief Executive Officer of ABHI, 1/97-present; President of ABHI, 4/95-
present; Chief Operating Officer of ABHI, 4/91-12/96; Executive Vice President
of ABHI, 4/91-4/95; first joined A&B or a subsidiary in 1991.
Raymond J. Donohue (60)
- -----------------------
Senior Vice President of Matson, 4/86-present; Chief Financial Officer of
Matson, 2/81-present; first joined Matson in 1980.
John B. Kelley (51)
- -------------------
Vice President (Investor Relations) of A&B, 1/95-present; Vice President
(Corporate Planning & Development, Investor Relations) of A&B, 10/92-12/94;
Vice President (Community & Investor Relations) of A&B, 2/91-10/92; first
joined A&B or a subsidiary in 1979.
Miles B. King (49)
- ------------------
Vice President and Chief Administrative Officer of A&B, 4/93-present;
Senior Vice President (Industrial Relations) of ABHI, 4/93-present; Senior Vice
President (Human Resources) of Matson, 10/92-present; Executive Vice President
of The Hay Group, 1988-1992.
David G. Koncelik (55)
- ----------------------
Senior Vice President of ABHI, 1/94-present; President and Chief Executive
Officer of C&H, 1/94-present; Executive Vice President and Chief Operating
Officer of C&H, 1/91-12/93; Chief Financial Officer of C&H, 12/88-12/93; first
joined C&H in 1988.
Michael J. Marks (58)
- ---------------------
Vice President, General Counsel and Secretary of A&B, 4/89-present; Senior
Vice President and General Counsel of ABHI, 4/89-present; first joined A&B or a
subsidiary in 1975.
C. Bradley Mulholland (55)
- --------------------------
President of Matson, 5/90-present; Chief Executive Officer of Matson,
4/92-present; Chief Operating Officer of Matson, 7/89-4/92; Director of A&B,
4/91-present; Director of Matson, 7/89-present; Director of ABHI, 4/91-present;
first joined Matson in 1965.
Glenn R. Rogers (53)
- --------------------
Vice President, Chief Financial Officer and Treasurer of A&B, 4/93-
present; Senior Vice President, Chief Financial Officer and Treasurer of ABHI,
1/96-present; Senior Vice President, Marketing of Matson, 1/89-4/93; first
joined A&B or a subsidiary in 1975.
Robert K. Sasaki (56)
- ---------------------
Vice President of A&B, 7/90-present; Senior Vice President (Properties) of
ABHI, 4/89-present; first joined A&B or a subsidiary in 1965.
Thomas A. Wellman (38)
- ----------------------
Controller of A&B, 1/96-present; Assistant Controller of A&B, 4/93-1/96;
Vice President of ABHI, 1/96-present; Controller of ABHI, 11/91-present; first
joined A&B or a subsidiary in 1989.
Judith A. Williams (53)
- -----------------------
Vice President (Corporate Planning) of A&B, 8/96-present and 10/87-4/89;
Vice President of ABHI, 4/89-present; first joined A&B in 1979.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
See the section captioned "Executive Compensation" on pages 7 through 12
of A&B's 1997 Proxy Statement, which section is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
- ---------------------------------------------------------
AND MANAGEMENT
--------------
See the section titled "Security Ownership of Certain Shareholders" and
the subsection titled "Security Ownership of Directors and Executive Officers"
on page 4 and on pages 5 and 6, respectively, of A&B's 1997 Proxy Statement,
which section and subsection are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
See the subsection titled "Certain Relationships and Transactions" and the
section titled "Compensation Committee Interlocks and Insider Participation" on
pages 6 and 15, respectively, of A&B's 1997 Proxy Statement, which subsection
and section are incorporated herein by reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
- ------------------------------------------------------
REPORTS ON FORM 8-K
-------------------
A. FINANCIAL STATEMENTS
--------------------
Financial Statements of Alexander & Baldwin, Inc. and Subsidiaries
and Independent Auditors' Report (in-corporated by reference to the pages of
the 1996 Annual Report shown in parentheses below):
Balance Sheets, December 31, 1996 and 1995
(pages 32 and 33).
Statements of Income for the years ended
December 31, 1996, 1995 and 1994 (page 30).
