UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended December 31, 2008
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the
transition period from _______ to _______
Commission
file number 000-00565
ALEXANDER
& BALDWIN, INC.
(Exact
name of registrant as specified in its charter)
Hawaii
|
|
99-0032630
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
No.)
|
822
Bishop Street
Post
Office Box 3440, Honolulu, Hawaii 96801
(Address
of principal executive offices and zip code)
808-525-6611
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
|
Name
of each exchange
|
Title of each class
|
on which registered
|
Common
Stock, without par value
|
NYSE
|
Securities
registered pursuant to Section 12(g) of the Act:
None
Number
of shares of Common Stock outstanding at February 13, 2009:
41,025,935
Aggregate
market value of Common Stock held by non-affiliates at June 30,
2008:
$1,840,694,745
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes x No o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer x
|
Accelerated filer o
|
Non-accelerated
filer o (Do not check if
a smaller reporting company)
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o No x
Documents
Incorporated By Reference
Portions
of Registrant’s Proxy Statement dated March 12, 2009 (Part III of Form
10-K)
TABLE
OF CONTENTS
PART
I
|
Page
|
|
|
|
|
Items
1 & 2.
|
|
Business
and
Properties
|
1
|
|
|
|
|
A.
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|
Transportation
|
1
|
|
|
(1)
|
Freight
Services
|
1
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|
|
(2)
|
Vessels
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2
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|
|
(3)
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Terminals
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2
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|
|
(4)
|
Logistics
and Other
Services
|
3
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(5)
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Competition
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3
|
|
|
(6)
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Labor
Relations
|
5
|
|
|
(7)
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Rate
Regulation
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5
|
|
|
|
|
|
B.
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Real
Estate
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6
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|
|
(1)
|
General
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6
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|
(2)
|
Planning
and
Zoning
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7
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|
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(3)
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Residential
Projects
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7
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|
|
(4)
|
Commercial
Properties
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9
|
|
|
|
|
|
C.
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|
Agribusiness
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12
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(1)
|
Production
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12
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|
|
(2)
|
Marketing
of Sugar and
Coffee
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12
|
|
|
(3)
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Sugar
Competition and
Legislation
|
13
|
|
|
(4)
|
Coffee
Competition and
Prices
|
14
|
|
|
(5)
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Properties
and
Water
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14
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|
|
|
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|
D.
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|
Employees
and Labor
Relations
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15
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|
|
|
|
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E.
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|
Energy
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16
|
|
|
|
|
F.
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|
Available
Information
|
17
|
|
|
|
|
Item
1A.
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|
Risk
Factors
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17
|
|
|
|
|
Item
1B.
|
|
Unresolved
Staff
Comments
|
26
|
|
|
|
|
Item
3.
|
|
Legal
Proceedings
|
26
|
|
|
|
|
Item
4.
|
|
Submission
of Matters to a Vote of Security
Holders
|
28
|
|
|
Executive
Officers of the
Registrant
|
28
|
PART
II
Item
5.
|
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
29
|
|
|
|
|
Item
6.
|
|
Selected
Financial
Data
|
31
|
|
|
|
|
Item
7.
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
34
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|
Page
|
|
|
|
|
Items
7A.
|
|
Quantitative
and Qualitative Disclosures About Market Risk
|
57
|
|
|
|
|
Item
8.
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|
Financial
Statements and Supplementary
Data
|
58
|
|
|
|
|
Item
9.
|
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
|
106
|
|
|
|
|
Item
9A.
|
|
Controls
and
Procedures
|
106
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|
|
|
|
A.
|
|
Disclosure
Controls and
Procedures
|
106
|
|
|
|
|
B.
|
|
Internal
Control over Financial
Reporting
|
106
|
|
|
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|
Item
9B.
|
|
Other
Information
|
106
|
PART
III
Item
10.
|
|
Directors,
Executive Officers and Corporate
Governance
|
107
|
|
|
|
|
A.
|
|
Directors
|
107
|
|
|
|
|
B.
|
|
Executive
Officers
|
107
|
|
|
|
|
C.
|
|
Corporate
Governance
|
108
|
|
|
|
|
D.
|
|
Code
of
Ethics
|
108
|
|
|
|
|
Item
11.
|
|
Executive
Compensation
|
109
|
|
|
|
|
Item
12.
|
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
109
|
|
|
|
|
Item
13.
|
|
Certain
Relationships and Related Transactions, and Director
Independence
|
109
|
|
|
|
|
Item
14.
|
|
Principal
Accounting Fees and
Services
|
109
|
PART
IV
Item
15.
|
|
Exhibits
and Financial Statement
Schedules
|
110
|
|
|
|
|
A.
|
|
Financial
Statements
|
110
|
|
|
|
|
B.
|
|
Financial
Statement
Schedules
|
110
|
|
|
|
|
C.
|
|
Exhibits
Required by Item 601 of Regulation
S-K
|
110
|
|
|
|
|
Signatures
|
119
|
|
|
Consent
of Independent Registered Public Accounting
Firm
|
121
|
ALEXANDER
& BALDWIN, INC.
FORM
10-K
Annual
Report for the Fiscal Year
Ended
December 31, 2008
PART
I
ITEMS
1 & 2. BUSINESS AND PROPERTIES
Alexander
& Baldwin, Inc. (“A&B”) is a multi-industry corporation with its primary
operations centered in Hawaii. It was founded in 1870 and
incorporated in 1900. Ocean transportation operations, related
shoreside operations in Hawaii, and intermodal, truck brokerage and logistics
services are conducted by a wholly-owned subsidiary, Matson Navigation Company,
Inc. (“Matson”), and two Matson subsidiaries. Property development
and agribusiness operations are conducted by A&B and certain other
subsidiaries of A&B.
The
business industries of A&B are generally as follows:
|
A.
|
Transportation -
carrying freight, primarily between various U.S. Pacific Coast, Hawaii,
Guam, China and other Pacific island ports; arranging domestic and
international rail intermodal service, long-haul and regional highway
brokerage, specialized hauling, flat-bed and project work,
less-than-truckload, expedited/air freight services, and warehousing and
distribution services; and providing terminal, stevedoring and container
equipment maintenance services in
Hawaii.
|
|
B.
|
Real Estate - engaging
in real estate development and ownership activities, including planning,
zoning, financing, constructing, purchasing, managing and leasing, selling
and exchanging, and investing in real
property.
|
|
C.
|
Agribusiness - growing
sugar cane and coffee in Hawaii; producing bulk raw sugar, specialty
food-grade sugars, molasses and green coffee; marketing and distributing
roasted coffee and green coffee; providing sugar, petroleum and molasses
hauling, general trucking services, mobile equipment maintenance and
repair services, and self-service storage in Hawaii; and generating and
selling, to the extent not used in A&B’s operations,
electricity.
|
For
information about the revenue, operating profits and identifiable assets of
A&B’s industry segments for the three years ended December 31, 2008,
see Note 13 (“Industry Segments”) to A&B’s financial statements in
Item 8 of Part II below.
DESCRIPTION
OF BUSINESS AND PROPERTIES
A. Transportation
(1) Freight
Services
Matson’s
Hawaii Service offers containership freight services between the ports of Long
Beach, Oakland, Seattle, and the major ports in Hawaii on the islands of Oahu,
Kauai, Maui and Hawaii. Roll-on/roll-off service is provided between
California and the major ports in Hawaii.
Matson is
the principal carrier of ocean cargo between the U.S. Pacific Coast and
Hawaii. Principal westbound cargoes carried by Matson to Hawaii
include dry containers of mixed commodities, refrigerated commodities, building
materials, packaged foods, household goods and automobiles. Principal
eastbound cargoes carried by Matson from Hawaii include automobiles, household
goods, refrigerated containers of fresh pineapple, livestock and dry containers
of mixed commodities. The majority of Matson’s Hawaii Service revenue
is derived from the westbound carriage of containerized freight and
automobiles.
Matson’s
Guam Service provides weekly containership freight services between the U.S.
Pacific Coast and Guam. Additional freight destined to and from the
Commonwealth of the Marianas Islands, the Republic of Palau and the island of
Yap in the Federated States of Micronesia is transferred at Guam to and from
connecting carriers for delivery to and from those locations.
Matson’s
Micronesia Service offers container and conventional freight service between the
U.S. Pacific Coast and the islands of Kwajalein, Ebeye and Majuro in the
Republic of the Marshall Islands and the islands of Pohnpei, Chuuk and Kosrae in
the Federated States of Micronesia. Cargo is transferred at Guam to a
Matson-operated ship that provides consistent, reliable bi-weekly service to and
from those islands. Matson also carries cargo originating in Asia to
these islands by receiving cargo transferred from other carriers in
Guam.
Matson’s
China Service is part of an integrated Hawaii/Guam/China
service. This service employs five Matson containerships in a weekly
service that carries cargo from the U.S. Pacific Coast to Honolulu, then to
Guam. The vessels continue to China, where they are loaded with cargo
to be discharged in Long Beach. These ships also carry cargo destined
to and originating from Guam, the Commonwealth of Northern Marianas, the
Republic of Palau and the Republic of the Marshall Islands.
See “Rate
Regulation” below for a discussion of Matson’s freight rates.
(2) Vessels
Matson’s
fleet consists of 10 containerships, excluding one containership time-chartered
from a third party that serves Micronesia; three combination
container/roll-on/roll-off ships; one roll-on/roll-off barge and two container
barges equipped with cranes that serve the neighbor islands of Hawaii; and one
container barge equipped with cranes that is available for
charter. The 17 Matson-owned vessels in the fleet represent an
investment of approximately $1.2 billion expended over the past 30
years. The majority of vessels in the Matson fleet have been acquired
with the assistance of withdrawals from a Capital Construction Fund (“CCF”)
established under Section 607 of the Merchant Marine Act, 1936, as
amended.
In
February 2005, Matson entered into a right of first refusal agreement with Aker
Philadelphia Shipyard, Inc. (“Aker”), which provides that, after the MV Maunalei was
delivered to Matson in 2006, Matson has the right of first refusal to purchase
each of the next four containerships of similar design built by Aker that are
deliverable before June 30, 2010. Matson may either exercise its
right of first refusal and purchase the ship at an 8 percent discount from a
third party’s proposed contract price, or decline to exercise its right of first
refusal and be paid by Aker 8 percent of such price. Matson does
not expect to exercise this right because Aker’s order book is filled until 2010
by the construction of product tanker vessels that do not qualify for the
discount. Notwithstanding the above, if Matson and Aker agree to a
construction contract for a vessel to be delivered before June 30, 2010,
Matson shall receive an 8 percent discount.
Vessels
owned by Matson are described on page 4.
As a
complement to its fleet, Matson owns approximately 24,200 containers, 14,600
container chassis, 900 auto-frames and miscellaneous other
equipment. Capital expenditures incurred by Matson in 2008 for
vessels, equipment and systems totaled approximately
$26 million.
(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 and other ocean carriers at its 105-acre marine
terminal in Honolulu. Matson Terminals owns and operates seven cranes
at the terminal, which handled approximately 373,900 lifts in 2008 (compared
with 389,200 in 2007). The number of lifts decreased primarily due to
the softening of the construction and tourism industries, offset by the
drydocking of two neighbor island barges in 2007 (the lifts were handled by a
third party), which were returned to service in 2008. The terminal
can accommodate three vessels at one time. Matson Terminals’ lease
with the State of Hawaii runs through September 2016. Matson
Terminals also provides container stevedoring and other terminal services to
Matson and for other vessels operators on the islands of Hawaii, Maui and
Kauai.
SSA
Terminals, LLC (“SSAT”), a joint venture of Matson and SSA Marine, Inc. (“SSA”),
provides terminal and stevedoring services at U.S. Pacific Coast terminal
facilities to Matson and numerous international carriers, which include
Mediterranean Shipping Company (“MSC”), COSCO, NYK Line and China
Shipping. SSAT operates seven terminals: two in Seattle, three
in Oakland/Richmond and two in Long Beach, one of which is operated by SSA
Terminals (Long Beach), LLC, a joint venture shared equally between SSAT and
MSC.
Capital
expenditures incurred by Matson Terminals in 2008 for terminals and equipment
totaled approximately $8 million.
(4) Logistics
and Other Services
Matson
Integrated Logistics, Inc. (“Matson Integrated Logistics”), a wholly-owned
subsidiary of Matson, is a transportation intermediary that provides rail,
highway, air and other third-party logistics services for North American and
international ocean carrier customers, including Matson. Through
volume purchases of rail, motor carrier, air and ocean transportation services,
augmented by such services as shipment tracking and tracing and single-vendor
invoicing, Matson Integrated Logistics is able to reduce transportation costs
for its customers. Matson Integrated Logistics is headquartered in
Concord, California, operates seven regional operating centers, has sales
offices in over 40 cities nationwide, and operates through a network of agents
throughout the U.S. Mainland.
Matson
Global Distribution Services, Inc. (“Matson Global”) is a wholly-owned
subsidiary of Matson Integrated Logistics that principally provides warehousing
and distribution services. With the acquisition of a regional warehouse company
in Northern California in 2008, Matson Global’s service menu was expanded to
include operating a Foreign Trade Zone. Through Matson Global, Matson
Integrated Logistics provides customers with a full suite of domestic and
international transportation services.
(5) Competition
Matson’s
Hawaii Service and Guam Service have one major containership competitor, Horizon
Lines, Inc., that serves Long Beach, Oakland, Tacoma, Honolulu and
Guam. The Hawaii Service also has one additional liner competitor,
Pasha Hawaii Transport Lines, LLC, that operates a pure car carrier ship,
specializing in the carriage of automobiles and large pieces of rolling stock
such as trucks and buses.
Other
competitors in the Hawaii Service include two common carrier barge services,
unregulated proprietary and contract carriers of bulk cargoes, and air cargo
service providers. Although air freight competition is intense for
time-sensitive and perishable cargoes, inroads by such competition in terms of
cargo volume are limited by the amount of cargo space available in passenger
aircraft and by generally higher air freight rates. Over the years,
additional barge competitors periodically have entered and left the U.S.-Hawaii
trades, mostly from the Pacific Northwest.
Matson
vessels are operated on schedules that make available to shippers and consignees
regular day-of-the-week sailings from the U.S. Pacific Coast and day-of-the-week
arrivals in Hawaii. Matson generally offers between three and four
sailings per week, though this amount may be adjusted according to seasonal
demand and market conditions. Matson provides over 180 sailings per
year, which is greater than all of its domestic ocean competitors
combined. One westbound sailing each week continues on to Guam and
China, so the number of eastbound sailings from Hawaii to the U.S. Mainland is
between two and three per week with the potential for additional
sailings. This service is attractive to customers because more
frequent arrivals permit customers to reduce inventory costs. Matson
also competes by offering a more comprehensive service to customers, supported
by the scope of its equipment, its efficiency and experience in handling
containerized cargo, and competitive pricing.
MATSON
NAVIGATION COMPANY, INC.
OWNED
FLEET
|
|
|
|
|
|
Usable
Cargo Capacity
|
|
|
|
|
Maximum
|
Maximum
|
Containers
|
Vehicles
|
Molasses
|
|
Official
|
Year
|
|
Speed
|
Deadweight
|
|
|
|
|
Reefer
|
|
|
|
|
Vessel
Name
|
Number
|
Built
|
Length
|
(Knots)
|
(Long
Tons)
|
20’
|
24’
|
40’
|
45’
|
Slots
|
TEUs(1)
|
Autos
|
Trailers
|
Short
Tons
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diesel-Powered Ships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R.
J. PFEIFFER
|
979814
|
1992
|
713’
6”
|
23.0
|
27,100
|
107
|
--
|
1,069
|
--
|
300
|
2,245
|
--
|
--
|
--
|
MOKIHANA
|
655397
|
1983
|
860’
2”
|
23.0
|
29,484
|
146
|
--
|
924
|
--
|
342
|
1,994
|
1,323
|
38
|
--
|
MANULANI
|
1168529
|
2005
|
712’
0”
|
23.0
|
29,517
|
4
|
--
|
1,040
|
128
|
284
|
2,372
|
--
|
--
|
--
|
MAHIMAHI
|
653424
|
1982
|
860’
2”
|
23.0
|
30,167
|
150
|
--
|
1,494
|
--
|
408
|
3,138
|
--
|
--
|
--
|
MANOA
|
651627
|
1982
|
860’
2”
|
23.0
|
30,187
|
150
|
--
|
1,494
|
--
|
408
|
3,138
|
--
|
--
|
3,000
|
MANUKAI
|
1141163
|
2003
|
711’
9”
|
23.0
|
29,517
|
4
|
--
|
1,115
|
64
|
284
|
2,378
|
--
|
--
|
--
|
MAUNAWILI
|
1153166
|
2004
|
711’
9”
|
23.0
|
29,517
|
4
|
--
|
1,190
|
--
|
284
|
2,384
|
--
|
--
|
--
|
MAUNALEI
|
1181627
|
2006
|
681’
1”
|
22.1
|
33,771
|
424
|
--
|
984
|
--
|
328
|
1,992
|
--
|
--
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steam-Powered Ships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KAUAI
|
621042
|
1980
|
720’
5-1/2”
|
22.5
|
26,308
|
--
|
202
|
706
|
--
|
270
|
1,654
|
44
|
--
|
2,600
|
MAUI
|
591709
|
1978
|
720’
5-1/2”
|
22.5
|
26,623
|
74
|
128
|
708
|
--
|
270
|
1,644
|
--
|
--
|
2,600
|
MATSONIA
|
553090
|
1973
|
760’
0”
|
21.5
|
22,501
|
36
|
45
|
789
|
26
|
258
|
1,727
|
450
|
85
|
4,300
|
LURLINE
|
549900
|
1973
|
826’
6”
|
21.5
|
22,213
|
6
|
--
|
777
|
38
|
246
|
1,646
|
761
|
55
|
2,100
|
LIHUE
|
530137
|
1971
|
787’
8”
|
21.0
|
38,656
|
296
|
--
|
861
|
--
|
188
|
2,018
|
--
|
--
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WAIALEALE
(2)
|
978516
|
1991
|
345’
0”
|
--
|
5,621
|
--
|
--
|
--
|
--
|
36
|
--
|
230
|
45
|
--
|
MAUNA
KEA (3) (4)
|
933804
|
1988
|
372’
0”
|
--
|
6,837
|
--
|
276
|
24
|
--
|
70
|
379
|
--
|
--
|
--
|
MAUNA
LOA (3)
|
676973
|
1984
|
350’
0”
|
--
|
4,658
|
24
|
24
|
132
|
8
|
78
|
335
|
--
|
--
|
2,100
|
HALEAKALA
(3)
|
676972
|
1984
|
350’
0”
|
--
|
4,658
|
24
|
24
|
132
|
8
|
78
|
335
|
--
|
--
|
2,100
|
______________________________________________________
(1)
|
“Twenty-foot
Equivalent Units” (including trailers). TEU is a standard
measure of cargo volume correlated to the volume of a standard 20-foot dry
cargo container.
|
(2)
|
Roll-on/Roll-off
Barge.
|
(4)
|
Formerly
named “Islander.”
|
The
carriage of cargo between the U.S. Pacific Coast and Hawaii on foreign-built or
foreign-documented vessels is prohibited by Section 27 of the Merchant
Marine Act, 1920, commonly referred to as the Jones Act. However,
foreign-flag vessels carrying cargo to Hawaii from non-U.S. locations provide
indirect competition for Matson’s Hawaii Service. Asia, Australia,
New Zealand, Mexico and South Pacific islands have direct foreign-flag services
to Hawaii.
Matson is
a member of Maritime Cabotage Task Force, which supports the retention of the
Jones Act and other cabotage laws that regulate the transport of goods between
U.S. ports. Repeal of the Jones Act would allow foreign-flag vessel
operators, which do not have to abide by U.S. laws and regulations, to sail
between U.S. ports in direct competition with Matson and other U.S. operators,
which 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 has
operated its China Long Beach Express Service since February
2006. Matson provides weekly containership service between the ports
of Ningbo and Shanghai and the port of Long Beach. Enroute to China,
the ships stop at Honolulu, then Guam, carrying cargo destined to those
areas. From Honolulu, connecting service is provided to other ports
in Hawaii. From Guam, connecting service is provided to other Pacific
islands. The ships then continue from Guam to the ports of Ningbo and
Shanghai, and return directly to Long Beach. Major competitors in the
China Service include well-known international carriers such as Maersk, COSCO,
Evergreen, Hanjin, APL, China Shipping, Hyundai and NYK Line. Matson
competes by offering the fastest and most reliable freight availability from
Shanghai to Long Beach, providing fixed Sunday arrivals in Long Beach and
next-day cargo availability, offering a dedicated Long Beach terminal providing
fast truck turn times, an off-dock container yard and one-stop intermodal
connections, using its newest and most fuel efficient U.S. flag ships and
providing state-of-the-art technology and world-class customer
service. Matson operates offices in Shanghai and Ningbo, and has
contracted with terminal operators in both locations.
Matson
Integrated Logistics competes with thousands of local, regional, national and
international companies that provide transportation and third-party logistics
services. The industry is highly fragmented and, therefore, competition varies
by geography and arenas of expertise. At a national level, Matson Integrated
Logistics competes most directly with C.H. Robinson Worldwide and the Hub Group.
Competition is differentiated by the depth, scale and scope of customer
relationships; vendor relationships and rates; network capacity; and real-time
visibility into the movement of customers’ goods and other technology solutions.
Additionally, while Matson Integrated Logistics primarily provides surface
transportation brokerage, it also competes to a lesser degree with other forms
of transportation for the movement of cargo, including air
services.
(6) Labor
Relations
The
absence of strikes and the availability of labor through hiring halls are
important to the maintenance of profitable operations by Matson. In
the last 38 years, only once-in 2002, when International
Longshore and Warehouse Union (“ILWU”) workers were locked out for ten days on
the U.S. Pacific Coast-has Matson’s operations
been disrupted significantly by labor disputes. See “Employees and
Labor Relations” below for a description of labor agreements to which Matson and
Matson Terminals are parties and information about certain unfunded liabilities
for multiemployer pension plans to which Matson and Matson Terminals
contribute.
(7) Rate
Regulation
Matson is
subject to the jurisdiction of the Surface Transportation Board with respect to
its domestic rates. A rate in the noncontiguous domestic trade is
presumed reasonable and will not be subject to investigation if the aggregate of
increases and decreases is not more than 7.5 percent above, or more than 10
percent below, the rate in effect one year before the effective date of the
proposed rate, subject to increase or decrease by the percentage change in the
U.S. Producer Price Index (“zone of reasonableness”). Matson raised
its rates in its Hawaii and Guam services, effective January 6, 2008 and January
27, 2008, respectively, by $75 per westbound container and $40 per eastbound
container and its terminal handling charges by $125 per westbound container and
$60 per eastbound container. Increases in bunker fuel prices and
other energy-related costs caused Matson to raise its fuel-related surcharge
from 29 percent to 31.5 percent in its Hawaii and Guam services, effective
February 4, 2008; to 33.75 percent in its Hawaii and Guam services, effective
April 6, 2008; to 38.25 percent in its Hawaii service and to 39.75 percent in
its Guam service, effective July 13, 2008; and to 42.25 percent in its Hawaii
service and to 43.75 percent in its Guam service, effective August 31,
2008. As a result of subsequent declines in bunker fuel prices,
Matson decreased its fuel related surcharge to 37.5 percent in its Hawaii
service and to 39 percent in its Guam service, effective September 21, 2008; to
33 percent in its Hawaii service and to 34.5 percent in its Guam service,
effective October 12, 2008; to 27 percent in its Hawaii service and 28.5 percent
in its Guam service, effective October 19, 2008; to 25 percent in its Hawaii
service and to 26.5 percent in its Guam service, effective November 2, 2008; to
19.5 percent in its Hawaii service and to 21 percent in its Guam service,
effective November 16, 2008; and to 15 percent in its Hawaii service and to 16.5
percent in its Guam service, effective November 30, 2008. Matson
raised its rates in its Hawaii service, effective January 4, 2009, by $120 per
westbound container and $60 per eastbound container and its terminal handling
charges by $175 per westbound container and $90 per eastbound
container. Matson raised its rates in its Guam service, effective
February 1, 2009, by $120 per westbound and eastbound container and its West
Coast terminal handling charge by $175 for westbound and eastbound
containers. Effective in March 2009, Matson will implement a new
crane surcharge of $125 per container to help recover costs associated with the
purchase and operation of three gantry cranes in the port of
Guam. Matson’s China Service is subject to the jurisdiction of the
Federal Maritime Commission (“FMC”). No such zone of reasonableness
applies under FMC regulation.
B. Real
Estate
(1) General
As of
December 31, 2008, A&B and its subsidiaries, including A&B Properties,
Inc., owned approximately 89,240 acres, consisting of approximately 88,790 acres
in Hawaii and approximately 450 acres on the U.S. Mainland, as
follows:
Location
|
No. of Acres
|
|
|
|
|
Maui
|
|
68,265
|
|
Kauai
|
|
20,500
|
|
Oahu
|
|
25
|
|
TOTAL
HAWAII
|
|
88,790
|
|
|
|
|
|
California
|
|
107
|
|
Texas
|
|
164
|
|
Georgia
|
|
63
|
|
Utah
|
|
35
|
|
Arizona
|
|
30
|
|
Nevada
|
|
21
|
|
Colorado
|
|
17
|
|
Washington
|
|
13
|
|
TOTAL
MAINLAND
|
|
450
|
|
As
described more fully in the table below, the bulk of this acreage currently is
used for agricultural, pasture, watershed and conservation
purposes. A portion of these lands is used or planned for development
or other urban uses. An additional 2,770 acres on Maui, Kauai and
Oahu are leased from third parties, and are not included in the
tables. In addition, the tables do not include acreage under joint
venture development.
Current Use
|
No. of Acres
|
|
|
|
|
Hawaii
|
|
|
|
Fully
entitled Urban (defined below)
|
|
745
|
|
Agricultural,
pasture and miscellaneous
|
|
58,840
|
|
Watershed/conservation
|
|
29,205
|
|
|
|
|
|
U.S.
Mainland
|
|
|
|
Fully
entitled Urban
|
|
450
|
|
TOTAL
|
|
89,240
|
|
A&B
and its subsidiaries are actively involved in the entire spectrum of real estate
development and ownership, including planning, zoning, financing, constructing,
purchasing, managing and leasing, selling and exchanging, and investing in real
property.
(2) Planning
and Zoning
The
entitlement process for development of property in Hawaii is complex,
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;
and
|
|
·
|
County
approval to rezone the property to the precise residential use
desired.
|
The
entitlement process is complicated by the conditions, restrictions and exactions
that are placed on these approvals, including, among others, the construction of
infrastructure improvements, payment of impact fees, restrictions on the
permitted uses of the land, provision of affordable housing and mandatory fee
sale of portions of the project.
A&B
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. A&B designates a parcel as “fully entitled”
or “fully zoned” when the above-mentioned land use approvals described above
have been obtained.
(3) Residential
Projects
A&B is
pursuing a number of residential projects in Hawaii, including:
Maui:
(a) Wailea. In October
2003, A&B acquired 270 acres of fully-zoned, undeveloped residential and
commercial land at the Wailea Resort on Maui, planned for up to 1,200 homes, for
$67.1 million. A&B was the original developer of the Wailea
Resort, beginning in the 1970s and continuing until A&B sold the Resort to
the Shinwa Golf Group in 1989.
From 2004
to 2007, A&B sold 29 single-family homesites at Wailea’s Golf Vistas
subdivision and four bulk parcels: MF-4 (10.5 acres), MF-15 (9.4
acres), MF-5 (8.4 acres) and MF-9 (30.2 acres), along with a three-acre business
parcel within the 10.4-acre MF-11 parcel and a 4.6-acre portion of the 15.6-acre
B I & II parcel. The joint venture development of Kai Malu on the
25-acre MF-8 parcel is described below. In 2008, construction was
completed on 12 single-family lots at MF-11 (7.4 net acres) and construction
commenced on nine half-acre estate lots at MF-19 (6.7 acres), with completion
expected in mid-2009. Planning, design and permitting activities are
currently underway for the 13.0-acre MF-7 parcel, planned for 75 multi-family
units; the 13-acre SF-8 parcel, to meet affordable housing requirements for
various Wailea projects; and the 13.7-acre MF-10 parcel, planned for a
65,000-square-foot commercial center, nine single-family lots fronting the Blue
Course, and a 36-unit condominium project.
(b) Kai Malu at
Wailea. In April 2004, A&B entered into a joint venture
with Armstrong Builders, Ltd. for development of the 25-acre MF-8 parcel at
Wailea into 150 duplex units, averaging 1,800 square feet per
unit. Sales commenced in 2006 and a total of 135 units have closed as
of December 31, 2008, including 27 units that closed in 2008.
(c) Haliimaile
Subdivision. A&B’s application to rezone 63 acres and
amend the community plan for the development of a 150- to 200-lot residential
subdivision in Haliimaile (Upcountry, Maui) was approved by the Maui County
Council in September 2005. In 2006, onsite infrastructure design work
was submitted to County agencies, and design approval is anticipated in
2009.
(d) Kane Street
Development. Aina ‘O Kane is planned to consist of 103
residential condominium units in five four-story buildings, with 20,000
square-feet of ground-floor commercial space, in
Kahului. Construction documents were completed and building permit
applications were submitted to the County in August 2006. Due to
market conditions, the phasing of this project is currently under
consideration.
(e) Kahului Town
Center. The redevelopment plan for the 19-acre Kahului
Shopping Center block reflects the creation of a traditional “town center,”
consisting of approximately 440 residential condominium units, as well as
approximately 240,000 square feet of retail/office space. In 2008,
construction plans for offsite and onsite civil improvements and Phase I
vertical improvements (86,000 square feet of commercial space) were submitted to
the County. In light of market conditions, the timing of the start of
construction is being reevaluated.