Statements of Shareholders' Equity for the
years ended December 31, 1996, 1995 and
1994 (page 34).
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 (page 31).
Notes to Financial Statements (pages 35 through
41 and page 26 to the extent incorporated by
Note 12).
Independent Auditors' Report (page 23).
B. FINANCIAL STATEMENT SCHEDULES
-----------------------------
Financial Schedules of Alexander & Baldwin, Inc. and Subsidiaries as
required by Rule 5-04 of Regulation S-X (filed herewith):
I - Condensed Financial Information of
Registrant - Balance Sheets, December 31,
1996 and 1995; Statements of Income and
Cash Flows for the years ended December 31,
1996, 1995 and 1994; Notes to Condensed
Financial Statements.
NOTE: All other schedules are omitted because of the absence of the conditions
under which they are required or because the information called for is included
in the financial statements or notes thereto.
C. EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
-----------------------------------------------
Exhibits not filed herewith are incorporated by reference to the
exhibit number and previous filing shown in parentheses. All previous exhibits
were filed with the Securities and Exchange Commission in Washington, D.C.
Exhibits filed pursuant to the Securities Exchange Act of 1934 were filed under
file number 0-565. Shareholders may obtain copies of exhibits for a copying
and handling charge of $0.15 a page by writing to Michael J. Marks, Vice
President, General Counsel and Secretary, Alexander & Baldwin, Inc., P. O. Box
3440, Honolulu, Hawaii 96801.
3. Articles of incorporation and bylaws.
3.a. Restated Articles of Association of A&B, as restated effective
May 5, 1986, together with Amendments dated April 28, 1988 and April 26,
1990 (Exhibits 3.a.(iii) and (iv) to A&B's Form 10-Q for the quarter
ended March 31, 1990).
3.b. Bylaws of A&B as amended effective October 24, 1991
(Exhibit 3.b.(i) to A&B's Form 10-Q for the quarter ended September 30,
1991).
4. Instruments defining rights of security holders, including indentures.
4.a. Equity.
4.a. Rights Agreement, dated as of December 8, 1988 between
Alexander & Baldwin, Inc. and Manufacturers Hanover Trust Company, Press
Release of Alexander & Baldwin, Inc. and Form of Letter to Shareholders of
Alexander & Baldwin, Inc. (Exhibits 4, 28(a) and 28(b) to A&B's Form 8-K
dated December 13, 1988).
4.b. Debt.
4.b. Second Amended and Restated Revolving Credit and Term Loan
Agreement, effective as of December 31, 1996, among Alexander & Baldwin,
Inc. and A&B-Hawaii, Inc. and First Hawaiian Bank, Bank of America
National Trust & Savings Association, Credit Lyonnais Los Angeles Branch,
Bank of Hawaii and The Union Bank of California, N.A.
10. Material contracts.
10.a. (i) Purchase and Exchange Agreement, by and between Wailea
Development Company, Inc. and Wailea Resort Company, Ltd., dated as of
January 15, 1989; Letters of Guaranty of Alexander & Baldwin, Inc. and
Shinwa Golf Kabushiki Kaisha, respectively, dated as of January 15, 1989;
Press Release of Alexander & Baldwin, Inc., dated February 10, 1989; and
Pro Forma Financial Information relative to the transaction (Ex-
hibits 10.b.(vii)(a) through 10.b.(vii)(e) to A&B's Form 8-K dated
February 10, 1989).
(ii) Contract for the Construction of One Containership by and
between Matson Navigation Company, Inc. and National Steel and Ship-
building Company, dated January 31, 1990 (Exhibit 10.b.(vii) to A&B's Form
10-K for the year ended December 31, 1989).
(iii) Issuing and Paying Agent Agreement between Matson
Navigation Company, Inc. and Security Pacific National Trust (New York),
with respect to Matson Navigation Company, Inc.'s $150 million commercial
paper program dated September 18, 1992 (Exhibit 10.b.1.(xxviii) to A&B's
Form 10-Q for the quarter ended September 30, 1992).
(iv) Note Agreement among Alexander & Baldwin, Inc. and
A&B-Hawaii, Inc. and The Prudential Insurance Company of America,
effective as of December 20, 1990 (Exhibit 10.b.(ix) to A&B's Form 10-K
for the year ended December 31, 1990).
(v) Note Agreement among Alexander & Baldwin, Inc. and
A&B-Hawaii, Inc. and The Prudential Insurance Company of America, dated as
of June 4, 1993 (Exhibit 10.a.(xiii) to A&B's Form 8-K dated June 4,
1993).
(vi) Amendment dated as of May 20, 1994 to the Note Agreements
among Alexander & Baldwin, Inc., A&B-Hawaii, Inc. and The Prudential
Insurance Company of America, dated as of December 20, 1990 and June 4,
1993 (Exhibit 10.a.(xviv) to A&B's Form 10-Q for the quarter ended June
30, 1994).
(vii) Amendment dated January 23, 1995 to the Note Agreement
among Alexander & Baldwin, Inc. and A&B-Hawaii, Inc. and The Prudential
Insurance Company of America, effective as of December 20, 1990 (Exhi-
bit 10.a.(xvi) to A&B's Form 10-K for the year ended December 31, 1994).
(viii) Amendment dated as of June 30, 1995 to the Note
Agreements, among Alexander & Baldwin, Inc., A&B-Hawaii, Inc. and The
Prudential Insurance Company of America, dated as of December 20, 1990
and June 4, 1993 (Exhibit 10.a.(xxvii) to A&B's Form 10-Q for the quarter
ended June 30, 1995).
(ix) Amendment dated as of November 29, 1995 to the Note
Agreements among Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and The
Prudential Insurance Company of America, dated as of December 20, 1990 and
June 4, 1993 (Exhibit 10.a.(xvii) to A&B's Form 10-K for the year ended
December 31, 1995).
(x) General Lease between the State of California and
California and Hawaiian Sugar Company, dated September 24, 1992
(Exhibit 10.a.(xiv) to A&B's Form 10-Q for the quarter ended June 30,
1993).
(xi) Amendment to Lease and Reservation of Easements, between
the State of California and California and Hawaiian Sugar Company, dated
as of July 29, 1993 (Exhibit 10.a.(xv) to A&B's Form 10-Q for the quarter
ended September 30, 1993).
(xii)(a) Commercial Paper Dealer Agreement between California and
Hawaiian Sugar Company and First Chicago Capital Markets, Inc., dated
April 22, 1991, with respect to California and Hawaiian Sugar Company's
$100 million revolving credit facility (Exhibit 10.a.(xviii) to A&B's
Form 10-K for the year ended December 31, 1993).
(xii)(b) Depositary Agreement between California and Hawaiian
Sugar Company and The First National Bank of Chicago, dated as of
April 6, 1989 (Exhibit 10.a.(xix)(b) to A&B's Form 10-K for the year ended
December 31, 1994).
(xiii) Amendment dated as of February 10, 1995, to Depositary
Agreement between California and Hawaiian Sugar Company and The First
National Bank of Chicago, dated as of April 6, 1989 (Exhibit 10.a.(xx) to
A&B's Form 10-K for the year ended December 31, 1994).
(xiv) Revolving Credit Agreement between Alexander & Baldwin,
Inc., A&B-Hawaii, Inc., and First Hawaiian Bank, dated December 30, 1993
(Exhibit 10.a.(xx) to A&B's Form 10-Q for the quarter ended September 30,
1994).
(xv) Amendment dated August 31, 1994 to the Revolving Credit
Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and First
Hawaiian Bank dated December 30, 1993 (Exhibit 10.a.(xxi) to A&B's
Form 10-Q for the quarter ended September 30, 1994).
(xvi) Second Amendment dated March 29, 1995 to the Revolving
Credit Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and
First Hawaiian Bank, dated December 30, 1993 (Exhibit 10.a.(xxiii) to
A&B's Form 10-Q for the quarter ended March 31, 1995).
(xvii) Third Amendment dated November 30, 1995 to the Revolving
Credit Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and
First Hawaiian Bank, dated December 30, 1993.
(xviii) Fourth Amendment dated November 25, 1996 to the Revolving
Credit Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and
First Hawaiian Bank, dated December 30, 1993.
(xix) Asset Purchase Agreement among XTRA, Inc., Matson
Navigation Company, Inc. and Matson Leasing Company, Inc., dated June 30,
1995 (Exhibit 10.a.(xxiv) to A&B's Form 8-K dated June 30, 1995).