Kauai:
(f) Kukui`ula. In
April 2002, A&B entered into a joint venture with an affiliate of DMB
Associates, Inc., an Arizona-based developer of master-planned communities, for
the development of Kukui`ula, a 1,000-acre master planned resort residential
community located in Poipu, Kauai, planned for approximately 1,000 to 1,200
high-end residential units. In 2004, A&B exercised its option to
contribute to the joint venture up to 40 percent of the project’s future capital
requirements. Offsite construction commenced in 2005 and onsite
infrastructure work commenced in 2006. Mass grading commenced in 2007
and the resort core grading was completed in January 2008. In 2008,
construction was completed on two major roadways, subdivision improvements for
parcels Y (88 lots) and M1/M4 (35 lots), and the first three holes of the
golf course. Construction also commenced on parcel M2/M3 (55 lots)
and vertical construction of the project’s plantation club and
spa. Construction also continued on water systems and the project’s
commercial center. As of December 31, 2008, a total of 80 lots
have closed, including 13 lots in 2008. The capital contributed by A&B to
the joint venture, including the value of land initially contributed, was $101
million as of December 31, 2008. Construction work on infrastructure and
amenities is ongoing and being phased to better match the expected pace of
growth in the community, without impacting the long-term vision and quality of
the project.
(g) Port Allen. This
project covers 17 acres in Port Allen, and is planned for 75 condominium units
and 58 single-family homes. In 2008, construction was completed on
the 58 homes. As of year-end 2008, 56 homes had closed, including 30
closings in 2008. The construction of the condominium units has been
deferred pending market recovery.
Oahu:
(h) Keola La`i. In 2008,
A&B completed construction of a 42-story condominium project near downtown
Honolulu, consisting of 352 residential units, averaging 970 square feet, and
four commercial units. Closings commenced in February 2008 and, as of
year-end 2008, 330 residential units and two commercial units had
closed.
(i) Waiawa. In August
2006, A&B entered into a joint venture agreement with an affiliate of Gentry
Investment Properties, for the development of a 1,000-acre master-planned
primary residential community (530 residential-zoned acres) in Central
Oahu. The venture will act as land developer for the master planned
community and homebuilder for approximately 5,000 residential units. Due to current market
conditions and higher projected construction costs, A&B is working with the
venture partner and landowner on alternative development
arrangements.
Big
Island of Hawaii:
(j) Ka Milo at Mauna
Lani. In April 2004, A&B entered into a joint venture with
Brookfield Homes Hawaii Inc. to acquire and develop a 30.5-acre residential
parcel in the Mauna Lani Resort on the island of Hawaii. The project
is planned for 37 single-family units and 100 duplex townhomes. A
total of 27 units were constructed in 2007 and 2008 and, as of year-end 2008, 12
units had closed, including six units closing in 2008. Due to current
market conditions, construction of the remaining units in the project have been
deferred.
U.S.
Mainland:
(k) Santa Barbara
Ranch. In November 2007, the Company entered into a joint
venture with Vintage Communities, LLC, a residential developer headquartered in
Newport Beach, California, for the planned development of a 1,040-acre exclusive
large-lot subdivision, located 12 miles north of the City of Santa
Barbara. The joint venture partner is continuing planning and
entitlement work, but due to current economic conditions, A&B has suspended
further investment in the project, and a $3.0 million impairment was
recognized at year-end.
(4) Commercial
Properties
An
important source of property revenue is the lease rental income A&B receives
from its portfolio of commercial income properties, currently consisting of
approximately 7.9 million leasable square feet of commercial building
space.
(a) Hawaii
Properties
A&B’s
Hawaii commercial properties portfolio consists of retail, office and industrial
properties, comprising approximately 1.3 million square feet of leasable
space. Most of the commercial properties are located on Maui and
Oahu, with smaller holdings in the area of Port Allen, on the island of
Kauai. The average occupancy for the Hawaii portfolio was 98 percent
in 2008, unchanged from 2007. In 2008, A&B sold Kahului Town
Terrace, a 72-unit residential rental property, and six parcels within A&B’s
Triangle Square development in Kahului, Maui.
The
primary Hawaii commercial properties owned as of year-end 2008 are as
follows:
Property
|
Location
|
Type
|
Leasable
Area
(sq. ft.)
|
|
|
|
|
Maui
Mall
|
Kahului,
Maui
|
Retail
|
186,300
|
Mililani
Shopping Center
|
Mililani,
Oahu
|
Retail
|
180,300
|
Pacific
Guardian Complex
|
Honolulu,
Oahu
|
Office
|
143,300
|
Kaneohe
Bay Shopping Center
|
Kaneohe,
Oahu
|
Retail
|
127,500
|
P&L
Warehouse
|
Kahului,
Maui
|
Industrial
|
104,100
|
Port
Allen (4 buildings)
|
Port
Allen, Kauai
|
Industrial/Retail
|
87,600
|
Hawaii
Business Park
|
Pearl
City, Oahu
|
Industrial
|
85,200
|
Wakea
Business Center II
|
Kahului,
Maui
|
Industrial/Retail
|
61,500
|
Kunia
Shopping Center
|
Waipahu,
Oahu
|
Retail
|
60,600
|
Kahului
Office Building
|
Kahului,
Maui
|
Office
|
57,700
|
Triangle
Square
|
Kahului,
Maui
|
Retail
|
42,900
|
Kahului
Office Center
|
Kahului,
Maui
|
Office
|
32,900
|
Stangenwald
Building
|
Honolulu,
Oahu
|
Office
|
27,100
|
Judd
Building
|
Honolulu,
Oahu
|
Office
|
20,200
|
Kahului
Shopping Center
|
Kahului,
Maui
|
Retail
|
18,600
|
Maui
Clinic Building
|
Kahului,
Maui
|
Office
|
16,600
|
Lono
Center
|
Kahului,
Maui
|
Office
|
13,100
|
Other
commercial projects under development in Hawaii are discussed
below:
(i)Maui Business Park
II. In May 2008, A&B received final zoning approval for
179 acres in Kahului, Maui, representing the second phase of its Maui Business
Park project, from agriculture to light industrial. The zoning change
approval is subject to various conditions, such as providing land for affordable
housing and a wastewater treatment plant. In 2008, design and
engineering of the infrastructure commenced and subdivision applications were
filed with the County.
(ii)Kukui`ula Village. In
August 2007, the Company entered into a joint venture with DMB Kukui`ula Village LLC, for the
development of Kukui`ula
Village, a planned 91,700-square-foot commercial center located at the entrance
to the Kukui`ula project. Vertical construction commenced in 2008,
and the center is planned to be completed in 2009. The center is 55
percent leased, but leasing has slowed due to softening economic
conditions.
(b) U.S. Mainland
Properties
On the
U.S. Mainland, A&B owns a portfolio of commercial properties, acquired
primarily by way of tax-deferred exchanges under Internal Revenue Code
Section 1031. In August and September 2008, respectively,
A&B completed the sale of Boardwalk, a 184,600-square-foot shopping center
in Round Rock, Texas and Marina Shores, a 67,700-square-foot shopping center in
Long Beach, California. In November 2008, A&B completed the sale
of Venture Oaks, a 103,700-square-foot office complex in Sacramento,
California. In February 2008, A&B acquired Savannah Logistics
Park, a two-building, 1.0-million-square-foot logistics/industrial facility in
Savannah, Georgia. Building A (710,800 square feet) is included
in the listing below, but the second building (324,800 square feet) is included
as a development property until March 2009 and is not included in the listing
below. In September 2008, A&B acquired Republic Distribution
Center, a 312,500-square-foot industrial facility in Pasadena,
Texas. In December 2008, A&B completed its acquisition of
Midstate 99 Distribution Center, a four-building, 790,400-square-foot industrial
facility in Visalia, California. As of year-end 2008, A&B’s
mainland portfolio included approximately 6.6 million square feet of leasable
area, as follows:
Property
|
Location
|
Type
|
Leasable
Area
(sq. ft.)
|
|
|
|
|
Heritage
Business Park
|
Dallas,
TX
|
Industrial
|
1,316,400
|
Ontario
Distribution Center
|
Ontario,
CA
|
Industrial
|
898,400
|
Midstate
99 Distribution Center
|
Visalia,
CA
|
Industrial
|
790,400
|
Savannah
Logistics Park (Bldg. A)
|
Savannah,
GA
|
Industrial
|
710,800
|
Sparks
Business Center
|
Sparks,
NV
|
Industrial
|
396,100
|
Republic
Distribution Center
|
Pasadena,
TX
|
Industrial
|
312,500
|
Centennial
Plaza
|
Salt
Lake City, UT
|
Industrial
|
244,000
|
Valley
Freeway Corporate Park
|
Kent,
WA
|
Industrial
|
228,200
|
1800
and 1820 Preston Park
|
Plano,
TX
|
Office
|
198,600
|
Ninigret
Office Park X and XI
|
Salt
Lake City, UT
|
Office
|
185,200
|
San
Pedro Plaza
|
San
Antonio, TX
|
Office/Retail
|
171,900
|
2868
Prospect Park
|
Sacramento,
CA
|
Office
|
162,900
|
Concorde
Commerce Center
|
Phoenix,
AZ
|
Office
|
140,700
|
Arbor
Park Shopping Center
|
San
Antonio, TX
|
Retail
|
139,500
|
Deer
Valley Financial Center
|
Phoenix,
AZ
|
Office
|
126,600
|
San
Jose Avenue Warehouse
|
City
of Industry, CA
|
Industrial
|
126,000
|
Southbank
II
|
Phoenix,
AZ
|
Office
|
120,800
|
Village
at Indian Wells
|
Indian
Wells, CA
|
Retail
|
104,600
|
Broadlands
Marketplace
|
Broomfield,
CO
|
Retail
|
103,900
|
2890
Gateway Oaks
|
Sacramento,
CA
|
Office
|
58,700
|
Wilshire
Center
|
Greeley,
CO
|
Retail
|
46,500
|
Royal
MacArthur Center
|
Dallas,
TX
|
Retail
|
44,000
|
A&B’s
mainland commercial properties maintained an average occupancy rate of 95
percent in 2008, compared to 97 percent in 2007.
A&B’s
mainland joint venture commercial developments are summarized
below:
(i)Crossroads
Plaza. In June 2004, A&B entered into a joint venture with
Intertex Hasley, LLC, for the development of a 56,000-square-foot mixed-use
neighborhood retail center on 6.5 acres in Valencia, California. The
property was acquired in August 2004. The sale of a pad site building
closed in 2007, and construction of the center was substantially completed in
2008. Current occupancy is 56 percent.
(ii)Centre Pointe
Marketplace. In April 2005, A&B entered into a joint
venture with Intertex Centre Pointe Marketplace, LLC for the development of a
105,700-square-foot retail center on a 10.2-acre parcel in Valencia,
California. The sale of several pad site buildings closed in 2007.
Vertical construction was substantially completed in 2008, with five of seven
buildings closed in 2008 and the two remaining buildings expected to be sold in
2010.
(iii)Bridgeport
Marketplace. In July 2005, A&B entered into a joint
venture with Intertex Bridgeport Marketplace, LLC for the development of a
27.8-acre parcel in Valencia, California. The parcel was subdivided
into a 5-acre parcel for a public park, a 7.3-acre parcel sold to a church in
2007, and a 15.5-acre parcel for the development of a 130,000-square-foot retail
center. Vertical construction of the center commenced in 2007 and is
nearing completion with 98 percent of the retail and office space under binding
leases.
(iv)Bakersfield - Panama
Grove. In November 2006, A&B entered into a joint venture
with Intertex P&G Retail, LLC, for the planned development of a
575,000-square-foot retail center on a 57.3-acre commercial parcel in
Bakersfield, California. The parcel was acquired in November
2006. Development plans currently are on hold due to current economic
conditions.
(v)Palmdale Trade & Commerce
Center. In December 2007, A&B entered into a joint venture
with Intertex Palmdale Trade & Commerce Center LLC, for the planned
development of a 315,000-square-foot mixed-use commercial office and light
industrial condominium complex on 18.2 acres in Palmdale, California, located 60
miles northeast of Los Angeles and 25 miles northeast of
Valencia. The parcel was contributed to the venture in
2008. Due to current market conditions, the venture is reevaluating
the product design and timing of development.
C. Agribusiness
(1) Production
A&B
has been engaged in the production of cane sugar in Hawaii since 1870, and the
production of coffee in Hawaii since 1987. A&B’s current
agribusiness and related operations consist of: (1) a sugar
plantation on the island of Maui, operated by its Hawaiian Commercial &
Sugar Company (“HC&S”) division, (2) a coffee farm on the island of
Kauai, operated by its Kauai Coffee Company, Inc. (“Kauai Coffee”) subsidiary,
and (3) its Kahului Trucking & Storage, Inc. (“KT&S”) and
Kauai Commercial Company, Incorporated (“KCC”) subsidiaries, which provide all
types of trucking services, including sugar and molasses hauling on Maui and
Kauai, mobile equipment maintenance and repair services on Maui, Kauai, and the
Big Island, and self-service storage facilities on Maui and Kauai.
HC&S
is Hawaii’s largest producer of raw sugar, producing approximately 145,200 tons
of raw sugar in 2008, or about 75 percent of the raw sugar produced in Hawaii
for the year (compared with 164,500 tons, or about 80 percent, in
2007). The primary reason for the decline in sugar production has
been the unprecedented continuing drought conditions affecting the island of
Maui. In 2008, HC&S had the lowest East Maui water deliveries on
record since the Company first began recording deliveries in
1925. Moreover, the two-year period beginning in 2007, and extending
through 2008, marked two consecutive years of the lowest rainfall
recorded. A chronic lack of water that has extended throughout the
crop’s lifecycle has had serious adverse impacts on crop
yields. HC&S harvested 16,961 acres of sugar cane in 2008
(compared with 16,895 in 2007). Yields averaged 8.6 tons of sugar per
acre in 2008 (compared with 9.7 in 2007). As a by-product of sugar
production, HC&S also produced approximately 52,200 tons of molasses in 2008
(compared with 51,700 in 2007).
In 2008,
approximately 27,500 tons of sugar (compared with 21,200 tons in 2007) were
processed by HC&S into specialty food-grade sugars under HC&S’s Maui
Brand®
trademark or repackaged by distributors under their own labels. A
multi-phase expansion of the production facilities for these sugars was
completed in early 2008.
During
2008, Kauai Coffee had approximately 3,000 acres of coffee trees under
cultivation. The 2008 harvest yielded approximately 3.0 million
pounds of green coffee, compared with 2.5 million pounds in 2007. The
preliminary mix of green coffee has resulted in a slightly higher percentage of
specialty and commodity green beans and a lower percentage of mid-grade green
beans than in 2007.
HC&S
and McBryde Sugar Company, Limited (“McBryde”), a subsidiary of A&B and the
parent company of Kauai Coffee, produce electricity for internal use and for
sale to the local electric utility companies. HC&S’s power is
produced by burning bagasse (the residual fiber of the sugar cane plant), by
hydroelectric power generation and, when necessary, by burning fossil fuels,
whereas McBryde produces power solely by hydroelectric
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 a guaranteed power generation capacity to the local
utility. See “Energy” below for power production and sales
data.
(2) Marketing
of Sugar and Coffee
Approximately
81 percent of the bulk raw sugar produced by HC&S in 2008 was purchased by
C&H Sugar Company, Inc. (“C&H”). C&H processes the raw
cane sugar at its refinery at Crockett, California, and markets the refined
products primarily in the western and central United States.
The
remaining 19 percent of the raw sugar was used by HC&S to produce specialty
food-grade sugars, which are sold by HC&S to food and beverage producers and
to retail stores under its Maui Brand® label,
and to distributors that repackage the sugars under their own
labels. HC&S’s largest food-grade sugar customers are Cumberland
Packing Corp. and Sugar Foods Corporation, which repackage HC&S’s turbinado
sugar for their “Sugar in the Raw” products.
Hawaiian
Sugar & Transportation Cooperative (“HS&TC”), a cooperative consisting
of two sugar cane growers in Hawaii (including HC&S), has a supply contract
with C&H, ending in December 2009. HS&TC has the option to
extend this supply contract by an additional year. Pursuant to the
supply contract, the growers sell their raw sugar to C&H at a price equal to
the New York No. 14 Contract settlement price, less a discount and less
costs of sugar vessel discharge and stevedoring. This price, 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. Notwithstanding the supply contract, HC&S
arranged directly with C&H for the forward pricing of a portion of its 2008
harvest, as described in Item 7A (“Quantitative and Qualitative Disclosures
About Market Risk”) of Part II below. The other member of
HS&TC has announced that it plans to withdraw from the sugar-growing
business later this year. HC&S and the withdrawing member will
need to resolve issues relating to such withdrawal from HS&TC.
At Kauai
Coffee, coffee marketing efforts are directed toward developing a market for
premium-priced, estate-grown Kauai green bean (unroasted)
coffee. Most of the coffee crop is being marketed on the U.S.
Mainland as green bean coffee. In addition to the sale of green bean
coffee, Kauai Coffee produces and sells roasted, packaged coffee under the Kauai
Coffee®
trademark. Kauai Coffee’s customers include specialty and commodity
brokers, hotels, and large regional roasters.
(3) Sugar
Competition and Legislation
Hawaii
sugar growers produce more sugar per acre than most other major producing areas
of the world, but that advantage is offset by Hawaii’s high labor costs and the
distance to the U.S. Mainland market. Hawaiian 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 that produces more sugar than it consumes. Sugar from
sugar beets is the greatest source of competition in the refined sugar market
for the Hawaiian sugar industry.
The U.S.
Congress historically has sought, through legislation, to assure a reliable
domestic supply of sugar at stable and reasonable prices. The current
legislation is the Food Conservation and Energy Act of 2008, which expires on
December 31, 2012 (“2008 Farm Bill”). The two main elements of
U.S. sugar policy are the tariff-rate quota (“TRQ”) import system and the price
support loan program. The TRQ system limits imports from countries
other than Canada and Mexico by allowing only a quota amount to enter the U.S.
after payment of a relatively low tariff. A higher, over-quota tariff
is imposed for imported quantities above the quota amount. Also, a
new but limited sucrose ethanol program was added in 2008, which allows sugar to
be diverted into ethanol when the market is deemed to be
oversupplied.
The 2008
Farm Bill reauthorized the sugar price support loan program, which supports the
U.S. price of sugar by providing for commodity-secured loans to
producers. A loan rate (support price) of 18 cents per pound (“c/lb”)
for raw cane sugar is in effect for the 2008 crop. The loan rate
increases by .25 c/lb each year up to 18.75 c/lb for 2011 and 2012
(the last year of the bill). The supply agreement between HS&TC
and C&H provides for a floor minimum price that is based on the loan
rate.
In 2005,
the U.S. approved a trade pact with Central America and the Dominican Republic,
known as the Central America-Dominican Republic-United States Free Trade
Agreement. In 2006, the first year of the agreement, additional sugar
market access for participating countries amounted to about 1.2 percent of
current U.S. sugar consumption (107,000 metric tons), which will grow to about
1.7 percent (151,000 metric tons) in its fifteenth year.
Implementation
of the North American Free Trade Agreement (NAFTA) began in
1994. This agreement removed most barriers to trade and investment
among the U.S., Canada and Mexico. Under NAFTA, all non-tariff
barriers to agricultural trade between the U.S. and Mexico were
eliminated. In addition, many tariffs were eliminated immediately,
while others were phased out over periods of 5 to 15 years with full elimination
having begun January 1, 2008. Starting in 2008, Mexico can ship
an unlimited quantity of sugar duty-free to the U.S. each year, even though the
U.S. sugar market is already oversupplied.
U.S.
domestic raw sugar prices remain suppressed. A chronological chart of
the average U.S. domestic raw sugar prices, based on the average daily New York
No. 14 Contract settlement price for domestic raw sugar, is shown below (not
adjusted for inflation):
Liberalized
international trade agreements, such as the General Agreement on Tariffs and
Trade, or GATT, include provisions relating to agriculture that can affect the
U.S. sugar or sweetener industries materially. Negotiations under the
U.S.-Central America Free Trade Agreement, or CAFTA, as well as other trade
discussions, have resulted in lower U.S. sugar prices.
(4) Coffee
Competition and Prices
Kauai
Coffee competes with coffee growers located worldwide, including in
Hawaii. Coffee commodity prices have been strong for the past several
years. The market for specialty coffee in the United States is very
competitive. Because of its quality and branding, Kauai Coffee has
been successful at selling most of its coffee at a premium, above commodity
market prices. Kauai Coffee has long-term, repeat customers that
account for the bulk of its sales, though there is strong competition and the
contracts are subject to renegotiation each year.
Approximately
one-fifth of Kauai Coffee’s production is off-grade coffees, which are loosely
tied to world commodity market prices. Kauai Coffee engages in
short-term contracts with established customers to ensure that it receives the
best price possible for these coffees. These prices are subject to
price adjustments on an annual basis.
Kauai
Coffee’s green bean coffee production volume and unit costs vary each year
depending upon growing and harvesting conditions. The unit cost per
pound impacts the cost of goods for Kauai Coffee’s wholesale roasted and retail
programs.
(5) Properties
and Water
The
HC&S sugar plantation, the largest in Hawaii, consists of approximately
43,300 acres, including a small portion of leased
lands. Approximately 34,700 acres are under cultivation, and the
balance is leased to third parties, is not suitable for cane cultivation, or is
used for plantation purposes such as roads, reservoirs, ditches and plant
sites.
On Kauai,
approximately 3,000 acres are cultivated by Kauai Coffee.
The Hawaii
Legislature, in 2005, passed Important Agricultural Lands (“IAL”) legislation to
fulfill the State constitutional mandate to protect agricultural lands, promote
diversified agriculture, increase the State’s agricultural self-sufficiency, and
assure the availability of agriculturally suitable lands. In 2008,
the Legislature passed a package of incentives, which is necessary to trigger
the IAL system of land designation. The Company is now in the process
of filing voluntary petitions to designate lands on Maui and Kauai as
IAL.
It is
crucial for HC&S and Kauai Coffee to have access to reliable sources of
water supply and efficient irrigation systems. A&B’s plantations
conserve water by using a “drip” irrigation system that distributes water to the
roots through small holes in plastic tubes. All but a small area of
the cultivated cane land farmed by HC&S is drip irrigated. All of
Kauai Coffee’s fields are drip irrigated.
A&B
owns 16,000 acres of watershed lands in East Maui, which supply a portion of the
irrigation water used by HC&S. A&B also held four water
licenses to another 30,000 acres owned by the State of Hawaii in East Maui,
which over the years has supplied approximately two-thirds of the irrigation
water used by HC&S. The last of these water license agreements
expired in 1986, and all four agreements were then extended as revocable permits
that were renewed annually. In 2001, a request was made to the State
Board of Land and Natural Resources (the “BLNR”) to replace these revocable
permits with a long-term water lease. Pending the conclusion by the
BLNR of this contested case hearing on the request for the long-term lease, the
BLNR has renewed the existing permits on a holdover basis. A&B
also holds rights to an irrigation system in West Maui, which provides
approximately one-tenth of the irrigation water used by HC&S. For
information regarding legal proceedings involving A&B’s irrigation systems,
see “Legal Proceedings” below.
D. Employees
and Labor Relations
As of
December 31, 2008, A&B and its subsidiaries had approximately 2,160
regular full-time employees. About 969 regular full-time employees
were engaged in the agribusiness segment, 1,069 were engaged in the
transportation segment, 51 were engaged in the real estate segment, and the
remaining were in administration. Approximately 49 percent were
covered by collective bargaining agreements with unions.
At
December 31, 2008, the active Matson fleet employed seagoing personnel in
223 billets. Each billet corresponds to a position on a ship that
typically is filled by two or more employees because seagoing personnel rotate
between active sea duty and time ashore. Approximately 22 percent of
Matson’s regular full-time employees and all of the seagoing employees were
covered by collective bargaining agreements.
Historically,
collective bargaining with longshore and seagoing unions has been complex and
difficult. However, Matson and Matson Terminals consider their
relations with those unions, other unions and their non-union employees
generally to be satisfactory.
Matson’s
seagoing employees are represented by six unions, three representing unlicensed
crew members and three representing licensed crew members. Matson
negotiates directly with these unions. Matson’s agreements with the
Seafarer’s International Union, the Sailors Union of the Pacific and the Marine
Firemen’s Union were renewed in mid-2008 through June 2013 without service
interruption. Contracts that Matson has with the American Radio
Association expire on June 15, 2009. Contracts that Matson has with
the Masters, Mates & Pilots (“MM&P”) and the Marine Engineers Beneficial
Association (“MEBA”) for ships built prior to 2003 expire on June 15,
2009. Negotiations will commence in May 2009 for the contracts
expiring in June 2009. Contracts that Matson has with MM&P and
the MEBA for ships built after 2003 include provisions for a wage reopener with
negotiations completed by August 15, 2009.
SSAT, the
previously-described joint venture of Matson and SSA, provides stevedoring and
terminal services for Matson vessels calling at U.S. Pacific Coast
ports. Matson, SSA and SSAT are members of the Pacific Maritime
Association (“PMA”) which, on behalf of its members, negotiates collective
bargaining agreements with the ILWU on the U.S. Pacific Coast. A new
six-year PMA/ILWU Master Contract, which covers all Pacific Coast longshore
labor, was negotiated in 2008 without significant disruption and will expire on
July 1, 2014. Matson Terminals provides stevedoring and terminal
services to Matson and other vessel operators calling at Honolulu and on the
islands of Hawaii, Maui and Kauai. Matson Terminals is a member of
the Hawaii Stevedore Industry Committee, which negotiates with the ILWU in
Hawaii on behalf of its members. The ILWU contract in Hawaii expired
on June 30, 2008. Negotiations commenced in the spring of 2008
and recently concluded. Matson has signed six-year agreements with
each of the ILWU units. The current contracts will expire on
June 30, 2014.
During
2008, Matson renewed its collective bargaining agreement with ILWU clerical
workers at Honolulu and Oakland through June 2014 without service
interruption.
During
2008, Matson contributed to multiemployer 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. In the event that any third parties
materially disagree with Matson’s determination, Matson 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
multiemployer pension plan for its Hawaii ILWU non-clerical
employees. For a discussion of withdrawal liabilities under the
Hawaii longshore and seagoing plans, see Note 9 (“Employee Benefit Plans”)
to A&B’s financial statements in Item 8 of Part II
below.
Bargaining
unit employees of HC&S are covered by two collective bargaining agreements
with the ILWU. The agreements with the HC&S production unit
employees and clerical bargaining unit employees covering approximately 640
workers, expired on January 31, 2009, and are being
renegotiated. The bargaining unit employees at KT&S also are
covered by two collective bargaining agreements with the ILWU. Both
agreements were renegotiated. The bulk sugar employees agreement
expires on June 30, 2014, and the agreement with all other employees
expires on March 31, 2009, with renegotiations expected to begin in spring
of 2009. There are two collective bargaining agreements with KCC
employees represented by the ILWU. These agreements were also
renegotiated and expire on April 30, 2010. There is a collective
bargaining agreement with the ILWU for the production unit employees of Kauai
Coffee. This contract was renegotiated in 2007 and will expire on
January 31, 2010.
E. Energy
Matson and
Matson Terminals purchase residual fuel oil, lubricants, gasoline and diesel
fuel for their operations. Residual fuel oil is by far Matson’s
largest energy-related expense. In 2008, Matson vessels purchased
approximately 2.0 million barrels of residual fuel oil (compared with
2.3 million barrels in 2007).
Residual
fuel oil prices paid by Matson in 2008 started at $77.67 per barrel and ended
the year at $43.06. The low for the year was $34.48 per barrel in
November and the high was $126.57 in August. Sufficient fuel for
Matson’s requirements is expected to be available in 2009.
As has
been the practice with sugar plantations throughout Hawaii, HC&S uses
bagasse, the residual fiber of the sugar cane plant, as a fuel to generate steam
for the production of most of the electrical power for sugar milling and
irrigation pumping operations. In addition to bagasse, HC&S uses
coal, diesel, fuel oil, and recycled motor oil to generate power during factory
shutdown periods when bagasse is not being produced. HC&S also
generates a limited amount of hydroelectric power. To the extent it
is not used in A&B’s factory operations, HC&S sells
electricity. In 2008, HC&S produced and sold, respectively,
approximately 211,000 MWH and 91,300 MWH of electric power (compared with
218,000 MWH produced and 94,000 MWH sold in 2007). The decrease in
power sold was due to drought conditions, which hindered hydro power produced
and increased the use of power for irrigation pumping. HC&S’s use
of oil in 2008 of 26,600 barrels was 14 percent less than the 31,100 barrels
used in 2007. The decrease was due to a supply shortage of low-cost,
recycled motor oil. Coal used for power generation was 96,400 short
tons, about 28,300 tons more than that used in 2007. More coal was
required because less bagasse was produced due to a smaller crop, and some of
the coal had a lower heat value, requiring more tons to produce the same level
of heat.
In 2008,
McBryde produced approximately 32,000 MWH of hydroelectric power (compared with
approximately 31,800 MWH in 2007). To the extent it is not used in
A&B’s coffee operations, McBryde sells electricity to Kauai Island Utility
Cooperative. Power sales in 2008 amounted to approximately 23,700 MWH
(compared with 21,200 MWH in 2007).
In the
third quarter of 2008, HC&S was notified that the Hawaii Public Utilities
Commission (“PUC”) had issued a decision that provides for a new methodology of
calculating avoided energy costs, which resulted in a reduction in the avoided
energy cost payable to energy producers, beginning in August
2008. The decision affects the Company's power sales on Maui, but not
on Kauai. If no changes were to occur to the decision or the terms of
HC&S's power sales contract with Maui Electric Company (“MECO”), this
decision could result in an approximately $6 million annual reduction in
HC&S's power revenue and profitability. The Company is currently
evaluating its options for a reconsideration or reversal of the PUC’s decision
or for negotiating a new power contract with MECO, and the final outcome of
these actions cannot yet be determined.
F. Available
Information
A&B
files reports with the Securities and Exchange Commission (the
“SEC”). The reports and other information filed
include: annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and other reports and
information filed under the Securities Exchange Act of 1934 (the “Exchange
Act”).
The public
may read and copy any materials A&B files with the SEC at the SEC’s Public
Reference Room at 100 F Street, NE, Washington, DC 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet
website that contains reports, proxy and information statements, and other
information regarding A&B and other issuers that file electronically with
the SEC. The address of that website is www.sec.gov.
A&B
makes available, free of charge on or through its Internet website, A&B’s
annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable
after it electronically files such material with, or furnishes it to, the
SEC. The address of A&B’s Internet website is
www.alexanderbaldwin.com.
ITEM
1A. RISK FACTORS
The
business of A&B and its subsidiaries (collectively, the “Company”) faces
numerous risks, including those set forth below or those described elsewhere in
this Form 10-K or in the Company’s filings with the SEC. The
risks described below are not the only risks that the Company faces, nor are
they necessarily listed in order of significance. Other risks and
uncertainties may also impair its business operations. Any of these
risks may have a material adverse effect on the Company’s business, liquidity,
financial condition, results of operations and cash flows. All
forward-looking statements made by the Company or on the Company’s behalf are
qualified by the risks described below.