(xx) Revised pro forma financial information relative to the
Asset Purchase Agreement among XTRA, Inc., Matson Navigation Company, Inc.
and Matson Leasing Company, Inc., dated June 30, 1995 (Exhibit 10.a.(xxv)
to A&B's Form 8-K/A dated June 30, 1995).
(xxi) Balance sheets as of December 31, 1993 and 1994 and State-
ments of Income and Statements of Cash Flows for the years ended
December 31, 1992, 1993 and 1994, relative to the Asset Purchase Agreement
among XTRA, Inc., Matson Navigation Company, Inc. and Matson Leasing
Company, Inc., dated June 30, 1995 (Exhibit 10.a.(xxvi) to A&B's Form
8-K/A dated June 30, 1995).
(xxii) Commercial Paper Dealer Agreement among California and
Hawaiian Sugar Company, Inc., Alexander & Baldwin, Inc., A&B-Hawaii, Inc.
and Goldman Sachs Money Markets, L.P. dated June 20, 1995, with respect to
California and Hawaiian Sugar Company, Inc.'s $100 million revolving
credit facility (Exhibit 10.a.(xxvi) to A&B's Form 10-Q for the quarter
ended June 30, 1995).
(xxiii) Note Agreement between Matson Leasing Company, Inc. and
The Prudential Insurance Company of America, dated as of June 28, 1991
(Exhibit 10.b.(x) to A&B's Form 10-Q for the quarter ended June 30, 1991).
(xxiv) Amendment dated March 11, 1992 to the Note Agreement
between Matson Leasing Company, Inc. and The Prudential Insurance Company
of America, dated as of June 28, 1991 (Exhibit 10.a.(vii) to A&B's
Form 10-K for the year ended December 31, 1992).
(xxv) Second Amendment dated as of August 31, 1993 to the Note
Agreement between Matson Leasing Company, Inc. and The Prudential
Insurance Company of America, dated as of June 28, 1991
(Exhibit 10.a.(viii) to A&B's Form 10-K for the year ended December 31,
1993).
(xxvi) Note Agreement between Matson Leasing Company, Inc. and
The Prudential Insurance Company of America, dated as of March 11, 1992
(Exhibit 10.a.(x) to A&B's Form 10-Q for the quarter ended March 31,
1992).
(xxvii) First Amendment dated as of August 1, 1993 to the Note
Agreement between Matson Leasing Company, Inc. and The Prudential
Insurance Company of America, dated as of March 11, 1992 (Exhibit 10.a.
(xi) to A&B's Form 10-K for the year ended December 31, 1993).
(xxviii)(a) Assignment and Assumption Agreement dated as of
June 30, 1995, among Matson Leasing Company, Inc., Matson Navigation
Company, Inc. and The Prudential Insurance Company of America, with
respect to the Note Agreements between Matson Leasing Company, Inc. and
The Prudential Insurance Company of America dated as of June 28, 1991 and
March 11, 1992 (Exhibit 10.a.(xxviii)(a) to A&B's Form 10-Q for the
quarter ended June 30, 1995).
(xxviii)(b) Consent and Amendment Agreement dated as of
June 30, 1995, among Matson Leasing Company, Inc., Matson Navigation
Company, Inc. and The Prudential Insurance Company of America, with
respect to the Note Agreements between Matson Leasing Company, Inc. and
The Prudential Insurance Company of America dated as of June 28, 1991 and
March 11, 1992 (Exhibit 10.a.(xxviii)(b) to A&B's Form 10-Q for the
quarter ended June 30, 1995).
(xxix) Agreement to Implement the Execution and Closing of Vessel
Purchase, Purchase of Guam Assets and Alliance Slot Hire Agreement between
Matson Navigation Company, Inc. and American President Lines, Ltd., dated
as of September 22, 1995 (Exhibit 10.a.(xxix) to A&B's Form 10-Q for the
quarter ended September 30, 1995).
(xxx) Amendments Nos. 1 through 7, dated as of October 10, 1995,
October 30, 1995, November 30, 1995, December 8, 1995, December 15, 1995,
January 31, 1996 and February 8, 1996, respectively, to the Agreement to
Implement the Execution and Closing of Vessel Purchase, Purchase of Guam
Assets and Alliance Slot Hire Agreement between Matson Navigation Company,
Inc., and American President Lines, Ltd., dated as of September 22, 1995
(Exhibit 10.a.(xxx) to A&B's Form 10-K for the year ended December 31,
1995).