Changes
in U.S., global, or regional economic conditions that result in a further
decrease in consumer confidence or market demand for the Company’s services and
products in Hawaii, the U.S. Mainland, Guam or Asia may adversely affect the
Company’s financial position, results of operations, liquidity, or cash
flows.
A
continuation or further weakening of the U.S., Guam, Asian or global economies
may adversely impact the level of freight volumes, freight rates, and real
estate leasing and development activity. Within the U.S., a continuation or
further weakening of economic drivers in Hawaii, which include tourism, military
spending, construction starts, personal income growth, and employment, and/or
the further weakening of consumer confidence, market demand or the economy in
the U.S. Mainland, may further reduce the demand for goods to and from Hawaii
and Asia, travel to Hawaii and domestic transportation of goods, adversely
affecting inland and ocean transportation volumes and/or rates, the sale of
Hawaii real estate to mainland buyers, and the real estate leasing and
development markets. In addition, continued overcapacity in the global ocean
transportation market may adversely affect freight volumes and/or rates in the
Company’s China service. Additionally, a change in the cost of goods or currency
exchange rates may cause these adverse effects as well.
The
Company may face new or increased competition.
The
Company’s transportation segment may face new competition by established or
start-up shipping operators that enter the Company’s markets. The
entry of a new competitor or the addition of ships or capacity by existing
competition on any of the Company’s routes could result in a significant
increase in available shipping capacity that could have an adverse effect on
volumes and/or rates. See also discussion under “Business and
Properties - Transportation - Competition”
above.
For the
Company’s real estate segment, there are numerous other developers, managers and
owners of commercial and residential real estate and undeveloped land that
compete or may compete with the Company for management and leasing revenues,
land for development, properties for acquisition and disposition, and for
tenants and purchasers for properties. Increased vacancies or lack of
development opportunities may lead to a deterioration in results from the
Company’s real estate business.
The
Company’s significant operating agreements and leases could be
replaced.
The
significant operating agreements and leases of the Company in its various
businesses expire at various points in the future and may not be replaced or
could be replaced on less favorable terms, thereby adversely affecting future
revenue generation. For example, the Company’s agribusiness segment
sells substantially all of its bulk raw sugar through the cooperative HS&TC,
which has a supply contract with C&H Sugar Company, Inc., ending in December
2009. Replacement of this supply contract on less favorable terms to the Company
may adversely affect the Company’s sugar business.
The
reduction in availability of mortgage financing and the volatility and reduction
in liquidity in the financial markets may adversely affect the Company’s real
estate business.
During
2008, the financial industry continued to experience significant instability due
to, among other things, declining property values and increasing defaults on
loans. This has led to tightened credit requirements, reduced liquidity and
increased credit risk premiums for virtually all borrowers. Fewer loan products
and tighter loan qualifications will make it more difficult for borrowers to
finance the purchase of units in the Company’s residential projects. The
tightening of credit in the commercial markets may adversely affect the
Company’s ability to secure construction and/or other financing for the
Company’s residential and commercial projects, working capital requirements,
and/or investment needs. The absence of financing for buyers of commercial
properties will make it significantly more difficult for the Company to sell
commercial properties and will negatively impact the sales prices and other
terms of such sales. Additionally, continuation or worsening of the liquidity
crisis may impact the Company in other ways, including the credit or solvency of
customers, vendors, or joint venture partners, and the ability of partners to
fund their equity obligations to the joint venture.
A
downgrade in the Company’s credit rating or disruptions on the credit markets
could restrict its ability to access the debt capital markets and/or increase
the cost of debt.
Changes in
the Company’s credit ratings may ultimately impact the Company’s ability to
access debt in the private or public market and may also increase its borrowing
costs. If the Company’s credit ratings fall below investment grade, its access
to the debt capital markets may become restricted. Furthermore, the tightening
in the credit markets and the low level of liquidity in the financial markets
resulting from the current turmoil in the financial industry may adversely
affect the Company’s ability to access the debt capital markets or to renew its
committed lines of credit in the future and/or increase the Company’s cost of
capital. Because the Company relies on its ability to draw on its revolving
credit facilities to support its operations, when required, continued volatility
in the credit and financial markets that prevents the Company from accessing
funds (for example, a lender that does not fulfill its lending obligation),
could have an adverse effect on the Company’s financial condition and cash
flows. Additionally, the Company’s credit agreements generally include an
increase in interest rates if the Company’s ratings are downgraded.
Failure
to comply with certain restrictive financial covenants contained in the
Company’s credit facilities could preclude the payment of dividends, impose
restrictions on the Company’s business segments, capital resources or other
activities or otherwise adversely affect the Company.
The
Company’s credit facilities contain certain restrictive financial covenants, the
most restrictive of which include the maintenance of minimum shareholders’
equity levels, a maximum ratio of debt to earnings before interest,
depreciation, amortization, and taxes, and the maintenance of a minimum
unencumbered property investment value. If the Company does not maintain the
required covenants, and that breach of covenants is not cured timely or waived
by the lenders, resulting in default, the Company’s access to credit may be
limited or terminated, and the lenders could declare any outstanding amounts due
and payable.
The
Company is subject to potential insolvency of insurance carriers.
The
Company purchases a variety of insurance products to transfer financial risk.
Accordingly, the Company is subject to the risk that one or more of the insurers
may become insolvent and would be unable to pay one or more claims that may be
made in the future.
An
increase in fuel prices, or changes in the Company’s ability to collect fuel
surcharges, may adversely affect the Company’s profits.
Fuel is a
significant operating expense for the Company’s shipping and agribusiness
operations. The price and supply of fuel is unpredictable and
fluctuates based on events beyond the Company’s control. Increases in
the price of fuel may adversely affect the Company’s results of operations based
on market and competitive conditions. Increases in fuel costs also can lead to
other expense increases, through, for example, increased costs of energy,
petroleum-based raw materials and purchased transportation
services. In the Company’s ocean transportation and logistics
segments, the Company is able to utilize fuel surcharges to partially recover
increases in fuel expense, although increases in the fuel surcharge may
adversely affect the Company’s competitive position and may not correspond
exactly with the timing of increases in fuel expense. Changes in the Company’s
ability to collect fuel surcharges may adversely affect its results of
operations. Increases in energy costs for the Company’s leased real estate
portfolio are typically recovered from lessees, although higher operating cost
reimbursements impact the ability to increase underlying rents. Rising fuel
prices may also increase the cost of construction, including delivery costs to
Hawaii, and the cost of materials that are petroleum-based, thus affecting the
Company’s development projects. Finally, rising fuel prices will impact the cost
of producing and transporting sugar.
Noncompliance
with, or changes to, federal, state or local law or regulations may adversely
affect the Company’s business.
The
Company is subject to federal, state and local laws and regulations, including
government rate regulations, land use regulations, government administration of
the U.S. sugar program, environmental regulations including those relating to
air quality initiatives at port locations, and cabotage
laws. Noncompliance with, or changes to, the laws and regulations
governing the Company’s business could impose significant additional costs on
the Company and adversely affect the Company’s financial condition. For example,
if the Jones Act and the regulations promulgated thereunder were repealed,
amended, or otherwise modified, non-U.S. competitors with significantly lower
costs may consequently enter any of the Jones Act routes or the Company’s
business may be significantly altered, all of which may have an adverse effect
on the Company’s shipping business. In addition, changes in federal, state and
local environmental laws impacting the shipping business, including passage of
climate change legislation or other regulatory initiatives in the United States
that restrict emissions of greenhouse gasses, may require costly vessel
modifications, the use of higher-priced fuel and changes in operating practices
that may not all be able to be recovered through increased payments from
customers. The real estate segment is subject to numerous federal,
state and local laws and regulations, which, if changed, may adversely affect
the Company’s business. The agribusiness segment is subject to the federal
government’s administration of the U.S. sugar program, such as the 2008 Farm
Bill, and the Hawaii Public Utilities Commission’s regulation of avoided energy
cost rates paid to the Company in connection with it sale of electric power, and
the Company may be adversely affected by any changes.
Work
stoppages or other labor disruptions by the unionized employees of the Company
or other companies in related industries may adversely affect the Company’s
operations.
As of
December 31, 2008, the Company had approximately 2,160 regular full-time
employees, of which approximately 49 percent were covered by collective
bargaining agreements with unions. The Company’s transportation, real estate and
agribusiness segments may be adversely affected by actions taken by employees of
the Company or other companies in related industries against efforts by
management to control labor costs, restrain wage increases or modify work
practices. Strikes and disruptions may occur as a result of the failure of the
Company or other companies in its industry to negotiate collective bargaining
agreements with such unions successfully. For example, in its real
estate segment, the Company may be unable to complete construction of its
projects if building materials or labor is unavailable due to labor disruptions
in the relevant trade groups.
The
loss of or damage to key vendor and customer relationships may adversely affect
the Company’s business.
The
Company’s business is dependent on its relationships with key vendors, customers
and tenants. The ocean transportation business relies on its relationships with
freight forwarders, large retailers and consumer goods and automobile
manufacturers, as well as other larger customers. Relationships with railroads
and shipping companies are important in the Company’s intermodal business. For
agribusiness, HC&S’s relationship with C&H Sugar Company, Inc. is
critical. The loss of or damage to any of these key relationships may affect the
Company’s business adversely.
Interruption
or failure of the Company’s information technology and communications systems
could impair the Company’s ability to operate and adversely affect its
business.
The
Company is highly dependent on information technology systems. For example, in
the transportation segment, these dependencies include accounting, billing,
disbursement, cargo booking and tracking, vessel scheduling and stowage,
equipment tracking, customer service, banking, payroll and employee
communication systems. All information technology and communication systems are
subject to reliability issues, integration and compatibility concerns, and
security-threatening intrusions. The Company may experience failures
caused by the occurrence of a natural disaster, or other unanticipated problems
at the Company’s facilities. Any failure of the Company’s systems could result
in interruptions in its service or production, reductions in its revenue and
profits and damage to its reputation.
The
Company is susceptible to weather and natural disasters.
The
Company’s transportation operations are vulnerable to disruption as a result of
weather and natural disasters such as bad weather at sea, hurricanes, typhoons,
tsunamis, floods and earthquakes. Such events will interfere with the Company’s
ability to provide on-time scheduled service, resulting in increased expenses
and potential loss of business associated with such events. In
addition, severe weather and natural disasters can result in interference with
the Company’s terminal operations, and may cause serious damage to its vessels,
loss or damage to containers, cargo and other equipment, and loss of life or
physical injury to its employees, all of which could have an adverse effect on
the Company’s business.
For the
real estate segment, the occurrence of natural disasters, such as hurricanes,
earthquakes, tsunamis, floods, fires, tornados and unusually heavy or prolonged
rain, could damage its real estate holdings, resulting in substantial repair or
replacement costs to the extent not covered by insurance, a reduction in
property values, or a loss of revenue, and could have an adverse effect on its
ability to develop, lease and sell properties. The occurrence of natural
disasters could also cause increases in property insurance rates and
deductibles, which could reduce demand for, or increase the cost of owning or
developing, the Company’s properties.
For the
agribusiness segment, drought, greater than normal rainfall, hurricanes,
earthquakes, tsunamis, floods, fires, other natural disasters or agricultural
pestilence may have an adverse effect on the sugar and coffee planting,
harvesting and production, and the agribusiness segment’s facilities, including
dams and reservoirs.
Heightened
security measures, war, actual or threatened terrorist attacks, efforts to
combat terrorism and other acts of violence may adversely impact the Company’s
operations and profitability.
War,
terrorist attacks and other acts of violence may cause consumer confidence and
spending to decrease, or may affect the ability or willingness of tourists to
travel to Hawaii, thereby adversely affecting Hawaii’s economy and the
Company. Additionally, future terrorist attacks could increase the
volatility in the U.S. and worldwide financial markets. Acts of war or terrorism
may be directed at the Company’s shipping operations or real estate holdings, or
may cause the U.S. government to take control of Matson’s vessels for military
operation. Heightened security measures are likely to slow the
movement and increase the cost of freight through U.S. or foreign ports, across
borders or on U.S. or foreign railroads or highways and could adversely affect
the Company’s business and results of operations.
Loss
of the Company’s key personnel could adversely affect its business.
The
Company’s future success will depend, in significant part, upon the continued
services of its key personnel, including its senior management and skilled
employees. The loss of the services of key personnel could adversely affect its
future operating results because of such employee’s experience and knowledge of
its business and customer relationships. If key employees depart, the Company
may have to incur significant costs to replace them, and the Company’s ability
to execute its business model could be impaired if it cannot replace them in a
timely manner. The Company does not expect to maintain key person insurance on
any of its key personnel.
The
Company is involved in joint ventures and is subject to risks associated with
joint venture relationships.
The
Company is involved in joint venture relationships, and may initiate future
joint venture projects. A joint venture involves certain risks such
as:
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the
Company may not have voting control over the joint
venture;
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the
Company may not be able to maintain good relationships with its venture
partners;
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the
venture partner at any time may have economic or business interests that
are inconsistent with the
Company’s;
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the
venture partner may fail to fund its share of capital for operations and
development activities, or to fulfill its other commitments, including
providing accurate and timely accounting and financial information to the
Company;
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the
joint venture or venture partner could lose key personnel;
and
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the
venture partner could become insolvent, requiring the Company to assume
all risks and capital requirements related to the joint venture
project.
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In
connection with its real estate joint ventures, the Company is sometimes asked
to guarantee completion of a joint venture’s construction and development of a
project, or to indemnify a third party serving as surety for a joint venture’s
bonds for such completion. If the Company were to become obligated under such
arrangement, the Company may be adversely affected.
For
information regarding certain recent developments involving the Kukui'ula
project, see “Business Outlook” in “Management's Discussion and Analysis of
Financial Condition and Results of Operations” in Item 7 of Part II of this Form
10-K.
The
Company is subject to, and may in the future be subject to, disputes, legal or
other proceedings, or government inquiries or investigations, that could have an
adverse effect on the Company.
The nature
of the Company’s business exposes it to the potential for disputes, legal or
other proceedings, or government inquiries or investigations, relating to
antitrust matters, labor and employment matters, personal injury and property
damage, environmental matters, construction litigation, and other matters, as
discussed in the other risk factors disclosed in this section or in other
Company filings with the SEC. For example, Matson is a common carrier, whose
tariffs, rates, rules and practices in dealing with its customers are governed
by extensive and complex foreign, federal, state and local regulations, which
may be the subject of disputes or administrative and/or judicial proceedings.
These disputes, individually or collectively, could harm the Company’s business
by distracting its management from the operation of its business. If these
disputes develop into proceedings, these proceedings, individually or
collectively, could involve or result in significant expenditures or losses by
the Company, or result in significant changes to Matson’s tariffs, rates, rules
and practices in dealing with its customers, all of which could have an adverse
effect on the Company’s future operating results, including profitability, cash
flows, and financial condition. As a real estate developer, the
Company may face warranty and construction defect claims, as described below in
the “Real Estate” section of this “Risk Factors” item. For a
description of significant legal proceedings involving the Company, including
proceedings involving the Company’s irrigation systems on Maui, and a grand jury
subpoena served on Matson on April 21, 2008 and subsequently filed civil
lawsuits purporting to be class actions in which the Company and Matson are
named as defendants, and which allege violations of the antitrust laws and seek
treble damages and injunctive relief, see “Legal Proceedings”
below.
TRANSPORTATION
The
Company is subject to risks associated with conducting business in a foreign
shipping market.
The
Company, through Matson’s Hawaii/Guam/China service, is subject to risks
associated with conducting business in a foreign shipping market, which
include:
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challenges
in operating in a foreign country and doing business and developing
relationships with foreign
companies;
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difficulties
in staffing and managing foreign
operations;
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legal
and regulatory restrictions, including compliance with Foreign Corrupt
Practices Act;
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global
vessel overcapacity that may lead to decreases in volumes and/or shipping
rates;
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competition
with established and new shippers;
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currency
exchange rate fluctuations;
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political
and economic instability;
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protectionist
measures that may affect the Company’s operation of its wholly-owned
foreign enterprise; and
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challenges
caused by cultural differences.
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Any of
these risks has the potential to adversely affect the Company’s operating
results.
Compliance
with environmental laws and regulations may adversely affect the Company’s
business.
The
Company’s vessel operations are subject to various federal, state and local
environmental laws and regulations, including, but not limited to, the Oil
Pollution Act of 1990, the Comprehensive Environmental Response Compensation
& Liability Act of 1980, the Clean Water Act, the Invasive Species Act and
the Clean Air Act. Continued compliance with these laws and regulations may
result in additional costs and changes in operating procedures that may
adversely affect the Company’s business.
Acquisitions
may have an adverse effect on the Company’s business.
The
Company’s growth strategy includes expansion through
acquisitions. Acquisitions may result in difficulties in assimilating
acquired companies, and may result in the diversion of the Company’s capital and
its management’s attention from other business issues and opportunities. The
Company may not be able to integrate companies that it acquires successfully,
including their personnel, financial systems, distribution, operations and
general operating procedures. The Company may also encounter challenges in
achieving appropriate internal control over financial reporting in connection
with the integration of an acquired company. The Company may pay a premium for
an acquisition, resulting in goodwill that may later be determined to be
impaired, adversely affecting the Company’s financial condition and results of
operations.
The
Company’s logistics services are dependent upon third parties for equipment,
capacity and services essential to operate the Company’s logistics business, and
if the Company fails to secure sufficient third party services, its business
could be adversely affected.
The
Company’s logistics services are dependent upon rail, truck and ocean
transportation services provided by independent third parties. If the Company
cannot secure sufficient transportation equipment, capacity or services from
these third parties at a reasonable rate to meet its customers’ needs and
schedules, customers may seek to have their transportation and logistics needs
met by other third parties on a temporary or permanent basis. As a result, the
Company’s business, consolidated results of operations and financial condition
could be adversely affected.
The
loss of several of the Company’s major customers could have an adverse effect on
the revenue and business of the Company’s logistics business.
The
Company’s logistics business derives a significant portion of its revenues from
its largest customers. For 2008, the Company’s logistics business’s largest ten
customers accounted for approximately 28 percent of the business’s
revenue. A reduction in or termination of the Company’s logistics services
by several of the logistics business’s largest customers could have an adverse
effect on the Company’s revenue and business.
REAL
ESTATE
The
Company is subject to risks associated with real estate construction and
development.
The
Company’s development projects are subject to risks relating to the Company’s
ability to complete its projects on time and on budget. Factors that may result
in a development project exceeding budget or being prevented from completion
include:
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an
inability of the Company or buyers to secure sufficient financing or
insurance on favorable terms, or at
all;
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construction
delays, defects, or cost overruns, which may increase project development
costs;
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an
increase in commodity or construction costs, including labor
costs;
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the
discovery of hazardous or toxic substances, or other environmental,
culturally-sensitive, or related
issues;
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an
inability to obtain zoning, occupancy and other required governmental
permits and authorizations;
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difficulty
in complying with local, city, county and state rules and regulations
regarding permitting, zoning, subdivision, utilities, affordable housing,
and water quality as well as federal rules and regulations regarding air
and water quality and protection of endangered species and their
habitats;
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an
inability to have access to reliable sources of water or to secure water
service or meters for its projects;
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an
inability to secure tenants necessary to support the
project;
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failure
to achieve or sustain anticipated occupancy or sales
levels;
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buyer
defaults, including defaults under executed or binding contracts;
and
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an
inability to sell the Company’s constructed
inventory.
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Any of
these risks has the potential to adversely affect the Company’s operating
results.
A
decline in leasing rental income could adversely affect the
Company.
The
Company owns a portfolio of commercial income properties. Factors
that may adversely affect the portfolio’s profitability include:
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a
significant number of the Company’s tenants are unable to meet their
obligations;
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increases
in non-recoverable operating and ownership
costs;
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the
Company is unable to lease space at its properties when the space becomes
available;
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the
rental rates upon a renewal or a new lease are significantly lower than
prior rents or do not increase sufficiently to cover increases in
operating and ownership costs;
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the
providing of lease concessions, such as free or discounted rents and
tenant improvement allowances; and
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the
discovery of hazardous or toxic substances, or other environmental,
culturally-sensitive, or related issues at the
property.
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Governmental
entities have adopted or may adopt regulatory requirements that may restrict the
Company’s development activity.
The
Company is subject to extensive and complex laws and regulations that affect the
land development process, including laws and regulations related to zoning and
permitted land uses. Government entities have adopted or may approve
regulations or laws that could negatively impact the availability of land and
development opportunities within those areas. For example, in
December 2007, Maui County adopted an ordinance requiring verification of water
source availability and sustainability for all developments prior to submission
of subdivision construction plans. This requirement adds further
process delays and burdens the developer with identifying and developing new
water sources. It is possible that increasingly stringent
requirements will be imposed on developers in the future that could adversely
affect the Company’s ability to develop projects in the affected markets or
could require that the Company satisfy additional administrative and regulatory
requirements, which could delay development progress or increase the development
costs of the Company. Any such delays or costs could have an adverse
effect on the Company’s revenues and earnings.
Real
estate development projects are subject to warranty and construction defect
claims in the ordinary course of business that can be significant.
As a
developer, the Company is subject to warranty and construction defect claims
arising in the ordinary course of business. The amounts payable under these
claims, both in legal fees and remedying any construction defects, can be
significant and exceed the profits made from the project. As a consequence, the
Company may maintain liability insurance, obtain indemnities and certificates of
insurance from contractors generally covering claims related to workmanship and
materials, and create warranty and other reserves for projects based on
historical experience and qualitative risks associated with the type of project
built. Because of the uncertainties inherent to these matters, the Company
cannot provide any assurance that its insurance coverage, contractor
arrangements and reserves will be adequate to address some or all of the
Company’s warranty and construction defect claims in the future. For example,
contractual indemnities may be difficult to enforce, the Company may be
responsible for applicable self-insured retentions, and certain claims may not
be covered by insurance or may exceed applicable coverage limits. Additionally,
the coverage offered and the availability of liability insurance for
construction defects could be limited and/or costly. Accordingly, the Company
cannot provide any assurance that such coverage will be adequate or available at
all, or available at an acceptable cost.
AGRIBUSINESS
The
lack of water for agricultural irrigation could adversely affect the
Company.
It is
crucial for the Company’s agribusiness segment to have access to reliable
sources of water for the irrigation of sugar cane and coffee. As further
described in “Legal Proceedings” below, there are administrative hearing
processes challenging the Company’s ability to divert water from streams in
Maui. In addition, the Company’s access to water is subject to weather patterns
that cannot be reliably predicted. If the Company is not permitted to
divert stream waters for its use or there is insufficient rainfall, it would
have an adverse effect on the Company’s sugar operations.
A
decline in raw sugar or coffee prices will adversely affect the Company’s
business.
The
business and results of operations of the Company’s agribusiness segment are
substantially affected by market factors, particularly the domestic prices for
raw cane sugar. These market factors are influenced by a variety of forces,
including prices of competing crops and suppliers, weather conditions, and
United States farm and trade policies. If the price for sugar or coffee were to
decline, the Company’s agribusiness segment would be adversely affected. See
also discussion under “Business and Properties - Agribusiness -
Competition and Sugar Legislation” above.
The
Company is subject to risks associated with raw sugar and coffee
production.
The
Company’s production of raw sugar and coffee is subject to numerous risks that
could adversely affect the volume and quality of sugar or coffee produced,
including:
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weather
and natural disasters;
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uncontrolled
fires, including arson;
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poor
farming practices;
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government
restrictions on farming practices due to cane
burning;
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increases
in costs, including, but not limited to fuel, fertilizer, herbicide, and
drip tubing;
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water
availability (see risk factor above regarding lack of
water);
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equipment
failures in factory or power plant;
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labor,
including labor availability (see risk factor above regarding labor
disruptions); and
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lack
of demand for the Company’s
production.
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Any of
these risks has the potential to adversely affect the Company’s future
agribusiness operating results.
Continued
operating losses or negative cash flows of the Agribusiness segment will
adversely affect the Company’s financial performance.
If the
Company’s Agribusiness segment continues to generate operating losses or
negative cash flows, the Company’s financial performance will be adversely
affected and will result in additional actions taken by the Company to reduce or
eliminate these operating losses or negative cash flows. Such actions may result
in an impairment loss and restructuring costs that would adversely affect the
Company’s financial performance.
The
Company’s power sales contract may not be favorably modified and may adversely
affect the Company’s Agribusiness segment.
As
mentioned under “Business and Properties - Energy” above, HC&S was
notified that the PUC had issued a decision that provides for a new methodology
of calculating avoided energy cost, which resulted in a reduction in the avoided
energy cost payable to energy producers, beginning in August 2008. If no changes
were to occur to the decision or the terms of HC&S’s power sales contract
with MECO, this decision could result in an approximately $6 million annual
reduction in HC&S’s power revenue and profitability. The Company is
currently evaluating its options for a reconsideration or reversal of the PUC’s
decision or for negotiating a new power contract with MECO. The inability to
favorably address this matter may adversely affect the Company’s agribusiness
operations.
The
other member of the HS&TC cooperative is expected to withdraw from HS&TC
this year.
HC&S sells substantially all of its
bulk raw sugar through HS&TC, a cooperative consisting of HC&S and one
other member. The other member of HS&TC has announced that it
plans to withdraw from the sugar-growing business later this
year. The Company intends to negotiate with the departing member to
resolve certain issues relating to such withdrawal from HS&TC, but the
Company is unable to predict, at this time, the outcome of such negotiations or
the impact, if any, on the Company's business.
OTHER
Earnings
on pension assets, or a change in pension law or key assumptions, may
adversely affect the Company’s financial performance.
The amount
of the Company’s employee pension and postretirement benefit costs and
obligations are calculated on assumptions used in the relevant actuarial
calculations. Adverse changes in any of these assumptions due to economic or
other factors, changes in discount rates, higher health care costs, or lower
actual or expected returns on plan assets, may adversely affect the Company’s
operating results, cash flows, and financial condition. In addition, a change in
federal law, including changes to the Employee Retirement Income Security Act
and Pension Benefit Guaranty Corporation premiums, may adversely affect the
Company’s single-employer and multiemployer pension plans and plan
funding. These factors, as well as a continued decline in the fair
value of pension plan assets, may put upward pressure on the cost of providing
pension and medical benefits and may increase future pension expense and
required funding contributions. For example, in 2008, the Company’s pension
assets declined approximately 33 percent. As a result, the Company expects net
periodic pension expense to increase to approximately $20 million in 2009 and
expects to make contributions totaling $0.4 million to certain of its defined
benefit pension plans in 2009. If additional unfavorable changes to plan asset
levels occur or there are further increases in the projected benefit obligation,
these changes may result in significant future expense or additional required
contributions. Although the Company has actively sought to control increases in
these costs, there can be no assurance that it will be successful in limiting
future cost and expense increases, and continued upward pressure in costs and
expenses could further reduce the profitability of the Company’s
businesses.
The
Company may have exposure under its multiemployer plans in which it participates
that extends beyond its funding obligation with respect to the Company’s
employees.
The
Company contributes to various multiemployer pension plans. In the event of a
partial or complete withdrawal by the Company from any plan that is underfunded,
the Company would be liable for a proportionate share of such plan’s unfunded
vested benefits. Based on the limited information available from plan
administrators, which the Company cannot independently validate, the Company
believes that its portion of the contingent liability in the case of a full
withdrawal or termination may be material to its financial position and results
of operations. In the event that any other contributing employer withdraws from
any plan that is underfunded, and such employer (or any member in its controlled
group) cannot satisfy its obligations under the plan at the time of withdrawal,
then the Company, along with the other remaining contributing employers, would
be liable for its proportionate share of such plan’s unfunded vested benefits.
In addition, if a multiemployer plan fails to satisfy the minimum funding
requirements, the Internal Revenue Service will impose certain penalties and
taxes.
The
Company is required to evaluate its internal controls over financial reporting
under Section 404 of the Sarbanes-Oxley Act of 2002, and any adverse results
from such evaluation could result in a loss of investor confidence in the
Company’s financial reports and have an adverse effect on the Company’s stock
price.
Section
404 of the Sarbanes-Oxley Act requires that publicly reporting companies cause
their managements to perform annual assessments of the effectiveness of their
internal controls over financial reporting. Although the Company has concluded
that its internal controls over financial reporting were effective as of
December 31, 2008, there can be no assurances that the Company will reach
the same conclusion at the end of future years. If the Company is unable to
assert that its internal control over financial reporting is effective, or if
the Company’s auditors are unable to express an opinion on the effectiveness of
the Company’s internal controls, the Company could lose investor confidence in
the accuracy and completeness of its financial reports, which would have an
adverse effect on the Company’s stock price.
The
foregoing should not be construed as an exhaustive list of all factors that
could cause actual results to differ materially from those expressed in
forward-looking statements made by the Company or on its
behalf.
ITEM
1B. UNRESOLVED STAFF COMMENTS
None.
ITEM
3. LEGAL PROCEEDINGS
See
“Business and Properties - Transportation - Rate Regulation” above for a
discussion of rate and other regulatory matters in which Matson is routinely
involved.
A&B
owns 16,000 acres of watershed lands in East Maui that supply a significant
portion of the irrigation water used by HC&S. A&B also held
four water licenses to another 30,000 acres owned by the State of Hawaii in East
Maui, which over the years has supplied approximately two-thirds of the
irrigation water used by HC&S. The last of these water license
agreements expired in 1986, and all four agreements were then extended as
revocable permits that were renewed annually. In 2001, a request was
made to the State Board of Land and Natural Resources (the “BLNR”) to replace
these revocable permits with a long-term water lease. Pending the
conclusion by the BLNR of this contested case hearing on the request for the
long-term lease, the BLNR has renewed the existing permits on a holdover
basis. If the Company is not permitted to divert stream waters from
State lands in East Maui for its use, it would have a material adverse effect on
the Company’s sugar-growing operations.
In
addition, on May 24, 2001, petitions were filed by a third party, requesting
that the Commission on Water Resource Management of the State of Hawaii (“Water
Commission”) amend interim instream flow standards (“IIFS”) in 27 East Maui
streams that feed the Company’s irrigation system. On September 25,
2008, the Water Commission took action on eight of the petitions, resulting in
some quantity of water being returned to the streams rather than being utilized
for irrigation purposes. Over an interim period, which is expected to last at
least a year, the Water Commission will monitor the results of the
implementation of the IIFS for the eight streams, and proceed with assessing
whether an amendment of IIFS for the remaining 19 East Maui streams is
appropriate. While the loss of the water as a result of the Water Commission’s
action on the eight petitions may not significantly impair the Company’s
sugar-growing operations, similar losses of water on the remaining 19 streams
would have a material adverse effect on the Company’s sugar-growing operations.
The Company, at this time, is unable to determine what action the Water
Commission will take with respect to all 27 streams.
On
June 25, 2004, two organizations filed with the Water Commission a petition
to amend IIFS for four streams in West Maui to increase the amount of water to
be returned to these streams. The West Maui irrigation system
provides approximately one-tenth of the irrigation water used by
HC&S. The Water Commission’s deliberations on whether to amend
the current IIFS for the West Maui streams are currently ongoing, and an adverse
decision could result in some quantity of water being returned to the streams,
rather than being utilized for irrigation purposes, which may have a material
adverse effect on the Company’s sugar-growing operations. A decision
by the Water Commission is not expected until the second half of
2009.
On
December 10, 2007, the Shipbuilders Council of America, Inc. and Pasha
Hawaii Transport Lines LLC filed a complaint against the U.S. Department of
Homeland Security, the U.S. Coast Guard and the National Vessel Documentation
Center in the U.S. District Court for the Eastern District of Virginia (the
“Mokihana case”). The complaint sought review of a certificate of
documentation with a coastwise endorsement issued by the National Vessel
Documentation Center after concluding that Matson’s C9 vessel Mokihana had not
been rebuilt abroad. Matson intervened in the action. On
September 30, 2008, the District Court entered a preliminary order granting
summary judgment to the plaintiffs and was to have issued an opinion setting
forth the basis for the ruling and the relief to have been granted, which relief
may have affected the right of Matson to operate Mokihana in the domestic
trade. Prior to the issuance of such opinion, on November 6, 2008,
the judge assigned to the case vacated the preliminary order granting summary
judgment to the plaintiffs and stayed the matter pending the outcome of an
appeal to the United States Court of Appeals for the Fourth Circuit in a case
referred to by the District Court as the Seabulk Trader case. Such
case was decided in favor of the plaintiffs by another judge in the same
District Court and is reported at 551 F.Supp. 2d 447. While the
Seabulk Trader case involves certain issues similar in nature to the Mokihana
case, the Company believes the two cases are distinguishable in various
respects. A decision in the Seabulk Trader case is expected in
2009. Matson has filed an amicus brief in the support of the Coast
Guard’s decision in that case. The Company is unable to predict, at
this time, the outcome of the appeal in the Seabulk Trader case or the possible
effect of such outcome on the Mokihana case. The Company also is
unable to predict, at this time, the outcome or financial impact, if any, of the
Mokihana case.
In a
separate but related matter, the same plaintiffs asked the United States
Department of Transportation Maritime Administration (“Marad”) to investigate
the continued eligibility of nine of Matson’s vessels, including Mokihana, to
participate in the Capital Construction Fund (“CCF”) and cargo preference
programs as a result of modifications performed, or to be performed, in foreign
shipyards. Marad issued an Opinion and Order on March 18, 2008,
stating that it would be guided by prior Coast Guard rulings with respect to
CCF, that all Matson vessels would retain their CCF eligibility unless the court
reversed the Coast Guard’s final determination with respect to Mokihana, and
that all vessels would retain their cargo preference eligibility but requested
further information on Mokihana and Lurline. On December 9, 2008,
after reviewing information provided by Matson, Marad issued a Final Opinion and
Order ordering that Lurline and Mokihana be excluded from preference for
carriage of government civilian cargo, pursuant to 46 U.S.C. 55305, for three
years. Matson has filed a request for reconsideration with
Marad. The decision has no immediate financial effect because these
vessels are currently deployed in the Hawaii trade and do not carry civilian
preference cargo.
In another
separate but related matter, the Coast Guard Marine Safety Center informed
Matson on December 24, 2008 that the same plaintiffs had requested
reconsideration of the Coast Guard’s June 2006 Mokihana major conversion
determination. The Coast Guard had earlier ruled that the work to be
performed on Mokihana in the foreign and U.S. shipyards was minor and,
therefore, would not necessitate certain safety and maintenance
upgrades. The Coast Guard has asked the Shipbuilders Council and
Pasha to respond to issues as to their standing to request reconsideration and
the timeliness of the request. Matson believes that the Coast Guard's
determination was correct and will submit comments supporting it. The
Company is unable to predict, at this time, the outcome or financial impact, if
any, of this matter.
On April
21, 2008, Matson was served with a grand jury subpoena from the U.S. District
Court for the Middle District of Florida for documents and information relating
to water carriage in connection with the Department of Justice’s investigation
into the pricing and other competitive practices of carriers operating in the
domestic trades. Matson understands that while the investigation
currently is focused on the Puerto Rico trade, it also includes pricing and
other competitive practices in connection with all domestic trades, including
the Alaska, Hawaii and Guam trades. Matson does not operate vessels
in the Puerto Rico and Alaska trades. It does operate vessels in the
Hawaii and Guam trades. Matson has cooperated, and will continue to
cooperate, fully with the Department of Justice. If the Department of
Justice believes that any violations have occurred on the part of Matson or the
Company, it could seek civil or criminal sanctions, including monetary
fines. The Company is unable to predict, at this time, the outcome or
financial impact, if any, of this investigation.
The
Company and Matson have been named as defendants in civil lawsuits purporting to
be class actions alleging violations of the antitrust laws and seeking treble
damages and injunctive relief. As of January 8, 2009, the Company was
aware of 26 such lawsuits. All of the lawsuits have been or
will be transferred and consolidated into a consolidated civil lawsuit in the
U.S. District Court for the Western District of Washington in Seattle purporting
to be a class action. Another domestic shipping carrier operating in
the Hawaii and Guam trades, Horizon Lines, Inc., has also been named as a
defendant in the consolidated civil lawsuit. The plaintiffs filed a
consolidated class action complaint on February 2, 2009. The Company
and Matson intend to file a motion to dismiss the complaint by March
2009. The Company and Matson will vigorously defend themselves in
this lawsuit. The Company is unable to predict, at this time, the
outcome or financial impact, if any, of this lawsuit.
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 consultation with counsel,
would not have a material adverse effect on A&B’s results of operations or
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 section B (“Executive Officers”) in Item 10 of
Part III below, which is incorporated herein by reference.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
A&B common stock is listed on the
New York Stock Exchange and trades under the symbol “AXB.” Prior to September
30, 2008, the Company was listed on the Nasdaq Stock Market and traded under the
symbol “ALEX.” As of February 13, 2009, there were 3,266 shareholders of
record 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.
A summary of daily stock transactions
is listed in the New York Stock Exchange section of major newspapers. Trading
volume averaged 441,867 shares a day in 2008 compared with 264,577 shares a day
in 2007 and 301,612 in 2006.
The quarterly intra-day high and low
sales prices and end of quarter closing prices, as reported by the New York
Stock Exchange, and cash dividends paid per share of common stock, for 2008 and
2007, were as follows:
|
|
Dividends
|
|
Market
Price
|
|
|
Paid
|
|
High
|
|
Low
|
|
Close
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
0.290
|
|
|
$
|
51.43
|
|
|
$
|
41.00
|
|
|
$
|
43.08
|
|
Second
Quarter
|
|
$
|
0.315
|
|
|
$
|
53.50
|
|
|
$
|
43.46
|
|
|
$
|
45.55
|
|
Third
Quarter
|
|
$
|
0.315
|
|
|
$
|
48.94
|
|
|
$
|
41.07
|
|
|
$
|
44.03
|
|
Fourth
Quarter
|
|
$
|
0.315
|
|
|
$
|
45.64
|
|
|
$
|
20.64
|
|
|
$
|
25.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
0.25
|
|
|
$
|
51.45
|
|
|
$
|
44.20
|
|
|
$
|
50.44
|
|
Second
Quarter
|
|
$
|
0.29
|
|
|
$
|
55.55
|
|
|
$
|
50.51
|
|
|
$
|
53.11
|
|
Third
Quarter
|
|
$
|
0.29
|
|
|
$
|
59.42
|
|
|
$
|
47.23
|
|
|
$
|
50.13
|
|
Fourth
Quarter
|
|
$
|
0.29
|
|
|
$
|
58.30
|
|
|
$
|
47.55
|
|
|
$
|
51.66
|
|
Although A&B expects to continue
paying quarterly cash dividends on its common stock, the declaration and payment
of dividends in the future are subject to the discretion of the Board of
Directors and will depend upon A&B’s financial condition, results of
operations, cash requirements and other factors deemed relevant by the Board of
Directors. A&B has paid cash dividends each year since 1903. The most recent
increase in the quarterly dividend rate was effective the second quarter of
2008, and was increased from 29 cents per share to 31.5 cents per share. In
2008, dividend payments to shareholders totaled $51 million, which was 39
percent of reported net income for the year. The following dividend schedule for
2009 has been set, subject to final approval by the Board of
Directors:
Quarterly Dividend
|
Declaration Date
|
Record Date
|
Payment Date
|
|
|
|
|
First
|
January
29, 2009
|
February
13, 2009
|
March
5, 2009
|
Second
|
April
30, 2009
|
May
14, 2009
|
June
4, 2009
|
Third
|
June
25, 2009
|
August
6, 2009
|
September
3, 2009
|
Fourth
|
October
22, 2009
|
November
5, 2009
|
December
3, 2009
|
Matson
is subject to restrictions on the transfer of net assets to A&B under
certain debt agreements; however, these restrictions have not had any effect on
the Company’s shareholder dividend policy, and the Company does not anticipate
that these restrictions will have any impact in the future. At December 31,
2008, the amount of net assets of Matson that may not be transferred to the
Company was approximately $298 million.
A&B common stock is included in the
Dow Jones U.S. Transportation Average, the Russell 1000 Index, the Russell 3000
Index, the Dow Jones U.S. Composite Average, and the S&P MidCap
400.
The Company has share ownership
guidelines for non-employee Directors. At present, all Directors own A&B
stock, and it is expected that each Director will meet the guidelines within the
specified five-year period. Stock ownership guidelines also are in place for
senior executives of the Company, and all such executives currently meet, or are
expected to meet (within the specified five-year period), the required stock
ownership guidelines.
Securities
authorized for issuance under equity compensation plans as of December 31, 2008,
included:
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
(a)
|
(b)
|
(c)
|
Equity
compensation plans approved by security holders
|
2,034,086
|
$
39.71
|
1,406,127*
|
Equity
compensation plans not approved by security holders
|
--
|
--
|
--
|
Total
|
2,034,086
|
$
39.71
|
1,406,127
|
|
*
|
Under
the 2007 Incentive Compensation Plan, 1,406,127 shares may be issued
either as restricted stock grants, restricted stock units grants, or stock
option grants.
|
Issuer
Purchases of Equity Securities
Period
|
Total
Number of
Shares
Purchased
|
Average
Price
Paid
per Share
|
Total
Number of
Shares
Purchased as
Part
of Publicly
Announced
Plans
or
Programs
|
Maximum
Number
of
Shares that
May
Yet Be Purchased
Under
the Plans
or
Programs (1)
|
Oct
1 – 31, 2008
|
42,000
|
28.93
|
42,000
|
2,161,823
|
Nov
1 – 30, 2008
|
310,000
|
27.67
|
310,000
|
1,851,823
|
Dec
1 – 31, 2008
|
--
|
--
|
--
|
--
|
(1) In
January 2008, A&B’s Board of Directors authorized A&B to repurchase up
to two million additional shares of its common stock. The authorization will
expire on December 31, 2009.
During 2008, the Company repurchased
1,476,449 shares of its common stock for approximately $59 million, or an
average of $40.33 per share. During 2007, the Company repurchased 671,728 shares
of its common stock for $33 million, or an average price of $48.62 per share.
During 2006, the Company repurchased 1,653,795 shares of its stock for $72
million, or an average price of $43.34 per share. In January 2008, A&B’s
Board of Directors authorized A&B to repurchase up to two million additional
shares of its common stock. The authorization expires on December 31, 2009. A
portion of the shares repurchased in 2008 were made under a previous share
repurchase authorization that expired on December 31, 2008. As of December 31,
2008, 1,851,823 shares remain available for repurchase under the January 2008
authorization.
During the first quarter of 2008,
10,244 shares were returned to the Company in connection with the exercise of
options to purchase shares of the Company’s stock. The fair value of these
shares averaged $43.93 per share.
ITEM
6. SELECTED FINANCIAL DATA
The following financial data should be
read in conjunction with Item 8, “Financial Statements and Supplementary Data,”
and Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” (dollars and shares in millions, except per-share
amounts):
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ocean
transportation
|
|
$
|
1,023.7
|
|
$
|
1,006.9
|
|
$
|
945.8
|
|
$
|
878.3
|
|
$
|
850.1
|
|
Logistics
services
|
|
|
436.0
|
|
|
433.5
|
|
|
444.2
|
|
|
431.6
|
|
|
376.9
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
107.8
|
|
|
108.5
|
|
|
100.6
|
|
|
89.7
|
|
|
83.8
|
|
Sales
|
|
|
350.2
|
|
|
117.8
|
|
|
97.3
|
|
|
148.9
|
|
|
82.3
|
|
Less
amounts reported in discontinued operations1
|
|
|
(133.0
|
)
|
|
(112.0
|
)
|
|
(111.7
|
)
|
|
(76.4
|
)
|
|
(26.0
|
)
|
Agribusiness
|
|
|
124.3
|
|
|
123.7
|
|
|
127.4
|
|
|
123.2
|
|
|
112.8
|
|
Reconciling
Items2
|
|
|
(10.7
|
)
|
|
(9.2
|
)
|
|
(14.2
|
)
|
|
(8.4
|
)
|
|
(6.5
|
)
|
Total
revenue
|
|
$
|
1,898.3
|
|
$
|
1,669.2
|
|
$
|
1,589.4
|
|
$
|
1,586.9
|
|
$
|
1,473.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ocean
transportation3
|
|
$
|
105.8
|
|
$
|
126.5
|
|
$
|
105.6
|
|
$
|
128.0
|
|
$
|
108.3
|
|
Logistics
services
|
|
|
18.5
|
|
|
21.8
|
|
|
20.8
|
|
|
14.4
|
|
|
8.9
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
47.8
|
|
|
51.6
|
|
|
50.3
|
|
|
43.7
|
|
|
38.8
|
|
Sales3
|
|
|
95.6
|
|
|
74.4
|
|
|
49.7
|
|
|
44.1
|
|
|
34.6
|
|
Less
amounts reported in discontinued operations1
|
|
|
(59.1
|
)
|
|
(61.0
|
)
|
|
(52.3
|
)
|
|
(27.7
|
)
|
|
(12.6
|
)
|
Agribusiness
|
|
|
(12.9
|
)
|
|
0.2
|
|
|
6.9
|
|
|
11.2
|
|
|
4.8
|
|
Total
operating profit
|
|
|
195.7
|
|
|
213.5
|
|
|
181.0
|
|
|
213.7
|
|
|
182.8
|
|
Write-down
of long-lived assets4
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(2.3
|
)
|
|
--
|
|
Interest
expense, net5
|
|
|
(23.7
|
)
|
|
(18.8
|
)
|
|
(15.0
|
)
|
|
(13.3
|
)
|
|
(12.7
|
)
|
General
corporate expenses
|
|
|
(21.0
|
)
|
|
(27.3
|
)
|
|
(22.3
|
)
|
|
(24.1
|
)
|
|
(20.3
|
)
|
Income
from continuing operations before income taxes
|
|
|
151.0
|
|
|
167.4
|
|
|
143.7
|
|
|
174.0
|
|
|
149.8
|
|
Income
taxes
|
|
|
(55.1
|
)
|
|
(63.2
|
)
|
|
(53.7
|
)
|
|
(65.1
|
)
|
|
(56.9
|
)
|
Income
from continuing operations
|
|
|
95.9
|
|
|
104.2
|
|
|
90.0
|
|
|
108.9
|
|
|
92.9
|
|
Income
from discontinued operations
|
|
|
36.5
|
|
|
38.0
|
|
|
32.5
|
|
|
17.1
|
|
|
7.8
|
|
Net
Income
|
|
$
|
132.4
|
|
$
|
142.2
|
|
$
|
122.5
|
|
$
|
126.0
|
|
$
|
100.7
|
|
1
|
Prior
year amounts restated for amounts treated as discontinued
operations.
|
2
|
Includes
inter-segment revenue, interest income, and other income classified as
revenue for segment reporting
purposes.
|
3
|
The Ocean Transportation segment
includes approximately $5.2 million, $10.7 million, $13.3 million, $17.1
million and $4.7 million of equity in earnings from its investment in SSAT
for 2008, 2007, 2006, 2005 and 2004, respectively. The Real Estate Sales
segment includes approximately $9.0 million, $22.6 million, $14.4 million,
$3.3 million and $3.3 million in equity in earnings from its various real
estate joint ventures for 2008, 2007, 2006, 2005, and 2004,
respectively.
|
4
|
The
2005 write-down was for an “other-than-temporary” impairment in the
Company’s investment in C&H Sugar Company, Inc. (“C&H”). The
Company’s investment in C&H was sold on August 9, 2005 at the then
approximate carrying value.
|
5
|
Includes
Ocean Transportation interest expense of $11.6 million for 2008, $13.9
million for 2007, $13.3 million for 2006, $9.6 million for 2005, and $5.7
million for 2004. Substantially all other interest expense was at the
parent company.
|
SELECTED
FINANCIAL DATA (CONTINUED)
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
Identifiable
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ocean
Transportation6
|
|
$
|
1,153.9
|
|
$
|
1,215.0
|
|
$
|
1,185.3
|
|
$
|
1,113.0
|
|
$
|
896.9
|
|
Logistics
services
|
|
|
74.2
|
|
|
58.6
|
|
|
56.4
|
|
|
70.3
|
|
|
56.5
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
590.2
|
|
|
595.4
|
|
|
525.5
|
|
|
478.6
|
|
|
436.5
|
|
Sales6
|
|
|
344.6
|
|
|
408.9
|
|
|
295.0
|
|
|
227.3
|
|
|
224.5
|
|
Agribusiness
|
|
|
172.2
|
|
|
174.6
|
|
|
168.7
|
|
|
159.0
|
|
|
152.8
|
|
Other
|
|
|
15.1
|
|
|
26.6
|
|
|
20.3
|
|
|
22.7
|
|
|
11.0
|
|
Total
assets
|
|
$
|
2,350.2
|
|
$
|
2,479.1
|
|
$
|
2,251.2
|
|
$
|
2,070.9
|
|
$
|
1,778.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ocean
Transportation
|
|
$
|
35.5
|
|
$
|
65.8
|
|
$
|
217.1
|
|
$
|
173.9
|
|
$
|
128.6
|
|
Logistics
services7
|
|
|
2.4
|
|
|
2.0
|
|
|
1.7
|
|
|
1.3
|
|
|
0.1
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing8
|
|
|
100.2
|
|
|
124.5
|
|
|
93.0
|
|
|
78.8
|
|
|
10.2
|
|
Sales9
|
|
|
0.6
|
|
|
0.3
|
|
|
1.3
|
|
|
0.2
|
|
|
0.7
|
|
Agribusiness
|
|
|
15.2
|
|
|
20.5
|
|
|
15.0
|
|
|
13.0
|
|
|
10.2
|
|
Other
|
|
|
0.8
|
|
|
0.3
|
|
|
1.5
|
|
|
1.4
|
|
|
1.4
|
|
Total
capital expenditures
|
|
$
|
154.7
|
|
$
|
213.4
|
|
$
|
329.6
|
|
$
|
268.6
|
|
$
|
151.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ocean
Transportation
|
|
$
|
66.1
|
|
$
|
63.2
|
|
$
|
58.1
|
|
$
|
59.5
|
|
$
|
56.8
|
|
Logistics
services
|
|
|
2.3
|
|
|
1.5
|
|
|
1.5
|
|
|
1.4
|
|
|
1.2
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing1
|
|
|
17.9
|
|
|
15.7
|
|
|
14.1
|
|
|
12.4
|
|
|
12.2
|
|
Sales
|
|
|
0.2
|
|
|
0.2
|
|
|
0.1
|
|
|
0.1
|
|
|
0.1
|
|
Agribusiness
|
|
|
11.5
|
|
|
10.7
|
|
|
10.1
|
|
|
9.4
|
|
|
9.0
|
|
Other
|
|
|
2.7
|
|
|
1.3
|
|
|
0.9
|
|
|
0.5
|
|
|
0.4
|
|
Total
depreciation and amortization
|
|
$
|
100.7
|
|
$
|
92.6
|
|
$
|
84.8
|
|
$
|
83.3
|
|
$
|
79.7
|
|
6
|
The
Ocean Transportation segment includes approximately $44.6 million, $48.6
million, $49.8 million, $39.8 million and $23.0 million related to its
investment in SSAT as of December 31, 2008, 2007, 2006, 2005 and 2004,
respectively. The Real Estate Sales segment includes approximately $162.1
million, $134.1 million, $98.4 million, $114.1 million, and $83.9 million
related to its investment in various real estate joint ventures as of
December 31, 2008, 2007, 2006, 2005, and 2004,
respectively.
|
7
|
Excludes
expenditures related to Matson Integrated Logistics’ acquisitions, which
are classified as Payments for Purchases of Investments in Cash Flows from
Investing Activities within the Consolidated Statements of Cash
Flows.
|
8
|
Represents
gross capital additions to the leasing portfolio, including gross
tax-deferred property purchases that are reflected as non-cash
transactions in the Consolidated Statements of Cash
Flows.
|
9
|
Excludes
capital expenditures for real estate developments held for sale which are
classified as Cash Flows from Operating Activities within the Consolidated
Statements of Cash Flows. Operating cash flows for capital expenditures
related to real estate developments were $39 million, $110 million, $69
million, $34 million, and $30 million for 2008, 2007, 2006, 2005, and
2004, respectively.
|
SELECTED
FINANCIAL DATA (CONTINUED)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.32
|
|
|
$
|
2.45
|
|
|
$
|
2.08
|
|
|
$
|
2.50
|
|
|
$
|
2.18
|
|
Diluted
|
|
$
|
2.31
|
|
|
$
|
2.42
|
|
|
$
|
2.06
|
|
|
$
|
2.47
|
|
|
$
|
2.15
|
|
Net
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3.21
|
|
|
$
|
3.34
|
|
|
$
|
2.84
|
|
|
$
|
2.89
|
|
|
$
|
2.37
|
|
Diluted
|
|
$
|
3.19
|
|
|
$
|
3.30
|
|
|
$
|
2.81
|
|
|
$
|
2.86
|
|
|
$
|
2.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on beginning equity
|
|
|
11.7
|
%
|
|
|
13.8
|
%
|
|
|
12.1
|
%
|
|
|
13.9
|
%
|
|
|
12.4
|
%
|
Cash
dividends per share
|
|
$
|
1.235
|
|
|
$
|
1.12
|
|
|
$
|
0.975
|
|
|
$
|
0.90
|
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
Year End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders
of record
|
|
|
3,269
|
|
|
|
3,381
|
|
|
|
3,506
|
|
|
|
3,628
|
|
|
|
3,792
|
|
Shares
outstanding
|
|
|
41.0
|
|
|
|
42.4
|
|
|
|
42.6
|
|
|
|
44.0
|
|
|
|
43.3
|
|
Long-term
debt – non-current
|
|
$
|
452
|
|
|
$
|
452
|
|
|
$
|
401
|
|
|
$
|
296
|
|
|
$
|
214
|
|
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD-LOOKING
STATEMENTS AND RISK FACTORS
The Company, from time to time, may
make or may have made certain forward-looking statements, whether orally or in
writing, such as forecasts and projections of the Company’s future performance
or statements of management’s plans and objectives. These statements are
“forward-looking” statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements may be contained
in, among other things, SEC filings, such as the Forms 10-K, 10-Q and 8-K, the
Annual Report to Shareholders, press releases made by the Company, the Company’s
Internet Web sites (including Web sites of its subsidiaries), and oral
statements made by the officers of the Company. Except for historical
information contained in these written or oral communications, such
communications contain forward-looking statements. These include, for example,
all references to 2009 or future years. New risk factors emerge from time to
time and it is not possible for the Company to predict all such risk factors,
nor can it assess the impact of all such risk factors on the Company’s business
or the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements. Accordingly, forward-looking statements cannot be relied upon as a
guarantee of future results and involve a number of risks and uncertainties that
could cause actual results to differ materially from those projected in the
statements, including, but not limited to the factors that are described in Part
I, Item 1A under the caption of “Risk Factors” of this Form 10-K, which section
is incorporated herein by reference. The Company is not required, and undertakes
no obligation, to revise or update forward-looking statements or any factors
that may affect actual results, whether as a result of new information, future
events, or circumstances occurring after the date of this report.
OVERVIEW
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (“MD&A”) is designed to
provide a discussion of the Company’s financial condition, results of
operations, liquidity and certain other factors that may affect its future
results from the perspective of management. The discussion that follows is
intended to provide information that will assist in understanding the changes in
the Company’s financial statements from year to year, the primary factors that
accounted for those changes, and how certain accounting principles, policies and
estimates affect the Company’s financial statements. MD&A is provided as a
supplement to, and should be read in conjunction with, the consolidated
financial statements and the accompanying notes to the financial statements.
MD&A is presented in the following sections:
|
•
|
Critical
Accounting Estimates
|
|
•
|
Consolidated
Results of Operations
|
|
•
|
Analysis
of Operating Revenue and Profit by
Segment
|
|
•
|
Liquidity
and Capital Resources
|
|
•
|
Contractual
Obligations, Commitments, Contingencies and Off-Balance-Sheet
Arrangements
|
BUSINESS
OVERVIEW
Alexander & Baldwin, Inc.
(“A&B”), founded in 1870, is a multi-industry corporation headquartered in
Honolulu that operates in five segments in three industries—Transportation, Real
Estate, and Agribusiness.
Transportation: The Transportation
Industry consists of Ocean Transportation and Logistics Services segments. The
Ocean Transportation segment, which is conducted through Matson Navigation
Company, Inc. (“Matson”), a wholly-owned subsidiary of A&B, is an
asset-based business that derives its revenue primarily through the carriage of
containerized freight between various U.S. Pacific Coast, Hawaii, Guam, China
and other Pacific island ports. Additionally, the Ocean Transportation segment
has a 35 percent interest in an entity that provides terminal and stevedoring
services at U.S. Pacific Coast facilities.
The Logistics Services segment, which
is conducted through Matson Integrated Logistics, Inc. (“MIL”), a wholly-owned
subsidiary of Matson, is a non-asset based business that is a provider of
domestic and international rail intermodal service (“Intermodal”), long-haul and
regional highway brokerage, specialized hauling, flat-bed and project work,
less-than-truckload, expedited/air freight services, and warehousing and
distribution services (collectively “Highway”). Warehousing and distribution
services are provided by Matson Global Distribution Services, Inc. (“MGDS”), a
wholly-owned subsidiary of MIL. MGDS’s operations also include Pacific American
Services, LLC (“PACAM”), a San Francisco bay-area regional warehousing,
packaging, and distribution company acquired in the third quarter of
2008.
The Transportation Industry accounted
for 72 percent, 49 percent, and 52 percent of the revenue, operating
profit, and identifiable assets, respectively, in 2008 on a consolidated basis
before discontinued operations.
Real
Estate: The Real Estate Industry consists of two segments, both of which
have operations in Hawaii and on the U.S. Mainland. The Real Estate Sales
segment generates its revenues through the development and sale of land, and
commercial and residential properties. The Real Estate Leasing segment owns,
operates, and manages retail, office, and industrial properties. Real estate
activities are conducted through A&B Properties, Inc. and various other
wholly-owned subsidiaries of A&B.
The Real Estate Industry accounted for
22 percent, 56 percent, and 40 percent of the revenue, operating profit, and
identifiable assets, respectively, in 2008 on a consolidated basis before
discontinued operations.
Agribusiness:
Agribusiness, a division of A&B, contains one segment and produces bulk raw
sugar, specialty food grade sugars, and molasses; produces, markets, and
distributes roasted coffee and green coffee; provides general trucking services,
mobile equipment maintenance, and repair services; and generates and sells, to
the extent not used in the Company’s operations, electricity.
The Agribusiness Industry accounted for
6 percent of the revenue and 8 percent of the identifiable assets in 2008 on a
consolidated basis before discontinued operations.
CRITICAL
ACCOUNTING ESTIMATES
The Company’s significant accounting
policies are described in Note 1 to the Consolidated Financial Statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America, upon which the Management’s
Discussion and Analysis is based, requires that management exercise judgment
when making estimates and assumptions about future events that may affect the
amounts reported in the financial statements and accompanying notes. Future
events and their effects cannot be determined with absolute certainty and actual
results will, inevitably, differ from those critical accounting estimates. These
differences could be material.
The Company considers an accounting
estimate to be critical if: (i) the accounting estimate requires the Company to
make assumptions that are difficult or subjective about matters that were highly
uncertain at the time that the accounting estimate was made, and (ii) changes in
the estimate that are reasonably likely to occur in periods subsequent to the
period in which the estimate was made, or use of different estimates that the
Company could have used in the current period, would have a material impact on
the financial condition or results of operations. The most significant
accounting estimates inherent in the preparation of the Company’s financial
statements are described below.
Impairment of Long-Lived Assets:
The Company’s long-lived assets are reviewed for impairment if events or
circumstances indicate that the carrying amount of the long-lived asset may not
be recoverable. The Company has evaluated certain long-lived assets for
impairment; however, no impairment charges were recorded as a result of this
process. These asset impairment loss analyses contain uncertainties because they
require management to make assumptions and apply considerable judgments to,
among others, estimates of the timing and amount of future cash flows, expected
useful lives of the assets, uncertainty about future events, including changes
in economic conditions, changes in operating performance, changes in the use of
the assets, and ongoing costs of maintenance and improvements of the assets, and
thus, the accounting estimates may change from period to period. If management
uses different assumptions or if different conditions occur in future periods,
the Company’s financial condition or its future operating results could be
materially impacted.