(xxxi) Vessel Purchase Agreement between Matson Navigation
Company, Inc., and American President Lines, Ltd., dated December 20, 1995
(Exhibit 10.a.(xxxi) to A&B's Form 10-K for the year ended December 31,
1995).
(xxxii) Amendment No. 1 dated December 28, 1995 to the Vessel
Purchase Agreement between Matson Navigation Company, Inc., and American
President Lines, Ltd., dated December 20, 1995 (Exhibit 10.a.(xxxii) to
A&B's Form 10-K for the year ended December 31, 1995).
(xxxiii) Private Shelf Agreement between Alexander & Baldwin,
Inc., A&B-Hawaii, Inc., and Prudential Insurance Company of America, dated
as of August 2, 1996 (Exhibit 10.a.(xxxiii) to A&B's Form 10-Q for the
quarter ended September 30, 1996).
*10.b.1. (i) Alexander & Baldwin, Inc. Restricted Stock Bonus Plan, as
restated effective April 28, 1988 (Exhibit 10.c.1.(xi) to A&B's Form 10-Q
for the quarter ended June 30, 1988).
- ---------------
* All exhibits listed under 10.b.1. are management contracts or compensatory
plans or arrangements.
(ii) Alexander & Baldwin, Inc. 1983 Stock Option Plan
(Exhibit 10.c.1.(vii) to A&B's Form 10-K for the year ended December 31,
1982).
(iii) Amendment No. 1 to Alexander & Baldwin, Inc. 1983 Stock
Option Plan, effective December 14, 1983 (Exhibit 10.c.1.(viii) to A&B's
Form 10-K for the year ended December 31, 1983).
(iv) Amendment No. 2 to Alexander & Baldwin, Inc. 1983 Stock
Option Plan, effective January 1, 1987 (Exhibit 10.c.1.(xii) to A&B's
Form 10-K for the year ended December 31, 1986).
(v) Amendment No. 3 to the Alexander & Baldwin, Inc. 1983 Stock
Option Plan (Exhibit 10.b.1.(xxv) to A&B's Form 10-Q for the quarter ended
June 30, 1992).
(vi) Alexander & Baldwin, Inc. 1989 Stock Option/ Stock
Incentive Plan (Exhibit 10.c.1.(ix) to A&B's Form 10-K for the year ended
December 31, 1988).
(vii) Amendment No. 1 to the Alexander & Baldwin, Inc. 1989 Stock
Option/Stock Incentive Plan (Exhibit 10.b.1.(xxvi) to A&B's Form 10-Q for
the quarter ended June 30, 1992).
(viii) Amendment No. 2 to the Alexander & Baldwin, Inc. 1989
Stock Option/Stock Incentive Plan, effective as of January 27, 1994
(Exhibit 10.b.1.(iv) to A&B's Form 10-Q for the quarter ended March 31,
1994).
(ix) Amendment No. 3 to the Alexander & Baldwin, Inc. 1989 Stock
Option/Stock Incentive Plan, effective as of October 27, 1994
(Exhibit 10.b.1.(ix) to A&B's Form 10-K for the year ended December 31,
1994).
(x) Alexander & Baldwin, Inc. 1989 Non-Employee Director Stock
Option Plan (Exhibit 10.c.1.(x) to A&B's Form 10-K for the year ended
December 31, 1988).
(xi) Amendment No. 1 to the Alexander & Baldwin, Inc. 1989 Non-
Employee Director Stock Option Plan (Exhibit 10.b.1.(xxiv) to A&B's Form
10-K for the year ended December 31, 1991).
(xii) Amendment No. 2 to the Alexander & Baldwin, Inc. 1989 Non-
Employee Director Stock Option Plan (Exhibit 10.b.1.(xxvii) to A&B's Form
10-Q for the quarter ended June 30, 1992).
(xiii) Second Amended and Restated Employment Agreement between
Alexander & Baldwin, Inc. and R. J. Pfeiffer, effective as of October 25,
1990 (Ex-hibit 10.c.1.(xiii) to A&B's Form 10-K for the year ended
December 31, 1990).