Impairment of Investments: The
Company’s investments in unconsolidated affiliates are reviewed for impairment
whenever there is evidence of a loss in value. An investment is written down to
fair value if the impairment is other-than-temporary. In evaluating the fair
value of an investment, the Company reviews the discounted projected cash flows
associated with the investment and other relevant information. In
evaluating whether an impairment is other-than-temporary, the Company
considers all available information, including the length of time and extent of
the impairment, the financial condition and near-term prospects of the
affiliate, the Company’s ability and intent to hold the investment for a period
of time sufficient to allow for any anticipated recovery in market value, and
projected industry and economic trends, among others.
In 2008, the Company evaluated certain
investments in unconsolidated affiliates for impairment. As a result of this
process, the Company recorded an other-than-temporary impairment loss, which was
not material. However, in determining the fair value of an investment and
assessing whether any identified impairment is other-than-temporary, significant
estimates and considerable judgment are involved. These estimates and judgments
are based, in part, on the Company’s current and future evaluation of economic
conditions in general, as well as a joint venture’s current and future plans.
These impairment calculations contain additional uncertainties because they also
require management to make assumptions and apply judgments to, among others,
estimates of future cash flows, probabilities related to various cash flow
scenarios, and appropriate discount rates. Changes in these and other
assumptions could affect the projected operational results of the unconsolidated
affiliates, and accordingly, may require valuation adjustments to the Company’s
investments that may materially impact the Company’s financial condition or its
future operating results. For example, if the current market conditions continue
to deteriorate or a joint venture’s plans change, additional impairment charges
may be required in future periods, and those charges could be
material.
Legal Contingencies: The
Company’s results of operations could be affected by significant litigation
adverse to the Company, including, but not limited to, liability claims,
antitrust claims, and claims related to coastwise trading matters. The Company
records accruals for legal matters when the information available indicates that
it is probable that a liability has been incurred and the amount of the loss can
be reasonably estimated. Management makes adjustments to these accruals to
reflect the impact and status of negotiations, settlements, rulings, advice of
counsel and other information and events that may pertain to a particular
matter. Predicting the outcome of claims and lawsuits and estimating related
costs and exposure involves substantial uncertainties that could cause actual
costs to vary materially from those estimates. In making determinations of
likely outcomes of litigation matters, the Company considers many factors. These
factors include, but are not limited to, the nature of specific claims including
unasserted claims, the Company’s experience with similar types of claims, the
jurisdiction in which the matter is filed, input from outside legal counsel, the
likelihood of resolving the matter through alternative dispute resolution
mechanisms and the matter’s current status. A detailed discussion of significant
litigation matters is contained in Note 12 to the Consolidated Financial
Statements.
Allowance for Doubtful Accounts:
Receivables are recorded net of an allowance for doubtful accounts. The
Company estimates future write-offs based on delinquencies, credit ratings,
aging trends, and historical experience. The Company believes the allowance for
doubtful accounts is adequate to cover anticipated losses; however, significant
deterioration in any of the aforementioned factors or in general economic
conditions could change these expectations, and accordingly, the Company’s
financial condition and/or its future operating results could be materially
impacted.
Revenue Recognition for Certain
Long-term Real Estate Developments: As discussed in
Note 1 to the Consolidated Financial Statements, revenues from real estate
sales are generally recognized when sales are closed and title, risk and rewards
passes to the buyer. For certain real estate sales, the Company and its joint
venture partners account for long-term real estate development projects that
have material continuing post-closing involvement, such as Kukui`ula, using the
percentage-of-completion method. Following this method, the amount of revenue
recognized is based on the percentage of development costs that have been
incurred through the reporting period in relation to total expected development
cost associated with the subject property. Accordingly, if material changes to
total expected development costs or revenues occur, the Company’s financial
condition and/or its future operating results could be materially
impacted.
Accounting for Equity Method
Investments: All of the unconsolidated entities held by the
Company are accounted for by the equity method of accounting because the
criteria for consolidation set forth in FASB Interpretation No. 46 (revised
December 2003), Consolidation
of Variable Interest Entities (“FIN 46R”) or AICPA Accounting Research
Bulletin No. 51, Consolidated
Financial Statements (“ARB 51”), and their related interpretations, have
not been met. In determining whether an unconsolidated entity is a variable
interest entity, and if the entity is determined to be a variable interest
entity, whether the Company is the primary beneficiary, the Company is required
to use various assumptions, including cash flow estimates and related
probabilities for different cash flow scenarios. To the extent that these
assumptions change as a result of new or additional information or changes in
market conditions, the conclusion to apply the equity method of accounting may
change and the Company’s financial condition and/or its future operating results
could be materially impacted.
Self-Insured Liabilities: The
Company is self-insured for certain losses related to, including, but not
limited to, employee health, workers’ compensation, general liability, real and
personal property, and real estate construction warranty and defect claims. When
feasible, the Company obtains third-party insurance coverage to limit its
exposure to these claims. When estimating its self-insured liabilities, the
Company considers a number of factors, including historical claims experience,
demographic factors, current trends, and analyses provided by independent
third-parties. Periodically, management reviews its assumptions and the analyses
provided by independent third-parties to determine the adequacy of the Company’s
self-insured liabilities. The Company’s self-insured liabilities contain
uncertainties because management is required to apply judgment and make
long-term assumptions to estimate the ultimate cost to settle reported claims
and claims incurred, but not reported, as of the balance sheet date. If
management uses different assumptions or if different conditions occur in future
periods, the Company’s financial condition and/or its future operating results
could be materially impacted.
Pension and Post-Retirement
Estimates: The estimation of the Company’s pension and
post-retirement expenses and liabilities requires that the Company make various
assumptions. These assumptions include the following key factors:
|
•
|
Expected
long-term rate of return on pension plan
assets
|
|
•
|
Health
care cost trend rates
|
Actual results that differ from the
assumptions made with respect to the above factors could materially affect the
Company’s financial condition and/or its future operating results. The effects
of changing assumptions are included in unamortized net gains and losses, which
directly affect accumulated other comprehensive income. Additionally, these
unamortized gains and losses are amortized and reclassified to income (loss)
over future periods.
The 2008 net periodic cost and
obligations for qualified pension and post-retirement plans were determined
using a discount rate of 6.25 percent. For the Company’s non-qualified benefit
plans, the 2008 net periodic cost was determined using a discount rate of 5.75
percent and the December 31, 2008 obligation was determined using a discount
rate of 6.00 percent. The discount rate used for determining the year-end
benefit plan obligation was generally calculated using a weighting of expected
benefit payments and rates associated with high-quality U.S. corporate bonds for
each year of expected payment to derive a single estimated rate at which the
benefits could be effectively settled at December 31, 2008, rounded to the
nearest quarter percent.
The estimated return on plan assets
of 8.5 percent was based on historical trends combined with long-term
expectations, the mix of plan assets, asset class returns, and long-term
inflation assumptions. One-, three-, and five-year pension returns were (33.1)
percent, (4.0) percent, and 2.1 percent, respectively. While market performance
in 2008 has significantly reduced the Company’s actual long-term rate of return,
the Company continues to believe that a long-term rate of return of 8.5% remains
appropriate given the Company’s target allocation of approximately 70 percent to
equities. Excluding 2008 plan performance, the Company’s long-term rate of
return (since 1989) was 10.7 percent.
Historically, the health care cost
trend rate experienced by the Company has been approximately 9 percent. For
2008, the Company’s post-retirement obligations were measured using an initial 9
percent health care cost trend rate, decreasing by 1 percent annually until the
ultimate rate of 5 percent is reached in 2013.
Lowering the expected long-term rate
of return on the Company’s qualified plan assets from 8.5 percent to 8.0 percent
would have increased pre-tax pension expense for 2008 by approximately $1.9
million. Lowering the discount rate assumption by one-half of one percentage
point would have increased pre-tax pension expense by $0.4 million. Additional
information about the Company’s benefit plans is included in Note 9 of the
Consolidated Financial Statements.
As of December 31, 2008, the market
value of the Company’s defined benefit plans totaled approximately $244 million,
compared with $379 million as of December 31, 2007. The recorded net pension
liability was approximately $70 million as of December 31, 2008, compared to a
net pension asset of approximately $76 million as of December 31, 2007. As a
result of realized and unrealized losses, the Company expects net periodic
pension expense to increase to $20 million in 2009, compared with net periodic
pension income of approximately $4 million in 2008. In accordance with the
Pension Protection Act of 2006 (effective January 1, 2008), the Company expects
to make contributions totaling $0.4 million to certain of its defined benefit
pension plans in 2009. There were no contributions required in 2008 and
2007.
Income Taxes: The Company
makes certain estimates and judgments in determining income tax expense for
financial statement purposes, in accordance with Statement of Financial
Accounting Standards No. 109 and FASB Interpretation No. 48. These estimates and
judgments are applied in the calculation of tax credits, tax benefits and
deductions, and in the calculation of certain tax assets and liabilities, which
arise from differences in the timing of recognition of revenue and expense for
tax and financial statement purposes. Significant changes to these estimates may
result in an increase or decrease to the Company’s tax provision in a subsequent
period.
In addition, the calculation of tax
liabilities involves significant judgment in estimating the impact of uncertain
tax positions taken or expected to be taken with respect to the application of
complex tax laws. Resolution of these uncertainties in a manner inconsistent
with management’s expectations could materially affect the Company’s financial
condition and/or its future operating results.
Recent Accounting
Pronouncements: See Note 1 to the Consolidated Financial Statements
for a full description of the impact of recently issued accounting standards,
which is incorporated herein by reference, including the expected dates of
adoption and estimated effects on the Company’s results of operations and
financial condition.
CONSOLIDATED
RESULTS OF OPERATIONS
The following analysis of the
consolidated financial condition and results of operations of
Alexander & Baldwin, Inc. and its subsidiaries (collectively, the
“Company”) should be read in conjunction with the consolidated financial
statements and related notes thereto. Amounts in this narrative are rounded to
millions, but per-share calculations and percentages were calculated based on
thousands. Accordingly, a recalculation of some per-share amounts and
percentages, if based on the reported data, may be slightly different than the
more accurate amounts included herein.
(dollars
in millions, except per-share amounts)
|
|
2008
|
|
Chg.
|
|
|
2007
|
|
Chg.
|
|
|
2006
|
|
Operating
Revenue
|
|
$
|
1,898
|
|
14
|
%
|
|
$
|
1,669
|
|
5
|
%
|
|
$
|
1,590
|
|
Operating
Costs and Expenses
|
|
|
1,739
|
|
15
|
%
|
|
|
1,510
|
|
4
|
%
|
|
|
1,451
|
|
Operating
Income
|
|
|
159
|
|
--
|
%
|
|
|
159
|
|
14
|
%
|
|
|
139
|
|
Other
Income and (Expense)
|
|
|
(9
|
)
|
NM
|
|
|
|
8
|
|
60
|
%
|
|
|
5
|
|
Income
Taxes
|
|
|
(55
|
)
|
-13
|
%
|
|
|
(63
|
)
|
17
|
%
|
|
|
(54
|
)
|
Discontinued
Operations (net of taxes)
|
|
|
37
|
|
-3
|
%
|
|
|
38
|
|
19
|
%
|
|
|
32
|
|
Net
Income
|
|
$
|
132
|
|
-7
|
%
|
|
$
|
142
|
|
16
|
%
|
|
$
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Earnings Per Share
|
|
$
|
3.21
|
|
-4
|
%
|
|
$
|
3.34
|
|
18
|
%
|
|
$
|
2.84
|
|
Diluted
Earnings Per Share
|
|
$
|
3.19
|
|
-3
|
%
|
|
$
|
3.30
|
|
17
|
%
|
|
$
|
2.81
|
|
Operating Revenue for 2008
increased 14 percent, or $229 million, to $1,898 million. Real estate sales
revenue increased more than ninefold in 2008 (after subtracting revenue from
discontinued operations) due principally to sales at the Company’s Keola La’i
condominium project. Real estate leasing revenue increased 8 percent in 2008
(after subtracting leasing revenue from assets classified as discontinued
operations), primarily due to the timing of acquisitions and dispositions,
partially offset by lower mainland occupancy. Ocean transportation revenue
increased 2 percent, principally due to higher fuel surcharge revenues, improved
Hawaii service yields and cargo mix, and higher China service yields, partially
offset by lower volumes. Logistics services revenue increased 1 percent,
principally due to the commencement of MGDS’s warehousing operations, the
acquisition of PACAM, and higher rates, principally fuel surcharges.
Agribusiness revenue decreased modestly, primarily due to lower bulk raw sugar
sales volumes.
Because of the recurring nature of
property sales, the Company views changes in real estate sales and real estate
leasing revenues on a year-over-year basis before the reclassification of
revenue to discontinued operations to be more meaningful in assessing segment
performance. Additionally, due to the timing of sales for development properties
and the mix of properties sold, management believes performance is more
appropriately assessed over a multi-year period. Furthermore, year-over-year
comparisons of revenue are not complete without the consideration of results
from the Company’s investment in its real estate joint ventures, which are not
included in operating revenues, but are included in operating profit. The
Analysis of Operating Revenue and Profit by Segment that follows, provides
additional information on changes in real estate sales revenue and operating
profit before reclassifications to discontinued operations.
Operating Revenue for 2007
increased by 5 percent, or $79 million, to $1,669 million. Ocean transportation
revenue increased 6 percent in 2007, principally due to higher China service
container volumes, improved yields and cargo mix, and higher fuel surcharge
revenues, partially offset by lower Hawaii service container volumes. Logistics
services revenue decreased 2 percent in 2007, primarily due to lower volumes.
Real estate leasing revenue increased 15 percent in 2007 (after subtracting
leasing revenue from assets classified as discontinued operations), primarily
due to additions to the leased portfolio and higher lease rates. Real estate
sales revenue nearly tripled in 2007 (after subtracting revenue from
discontinued operations) due principally to residential sales at the Company’s
Port Allen development and a commercial parcel on Maui.
The reasons for business- and
segment-specific year-to-year fluctuations in revenue growth are further
described below in the Analysis of Operating Revenue and Profit by
Segment.
Operating Costs and Expenses
for 2008 increased by 15 percent, or $229 million, to $1,739 million. Real
estate sales and leasing costs more than quadrupled, primarily related to cost
of sales for condominiums sold at Keola La’i, and to a lesser extent higher
depreciation expenses on commercial properties. Ocean transportation costs
increased 4 percent, primarily due to higher vessel and terminal handling costs,
partially offset by lower operations overhead costs, principally lower westbound
container repositioning costs. Agribusiness costs increased 11 percent due
principally to higher crop production costs. Logistics services cost increased 1
percent due to higher general and administrative costs associated with
commencement of MGDS’s operations in 2008. These increases were partially offset
by lower consolidated Selling, General and Administrative costs (“SG&A”),
which decreased 1 percent due principally to lower performance-based
compensation.
Operating Costs and Expenses
for 2007 increased by 4 percent, or $59 million, to $1,510 million. Ocean
transportation costs increased 5 percent in 2007, primarily due to higher vessel
costs, terminal handling, and equipment repositioning costs. Real estate sales
and leasing costs increased 45 percent, primarily due to the timing and mix of
development sales. SG&A increased by 13 percent in 2007 due to higher
personnel and benefit costs, including performance-based compensation.
Agribusiness costs increased 2 percent in 2007, principally due to higher crop
production costs.
The reasons for changes in business-
and segment-specific year-to-year fluctuations in operating costs, which affect
segment operating profit, are more fully described below in the Analysis of
Operating Revenue and Profit by Segment.
Other Income and Expense in
2008 is comprised of equity in earnings of real estate joint ventures, interest
revenue and interest expense. Equity in income of real estate affiliates was $14
million lower in 2008 due principally to $12.1 million higher earnings from the
Company’s Kai Malu joint venture project in 2007. Interest expense of $24
million in 2008 was $5 million higher than 2007 due to higher average debt
balances. Impairment losses related to the Company’s investments totaled
approximately $3 million and interest income in 2008 was $2 million lower than
2007 due to lower average rates and lower average invested balances. These
decreases in 2008 were partially offset by an $8 million gain recognized in 2008
for an insurance settlement related to a 2005 casualty loss.
Other Income and Expense in
2007 is comprised of equity in earnings of real estate joint ventures, interest
revenue and interest expense. Equity in income of real estate affiliates was $9
million higher in 2007 due principally to earnings from the Company’s Kai Malu
joint venture project. Interest expense of $19 million in 2007 was $4 million
higher than 2006 due to higher average debt balances.
Income Taxes were lower in
2008 compared with 2007 on an absolute and percentage basis due to lower income
and a reduction in the effective income tax rate. The lower effective income tax
rate in 2008 was principally due to the recognition of $2 million in
unrecognized tax benefits as a result of the expiration of certain statute of
limitations, tax credits related to renewable energy and investments, and a
decrease in certain non-deductible expenses.
Income Taxes were higher in
2007 compared with 2006 on an absolute and percentage basis due to higher income
and a change in the effective income tax rate. The higher effective income tax
rate in 2007 was principally due to higher state income taxes, higher
tax-deductible appreciated land donations in 2006, an increase in certain
non-deductible expenses, and lower non-taxable Medicare-D benefits in
2007.
ANALYSIS
OF OPERATING REVENUE AND PROFIT BY SEGMENT
Additional detailed information related
to the operations and financial performance of the Company’s Industry Segments
is included in Part II Item 6 and Note 13 to the Consolidated Financial
Statements. The following information should be read in relation to the
information contained in those sections.
Transportation
Industry
Ocean
Transportation;
2008 compared with 2007
(dollars
in millions)
|
|
2008
|
|
|
2007
|
|
Change
|
Revenue
|
|
$
|
1,023.7
|
|
|
$
|
1,006.9
|
|
2
|
%
|
Operating
profit
|
|
$
|
105.8
|
|
|
$
|
126.5
|
|
-16
|
%
|
Operating
profit margin
|
|
|
10.3
|
%
|
|
|
12.6
|
%
|
|
|
Volume*
(units):
|
|
|
|
|
|
|
|
|
|
|
Hawaii
containers
|
|
|
152,700
|
|
|
|
167,500
|
|
-9
|
%
|
Hawaii
automobiles
|
|
|
86,300
|
|
|
|
110,100
|
|
-22
|
%
|
China
containers
|
|
|
47,800
|
|
|
|
51,200
|
|
-7
|
%
|
Guam
containers
|
|
|
13,900
|
|
|
|
14,600
|
|
-5
|
%
|
*
Container volumes included for the period are based on the voyage departure
date, but revenue and operating profit are adjusted to reflect the percentage of
revenue and operating profit earned during the reporting period for voyages that
straddle the beginning and/or end of the reporting period.
Ocean Transportation revenue increased
$16.8 million, or 2 percent, in 2008 compared to 2007. Fuel surcharge revenues
increased $59.8 million, which includes a newly introduced bunker adjustment
factor in the China trade, and improved yields and cargo mix contributed an
additional $42.0 million increase. These increases were partially offset by
$84.2 million reduction due to overall lower volumes, primarily in the Hawaii
trade.
Total Hawaii container volume was down
9 percent in 2008 compared with 2007, reflecting a broad-based decline in demand
caused by the continuing softness in Hawaii’s economy. Matson’s Hawaii
automobile volume for the year was 22 percent lower than 2007, also reflecting
economic weakness that is negatively impacting new car shipments from
manufacturers to Hawaii auto dealers and rental car companies. China container
volume decreased 7 percent in 2008, compared with 2007, principally due to
weaker U.S. economic conditions that are slowing the demand for container
imports. Guam container volumes decreased 5 percent, also due to economic
weakness in the service, as well as reductions in the eastbound garment
production and military cargo.
Operating profit decreased $20.7
million, or 16 percent, in 2008 compared to 2007. This decrease was primarily
the result of a net overall volume decrease described above, and from the
following operating expense changes, which offset revenue increases. Vessel
costs increased by a net $48.5 million due principally to higher direct and
indirect fuel costs, higher repair costs, and higher dry-dock expenses,
partially offset by fleet optimization initiatives that resulted in fewer
operating vessel days in line with the lower volumes in the Hawaii service.
Terminal handling costs increased by $15.4 million, principally the result of
higher contractual stevedoring rates. The expense increases were partially
offset by reduced transportation expenses of $10.9 million due to lower usage of
third-party inter-island barge services and $4.5 million in lower operations
overhead costs, principally resulting from lower westbound container
repositioning expenses. Additionally, earnings from Matson’s SSAT joint venture
contributed $5.5 million less in 2008 compared with 2007 due to lower volumes
and higher operating expenses. Earnings from joint ventures are not included in
revenue, but are included in operating profit.
Ocean
Transportation;
2007 compared with 2006
(dollars
in millions)
|
|
2007
|
|
|
2006
|
|
Change
|
Revenue
|
|
$
|
1,006.9
|
|
|
$
|
945.8
|
|
6
|
%
|
Operating
profit
|
|
$
|
126.5
|
|
|
$
|
105.6
|
|
20
|
%
|
Operating
profit margin
|
|
|
12.6
|
%
|
|
|
11.2
|
%
|
|
|
Volume*
(units):
|
|
|
|
|
|
|
|
|
|
|
Hawaii
containers
|
|
|
167,500
|
|
|
|
173,200
|
|
-3
|
%
|
Hawaii
automobiles
|
|
|
110,100
|
|
|
|
118,700
|
|
-7
|
%
|
China
containers
|
|
|
51,200
|
|
|
|
32,700
|
|
57
|
%
|
Guam
containers
|
|
|
14,600
|
|
|
|
13,500
|
|
8
|
%
|
*
Container volumes included for the period are based on the voyage departure
date, but revenue and operating profit are adjusted to reflect the percentage of
revenue and operating profit earned during the reporting period for voyages that
straddle the beginning and/or end of the reporting period.
Ocean Transportation revenue increased
$61.1 million, or 6 percent, in 2007 compared to 2006. The increase reflected a
number of factors, including $36.2 million related to improved yields and cargo
mix, $44.3 million due principally to higher China, Guam and Micronesia service
volumes, partially offset by $16.3 in lower Hawaii volumes, and $18.1 million
related to an increase in fuel surcharge revenues. These increases were
partially offset by $6.4 million of lower vessel charter revenue resulting from
the expiration of the APL Alliance in the first quarter of 2006 and $2.1 million
in lower government charter service revenue.
Total Hawaii container volume was down
3 percent from 2006, due to the reduction of volumes in certain segments,
including construction materials, despite continued moderate growth in the
Hawaii economy. Matson’s Hawaii automobile volume for 2007 was 7 percent lower
than the same period of last year, due primarily to lower rental fleet turnover
and slower retail auto sales. China volume increased 57 percent in 2007 as a
result of the ramp-up of the China service during 2006 as compared to relatively
full ships throughout 2007. Guam container volume increased 8 percent from
year-earlier levels due to general market growth.
Operating profit increased $20.9
million, or 20 percent, in 2007 compared to 2006. This increase was primarily
the result of revenue increases described above, partially offset by the
following operating expense changes. Vessel costs increased by $15.8 million due
principally to higher direct and indirect fuel costs, higher vessel wages,
higher insurance and claims costs, and higher dry-dock expenses, partially
offset by fleet optimization initiatives, resulting in fewer operating vessel
days in line with the lower volumes in the Hawaii service, as well as lower
charter costs as a result of the off-hire of the M.V. Greatland late in the
first quarter of 2007. Terminal handling costs increased by $9.2 million,
principally the result of higher terminal handling fees. Depreciation expenses
increased $5.5 million due primarily to the acquisition of a new vessel late in
the third quarter of 2006. Operations overhead increased $4.0 million, primarily
due to higher container repositioning costs arising as a result of increased
China volumes destined for inland U.S. locations. General and administrative
costs increased $3.8 million due to higher payroll, professional fees, and legal
expenses. The year-over-year variance was also negatively impacted by a $3.3
million gain in 2006 on the sale of two surplus and obsolete vessels, a $2.6
million decrease in Matson’s share of SSAT joint venture earnings, principally
the result of lower terminal volumes, and a $2.3 million decrease in interest
income primarily due to lower cash balances.
Logistics
Services; 2008
compared with 2007
(dollars
in millions)
|
|
2008
|
|
|
2007
|
|
Change
|
Intermodal
revenue
|
|
$
|
271.0
|
|
|
$
|
280.2
|
|
-3
|
%
|
Highway
revenue
|
|
|
165.0
|
|
|
|
153.3
|
|
8
|
%
|
Total
Revenue
|
|
$
|
436.0
|
|
|
$
|
433.5
|
|
1
|
%
|
Operating
profit
|
|
$
|
18.5
|
|
|
$
|
21.8
|
|
-15
|
%
|
Operating
profit margin
|
|
|
4.2
|
%
|
|
|
5.0
|
%
|
|
|
Logistics Services revenue increased
$2.5 million, or 1 percent, in 2008 compared with 2007. The increase was
principally due to $13.4 million of revenue related to the commencement of
MGDS’s warehousing operations in the second quarter of 2008 and the acquisition
of PACAM, a regional, warehousing, packaging and distribution company, during
the third quarter of 2008. This increase was partially offset by a $9.2 million
decrease in Intermodal revenue and a $1.7 million decrease in Highway brokerage
revenue. The decrease in Intermodal revenue was principally the result of a 12
percent reduction in volumes, which is reflective of a general softening in the
Intermodal market driven, in part, by declines in U.S. import cargo. Highway
volumes decreased 8 percent due to the loss of agents and greater market
softness in certain agents’ business segments.
Logistics Services operating profit
decreased $3.3 million, or 15 percent, in 2008 compared with 2007. The decrease
in operating profit was due to a number of factors, including: lower aggregate
volumes; lower provision for bad debt in 2007; and higher general and
administrative expenses as a result of the commencement of MGDS’s operations
referenced above. These factors were partially offset by higher yields, and the
contribution related to the commencement of MGDS’s Savannah warehouse operations
in 2008.
Logistics
Services; 2007
compared with 2006
(dollars
in millions)
|
|
2007
|
|
|
2006
|
|
Change
|
Intermodal
revenue
|
|
$
|
280.2
|
|
|
$
|
287.4
|
|
-3
|
%
|
Highway
revenue
|
|
|
153.3
|
|
|
|
156.8
|
|
-2
|
%
|
Total
Revenue
|
|
$
|
433.5
|
|
|
$
|
444.2
|
|
-2
|
%
|
Operating
profit
|
|
$
|
21.8
|
|
|
$
|
20.8
|
|
5
|
%
|
Operating
profit margin
|
|
|
5.0
|
%
|
|
|
4.7
|
%
|
|
|
Logistics Services revenue decreased
$10.7 million, or 2 percent, in 2007 compared with 2006. This change was
principally due to decreases in Intermodal and Highway revenue of 3 percent and
2 percent, respectively. Intermodal revenue declined as volumes declined 7
percent principally as a result of lower inland China volume and competitive
pressures resulting from direct agreements between steamship lines and rail
providers, but were partially offset by an increase in domestic intermodal
volume and improved rates. Highway revenue decreased primarily due to a decline
in volumes arising principally from the 2006 loss of a truck brokerage agent in
Minnesota through an acquisition by a competitor.
Logistics Services operating profit
increased $1.0 million, or 5 percent, in 2007 compared with 2006. The increased
operating profit was primarily the result of lower provision for bad debts as a
result of improved collection experience and higher Intermodal and Highway
yields resulting from yield management activities, partially offset by higher
personnel expenses.
Real
Estate Industry
Real estate leasing and sales revenue
and operating profit are analyzed before subtracting amounts related to
discontinued operations. This is consistent with how the Company’s
management evaluates and makes decisions regarding capital allocation,
acquisitions, and dispositions for the Company’s real estate
businesses. A discussion of discontinued operations for the real
estate business is included separately.
Effect of Property Sales Mix on
Operating Results: Direct year-over-year comparison of the real
estate sales results may not provide a consistent, measurable barometer of
future performance because results from period to period are significantly
affected by joint venture income and the mix of property sales. Operating
results, by virtue of each project’s asset class, geography, and timing, are
inherently episodic. Earnings from joint venture investments are not included in
segment revenue, but are included in operating profit. The mix of real estate
sales in any year or quarter can be diverse and can include developed
residential real estate, commercial properties, developable subdivision lots,
undeveloped land, and property sold under threat of condemnation. The sale of
undeveloped land and vacant parcels in Hawaii generally provides a greater
relative contribution to earnings than does the sale of developed and commercial
property, due to the low historical-cost basis of the Company’s Hawaii
land.
Consequently, real estate sales
revenue trends, cash flows from the sales of real estate, and the amount of real
estate held for sale on the balance sheets, do not necessarily indicate future
profitability trends for this segment. Additionally, the operating profit
reported in each period does not necessarily follow a percentage of sales trends
because the cost basis of property sold can differ significantly between
transactions. The reporting of real estate sales is also affected by the
classification of certain real estate sales as discontinued
operations.
Leasing; 2008 compared with
2007
(dollars
in millions)
|
|
2008
|
|
|
2007
|
|
Change
|
Revenue
|
|
$
|
107.8
|
|
|
$
|
108.5
|
|
-1
|
%
|
Operating
profit
|
|
$
|
47.8
|
|
|
$
|
51.6
|
|
-7
|
%
|
Operating
profit margin
|
|
|
44.3
|
%
|
|
|
47.6
|
%
|
|
|
Average
Occupancy Rates:
|
|
|
|
|
|
|
|
|
|
|
Mainland*
|
|
|
95
|
%
|
|
|
97
|
%
|
|
|
Hawaii
|
|
|
98
|
%
|
|
|
98
|
%
|
|
|
Leasable
Space (million sq. ft.) - Improved
|
|
|
|
|
|
|
|
|
|
|
Mainland
|
|
|
6.6
|
|
|
|
5.2
|
|
27
|
%
|
Hawaii
|
|
|
1.3
|
|
|
|
1.4
|
|
-7
|
%
|
* Excludes
Building B at Savannah Logistics Park (approximately 0.3 million sq. ft.), which
had not been placed into service as of December 31, 2008.
Real Estate Leasing revenue for 2008
was 1 percent lower than the amount reported for 2007. The decrease was
principally due to lower mainland occupancy, partially offset by the net
improvement resulting from acquisitions and dispositions activity. Revenue from
the acquisitions of Heritage Business Park in November 2007, Savannah Logistics
Park (Building A) in February 2008, Republic Distribution Center in September
2008, and the Midstate 99 Distribution Center in November 2008 (buildings 2 and
4) and December 2008 (buildings 1 and 3), partially offset lower revenue due to
the sale of several properties, which included the sales of Boardwalk Shopping
Center in Texas, Marina Shores Shopping Center in California, Venture Oaks in
California, and several improved properties and unimproved parcels on Maui, in
August, September, November, and December 2008, respectively. Additionally, the
decrease in leasing revenue was partially due to the net effect of $1.7 million
of favorable nonrecurring items recorded in 2007 partially offset by a final
$1.4 million business interruption insurance payment for a 2005 fire at Kahului
Shopping Center that was received in the first quarter of 2008.
Operating profit was 7 percent lower
in 2008, compared with 2007, principally due to higher depreciation and
amortization expense and lower mainland occupancy related to higher-margin
office properties, partially offset by lower general and administrative costs.
Depreciation expenses increased primarily due to the sale of a non-depreciable
asset (land that was ground leased to a retail tenant) in 2007, and the
subsequent tax-deferred reinvestment of these sale proceeds into depreciable
commercial property.
Leasable space increased by a net 1.3
million square feet in 2008 compared with 2007, due principally to the
acquisitions of Savannah Logistics Park, Republic Distribution Center, and the
Midstate 99 Distribution Center previously cited. The facility in Savannah
consists of two buildings totaling 1.0 million square feet. The first building,
Building A, totals approximately 0.7 million square feet and was completed,
leased, and placed in service in April 2008. Building B, totaling approximately
0.3 million square feet, has not been placed in service as of December 31, 2008
because the Company plans to construct additional improvements to the facility.
Building A is leased to MGDS, a wholly-owned subsidiary of MIL. Accordingly, the
revenues and expenses related to the intercompany lease transaction between Real
Estate Leasing and MGDS, respectively, are eliminated in consolidation, but are
shown at their gross amounts for segment purposes. The revenue and expense
recorded by Real Estate Leasing and MGDS for 2008 was approximately $2.2
million. There was no intercompany revenue and expense recorded in 2007. In a
separate transaction, MGDS contracted with a major toy manufacturer to provide
warehousing and storage services utilizing all of Building A, in the second
quarter of 2008.
Leasing; 2007 compared with
2006
(dollars
in millions)
|
|
2007
|
|
|
2006
|
|
Change
|
Revenue
|
|
$
|
108.5
|
|
|
$
|
100.6
|
|
8
|
%
|
Operating
profit
|
|
$
|
51.6
|
|
|
$
|
50.3
|
|
3
|
%
|
Operating
profit margin
|
|
|
47.6
|
%
|
|
|
50.0
|
%
|
|
|
Average
Occupancy Rates:
|
|
|
|
|
|
|
|
|
|
|
Mainland
|
|
|
97
|
%
|
|
|
98
|
%
|
|
|
Hawaii
|
|
|
98
|
%
|
|
|
98
|
%
|
|
|
Leasable
Space (million sq. ft.) - Improved
|
|
|
|
|
|
|
|
|
|
|
Mainland
|
|
|
5.2
|
|
|
|
3.8
|
|
37
|
%
|
Hawaii
|
|
|
1.4
|
|
|
|
1.5
|
|
-7
|
%
|
Real estate leasing revenue and
operating profit for 2007 were 8 percent and 3 percent higher, respectively,
than the amounts reported for 2006. The increase in real estate leasing revenue
was principally due to net additions to the portfolio during or subsequent to
2006. Additionally, 2007 benefited from improved performance at existing
properties and the completion and occupancy of a commercial building on Maui in
October 2006.
Operating profit increased in 2007,
compared with 2006, for the same reasons cited for the real estate leasing
revenue increases, but the increases were partially offset by higher operating
costs, including real property taxes, utilities, and insurance, higher
depreciation, principally from acquisitions, business interruption and
construction claim settlements received by the Company in 2006, and higher
general and administrative expenses.
Leasable space increased by 1.3
million square feet in 2007 due principally to the acquisition of Heritage
Business Park (“Heritage”), a seven-building industrial property in Dallas,
Texas, on November 1, 2007. Heritage contains a total of 1.3 million square feet
of leasable warehouse/flex space, and 28 acres of fully entitled, developable
land that could accommodate approximately 430,000 square feet of additional
leasable space.
Real-Estate
Sales; 2008
compared with 2007 and 2006
(dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Hawaii
improved
|
|
$
|
21.8
|
|
|
$
|
83.4
|
|
|
$
|
43.7
|
|
Mainland
improved
|
|
|
81.8
|
|
|
|
6.8
|
|
|
|
35.6
|
|
Hawaii
development sales
|
|
|
217.4
|
|
|
|
14.9
|
|
|
|
4.5
|
|
Hawaii
unimproved/other
|
|
|
29.2
|
|
|
|
12.7
|
|
|
|
13.5
|
|
Total
Revenue
|
|
$
|
350.2
|
|
|
$
|
117.8
|
|
|
$
|
97.3
|
|
Operating
profit before joint ventures
|
|
$
|
86.6
|
|
|
$
|
51.8
|
|
|
$
|
35.3
|
|
Earnings
from joint ventures
|
|
|
9.0
|
|
|
|
22.6
|
|
|
|
14.4
|
|
Total
Operating Profit
|
|
$
|
95.6
|
|
|
$
|
74.4
|
|
|
$
|
49.7
|
|
Operating
profit margin
|
|
|
27.3
|
%
|
|
|
63.2
|
%
|
|
|
51.1
|
%
|
The higher revenue and higher operating
profit results were due to the mix and timing of real estate sales in 2008
compared with 2007, as well as the treatment of income earned from the Company’s
joint ventures. The composition of these sales is described below.
2008: Real Estate Sales revenue
included the sale of 330 residential units and two commercial units at the
Company’s Keola La’i high-rise development in Honolulu, two mainland shopping
centers, one mainland office property, the Kahului Town Terrace rental project,
three improved Maui properties, a 130-acre agricultural parcel on Maui, several
leased fee parcels and other land parcels on Maui, and 30 Keala’ula
single-family homes on Kauai. Operating profit included joint venture income of
$9.0 million, principally related to sales at the Company’s Kai Malu residential
development on Maui and the sale of several buildings at the Company’s Centre
Pointe retail/office development in Valencia, California, partially offset by
the Company’s share of marketing and other operating expenses of its Kukui’ula
projects. Real Estate Sales operating profit for 2008 included $7.7 million,
representing a final insurance settlement for the 2005 fire at Kahului Shopping
Center that was received in the first quarter of 2008. Finally, the Company
recorded a $3 million impairment loss related to its investment in its Santa
Barbara joint venture project, $1.5 million of which was recognized at the joint
venture level and recorded by the Company as earnings in loss of joint venture,
and $1.5 million of which was recognized by the Company as a reduction in
operating profit from an other-than-temporary impairment of its investment in
the joint venture.
2007: Real Estate Sales revenue
included the sale of a four-acre land parcel ground leased to a retail tenant in
Honolulu, two retail centers on Maui, two small commercial buildings on a
four-acre land parcel on Maui sold to the State of Hawaii, a commercial property
in California, the final payment on an installment sale of an agricultural
parcel on Kauai, and a commercial parcel on Maui. Closings also commenced on a
single-family residential development on Kauai. Operating profit included the
margin on the sales referenced above as well as $22.6 million of joint venture
earnings, principally representing the results from the Company’s Kai Malu and
Valencia joint venture projects, partially offset by the Company’s share of
marketing and other operating expenses of its Kukui’ula joint venture
project.
2006: Real Estate Sales revenue
included the sale of two retail centers in Arizona, a commercial property on the
island of Hawaii, a Maui office building, several commercial parcels on Maui, a
commercial property on Oahu, and a 19-percent installment payment for an
agricultural parcel on Kauai. Operating profit for 2006 was significantly higher
as a percentage of real estate sales revenue compared to 2005 because operating
profit also included $14.4 million for the Company’s earnings from its real
estate joint ventures. The joint venture earnings principally relate to a
portion of the Company’s earnings from its Hokua joint venture, which completed
sales of all 247 residential condominium units in January 2006, and joint
venture earnings from the Company’s Kai Malu project, partially offset by higher
marketing expenses related to the Company’s Kukui’ula project.
Discontinued
Operations;
Real-Estate –
The revenue, operating profit, and after-tax effects of discontinued
operations for 2008, 2007 and 2006 were as follows (in millions, except
per-share amounts):
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Sales
Revenue
|
|
$
|
125.4
|
|
|
$
|
94.8
|
|
|
$
|
89.8
|
|
Leasing
Revenue
|
|
$
|
7.6
|
|
|
$
|
17.2
|
|
|
$
|
21.9
|
|
Sales
Operating Profit
|
|
$
|
55.0
|
|
|
$
|
50.8
|
|
|
$
|
40.1
|
|
Leasing
Operating Profit
|
|
$
|
4.1
|
|
|
$
|
10.2
|
|
|
$
|
12.2
|
|
After-tax
Earnings
|
|
$
|
36.5
|
|
|
$
|
38.0
|
|
|
$
|
32.5
|
|
Basic
Earnings Per Share
|
|
$
|
0.89
|
|
|
$
|
0.89
|
|
|
$
|
0.76
|
|
Diluted
Earnings Per Share
|
|
$
|
0.88
|
|
|
$
|
0.88
|
|
|
$
|
0.75
|
|
2008: The revenue and
expenses of two retail properties on the mainland, one mainland office property,
a multi-tenant residential rental property, three commercial properties on Maui,
land previously leased to a telecommunications tenant on Maui, and several land
parcels on Maui, and have been classified as discontinued
operations.
2007: The revenue and
expenses of land leased to a retail tenant on Oahu, several commercial
properties on Maui, a leased fee parcel on Maui, and a commercial property in
California have been classified as discontinued operations.
2006: The revenue and
expenses from the sale of two retail centers in Arizona, an office building on
Maui, a commercial property on the island of Hawaii, and several commercial
parcels in Hawaii were included in discontinued operations.
Agribusiness
Agribusiness; 2008 compared with
2007
(dollars
in millions)
|
|
2008
|
|
|
2007
|
|
Change
|
Revenue
|
|
$
|
124.3
|
|
|
$
|
123.7
|
|
--
|
%
|
Operating
profit (loss)
|
|
$
|
(12.9
|
)
|
|
$
|
0.2
|
|
NM
|
|
Operating
profit (loss) margin
|
|
|
NM
|
|
|
|
0.2
|
%
|
|
|
Tons
sugar produced
|
|
|
145,200
|
|
|
|
164,500
|
|
-12
|
%
|
Agribusiness revenue increased $0.6
million in 2008 compared with 2007. The increase was principally due to $6.1
million in higher power prices and volumes , $4.6 million in higher specialty
sugar sales volumes, and $1.5 million in higher raw sugar prices, partially
offset by $8.8 million in lower raw sugar sales volumes and $2.9 million in
lower revenue from soil and molasses sales.
Operating loss for 2008 was $12.9
million compared with an operating profit of $0.2 million for
2007. The operating loss was primarily due to $14.9 million in lower
sugar margins that were the result of lower production volumes and higher
operating costs than 2007, $1.6 million in lower soil sales, $1.5 million in
lower profits from other operations and $1.2 million in lower molasses sales
prices. This unfavorable variance was partially offset by $6.1 million in higher
power revenue from higher prices.
Compared with 2007, sugar production in
2008 was 12 percent, or 19,300 tons, lower due to lower yields. Lower sugar
yields were principally the result of extended drought conditions. The average
revenue per ton of sugar for 2008 was $355, or 4 percent higher than the average
revenue per ton of $342 in 2007.
Approximately 81 percent of the
Company’s sugar production was sold to Hawaiian Sugar & Transportation
Cooperative (“HS&TC”) during 2008 under a marketing contract. The remainder
was sold as specialty sugar. HS&TC sells its raw sugar to C&H Sugar
Company, Inc. at a price equal to the New York No. 14 Contract settlement price,
less a discount and less costs for sugar vessel discharge and stevedoring. This
price, after deducting the marketing, operating, distribution, transportation
and interest costs of HS&TC, reflects the gross revenue to the Company. The
Agreement for Delivery and Sale of Raw Sugar with C&H Sugar Company, Inc.
and HS&TC was amended in December 2008. The agreement was extended for one
year, with an option to extend it for one additional year.
Agribusiness; 2007 compared with
2006
(dollars
in millions)
|
|
2007
|
|
|
2006
|
|
Change
|
Revenue
|
|
$
|
123.7
|
|
|
$
|
127.4
|
|
-3
|
%
|
Operating
profit
|
|
$
|
0.2
|
|
|
$
|
6.9
|
|
-97
|
%
|
Operating
profit margin
|
|
|
0.2
|
%
|
|
|
5.4
|
%
|
|
|
Tons
sugar produced
|
|
|
164,500
|
|
|
|
173,600
|
|
-5
|
%
|
Agribusiness revenue decreased $3.7
million, or 3 percent, in 2007 compared with 2006. The decrease was principally
due to $6.3 million in lower raw sugar revenue as a result of lower sales
volumes and prices, and $1.6 million in lower power revenue due principally to
lower volumes sold. The decrease was partially offset by $4.3 million in higher
revenue from coffee sales, specialty sugar sales, land and quarry rent, and
trucking and shop services.
Operating profit for 2007 decreased
$6.7 million, or 97 percent, compared with 2006. The decrease in operating
profit was primarily due to lower sugar production, higher operating costs, and
lower sugar prices. The decrease in operating profit was also due to $1.6
million in lower power revenue due principally to lower volumes
sold.
Compared with 2006, sugar production in
2007 was 5 percent, or 9,100 tons, lower due primarily to lower yields. Lower
sugar yields were principally the result of dry-weather conditions over the past
two years and to certain agronomic practices. The average revenue per ton of
sugar for 2007 was $342, or 2 percent lower than the average revenue per ton of
$350 in 2006.
LIQUIDITY
AND CAPITAL RESOURCES
Overview: During 2008,
significant turmoil in the credit markets resulted in liquidity constraints
across the market in general. However, the Company has not been materially
impacted by the liquidity crisis because of its significant cash flows from
operations and its ability to borrow under its debt facilities. The Company has
a $325 million revolving credit facility, which does not expire until December
2011. As of December 31, 2008, the Company had approximately $249 million of
available capacity under the facility. Additionally, as of December 31, 2008,
the Company had access to approximately $143 million of remaining capacity on a
$400 million term facility, under which the ability to draw additional amounts
under the facility expires in April 2012, and $14 million of remaining capacity
on a facility that expires in June 2015. The Company has discussed credit
availability with its lenders and currently believes that its lenders are
willing and able to lend pursuant to the terms of the respective credit
facilities. Additionally, the Company is currently in compliance with all of its
covenants under its debt agreements. As a result, the Company believes its
ability to generate cash and access capital under its facilities will be
adequate to meet anticipated future cash requirements to fund working capital,
capital expenditures, dividends, potential acquisitions, stock repurchases, and
other cash needs for the foreseeable future. There can be no assurance, however,
that the Company will continue to generate cash flows at or above current levels
or that it will be able to maintain its ability to borrow under its available
credit facilities.
While Matson is subject to restrictions
on the transfer of net assets to A&B under certain debt agreements, these
restrictions have not had any effect on the Company’s shareholder dividend
policy, and the Company does not anticipate that these restrictions will have
any impact in the future. At December 31, 2008, the amount of net assets of
Matson that may not be transferred to the Company was approximately $298
million.
On January 29, 2009, the Company
committed to a fourth series of senior promissory notes, Series D notes,
totaling $100 million under its Prudential facility more fully described in Note
7 to the Consolidated Financial Statements. The Company intends to use the
proceeds for general corporate purposes. The funding date of the draw under the
facility will be at the Company’s discretion, but must occur by March 9, 2009.
The notes carry interest at an annual fixed-rate of 6.9 percent with a final
maturity on March 9, 2020. Interest will be paid semi-annually, commencing in
September 2009, and the principal under the note will be repaid in annual
installments commencing in March 2012.
Cash Flows: Cash
flows provided by operating activities continue to be the Company’s most
significant source of liquidity. Cash flows from operating activities totaled
$275 million for 2008, $124 million for 2007, and $106 million for 2006.
The increase in 2008 over 2007 was due principally to proceeds from the sale of
330 residential units and two commercial units at the Company’s Keola La’i
condominium project and to lower spending on real estate development inventory,
partially offset by lower Agribusiness and Matson earnings and higher income tax
payments. The increase in 2007 over 2006 was due principally to higher Ocean
Transportation segment earnings, including higher distributions from Matson’s
investment in SSAT, and higher residential development sales proceeds, partially
offset by higher expenditures for real estate developments held-for-sale and
higher income tax payments.
Cash flows used in investing activities
were $149 million for 2008, $145 million for 2007, and $124 million for
2006. Of the 2008 amount, $109 million was for capital expenditures, including
$54 million related to real estate investments, such as the reverse 1031
acquisition of Savannah Logistics Center and other leasing portfolio
improvements, $38 million related to the purchase of ocean
transportation-related assets, and $15 million principally related to routine
replacements for agricultural operations. Other cash flows used in investing
activities included $41 million related to additional investments in joint
venture projects, and $24 million for the acquisition of PACAM. These cash
outflows were partially offset by $27 million in cash proceeds received that
were primarily related to property sales. The $149 million of cash used in
investing activities for 2008 excludes $46 million of 1031 tax-deferred
purchases since the Company did not actually take control of the cash during the
exchange period.
Of the 2007 amount, $122 million was
for capital expenditures that included $68 million for the purchase of ocean
transportation-related assets, $34 million for real estate leasing and property
improvements (excluding non-cash 1031 transactions and real estate development
activity), and $20 million related to agricultural operations, primarily for the
expansion of specialty sugar facilities. The $122 million for 2007 excludes $91
million of 1031 tax-deferred purchases since the Company did not actually take
control of the cash during the exchange period.
In 2006, the Company’s capital
expenditures, excluding purchases of property using tax-deferred proceeds,
totaled $281 million. This was comprised principally of $147 million for
the purchase of the MV
Maunalei, which completed the Company’s four ship modernization and
replacement strategy, equipment purchases for the ocean transportation segment,
primarily related to the Company’s new China service, $46 million in
expenditures related to property development activities, and $15 million related
to routine asset replacements for agricultural operations and specialty sugar
expansion activities. The cash used for transportation capital expenditures was
partially funded by Capital Construction Fund withdrawals. The amounts reported
as capital expenditures on the statement of cash flows in 2006 exclude $49
million of tax-deferred purchases since the Company did not actually take
control of the cash during the exchange period. Additionally, expenditures for
real estate held-for-sale are excluded from capital expenditures and included in
Cash Flows from Operating Activities because they are considered an operating
activity of the Company.
In 2009, the Company expects that its
required minimum capital expenditures will be modestly less than the amount
required in 2008. In 2009, the Company’s total capital budget is expected to
approximate $325 million, which includes spending for new, but currently
unidentified, investment opportunities as well as expenditures for real estate
developments and currently unidentified 1031 lease portfolio acquisitions that
are not included in the caption entitled “Capital expenditures for property and
developments” under investing activities in the statement of cash flows. These
real estate expenditures are excluded from “Capital expenditures for property
and developments” because the expenditures either relate to the Company’s real
estate held-for-sale inventory that is treated as an operating activity, and
therefore, reflected in operating cash flows, or are expenditures that are made
using tax-deferred proceeds from prior tax-deferred sales, and therefore,
reflected as non-cash activities (since the Company does not take control of the
cash during the exchange period). Approximately $100 million of the total
projected capital budget relate to ongoing real estate development and
maintenance capital, approximately $125 million relate to currently unidentified
1031 lease portfolio acquisitions, and approximately $100 million relates to
currently unidentified real estate development and Logistics acquisitions. The
$225 million budgeted for capital expenditures related to currently unidentified
investments, as well as any additional capital spending beyond the $225 million
will be highly dependent on the identification of attractive investment
opportunities. However, should these investment opportunities arise, the Company
believes it has adequate sources of liquidity to fund these
investments.
Cash flows used in financing activities
for 2008 totaled $124 million, compared with $7 million used and $6 million
provided by financing activities for 2007 and 2006, respectively. The increase
in cash used in financing activities for 2008 was principally due to a net
reduction in debt of $16 million in 2008 compared with a net increase in debt of
$66 million in 2007, share repurchases totaling approximately $59 million,
compared with approximately $33 million for 2007, and $3 million in higher
dividends. The increase in cash flows used in financing activities in 2007
compared with 2006 was due primarily to $49 million in lower net borrowings on
debt facilities and $6 million in higher dividends in 2007, partially offset by
$39 million in higher share repurchases in 2006.
On January 31, 2008, the Company’s
board of directors authorized the repurchase of up to two million additional
shares of its common stock in the open market, in privately-negotiated
transactions or by other means. The authorization expires on December 31, 2009.
In 2008, A&B purchased 1,476,449 shares of its common stock on the open
market at an average price of $40.33, a portion of which was purchased under a
previous share authorization. As of December 31, 2008, 1,851,823 shares remained
available for repurchase under the authorization.
Other Sources of
Liquidity: Additional sources of liquidity for the Company
consisted of cash and cash equivalents, receivables, sugar and coffee
inventories that totaled approximately $195 million at December 31, 2008, a
decrease of $15 million from December 31, 2007. This net decrease was due
primarily to $22 million in lower account receivables balances, partially offset
by $4 million in higher sugar and coffee inventories and $2 million in higher
cash balances.
The Company also has various revolving
credit and term facilities that provide additional sources of liquidity for
working capital requirements or investment opportunities on a short-term as well
as longer-term basis. Total debt, including $11 million of debt assumed as part
of a 2008 leased property acquisition, was $504 million at the end of 2008
compared with $509 million at the end of 2007. As of December 31, 2008,
available borrowings under these facilities, which are more fully described
below, totaled $406 million.
The Company has a replenishing $400
million three-year unsecured note purchase and private shelf agreement with
Prudential Investment Management, Inc. and its affiliates (collectively,
“Prudential”) under which the Company may issue notes in an aggregate amount up
to $400 million, less the sum of all principal amounts then outstanding on any
notes issued by the Company or any of its subsidiaries to Prudential and the
amounts of any notes that are committed under the note purchase agreement. The
ability to draw additional amounts under the facility expires in April 2012.
During 2006 and 2007, the Company borrowed, under a series of committed notes,
$125 million at rates ranging from 5.53 percent to 5.56 percent. At December 31,
2008, $143 million was available under the facility. On January 29, 2009,
A&B committed to a fourth series of senior promissory notes, Series D notes,
totaling $100 million under the facility, as more fully described in Note 7 to
the consolidated financial statements. The funding date of the draw under the
facility will be at A&B’s discretion, but must occur by March 9, 2009. The
notes carry interest at an annual fixed-rate of 6.9 percent with a final
maturity on March 9, 2020. Interest will be paid semi-annually, commencing in
September 2009, and the principal under the note will be repaid in annual
installments commencing in March 2012.
The Company has two revolving senior
credit facilities with six commercial banks that expire in December 2011. The
revolving credit facilities provide for an aggregate commitment of $325 million,
which consists of $225 million and $100 million facilities for A&B and
Matson, respectively. Amounts drawn under the facilities bear interest at London
Interbank Offered Rate (“LIBOR”) plus a spread ranging from 0.225 percent to
0.475 percent based on the Company’s S&P rating.. At December 31, 2008, $65
million was outstanding, $11 million in letters of credit had been issued
against the facilities, and $249 million remained available for borrowing. Of
the $65 million outstanding under the facility, $20 million was classified as
current and $45 million was classified as non-current because the Company has
the intent and ability to refinance the drawn amount on a long-term
basis.
Matson has a $105 million secured
reducing revolving credit agreement with DnB NOR Bank ASA and ING Bank N.V.
which provides for a 10-year commitment beginning in June 2005. The maximum
amount that can be outstanding under the facility declines in eight annual
commitment reductions of $10.5 million each, commencing on the second
anniversary of the closing date. The incremental cost to borrow under the
facility is 0.225 percent above LIBOR through June 2010. For the remaining term,
the incremental borrowing rate is 0.300 percent over LIBOR. As of December 31,
2008, $70 million was outstanding under the facility and $14 million remained
available.
The Company’s ability to access
its credit facilities is subject to its compliance with the terms and conditions
of the credit facilities, including financial covenants. The financial covenants
require the Company to maintain certain financial covenants, such as minimum
consolidated shareholders’ equity and maximum debt to EBITDA ratios. At December
31, 2008, the Company was in compliance with all such covenants. Credit
facilities are more fully described in Note 7 to the Consolidated Financial
Statements.
The Company’s and Matson’s credit
ratings from Standard and Poor’s were both A- with a stable outlook, as
indicated in a note issued January 21, 2009. Factors that can impact the
Company’s and Matson’s credit ratings include changes in operating performance,
the economic environment, conditions in industries in which the Company has
operations, and the Company’s and Matson’s financial position. If a credit
downgrade were to occur, it could adversely impact, among other things, future
borrowing costs and access to capital markets.
Debt is maintained at levels the
Company considers prudent based on its cash flows, interest coverage ratio, and
percentage of debt to capital. From current levels, the Company expects its
leverage will remain at levels comparable to 2008.
Tax-Deferred Real Estate
Transactions: Sales – During 2008, sales
and condemnation proceeds that qualified for potential tax-deferral treatment
under the Internal Revenue Code Sections 1031 and 1033 totaled approximately
$129 million. The proceeds were generated primarily from the sales of two retail
centers and one office property on the mainland, a multi-tenant residential
rental property on Maui, three commercial properties on Maui, and various other
land parcels on Maui.
Purchases – During 2008, the
Company utilized $71 million in proceeds from tax-deferred sales. The properties
acquired with tax-deferred proceeds in 2008 included the purchase of Republic
Distribution Center, a logistics warehouse in Texas, Savannah Logistics Park, a
two-building industrial facility in Georgia, and Midstate 99 Distribution
Center, a four-building logistics warehouse in Visalia, California.
The proceeds from 1031 tax-deferred
sales are held in escrow pending future use to purchase new real estate assets.
The proceeds from 1033 condemnations are held by the Company until the funds are
redeployed. As of December 31, 2008, approximately $71 million of proceeds from
tax-deferred sales had not been reinvested. The proceeds must be reinvested in
qualifying property within 180 days from the date of the sale in order to
qualify for tax deferral treatment under section 1031 of the Internal Revenue
Code. The Company will not reinvest approximately $23 million of the proceeds
because the Company has not been able to find an attractive replacement property
within the required reinvestment period.
The funds related to 1031 transactions
are not included in the Statement of Cash Flows but are included as non-cash
activities below the Statement. For “reverse 1031” transactions, the Company
purchases a property in anticipation of receiving funds from a future property
sale. Funds used for reverse 1031 purchases are included as capital expenditures
on the Statement of Cash Flows and the related sales of property, for which the
proceeds are linked, are included as property sales in the
Statement.
CONTRACTUAL
OBLIGATIONS, COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET
ARRANGEMENTS
Contractual
Obligations: At December 31, 2008, the Company had the
following estimated contractual obligations (in millions):
|
|
|
|
|
|
|
|
|
Payment
due by period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
Obligations
|
|
|
Total
|
|
|
2009
|
|
|
2010-2011
|
|
|
2012-2013
|
|
|
Thereafter
|
|
Long-term
debt obligations
(including current
portion)
|
(a)
|
|
$
|
504
|
|
|
$
|
52
|
|
|
$
|
121
|
|
|
$
|
89
|
|
|
$
|
242
|
|
Estimated
interest on debt
|
(b)
|
|
|
127
|
|
|
|
21
|
|
|
|
35
|
|
|
|
28
|
|
|
|
43
|
|
Purchase
obligations
|
(c)
|
|
|
17
|
|
|
|
17
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Post-retirement
obligations
|
(d)
|
|
|
38
|
|
|
|
3
|
|
|
|
7
|
|
|
|
8
|
|
|
|
20
|
|
Non-qualified
benefit obligations
|
(e)
|
|
|
36
|
|
|
|
8
|
|
|
|
14
|
|
|
|
3
|
|
|
|
11
|
|
Operating
lease obligations
|
(f)
|
|
|
103
|
|
|
|
17
|
|
|
|
26
|
|
|
|
24
|
|
|
|
36
|
|
Total
|
|
|
$
|
825
|
|
|
$
|
118
|
|
|
$
|
203
|
|
|
$
|
153
|
|
|
$
|
351
|
|
|
(a)
|
Long-term
debt obligations (including current portion) include principal repayments
of short-term and long-term debt as described in Note 7 to the
Consolidated Financial Statements. Short-term and long-term debt include
amounts borrowed under revolving credit facilities that are assumed to be
repaid in the year the facility terminates or as the contractual revolving
capacity is reduced. These payments total approximately $20 million in
2009, $7 million in 2010, $55 million in 2011, $11 million each year from
2012 through 2013, and $20 million thereafter. Subsequent to December 31,
2008, and as more fully described in Note 7 to the Consolidated Financial
Statements, the Company committed to a $100 million term borrowing under
its Prudential facility. The Company intends to use the proceeds to repay
its revolving balances described above, which would change the timing of
repayments of its long-term debt obligations. Repayments under the $100
million that will be drawn under the Prudential facility are $10 million
in 2012, $5 million each year from 2013 through 2015, $10 million in 2016,
and $65 million thereafter.
|
|
(b)
|
Estimated
cash paid for interest on debt is determined based on (1) the stated
interest rate for fixed debt and (2) the rate in effect on December 31,
2008 for variable rate debt. Because the Company’s variable rate
facilities will be replaced during the years noted in the table, actual
interest may be greater or less than the amounts
indicated.
|
|
(c)
|
Purchase
obligations include only non-cancellable contractual obligations for the
purchases of goods and services. Arrangements are considered purchase
obligations if a contract specifies all significant terms, including fixed
or minimum quantities to be purchased, a pricing structure and approximate
timing of the transaction. Any amounts reflected on the consolidated
balance sheet as accounts payable and accrued liabilities are excluded
from the table above.
|
|
(d)
|
Post-retirement
obligations include expected payments to medical service providers in
connection with providing benefits to the Company’s employees and
retirees. The $20 million noted in the column labeled “Thereafter”
comprises estimated benefit payments for 2014 through 2018.