(xiv) A&B Deferred Compensation Plan for Outside Directors
(Exhibit 10.c.1.(xviii) to A&B's Form 10-K for the year ended December 31,
1985).
(xv) Amendment No. 1 to A&B Deferred Compensation Plan for
Outside Directors, effective October 27, 1988 (Exhibit 10.c.1.(xxix) to
A&B's Form 10-Q for the quarter ended September 30, 1988).
(xvi) A&B Life Insurance Plan for Outside Directors
(Exhibit 10.c.1.(xix) to A&B's Form 10-K for the year ended December 31,
1985).
(xvii) A&B Excess Benefits Plan, Amended and Restated Effective
July 1, 1991 (Exhibit 10.b.1.(xvi) to A&B's Form 10-K for the year ended
December 31, 1992).
(xviii) Amendment No. 1 to the A&B Excess Benefits Plan,
effective January 1, 1994 (Exhibit 10.b.1.(xvii) to A&B's Form 10-K for
the year ended December 31, 1993).
(xix) Amendment No. 2 to the A&B Excess Benefits Plan, effective
August 24, 1994 (Exhibit 10.b.1.(xix) to A&B's Form 10-K for the year
ended December 31, 1994).
(xx) Amendment No. 3 to and Restatement of the A&B Excess
Benefits Plan, effective February 1, 1995 (Exhibit 10.b.1.(xx) to A&B's
Form 10-K for the year ended December 31, 1994).
(xxi) A&B Executive Survivor/Retirement Benefit Plan, Amended and
Restated Effective July 1, 1991 (Exhibit 10.b.1.(xvii) to A&B's Form 10-K
for the year ended December 31, 1992).
(xxii) Amendment No. 1 to and Restatement of the A&B Executive
Survivor/Retirement Benefit Plan, effective February 1, 1995
(Exhibit 10.b.1.(xxii) to A&B's Form 10-K for the year ended December 31,
1994).
(xxiii) A&B 1985 Supplemental Executive Retirement Plan, Amended
and Restated Effective July 1, 1991 (Exhibit 10.b.1.(xviii) to A&B's Form
10-K for the year ended December 31, 1992).
(xxiv) Amendment No. 1 to and Restatement of the A&B 1985
Supplemental Executive Retirement Plan, effective February 1, 1995
(Exhibit 10.b.1.(xxiv) to A&B's Form 10-K for the year ended December 31,
1994).
(xxv) A&B Retirement Plan for Outside Directors, Amended and
Restated Effective October 24, 1991 (Exhibit 10.b.1.(xix) to A&B's
Form 10-K for the year ended December 31, 1992).
(xxvi) Amendment No. 1 to and Restatement of the A&B Retirement
Plan for Outside Directors, effective February 1, 1995
(Exhibit 10.b.1.(xxvi) to A&B's Form 10-K for the year ended December 31,
1994).
(xxvii) Form of Severance Agreement entered into with certain
executive officers, as amended and restated effective August 22, 1991
(Exhibit 10.c.1.(xxiv) to A&B's Form 10-Q for the quarter ended
September 30, 1991).
(xxviii) Alexander & Baldwin, Inc. One-Year Performance
Improvement Incentive Plan, as restated effective October 22, 1992
(Exhibit 10.b.1.(xxi) to A&B's Form 10-K for the year ended December 31,
1992).
(xxix) Alexander & Baldwin, Inc. Three-Year Performance
Improvement Incentive Plan, as restated effective October 22, 1992
(Exhibit 10.b.1.(xxii) to A&B's Form 10-K for the year ended December 31,
1992).
(xxx) Alexander & Baldwin, Inc. Deferred Compensation Plan
effective August 25, 1994 (Exhi-bit 10.b.1.(xxv) to A&B's Form 10-Q for
the quarter ended September 30, 1994).
11. Statement re computation of per share earnings.
13. Annual report to security holders.
13. Alexander & Baldwin, Inc. 1996 Annual Report.
21. Subsidiaries.
21. Alexander & Baldwin, Inc. Subsidiaries as of February 28, 1997.
23. Consent of Deloitte & Touche LLP dated March 27, 1997 (included as last
page of A&B's Form 10-K for the year ended December 31, 1996).