Post-retirement obligations are described further in Note 9 to the
Consolidated Financial Statements. The obligation for pensions reflected
on the Company’s consolidated balance sheet is excluded from the table
above because the Company is unable to estimate the timing and amount of
contributions.
|
|
(e)
|
Non-qualified
benefit obligations includes estimated payments to executives and
directors under the Company’s four non-qualified plans. The $11 million
noted in the column labeled “Thereafter” comprises estimated benefit
payments for 2014 through 2018. Additional information about the Company’s
non-qualified plans is included in Note 9 to the Consolidated Financial
Statements.
|
|
(f)
|
Operating
lease obligations include principally land, office and terminal
facilities, containers and equipment under non-cancelable, long-term lease
arrangements that do not transfer the rights and risks of ownership to the
Company. These amounts are further described in Note 8 to the Consolidated
Financial Statements.
|
The
Company has not provided a detailed estimate of the timing and amount of
payments related to FIN 48 liabilities due to the uncertainty of when the
related tax settlements are due. At December 31, 2008, the Company’s FIN 48
liabilities totaled approximately $6 million.
Other Commitments and
Contingencies: A description of other commitments,
contingencies, and off-balance sheet arrangements, and incorporated herein by
reference, is described in Note 12 of the Consolidated Financial Statements of
Item 8 in this Form 10-K
BUSINESS
OUTLOOK
The
Company operates in multiple industries in domestic and international markets,
and its operations are impacted by regional, national and international economic
and market trends. Still, a majority of the Company’s operations are centered in
Hawaii and a corresponding measure of the Company’s performance is directly
influenced by the fundamentals of the Hawaii economy.
In 2008,
the underpinnings of the Hawaii economy were considerably eroded, paralleling a
significant contraction in the U.S. Mainland economy. The erosion was driven by
and reflected in significantly lower occupancy levels at hotels; reduced air
travel to and from the state; reduced consumer demand for automobiles, home
furnishings, and other “big-ticket” discretionary items; and reduction in real
estate sales activity. The above factors have had, and are expected to continue
to have, an adverse impact on the Company’s operations in 2009, most notably in
reduced shipping volume levels and in residential real estate
sales.
Similarly,
increased earnings challenges are expected in other core markets in which the
Company operates, including: the U.S. West where the Company has commercial
property and development interests; Asia-U.S. West Coast trade lanes, upon which
the Company’s international shipping and stevedoring volumes are dependent; and
throughout U.S. Mainland urban centers, which are important cargo nodes and
whose economic vitality drives logistics volume.
Additionally,
in 2009, as the result of significantly eroded market values in the Company’s
various defined benefit pension plans, the Company expects to incur
approximately $20 million in pension expense, compared to net periodic pension
income of approximately $4 million in 2008. This approximately $24 million
change will significantly impact earnings in 2009, as compared to
2008.
Throughout
2008, the Company implemented a series of company-wide cost containment and
revenue optimization initiatives designed to preserve operating margins and cash
flow, and sustain earnings momentum. These efforts included: fleet
cost-reduction initiatives; deferral or elimination of non-essential capital
expenditures; management salary freezes; headcount freezes; and mandatory
furloughs in its sugar operations.
To further
address the 2009 challenges described previously, in mid-January 2009, Matson
announced a restructuring plan that is expected to result in a 10 percent
reduction of its non-union workforce. Similar percentage headcount reductions at
A&B Properties/A&B Corporate Office were also effected. Agribusiness
will augment its prior headcount reductions by implementing additional cost
cutting measures related to personnel, including furloughs and forced vacations.
Additionally, the Company has pared back management compensation levels and
implemented pay freezes for 2009, along with other cost reduction
measures.
The
Company’s short-term and long-term strategic intent remains
to grow its asset base, earnings streams and cash flow generation
prospects by leveraging its core competencies and financial strength.
The Company continues to seek higher-return investments in real estate leasing
assets and development projects, and expansion of MIL into new service lines and
geographies through acquisitions and expansion of third-party logistics
services.
Transportation: The ocean
shipping and stevedoring businesses are high fixed-cost operations wherein
volume contraction can impact earnings disproportionately. Matson’s 2009
performance will be a function of the extent to which demand continues to
decline and how well Matson, and its stevedoring joint venture partner SSAT,
contain or reduce expenses, or generate new sources of revenue to
offset such declines. In 2008, Matson was able to offset a portion of the
volume-related earnings impact in all its trade lanes through improved yields
and better cargo mix, and by capturing efficiencies in its fleet and shore-side
asset deployment. Further reductions in fleet capacity are not likely;
therefore, Matson has implemented a cost restructuring plan (referenced above)
to offset the adverse impact of reduced volume to its operating profit. SSAT’s
ability to offset its volume drops in 2008 was not as successful.
In 2009,
the Company expects that its container volume in Hawaii will continue to be
affected by the contraction in the Hawaii economy, and therefore, volumes are
expected be lower than 2008 levels. In Guam, the Company expects moderate volume
declines. In China, further demand reductions and excess capacity are expected
to significantly increase pressure on volumes and rates. Similarly, the
Company’s stevedoring joint venture, SSAT, which operates terminals on the U.S.
West Coast, has been, and will continue to be, negatively impacted by a
reduction in import volumes from Asia.
In 2008,
overarching economic deterioration resulted in volume declines at MIL, and
halted several years of growth in this segment. MIL expects volume challenges to
accelerate in 2009, but is aggressively pursuing new business opportunities to
offset the expected volume contraction. In 2008, MIL commenced operations at a
710,000 square foot facility in Savannah, Georgia and acquired a regional
warehousing and distribution company in the Bay Area of California. The Company
expects that the Savannah facility and the Bay Area acquisition will provide
platforms for future growth at MIL. Further expansion of warehousing and
packaging services is planned, and is expected to further MIL’s goal of becoming
a full-service, third-party logistics company.
Real Estate: The strong 2008
results for the real estate sales segment are principally attributable to the
early year success at the Company’s Keola La’i residential development, and to
ongoing commercial property and land sales. However, markedly different sales
prospects are expected for the coming year due to the economic factors cited
above, as primary and resort residential sales essentially came to a standstill
in the latter half of 2008.
The
Company, therefore, has very modest expectations of residential unit sales for
the coming year, and several actions have been taken in response to current and
expected market conditions, such as: modifying the timing and scope of projects,
deferring or eliminating capital spending, deferring project infrastructure and
amenities to better match slower sales velocity, and reducing overhead and
marketing expenses.
Due to the
challenging real estate environment and limited financing options available for
real estate projects, in February 2009, DMB Communities II (“DMBC”), an
affiliate of DMB Associates, Inc. and the Company’s Kukui’ula joint venture
partner, advised the Company that it is evaluating its ability to fund the joint
venture in the future. As a result, the Company and DMBC have engaged in
discussions to renegotiate the terms of the Kukui’ula joint venture operating
agreement. These discussions are preliminary in nature and include a range
of operating and financing scenarios. No decisions or agreements have yet been
reached by the parties.
A key
earnings component of the Real Estate Sales segment is the disposition of
improved properties and land sales. Improved property sales allow the Company to
capture embedded value created by its property and asset management efforts and
provide investment capital for redeployment in assets having higher appreciation
potential through efficient, tax-deferred 1031 exchanges. In 2008, the Company
sold a number of commercial properties and expects sales of these assets to
continue in 2009, but expects that the number of dispositions and the prices at
which these dispositions materialize will be impacted by a smaller universe of
qualified buyers, reduced capital availability and recessionary impacts on
operations. These same factors will generate improved buying opportunities for
the Company as well. However, to the extent the Company is not able to reinvest
sales proceeds in new properties, leasing income may decline.
In
addition to the sale of improved properties, the Company periodically sells land
parcels. In 2008, a number of parcels, including land under ground leases, were
sold and in 2009 the Company expects that these sales will continue. Similar to
income property dispositions, proceeds from these sales will likely be
reinvested through the acquisition of improved properties offering higher
appreciation potential.
The
Company’s commercial property portfolio occupancy had high average occupancy
levels (98 and 95 percent in Hawaii and at its U.S. Mainland holdings,
respectively) due to its strong asset, tenant and geographic diversification.
However, lower occupancy and lower rents due to the economic recession impacted
the Company’s commercial real estate portfolio in 2008, and are expected to
further impact 2009 operating results.
Agribusiness: The Company’s
Agribusiness operations consist of sugar and coffee operations, both of which
have power generation capability, trucking service companies and related
business service companies. At the Company’s Hawaiian Commercial & Sugar
Company (“HC&S”) operations, sugar production levels have been severely
impacted by a historic two-year drought. As a result, HC&S posted a
significant loss in 2008 and operating prospects are not expected to improve in
2009. The Company recognizes that losses on this scale are not sustainable, and
additional actions are planned to be taken in 2009 to address longer term
operating performance.
An
important component of the Company’s agribusiness operations is the
production and sale of electrical power. In the third quarter of 2008, HC&S
was notified that the Hawaii Public Utilities Commission (“PUC”) had issued a
decision that provides for a new methodology of calculating avoided energy
costs, which resulted in a reduction in the avoided energy
cost payable to energy producers, beginning in August
2008. The decision affects the Company's power sales on Maui, but not
on Kauai. If no changes were to occur to the decision or the terms of
HC&S's power sales contract with Maui Electric Company (“MECO”), this
decision could result in an approximately $6
million annual reduction in HC&S's power revenue and
profitability. The Company is currently evaluating its options for a
reconsideration or reversal of the PUC’s decision or for negotiating a new
power contract with MECO, and the final outcome of these actions cannot yet
be determined.
The
Company utilizes two primary sources of periodic economic forecasts for the
state of Hawaii; the University of Hawaii Economic Research Organization and the
State’s Department of Business, Economic Development & Tourism.
OTHER
MATTERS
Management
Changes: The following management changes occurred during 2008
and through February 15, 2009.
|
Frank
E. Kiger was promoted to general manager, Hawaiian Commercial & Sugar
Company (HC&S), effective January 1,
2008.
|
|
Gary
J. North, senior vice president, Matson Navigation Company, Inc., and
executive vice president, Matson Terminals, Inc., retired effective April
1, 2008.
|
|
Vicente
S. Angoco, Jr. was promoted to vice president, Matson Navigation Company,
Inc., effective March 1, 2008, and executive vice president, Matson
Terminals, Inc., effective April 1,
2008.
|
|
Stanley
M. Kuriyama was promoted to president, Alexander & Baldwin, Inc.
effective October 1, 2008. Mr. Kuriyama was most recently president and
chief executive officer of the A&B Land Group and chief executive
officer and vice chairman of A&B Properties, Inc. W. Allen Doane
remains chairman and chief executive officer of Alexander & Baldwin,
Inc.
|
|
James
S. Andrasick was appointed chairman, Matson Navigation Company, Inc.
effective October 1, 2008. Mr. Andrasick was most recently president and
chief executive officer of Matson Navigation Company,
Inc.
|
|
Matthew
J. Cox was promoted to president, Matson Navigation Company, Inc.
effective October 1, 2008. Mr. Cox was most recently executive vice
president and chief operating officer of Matson Navigation Company,
Inc.
|
|
Robert
K. Sasaki was appointed vice chairman of A&B Properties, Inc.
effective October 1, 2008. Mr. Sasaki was most recently president of
A&B Properties, Inc.
|
|
Norbert
M. Buelsing was promoted to president, A&B Properties, Inc. effective
October 1, 2008. Mr. Buelsing was most recently executive vice president
of A&B Properties, Inc.
|
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A&B is exposed to changes in
interest rates, primarily as a result of its borrowing and investing activities
used to maintain liquidity and to fund business operations. In order to manage
its exposure to changes in interest rates, A&B utilizes a balanced mix of
debt maturities, along with both fixed-rate and variable-rate debt. The nature
and amount of A&B’s long-term and short-term debt can be expected to
fluctuate as a result of future business requirements, market conditions, and
other factors.
The Company’s fixed rate debt consists
of $369 million in principal term notes. The Company’s variable rate debt
consists of $135 million under its revolving credit facilities. Other than in
default, the Company does not have an obligation to prepay its fixed-rate debt
prior to maturity and, as a result, interest rate fluctuations and the resulting
changes in fair value would not have an impact on the Company’s financial
condition or results of operations unless the Company was required to refinance
such debt. For the Company’s variable rate debt, a one percent increase in
interest rates would not have a material impact on the Company’s results of
operations.
The following table summarizes
A&B’s debt obligations at December 31, 2008, presenting principal cash flows
and related interest rates by the expected fiscal year of
repayment.
|
Expected
Fiscal Year of Repayment as of December 31, 2008 (dollars in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
Thereafter
|
|
Total
|
|
2008
|
Fixed
rate
|
$
|
32
|
|
$
|
31
|
|
$
|
27
|
|
$
|
29
|
|
$
|
40
|
|
$
|
210
|
|
$
|
369
|
|
$336
|
Average
interest rate
|
|
5.33%
|
|
|
5.30%
|
|
|
5.34%
|
|
|
5.38%
|
|
|
5.39%
|
|
|
5.30%
|
|
|
5.33%
|
|
|
Variable
rate
|
$
|
20
|
|
$
|
7
|
|
$
|
56
|
|
$
|
10
|
|
$
|
10
|
|
$
|
32
|
|
$
|
135
|
|
$135
|
Average
interest rate*
|
|
1.17%
|
|
|
1.17%
|
|
|
1.20%
|
|
|
1.25%
|
|
|
1.25%
|
|
|
1.25%
|
|
|
1.20%
|
|
|
* Estimated interest rates on variable
debt is determined based on the rate in effect on December 31, 2008. Actual
interest rates may be greater or less than the amounts indicated when variable
rate debt is rolled over.
The Company invests its excess cash in
short-term money market funds that purchase government securities and/or
corporate debt securities. At December 31, 2008, the Company had approximately
$8 million invested in money market funds. These money market funds maintain a
weighted average maturity of less than 90 days, and accordingly, a one percent
change in interest rates is not expected to have a material impact on the fair
value of these investments or on interest income. Through its Capital
Construction Fund, the Company may, from time-to-time, invest in mortgage-backed
securities. At December 31, 2008 and 2007, these investments were not
material.
A&B has no material exposure to
foreign currency risks, although it is indirectly affected by changes in
currency rates to the extent that changes in rates affect tourism in Hawaii.
Transactions related to its China Service are primarily denominated in U.S.
dollars, and therefore, a one percent change in the renminbi exchange rate would
not have a material effect on the Company’s results of operations.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
|
|
Page
|
|
|
Management’s
Annual Report on Internal Control Over Financial Reporting
|
59
|
Report
of Independent Registered Public Accounting
Firm
|
60
|
Consolidated
Statements of
Income
|
61
|
Consolidated
Statements of Cash
Flows
|
62
|
Consolidated
Balance
Sheets
|
63
|
Consolidated
Statements of Shareholders’
Equity
|
64
|
Notes
to Consolidated Financial Statements
|
65
|
|
1.
|
Summary
of Significant Accounting
Policies
|
65
|
|
2.
|
Discontinued
Operations
|
72
|
|
3.
|
Acquisition
|
73
|
|
4.
|
Investments
in
Affiliates
|
73
|
|
5.
|
Property
|
77
|
|
6.
|
Capital
Construction
Fund
|
77
|
|
7.
|
Notes
Payable and Long-Term
Debt
|
78
|
|
8.
|
Leases
|
80
|
|
9.
|
Employee
Benefit
Plans
|
81
|
|
10.
|
Income
Taxes
|
86
|
|
11.
|
Share-Based
Awards
|
88
|
|
12.
|
Commitments,
Guarantees and
Contingencies
|
92
|
|
13.
|
Industry
Segments
|
96
|
|
14.
|
Quarterly
Information
(Unaudited)
|
99
|
|
15.
|
Parent
Company Condensed Financial
Information
|
101
|
|
16.
|
Related
Party
Transactions
|
105
|
MANAGEMENT’S
ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Alexander &
Baldwin, Inc. has the responsibility for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial
reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934, as amended, as a process designed by, or under the
supervision of, the company’s principal executive and principal financial
officers and effected by the company’s board of directors, management and other
personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of
America and includes those policies and procedures that:
|
•
|
Pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of assets of the
company;
|
|
•
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America, and that
receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and
|
|
•
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company’s assets that
could have a material effect on the financial
statements.
|
Because of its inherent limitations,
internal control over financial reporting only provides reasonable assurance
with respect to financial statement presentation and preparation. Projections of
any evaluation of effectiveness to future periods are subject to the risks that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
Management assessed the effectiveness
of the Company’s internal control over financial reporting as of December 31,
2008. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based on its assessment, management believes that, as of
December 31, 2008, the Company’s internal control over financial reporting is
effective. The Company’s independent registered public accounting firm, Deloitte
& Touche LLP, has issued an audit report on the Company’s internal control
over financial reporting. That report appears on page 59 of this Form
10-K.
/s/
W. Allen Doane
|
/s/
Christopher J. Benjamin
|
|
|
W.
Allen Doane
|
Christopher
J. Benjamin
|
Chairman
and Chief Executive Officer
|
Senior
Vice President, Chief Financial Officer
and Treasurer
|
February
27, 2009
|
February
27, 2009
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
Alexander
& Baldwin, Inc.
Honolulu,
Hawaii
We
have audited the accompanying consolidated balance sheets of Alexander &
Baldwin, Inc., and subsidiaries (the “Company”) as of December 31, 2008 and
2007, and the related consolidated statements of income, shareholders’ equity,
and cash flows for each of the three years in the period ended December 31,
2008. We also have audited the Company’s internal control over
financial reporting as of December 31, 2008, based on criteria established in
Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company’s management is responsible for these financial
statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Annual Report on
Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on these financial statements and an opinion on the Company’s
internal control over financial reporting based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Alexander &
Baldwin Inc. and subsidiaries as of December 31, 2008 and 2007, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2008, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2008, based on the criteria established
in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission.
As
discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes--an
interpretation of FASB Statement No. 109 and FASB Staff Position FIN
48-1, Definition of Settlement
in FASB Interpretation No. 48 on January 1, 2007, and as discussed in
Note 9, Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans--an amendment of FASB Statements
No. 87, 88, 106, and 132(R) on December 31, 2006.
/s/
DELOITTE & TOUCHE LLP
Honolulu,
Hawaii
February
27, 2009
ALEXANDER
& BALDWIN, INC.
CONSOLIDATED
STATEMENTS OF INCOME
(In
millions, except per-share amounts)
|
|
Year
Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Operating
Revenue:
|
|
|
|
|
|
|
|
|
|
|
Ocean
transportation
|
|
$
|
1,021
|
|
$
|
1,003
|
|
$
|
936
|
|
Logistics
services
|
|
|
436
|
|
|
433
|
|
|
444
|
|
Real
estate leasing
|
|
|
97
|
|
|
90
|
|
|
78
|
|
Real
estate sales
|
|
|
225
|
|
|
23
|
|
|
8
|
|
Agribusiness
|
|
|
119
|
|
|
120
|
|
|
124
|
|
Total
operating revenue
|
|
|
1,898
|
|
|
1,669
|
|
|
1,590
|
|
Operating
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost
of ocean transportation services
|
|
|
825
|
|
|
789
|
|
|
754
|
|
Cost
of logistics services
|
|
|
381
|
|
|
381
|
|
|
395
|
|
Cost
of real estate sales and leasing
|
|
|
237
|
|
|
55
|
|
|
38
|
|
Cost
of agribusiness goods and services
|
|
|
133
|
|
|
120
|
|
|
118
|
|
Selling,
general and administrative
|
|
|
163
|
|
|
165
|
|
|
146
|
|
Total
operating costs and expenses
|
|
|
1,739
|
|
|
1,510
|
|
|
1,451
|
|
Operating
Income
|
|
|
159
|
|
|
159
|
|
|
139
|
|
Other
Income and (Expense):
|
|
|
|
|
|
|
|
|
|
|
Gain
on insurance settlement and other
|
|
|
8
|
|
|
1
|
|
|
--
|
|
Equity
in income of real estate affiliates
|
|
|
9
|
|
|
23
|
|
|
14
|
|
Impairment
loss on investment
|
|
|
(2
|
)
|
|
--
|
|
|
--
|
|
Interest
income
|
|
|
1
|
|
|
3
|
|
|
6
|
|
Interest
expense
|
|
|
(24
|
)
|
|
(19
|
)
|
|
(15
|
)
|
Income
From Continuing Operations Before Income Taxes
|
|
|
151
|
|
|
167
|
|
|
144
|
|
Income
taxes
|
|
|
55
|
|
|
63
|
|
|
54
|
|
Income
From Continuing Operations
|
|
|
96
|
|
|
104
|
|
|
90
|
|
Income
from discontinued operations, net of income taxes (see Note
2)
|
|
|
36
|
|
|
38
|
|
|
32
|
|
Net
Income
|
|
$
|
132
|
|
$
|
142
|
|
$
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Earnings per Share of Common Stock:
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
2.32
|
|
$
|
2.45
|
|
$
|
2.08
|
|
Discontinued
operations
|
|
|
0.89
|
|
|
0.89
|
|
|
0.76
|
|
Net
income
|
|
$
|
3.21
|
|
$
|
3.34
|
|
$
|
2.84
|
|
Diluted
Earnings per Share of Common Stock:
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
2.31
|
|
$
|
2.42
|
|
$
|
2.06
|
|
Discontinued
operations
|
|
|
0.88
|
|
|
0.88
|
|
|
0.75
|
|
Net
income
|
|
$
|
3.19
|
|
$
|
3.30
|
|
$
|
2.81
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Number of Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
41.2
|
|
|
42.5
|
|
|
43.2
|
|
Diluted
|
|
|
41.5
|
|
|
43.1
|
|
|
43.6
|
|
See notes
to consolidated financial statements.
ALEXANDER
& BALDWIN, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
millions)
|
|
Year
Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Cash
Flow from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
132
|
|
$
|
142
|
|
$
|
122
|
|
Adjustments
to reconcile net income to net cash provided by
operations:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
101
|
|
|
93
|
|
|
85
|
|
Deferred
income taxes
|
|
|
19
|
|
|
26
|
|
|
40
|
|
Gains
on disposal of assets, net of impairment losses
|
|
|
(91
|
)
|
|
(64
|
)
|
|
(49
|
)
|
Casualty
gain from receipt of insurance proceeds
|
|
|
(8
|
)
|
|
--
|
|
|
--
|
|
Share-based
expense
|
|
|
11
|
|
|
17
|
|
|
10
|
|
Equity
in income of affiliates, net of distributions
|
|
|
11
|
|
|
1
|
|
|
1
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
and notes receivable
|
|
|
24
|
|
|
(9
|
)
|
|
5
|
|
Inventories
|
|
|
(6
|
)
|
|
(3
|
)
|
|
(1
|
)
|
Prepaid
expenses and other assets
|
|
|
3
|
|
|
12
|
|
|
(35
|
)
|
Deferred
dry-docking costs
|
|
|
(9
|
)
|
|
(22
|
)
|
|
(6
|
)
|
Liability
for employee benefit plans
|
|
|
(3
|
)
|
|
(3
|
)
|
|
6
|
|
Accounts
and income taxes payable
|
|
|
(37
|
)
|
|
19
|
|
|
(28
|
)
|
Other
liabilities
|
|
|
(17
|
)
|
|
14
|
|
|
21
|
|
Real
Estate Developments Held for Sale:
|
|
|
|
|
|
|
|
|
|
|
Real
estate inventory sales
|
|
|
184
|
|
|
11
|
|
|
4
|
|
Expenditures
for real estate inventory
|
|
|
(39
|
)
|
|
(110
|
)
|
|
(69
|
)
|
Net
cash provided by operations
|
|
|
275
|
|
|
124
|
|
|
106
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures for property and developments
|
|
|
(109
|
)
|
|
(122
|
)
|
|
(281
|
)
|
Proceeds
from disposal of income-producing property, investments and other
assets
|
|
|
19
|
|
|
18
|
|
|
61
|
|
Proceeds
from insurance settlement related to 2005 casualty loss
|
|
|
8
|
|
|
--
|
|
|
--
|
|
Deposits
into Capital Construction Fund
|
|
|
(7
|
)
|
|
(30
|
)
|
|
(66
|
)
|
Withdrawals
from Capital Construction Fund
|
|
|
8
|
|
|
30
|
|
|
159
|
|
Acquisition
of businesses, net of cash acquired
|
|
|
(27
|
)
|
|
--
|
|
|
--
|
|
Payments
for purchases of investments
|
|
|
(60
|
)
|
|
(43
|
)
|
|
(40
|
)
|
Proceeds
from sale and maturity of investments
|
|
|
19
|
|
|
2
|
|
|
43
|
|
Net
cash used in investing activities
|
|
|
(149
|
)
|
|
(145
|
)
|
|
(124
|
)
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of long-term debt
|
|
|
127
|
|
|
139
|
|
|
217
|
|
Payments
of long-term debt and deferred financing costs
|
|
|
(138
|
)
|
|
(88
|
)
|
|
(102
|
)
|
Proceeds
from (payments on) short-term borrowings, net
|
|
|
(5
|
)
|
|
15
|
|
|
--
|
|
Repurchases
of capital stock
|
|
|
(59
|
)
|
|
(33
|
)
|
|
(72
|
)
|
Proceeds
from issuance of capital stock, including excess tax
benefit
|
|
|
2
|
|
|
8
|
|
|
5
|
|
Dividends
paid
|
|
|
(51
|
)
|
|
(48
|
)
|
|
(42
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
(124
|
)
|
|
(7
|
)
|
|
6
|
|
Cash
and Cash Equivalents:
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) for the year
|
|
|
2
|
|
|
(28
|
)
|
|
(12
|
)
|
Balance,
beginning of year
|
|
|
17
|
|
|
45
|
|
|
57
|
|
Balance,
end of year
|
|
$
|
19
|
|
$
|
17
|
|
$
|
45
|
|
Other
Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
(25
|
)
|
$
|
(25
|
)
|
$
|
(20
|
)
|
Income
taxes paid
|
|
$
|
(63
|
)
|
$
|
(55
|
)
|
$
|
(49
|
)
|
Non-cash
Activities:
|
|
|
|
|
|
|
|
|
|
|
Debt
assumed in real estate purchase
|
|
$
|
11
|
|
$
|
--
|
|
$
|
--
|
|
Tax-deferred
property sales
|
|
$
|
112
|
|
$
|
83
|
|
$
|
60
|
|
Tax-deferred
property purchases
|
|
$
|
(46
|
)
|
$
|
(91
|
)
|
$
|
(49
|
)
|
See notes
to consolidated financial statements.
ALEXANDER
& BALDWIN, INC.
CONSOLIDATED
BALANCE SHEETS
(In
millions, except per-share amount)
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
19
|
|
|
$
|
17
|
|
Accounts and notes receivable, less allowances of $8 for 2008 and $12 for
2007
|
|
|
163
|
|
|
|
185
|
|
Inventories
|
|
|
28
|
|
|
|
21
|
|
Real
estate held for sale
|
|
|
20
|
|
|
|
150
|
|
Deferred
income taxes
|
|
|
--
|
|
|
|
11
|
|
Section
1031 exchange proceeds
|
|
|
23
|
|
|
|
--
|
|
Prepaid
expenses and other assets
|
|
|
31
|
|
|
|
37
|
|
Accrued
withdrawal (deposit), net to Capital Construction Fund
|
|
|
--
|
|
|
|
--
|
|
Total
current assets
|
|
|
284
|
|
|
|
421
|
|
Investments
in Affiliates
|
|
|
208
|
|
|
|
184
|
|
Real
Estate Developments
|
|
|
78
|
|
|
|
99
|
|
Property
– net
|
|
|
1,590
|
|
|
|
1,582
|
|
Employee
Benefit Plan Assets
|
|
|
3
|
|
|
|
80
|
|
Other
Assets
|
|
|
187
|
|
|
|
113
|
|
Total
|
|
$
|
2,350
|
|
|
$
|
2,479
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Notes
payable and current portion of long-term debt
|
|
$
|
52
|
|
|
$
|
57
|
|
Accounts
payable
|
|
|
105
|
|
|
|
156
|
|
Payroll
and vacation benefits
|
|
|
18
|
|
|
|
19
|
|
Uninsured
claims
|
|
|
10
|
|
|
|
12
|
|
Deferred
income taxes
|
|
|
1
|
|
|
|
--
|
|
Accrued
and other liabilities
|
|
|
52
|
|
|
|
78
|
|
Total
current liabilities
|
|
|
238
|
|
|
|
322
|
|
Long-term
Liabilities
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
452
|
|
|
|
452
|
|
Deferred
income taxes
|
|
|
414
|
|
|
|
468
|
|
Employee
benefit plans
|
|
|
122
|
|
|
|
50
|
|
Uninsured
claims and other liabilities
|
|
|
52
|
|
|
|
57
|
|
Total
long-term liabilities
|
|
|
1,040
|
|
|
|
1,027
|
|
Commitments
and Contingencies (Note 12)
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
Capital
stock – common stock without par value; authorized, 150 million shares
($0.75 stated value per share); outstanding, 41.0 million shares in 2008
and 42.4 million shares in 2007
|
|
|
33
|
|
|
|
34
|
|
Additional
capital
|
|
|
204
|
|
|
|
200
|
|
Accumulated
other comprehensive loss
|
|
|
(96)
|
|
|
|
(4
|
)
|
Retained
earnings
|
|
|
942
|
|
|
|
911
|
|
Cost
of treasury stock
|
|
|
(11)
|
|
|
|
(11
|
)
|
Total
shareholders’ equity
|
|
|
1,072
|
|
|
|
1,130
|
|
Total
|
|
$
|
2,350
|
|
|
$
|
2,479
|
|
See notes
to consolidated financial statements.