27. Financial data schedule.
D. REPORTS ON FORM 8-K
-------------------
No reports were filed during the quarter ended December 31, 1996.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ALEXANDER & BALDWIN, INC.
(Registrant)
Date: March 27, 1997 By /s/ John C. Couch
--------------------------------
John C. Couch
Chairman of the Board,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ John C. Couch Chairman of the March 27, 1997
- ------------------------- Board, President
John C. Couch and Chief Execu-
tive Officer and
Director
/s/ Glenn R. Rogers Vice President, March 27, 1997
- ------------------------- Chief Financial
Glenn R. Rogers Officer and
Treasurer
/s/ Thomas A. Wellman Controller March 27, 1997
- -------------------------
Thomas A. Wellman
/s/ Michael J. Chun Director March 27, 1997
- -------------------------
Michael J. Chun
/s/ Leo E. Denlea, Jr. Director March 27, 1997
- -------------------------
Leo E. Denlea, Jr.
/s/ Walter A. Dods, Jr. Director March 27, 1997
- --------------------------
Walter A. Dods, Jr.
/s/ Charles G. King Director March 27, 1997
- --------------------------
Charles G. King
/s/ Carson R. McKissick Director March 27, 1997
- --------------------------
Carson R. McKissick
/s/ C. Bradley Mulholland Director March 27, 1997
- --------------------------
C. Bradley Mulholland
/s/ Robert G. Reed III Director March 27, 1997
- --------------------------
Robert G. Reed III
/s/ Maryanna G. Shaw Director March 27, 1997
- --------------------------
Maryanna G. Shaw
/s/ Charles M. Stockholm Director March 27, 1997
- --------------------------
Charles M. Stockholm
INDEPENDENT AUDITORS' REPORT
Alexander & Baldwin, Inc.:
We have audited the financial statements of Alexander & Baldwin, Inc. and its
subsidiaries as of December 31, 1996 and 1995, and for each of the three years
in the period ended December 31, 1996, and have issued our report thereon dated
January 23, 1997; such financial statements and report are included in your
1996 Annual Report to Shareholders and are incorporated herein by reference.
Our audits also included the financial statement schedules of Alexander &
Baldwin, Inc. and its subsidiaries, listed in Item 14.B. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ Deloitte & Touche LLP
January 23, 1997
SCHEDULE I
ALEXANDER & BALDWIN, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ALEXANDER & BALDWIN, INC. (Parent Company)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(In thousands)
1996 1995
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $ - $ 44
Income tax receivable 18,292 6,292
Accounts and notes receivable, net 1,909 75
Prepaid expenses and other 1,050 741
--------- ---------
Total current assets 21,251 7,152
--------- ---------
Investments:
Subsidiaries consolidated, at equity 592,691 584,151
Other 90,796 81,538
--------- ---------
Total investments 683,487 665,689
--------- ---------
Property, at cost 78,581 91,377
Less accumulated depreciation and amortization 9,610 10,512
--------- ---------
Property -- net 68,971 80,865
--------- ---------
Other Assets 10,324 1,234
--------- ---------
Total $ 784,033 $ 754,940
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank overdraft $ 16 $ -
Accounts payable 239 319
Other 3,829 4,361
--------- ---------
Total current liabilities 4,084 4,680
--------- ---------
Long-term Liabilities 5,740 5,127
--------- ---------
Due to subsidiaries 40,477 53,805
--------- ---------
Deferred Income Taxes 49,404 41,650
--------- ---------
Commitments and Contingencies
Shareholders' Equity:
Capital stock 37,150 37,133
Additional capital 43,377 40,138
Unrealized holding gains on securities 48,205 39,830
Retained earnings 568,969 546,394
Cost of treasury stock (13,373) (13,817)
--------- ---------
Total shareholders' equity 684,328 649,678
--------- ---------
Total $ 784,033 $ 754,940
========= =========
See accompanying notes.
ALEXANDER & BALDWIN, INC. (Parent Company)
CONDENSED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In thousands)
1996 1995 1994
---- ---- ----
Revenue:
Net sales, revenue from services and
rentals $ 18,449 $ 10,287 $ 9,753
Interest, dividends and other 3,961 3,798 3,753
--------- --------- ---------
Total revenue 22,410 14,085 13,506
--------- --------- ---------
Costs and Expenses:
Cost of goods sold, services and
rentals 4,331 2,946 4,972
Selling, general and administrative 7,331 9,111 11,119
Interest and other 1,019 1,604 1,148
Income taxes 3,008 427 (4,339)
--------- --------- ---------
Total costs and expenses 15,689 14,088 12,900
--------- --------- ---------
Income (Loss) Before Equity in Net Income
of Subsidiaries Consolidated 6,721 (3) 606
Equity in Net Income From Continuing
Operations of Subsidiaries Consolidated 58,564 32,422 63,373
Equity in Net Income From Discontinued
Operations of Subsidiaries Consolidated - 23,336* 10,629
--------- --------- ---------
Net Income $ 65,285 $ 55,755 $ 74,608
========= ========= =========
*Includes an after-tax gain of $18 million on the sale of the net assets of
Matson Leasing Company, Inc.
See accompanying notes.
ALEXANDER & BALDWIN, INC. (Parent Company)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In thousands)
1996 1995 1994
---- ---- ----
Cash Flows from Operations $ (5,892) $ (9,405) $ (6,341)
--------- --------- ---------
Cash Flows from Investing Activities:
Capital expenditures (353) (678) (935)
Proceeds from sale (purchase) of
investments 10,182 (1,514) 1,200
Dividends received from subsidiaries 50,000 70,000 60,000
--------- --------- ---------
Net cash provided by investing
activities 59,829 67,808 60,265
--------- --------- ---------
Cash Flows from Financing Activities:
Increase (decrease) in intercompany
payable (13,328) (357) 5,066
Payments of long-term debt (850) (6,892) (935)
Proceeds from issuances of capital
stock 1,291 468 122
Repurchase of capital stock (1,250) (11,580) (17,717)
Dividends paid (39,860) (40,035) (40,563)
--------- --------- ---------
Net cash used in financing activities (53,997) (58,396) (54,027)
--------- --------- ---------
Cash and Cash Equivalents:
Net increase (decrease) for the year (60) 7 (103)
Balance, beginning of year 44 37 140
--------- --------- ---------
Balance, end of year $ (16) $ 44 $ 37
========= ========= =========
Other Cash Flow Information:
Interest paid, net of amounts
capitalized $ 152 $ 479 $ 889
Income taxes paid, net of refunds 26,360 53,014 18,391
Other Non-cash Information:
Depreciation 2,604 3,049 3,043
See accompanying notes.
ALEXANDER & BALDWIN, INC. (Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
- ---------------------------------------
(a) ORGANIZATION AND OPERATIONS
Alexander & Baldwin, Inc. is the parent company of A&B-Hawaii, Inc. (ABHI) and
Matson Navigation Company, Inc. (Matson). ABHI has principal business
operations of Food Products and Property Development and Management. Matson
has principal business operations of Ocean Transportation and until June 1995,
of Container Leasing. The net assets of Matson Leasing Company, Inc., the
Company's container leasing subsidiary, were sold in June 1995 for $361.7
million in cash. Accordingly, the operating results and the gain on sale of
the container leasing segment have been separately reported.
(b) LONG-TERM LIABILITIES
At December 31, 1996 and 1995, long-term liabilities consisted of the
following:
1996 1995
---- ----
(In thousands)
Long-term debt:
Limited partnership subscription notes,
no interest, payable through 1996 $ - $ 850
Less current portion 850
--------- ---------
Long-term debt - 0
Other--principally deferred compensation and
executive survivors 5,740 5,127
--------- ---------
Total $ 5,740 $ 5,127
========= =========
(c) COMMITMENTS AND CONTINGENCIES
The Company and certain subsidiaries are parties to various legal actions and
are contingently liable in connection with claims and contracts arising in the
normal course of business, the outcome of which, in the opinion of management
after consultation with legal counsel, will not have a material adverse effect
on the Company's financial position or results of operations.
At December 31, 1996, the Company did not have any significant firm
commitments.
(d) CASH DIVIDENDS FROM AFFILIATES
Cash dividends from a consolidated subsidiary were $50,000,000 in 1996,
$70,000,000 in 1995 and $60,000,000 in 1994.