ALEXANDER
& BALDWIN, INC.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
For
the three years ended December 31, 2008
(In
millions, except per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Stock
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
In
Treasury
|
|
|
|
|
|
Compre-
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated
|
|
|
|
|
|
|
|
Additional
|
|
|
hensive
|
|
|
Compen-
|
|
|
Retained
|
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
Shares
|
|
|
Cost
|
|
|
Capital
|
|
|
Loss
|
|
|
sation
|
|
|
Earnings
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
47.6
|
|
|
$
|
36
|
|
3.6
|
|
|
$
|
(11
|
)
|
|
$
|
175
|
|
|
$
|
(7
|
)
|
|
$
|
(6
|
)
|
|
$
|
827
|
|
|
$
|
1,014
|
|
Net
income and other
comprehensive
income
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
122
|
|
|
|
122
|
|
Shares
repurchased
|
|
(1.7
|
)
|
|
|
(1
|
)
|
—
|
|
|
|
—
|
|
|
|
(7
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(64
|
)
|
|
|
(72
|
)
|
Stock
options exercised - net
|
|
0.1
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
Shares
issued – incentive plan
|
|
0.2
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
Share-based
compensation
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
Adjustment
to initially adopt
SFAS No. 123R
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
Adjustment
to initially adopt
SFAS No. 158, net of
tax
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(12
|
)
|
Dividends
($0.975 per share)
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(42
|
)
|
|
|
(42
|
)
|
Balance,
December 31, 2006
|
|
46.2
|
|
|
|
35
|
|
3.6
|
|
|
|
(11
|
)
|
|
|
179
|
|
|
|
(19
|
)
|
|
|
—
|
|
|
|
843
|
|
|
|
1,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
142
|
|
|
|
142
|
|
Other
comprehensive income,
net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gain (loss)
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
Less:
Amortization of net (gain) loss
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157
|
|
Shares
repurchased
|
|
(0.7
|
)
|
|
|
(1
|
)
|
—
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(28
|
)
|
|
|
(33
|
)
|
Shares
issued
|
|
0.5
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
Share-based
compensation
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
17
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17
|
|
Adjustment
to initially adopt FIN 48
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
2
|
|
Dividends
($1.12 per share)
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(48
|
)
|
|
|
(48
|
)
|
Balance,
December 31, 2007
|
|
46.0
|
|
|
|
34
|
|
3.6
|
|
|
|
(11
|
)
|
|
|
200
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
911
|
|
|
|
1,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
132
|
|
|
|
132
|
|
Other
comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined
benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss/prior service cost
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(93
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(93
|
)
|
Less:
Amortization of net loss/prior service cost
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Shares
repurchased
|
|
(1.4
|
)
|
|
|
(1
|
)
|
—
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(50
|
)
|
|
|
(59
|
)
|
Shares
issued
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
Share-based
compensation
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
Dividends
($1.23 per share)
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(51
|
)
|
|
|
(51
|
)
|
Balance,
December 31, 2008
|
|
44.6
|
|
|
$
|
33
|
|
3.6
|
|
|
$
|
(11
|
)
|
|
$
|
204
|
|
|
$
|
(96
|
)
|
|
$
|
—
|
|
|
$
|
942
|
|
|
$
|
1,072
|
|
See notes
to consolidated financial statements.
ALEXANDER
& BALDWIN, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business:
Founded in 1870, Alexander & Baldwin, Inc. (“A&B” or the “Company”) is
incorporated under the laws of the State of Hawaii. A&B operates in five
segments in three industries: Transportation, Real Estate and
Agribusiness. These industries are described below:
Transportation: The
Transportation Industry consists of Ocean Transportation and Logistics Services
segments. The Ocean Transportation segment, which is conducted through Matson
Navigation Company, Inc. (“Matson”), a wholly-owned subsidiary of A&B, is an
asset-based business that derives its revenue primarily through the carriage of
containerized freight between various U.S. Pacific Coast, Hawaii, Guam, China
and other Pacific island ports. Additionally, the Ocean Transportation segment
has a 35 percent interest in an entity (SSA Terminals, LLC or “SSAT”) that
provides terminal and stevedoring services at U.S. Pacific Coast facilities. The
Logistics Services segment is a non-asset based business that is a provider of
domestic and international rail intermodal service (“Intermodal”), long-haul and
regional highway brokerage, specialized hauling, flat-bed and project work,
less-than-truckload, expedited/air freight services and warehousing and
distribution services (collectively “Highway”).
Real Estate: The Real Estate
Industry consists of two segments, both of which have operations in Hawaii and
on the U.S. Mainland. The Real Estate Sales segment generates its revenues
through the development and sale of land, and commercial and residential
properties. The Real Estate Leasing segment owns, operates and manages retail,
office and industrial properties.
Agribusiness: Agribusiness,
which contains one segment, produces bulk raw sugar, specialty food-grade
sugars, and molasses; produces, markets, and distributes roasted coffee and
green coffee; provides general trucking services, mobile equipment maintenance
and repair services, and self-service storage in Hawaii; and generates and
sells, to the extent not used in the Company’s operations,
electricity.
Principles of
Consolidation: The consolidated
financial statements include the accounts of Alexander & Baldwin, Inc.
and all wholly-owned and controlled subsidiaries, after elimination of
significant intercompany amounts. Significant investments in businesses,
partnerships, and limited liability companies in which the Company does not have
a controlling financial interest, but has the ability to exercise significant
influence, are accounted for under the equity method. A controlling financial
interest is one in which the Company has a majority voting interest or one in
which the Company is the primary beneficiary that absorbs the majority of the
expected losses, or receives a majority of the expected residual returns, or
both, of a variable interest entity as defined in FASB Interpretation No. 46
(revised December 2003), Consolidation of Variable Interest
Entities (“FIN 46R”), as amended.
Risks and Uncertainties:
Factors that could adversely impact the Company’s operations or financial
results include, but are not limited to, the following: unfavorable economic
conditions in the U.S., Guam, or Asian markets that result in a further decrease
in consumer confidence or market demand for the Company’s services and products;
increased competition; replacement of the Company’s significant operating
agreements; reduction in credit availability; downgrade in the Company’s credit
rating that affects its ability to secure adequate financing and/or increase the
cost of financing; failure to comply with restrictive financial covenants in the
Company’s credit facilities; insolvency of the Company’s insurance carriers;
insolvency and/or failure of joint venture partner to perform; loss and/or
insolvency of significant agents, customers, or vendors; unfavorable political
conditions in domestic or international markets; strikes or work stoppages;
increased cost of energy or labor; noncompliance with and/or changes in laws and
regulations relating to the Company’s business; unfavorable litigation or legal
proceedings or government inquiries or investigations; adverse weather
conditions; changes in the legal and regulatory environment; changes in
accounting and taxation standards, including an increase in tax rates; an
inability to achieve the Company’s overall long-term goals; an inability to
protect the Company’s information systems; future impairment charges; increased
pension costs; inadequate internal controls; and global or regional catastrophic
events.
Use of Estimates: The preparation of the
consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported. Significant estimates
and assumptions are used for, but not limited to: (i) asset impairments, (ii)
legal contingencies, (iii) allowance for doubtful accounts, (iv) revenue
recognition for long-term real estate developments, (v) cash flow scenarios
related to unconsolidated investments, (vi) self-insured liabilities, (vii)
pension and postretirement estimates, and (viii) income taxes. Future results could be
materially affected if actual results differ from these estimates and
assumptions.
Cash and Cash
Equivalents: Cash equivalents consist of highly liquid
investments with a weighted-average maturity of three months or less at the date
of purchase. The Company carries these investments at cost, which approximates
fair value. Outstanding checks in excess of funds on deposit totaled $15 million
and $27 million at December 31, 2008 and 2007, respectively, and are reflected
as current liabilities in the consolidated balance sheets.
Fair Value of Financial
Instruments: The fair values of cash and cash equivalents,
receivables and short-term borrowings approximate their carrying values due to
the short-term nature of the instruments. The carrying amount and fair value of
the Company’s long-term debt at December 31, 2008 was $504 million and $471
million, respectively, and $509 million and $502 million at December 31, 2007,
respectively.
Allowances for Doubtful
Accounts: Allowances for doubtful accounts are established by
management based on estimates of collectibility. The changes in allowances for
doubtful accounts, included on the consolidated balance sheets as an offset to
“Accounts and notes receivable,” for the three years ended December 31, 2008
were as follows (in millions):
|
Balance
at
Beginning of year
|
Expense
|
Write-offs
and Other
|
Balance
at
End of Year
|
|
|
|
|
|
2006
|
$14
|
$2
|
$(2)
|
$14
|
2007
|
$14
|
$--
|
$(2)
|
$12
|
2008
|
$12
|
$1
|
$(5)
|
$8
|
Inventories: Sugar and coffee
inventories are stated at the lower of cost (first-in, first-out basis) or
market value. Materials and supplies inventory are stated at the lower of cost
(principally average cost) or market value. Inventories at December
31, 2008 and 2007 were as follows (in millions):
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Sugar
and coffee inventories
|
|
$
|
13
|
|
|
$
|
9
|
|
|
Materials
and supplies inventories
|
|
|
15
|
|
|
|
12
|
|
|
Total
|
|
$
|
28
|
|
|
$
|
21
|
|
|
Dry-docking: Under
U.S. Coast Guard rules, administered through the American Bureau of Shipping’s
alternative compliance program, all vessels must meet specified seaworthiness
standards to remain in service. Vessels must undergo regular inspection,
monitoring and maintenance, referred to as “dry-docking,” to maintain the
required operating certificates. These dry-docks occur on scheduled intervals
ranging from two to five years, depending on the vessel’s age. Because the
dry-docks enable the vessel to continue operating in compliance with U.S. Coast
Guard requirements and provide future economic benefits, the costs of these
scheduled dry-docks are deferred and amortized until the next regularly
scheduled dry-dock period. Routine vessel maintenance and repairs that do not
improve or extend asset lives are charged to expense as incurred. Deferred
amounts are included on the consolidated balance sheets in non-current other
assets. Amortized amounts are charged to operating expenses in the consolidated
statements of income. Changes in deferred dry-docking costs are included in the
consolidated statements of cash flows in cash flows from operating
activities.
Property: Property
is stated at cost, net of accumulated depreciation and amortization.
Expenditures for major renewals and betterments are capitalized. Replacements,
maintenance, and repairs that do not improve or extend asset lives are charged
to expense as incurred. Costs of developing coffee orchards are capitalized
during the development period and depreciated over the estimated productive
lives. Upon acquiring real estate, the Company allocates the purchase price to
land, buildings, leases above and below market, and other intangibles based on
relative fair value.
Depreciation: Depreciation
and amortization is computed using the straight-line method over the estimated
useful lives of the assets. Estimated useful lives of property are as
follows:
Classification
|
Range of Life (in years)
|
|
|
Vessels
|
10
to 40
|
Buildings
|
10
to 40
|
Water,
power and sewer systems
|
5 to
50
|
Machinery
and equipment
|
2 to
35
|
Other
property improvements
|
3 to
35
|
Real Estate
Developments: Expenditures for real estate developments are
capitalized during construction and are classified as Real Estate Developments
on the consolidated balance sheets. When construction is substantially
complete, the costs are reclassified as either Real Estate Held for Sale or
Property, based upon the Company’s intent to either sell the completed asset or
to hold it as an investment property, respectively. Cash flows related to real
estate developments are classified as either operating or investing activities,
based upon the Company’s intention to sell the property or to retain ownership
of the property as an investment following completion of
construction.
For development projects, capitalized
costs are allocated using the direct method for expenditures that are
specifically associated with the unit being sold and the relative-sales-value
method for expenditures that benefit the entire project. Capitalized development
costs typically include costs related to land acquisition, grading, roads, water
and sewage systems, landscaping, capitalized interest, and project amenities.
Direct overhead costs incurred after the development project is substantially
complete, such as utilities, maintenance, and real estate taxes, are charged to
selling, general, and administrative expense as incurred. All indirect overhead
costs are charged to selling, general, and administrative costs as
incurred.
Capitalized
Interest: Interest costs incurred in connection with
significant expenditures for real estate developments, the construction of
assets, or investments in joint ventures are capitalized during the period in
which activities necessary to get the asset ready for its intended use are in
progress. Capitalization of interest is discontinued when the asset is
substantially complete and ready for its intended use. Capitalization of
interest on investments in joint ventures is recorded until the underlying
investee commences operations, which is typically when the investee has
other-than-ancillary revenue generation. Total interest cost incurred was $25
million, $26 million, and $21 million in 2008, 2007, and 2006, respectively.
Capitalized interest was $1 million, $7 million, and $6 million in 2008, 2007,
and 2006, respectively.
Impairments of Long-Lived
Assets: Long-lived assets are reviewed for possible impairment
when events or circumstances indicate that the carrying value may not be
recoverable. In such an evaluation, the estimated future undiscounted cash flows
generated by the asset are compared with the amount recorded for the asset to
determine if its carrying value is not recoverable. If this review determines
that the recorded value will not be recovered, the amount recorded for the asset
is reduced to estimated fair value. The Company has evaluated certain long-lived
assets for impairment; however, no impairment charges were recorded as a result
of this process. These asset impairment loss analyses require management to make
assumptions and apply considerable judgments to, among others, estimates of the
timing and amount of future cash flows, expected useful lives of the assets,
uncertainty about future events, including changes in economic conditions,
changes in operating performance, changes in the use of the assets, and ongoing
cost of maintenance and improvements of the assets, and thus, the accounting
estimates may change from period to period. If management uses different
assumptions or if different conditions occur in future periods, the Company’s
financial condition or its future operating results could be materially
impacted.
Impairment of Investments:
Investments in unconsolidated affiliates are reviewed for impairment whenever
there is evidence of a loss in value. An investment is written down to fair
value if the impairment is other-than-temporary. In evaluating the fair value of
an investment, the Company reviews the discounted projected cash flows
associated with the investment and other relevant information. In
evaluating whether an impairment is other-than-temporary, the Company
considers all available information, including the length of time and extent of
the impairment, the financial condition and near-term prospects of the
affiliate, the Company’s ability and intent to hold the investment for a period
of time sufficient to allow for any anticipated recovery in market value, and
projected industry and economic trends, among others.
In 2008, the Company evaluated certain
investments in unconsolidated affiliates for impairment. As a result of this
process, the Company recorded an other-than-temporary impairment loss, which was
not material. However, in determining the fair value of an investment and
assessing whether any identified impairment is other-than-temporary, significant
estimates and considerable judgment are involved. These estimates and judgments
are based, in part, on the Company’s current and future evaluation of economic
conditions in general, as well as a joint venture’s current and future plans.
These impairment calculations contain additional uncertainties because they also
require management to make assumptions and apply judgments to, among others,
estimates of future cash flows, probabilities related to various cash flow
scenarios, and appropriate discount rates. Changes in these and other
assumptions could affect the projected operational results of the unconsolidated
affiliates and, accordingly, may require valuation adjustments to the Company’s
investments that may materially impact the Company’s financial condition or its
future operating results. For example, if current market conditions continue to
deteriorate or a joint venture’s plans change, additional impairment charges may
be required in future periods, and those charges could be material.
Goodwill and Intangible
Assets: Goodwill and intangibles are recorded on the
consolidated balance sheets as other non-current assets. Goodwill and intangible
assets relate to the acquisition of certain assets, obligations, and contracts
from logistics service entities (see Note 3). The purchase agreements included
earnout provisions based on certain profitability measurements through 2009. The
Company reviews goodwill for potential impairment on an annual basis, or more
frequently if indications of impairment exist. Intangible assets acquired also
relate to the acquisition of commercial properties. Intangible assets are
reviewed for impairment whenever events or changes in circumstances would
indicate the carrying amount of the intangible asset(s) may not be recoverable.
There were no impairments of goodwill and intangible assets in 2008, 2007, or
2006.
The changes in the carrying amount of
goodwill in the Transportation industry for the years ended December 31, 2008
and 2007 were as follows (in millions):
|
|
|
Goodwill
|
|
|
Balance,
December 31, 2006
|
|
$
|
9
|
|
Additions
|
|
|
3
|
|
Balance,
December 31, 2007
|
|
|
12
|
|
Additions
|
|
|
14
|
|
Balance,
December 31, 2008
|
|
$
|
26
|
|
Intangible assets for the years ended
December 31 were as follows (in millions):
|
|
2008
|
|
2007
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
Accumulated
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amortization
|
Amortized
intangible assets:
|
|
|
|
|
|
|
|
|
Customer lists
|
|
|
$
|
12
|
|
|
|
|
$
|
(3
|
)
|
|
|
|
$
|
4
|
|
|
|
|
$
|
(2
|
)
|
|
In-place leases
|
|
|
|
8
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
6
|
|
|
|
|
|
(1
|
)
|
|
Other
|
|
|
|
6
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
5
|
|
|
|
|
|
(3
|
)
|
|
Total
assets
|
|
|
$
|
26
|
|
|
|
|
$
|
(8
|
)
|
|
|
|
$
|
15
|
|
|
|
|
$
|
(6
|
)
|
|
Aggregate intangible asset amortization
was $3 million, $2 million, and $1 million for 2008, 2007, and 2006,
respectively. Future estimated amortization expense related to intangibles are
as follows (in millions):
|
|
Estimated
Amortization
|
|
|
|
|
|
|
2009
|
|
$
|
3
|
|
2010
|
|
$
|
3
|
|
2011
|
|
$
|
2
|
|
2012
|
|
$
|
2
|
|
2013
|
|
$
|
1
|
|
Revenue Recognition: The Company has a wide
range of revenue sources, including, shipping revenue, logistics revenue,
property sales, rental income, and sales of raw sugar, molasses and coffee.
Before recognizing revenue, the Company assesses the underlying terms of the
transaction to ensure that recognition meets the requirements of relevant
accounting standards. In general, the Company recognizes revenue when persuasive
evidence of an arrangement exists, delivery of the service or product has
occurred, the sales price is fixed or determinable, and collectibility is
reasonably assured.
Voyage Revenue
Recognition: Voyage revenue is recognized ratably over the
duration of a voyage based on the relative transit time in each reporting
period, commonly referred to as the percentage-of-completion method. Voyage
expenses are recognized as incurred.
Logistics Services Revenue
Recognition: The revenue for logistics services includes the
total amount billed to customers for transportation services. The primary costs
include purchased transportation services. Revenue and the related
purchased transportation costs are recognized based on relative transit time,
commonly referred to as the percentage-of-completion method. The Company reports
revenue on a gross basis following the guidance in Emerging Issues Task Force
99-19, Reporting Revenue Gross
as a Principal versus Net as an Agent. The Company serves as principal in
transactions because it is responsible for the contractual relationship with the
customer, has latitude in establishing prices, has discretion in supplier
selection, and retains credit risk.
Real Estate Sales Revenue
Recognition: Sales are recorded when the risks and
rewards of ownership have passed to the buyers (generally on closing dates),
adequate initial and continuing investments have been received, and collection
of remaining balances is reasonably assured. For certain development projects,
such as Kukui’ula, that have material continuing post-closing involvement and
for which total revenue and capital costs are reasonably estimable, the Company
uses the percentage-of-completion method for revenue recognition. Under this
method, the amount of revenue recognized is based on development costs that have
been incurred through the reporting period as a percentage of total expected
development cost associated with the development project. This generally results
in a stabilized gross margin percentage, but requires significant judgment and
estimates.
Real Estate Leasing Revenue
Recognition: Real estate leasing revenue is recognized on a
straight-line basis over the terms of the related leases, including periods for
which no rent is due (typically referred to as “rent holidays”). Differences
between revenue recognized and amounts due under respective lease agreements are
recorded as increases or decreases, as applicable, to deferred rent receivable.
Also included in rental revenue are certain tenant reimbursements and percentage
rents determined in accordance with the terms of the leases. Income arising from
tenant rents that are contingent upon the sales of the tenant exceeding a
defined threshold are recognized only after the contingency has been resolved
(e.g., sales thresholds have been achieved).
Sugar and Coffee Revenue
Recognition: Revenue from bulk raw
sugar sales is recorded when delivered to the cooperative of Hawaiian producers,
based on the estimated net return to producers in accordance with contractual
agreements. Revenue from coffee is recorded when the title to the product and
risk of loss passes to third parties (generally this occurs when the product is
shipped or delivered to customers) and when collection is reasonably
assured.
Non-voyage Ocean Transportation
Costs: Depreciation, charter hire, terminal operating
overhead, and general and administrative expenses are charged to expense as
incurred.
Agricultural
Costs: Costs of growing and harvesting sugar cane are charged
to the cost of inventory in the year incurred and to cost of sales as raw sugar
is delivered to the cooperative of Hawaiian producers. Costs of growing coffee,
excluding orchard development costs, are charged to inventory in the year
incurred and to cost of sales as coffee is sold.
Discontinued
Operations: The sales of certain income-producing assets are
classified as discontinued operations, as required by Statement of Financial
Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, if the operations and cash flows of the
assets clearly can be distinguished from the remaining assets of the Company, if
cash flows for the assets have been, or will be, eliminated from the ongoing
operations of the Company, if the Company will not have a significant continuing
involvement in the operations of the assets sold, and if the amount is
considered material. Certain assets that are “held-for-sale,” based on the
likelihood and intention of selling the property within 12 months, are also
treated as discontinued operations. Upon reclassification, depreciation ceases
on assets reclassified as “held-for-sale.” Sales of land and residential houses
are generally considered inventory and are not included in discontinued
operations.
Employee Benefit
Plans: Certain Ocean Transportation subsidiaries are members
of the Pacific Maritime Association (“PMA”) and the Hawaii Stevedoring Industry
Committee, which negotiate multiemployer pension plans covering certain
shoreside bargaining unit personnel. The subsidiaries directly negotiate
multiemployer pension plans covering other bargaining unit personnel. Pension
costs are accrued in accordance with contribution rates established by the PMA,
the parties to a plan or the trustees of a plan. Several trusteed,
non-contributory, single-employer defined benefit plans and defined contribution
plans cover substantially all other employees.
Share-Based
Compensation: SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS
No. 123R”) requires the measurement and recognition of compensation expense for
all share-based payment awards made to employees and directors. The Company’s
various equity plans are more fully described in Note 11.
Basic and Diluted Earnings per Share
(“EPS”) of Common Stock: Basic earnings per share is
determined by dividing net income by the weighted-average common shares
outstanding during the year. The calculation of diluted earnings per share
includes the dilutive effect of unexercised non-qualified stock options,
non-vested common stock, and non-vested stock units. The computation of average
dilutive shares outstanding excluded non-qualified stock options to purchase 1.1
million, 0.2 million, and 0.2 million shares of common stock for 2008, 2007, and
2006, respectively. These amounts were excluded because the options’ exercise
prices were greater than the average market price of the Company’s common stock
for the periods presented and, therefore, the effect would be anti-dilutive. The
denominator used to compute basic and diluted earnings per share is as follows
(in millions):
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic EPS: Weighted average shares outstanding
|
|
|
41.2 |
|
|
|
42.5 |
|
|
|
43.2 |
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
stock options, non-vested stock, and non-vested stock
units
|
|
|
0.3 |
|
|
|
0.6 |
|
|
|
0.4 |
|
Denominator
for diluted EPS: Weighted average shares outstanding
|
|
|
41.5 |
|
|
|
43.1 |
|
|
|
43.6 |
|
On January 28, 2009, the Company
granted to employees, non-qualified stock options exercisable into 478,589
shares of common stock at $23.33 per share, 179,593 shares of time-based
restricted stock units, and 179,593 shares of performance-based restricted stock
units. The time-based restricted stock vests ratably over three years and the
performance-based restricted stock vests ratably over three years, provided that
the one-year performance target is achieved.
Income Taxes: Significant
judgment is required in determining the Company’s tax liabilities in the
multiple jurisdictions in which the Company operates. Income taxes are reported
in accordance with SFAS No. 109, Accounting for Income
Taxes. Deferred income taxes are provided for the tax effect
of temporary differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements. Deferred tax assets and
deferred tax liabilities are adjusted to the extent necessary to reflect tax
rates expected to be in effect when the temporary differences reverse.
Adjustments may be required to deferred tax assets and deferred tax liabilities
due to changes in tax laws and audit adjustments by tax authorities. To the
extent adjustments are required in any given period, the adjustments would be
included within the tax provision in the consolidated statements of income
and/or consolidated balance sheets.
The Company has not recorded a
valuation allowance for its deferred tax assets. A valuation allowance would be
established if, based on the weight of available evidence, management believes
that it is more likely than not that some portion or all of a recorded deferred
tax asset would not be realized in future periods.
The Company adopted the provisions of
FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”), effective
as of January 1, 2007. FIN 48 clarifies the accounting for uncertain tax
positions in an enterprise’s financial statements in accordance with SFAS No.
109 by prescribing a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The new standard also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, and disclosure for uncertain tax positions.
Restricted Net Assets of
Subsidiaries: Matson is subject to restrictions on the transfer of net
assets under certain debt agreements. These restrictions have not had any effect
on the Company’s shareholder dividend policy, and the Company does not
anticipate that these restrictions will have any impact in the future. At
December 31, 2008, the amount of net assets of Matson that may not be
transferred to the Company was approximately $298 million.
Derivative Financial
Instruments: The Company periodically uses derivative
financial instruments such as interest rate and foreign currency hedging
products to mitigate risks. The Company’s use of derivative instruments is
limited to reducing its risk exposure by utilizing interest rate or currency
agreements that are accounted for as hedges. The Company does not hold or issue
derivative instruments for trading or other speculative purposes nor does it use
leveraged financial instruments. All derivatives are recognized in the
consolidated balance sheets at their fair value. At December 31, 2008 and 2007,
there were no material derivative instruments held by the Company.
Comprehensive Income: Comprehensive Income
includes all changes in Shareholders’ Equity, except those resulting from
capital stock transactions. Other Comprehensive Income (Loss) principally
includes amortization of deferred pension/postretirement costs and gains or
losses on certain derivative instruments used to hedge interest rate risk (see
Note 7). The components of other comprehensive loss, net of taxes, were as
follows for the years ended December 31 (in millions):
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Unrealized
components of benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plans
|
|
$
|
(90
|
)
|
|
$
|
2
|
|
|
$
|
(11
|
)
|
Postretirement
plans
|
|
|
1
|
|
|
|
3
|
|
|
|
1
|
|
Non-qualified benefit
plans
|
|
|
(5
|
)
|
|
|
(6
|
)
|
|
|
(7
|
)
|
SSAT pension plan and
other
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
Accumulated
other comprehensive loss
|
|
$
|
(96
|
)
|
|
$
|
(4
|
)
|
|
$
|
(19
|
)
|
Environmental Costs: Environmental exposures
are recorded as a liability and charged to operating expense when the
environmental liability has been incurred and can be estimated. If the aggregate
amount of the liability and the amount and timing of cash payments for the
liability are fixed or reliably determinable, the environmental liability is
discounted. An environmental liability has been incurred when both of the
following conditions have been met: (i) litigation has commenced or a claim or
an assessment has been asserted, or, based on available information,
commencement of litigation or assertion of a claim or an assessment is probable,
and (ii) based on available information, it is probable that the outcome of such
litigation, claim, or assessment will be unfavorable. If a range of probable
loss is determined, the Company will record the obligation at the low end of the
range unless another amount in the range better reflects the expected loss.
Certain costs, however, are capitalized in Property when the obligation is
recorded, if the cost (1) extends the life, increases the capacity or
improves the safety and efficiency of property owned by the Company,
(2) mitigates or prevents environmental contamination that has yet to occur
and that otherwise may result from future operations or activities, or
(3) is incurred or discovered in preparing for sale property that is
classified as “held–for-sale.” The amounts of capitalized environmental costs
were not material at December 31, 2008 or 2007.
Self-Insured Liabilities: The Company is self-insured
for certain losses that include, but are not limited to, employee health,
workers’ compensation, general liability, real and personal property, and real
estate construction warranty and defect claims. When feasible, the Company
obtains third-party insurance coverage to limit its exposure to these claims.
When estimating its self-insured liabilities, the Company considers a number of
factors, including historical claims experience, demographic factors, and
valuations provided by independent third-parties. Periodically, management
reviews its assumptions and the valuations provided by independent third-parties
to determine the adequacy of the Company’s self-insured
liabilities.
Impact of Recently Issued Accounting
Standards: In April 2008, the FASB issued FASB Staff Position
(“FSP”) No. FAS 142-3, Determination of the Useful Life of
Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should
be considered in developing renewal or extension assumptions used for purposes
of determining the useful life of a recognized intangible asset under FASB
Statement No. 142, Goodwill
and Other Intangible Assets (“SFAS No. 142”). FSP 142-3 is
intended to improve the consistency between the useful life of a recognized
intangible asset under SFAS No. 142 and the period of expected cash flows used
to measure the fair value of the asset under SFAS No. 141R and other U.S.
generally accepted accounting principles. FSP 142-3 is effective for fiscal
years beginning after December 15, 2008. Earlier application is not permitted.
The Company is currently evaluating the impact of FSP 142-3, but does not expect
that the adoption of FSP 142-3 will have a material impact on the Company’s
consolidated financial position, results of operations, or cash
flows.
In June 2008, the FASB issued FASB
Staff Position EITF No. 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
(“FSP EITF No. 03-6-1”). FSP EITF No. 03-6-1 addresses whether instruments
granted in share-based payment transactions are participating securities prior
to vesting, and therefore, need to be included in the earnings allocation in
calculating earnings per share under the two-class method described in SFAS No.
128, Earnings per
Share. FSP EITF No. 03-6-1 requires companies to treat unvested
share-based payment awards that have non-forfeitable rights to dividend or
dividend equivalents as a separate class of securities in calculating earnings
per share. FSP EITF No. 03-6-1 is effective for fiscal years beginning after
December 15, 2008; earlier application is not permitted. The Company is
currently evaluating the impact of FSP EITF No. 03-6-1, but does not expect that
the adoption of FSP EITF No. 03-6-1 will have a material effect on its results
of operations or earnings per share.
Rounding: Amounts
in the consolidated financial statements and Notes are rounded to millions, but
per-share calculations and percentages were determined based on amounts before
rounding. Accordingly, a recalculation of some per-share amounts and
percentages, if based on the reported data, may be slightly
different.
2. DISCONTINUED
OPERATIONS
During 2008, the sales of two retail
properties on the mainland for $61.2 million, one mainland office property for
$20.6 million, a multi-tenant residential rental property for $12.1 million,
three commercial properties on Maui for $12.9 million, land previously leased to
a telecommunications tenant on Maui for $8.1 million, several commercial leased
fee parcels on Maui for $8.1 million, and various land parcels on Maui for $2.4
million have been classified as discontinued operations.
During 2007, the sales of land leased
to a retail tenant on Oahu for approximately $46 million, five commercial
properties on Maui for approximately $42 million, a commercial property in
California for approximately $7 million, and a commercial property on Maui sold
in 2008 have been classified as discontinued operations.
During 2006, the sales of two retail
centers in Phoenix, Arizona, for approximately $36 million, an office building
on Maui, for approximately $16 million, a retail center in Kailua-Kona on the
island of Hawaii for approximately $27 million, and several commercial parcels
in Hawaii were included in discontinued operations.
The revenue, operating profit, income
tax expense and after-tax effects of these transactions for 2008, 2007, and 2006
were as follows (in millions, except per share amounts):
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
Revenue
|
|
$
|
125
|
|
|
$
|
95
|
|
|
$
|
90
|
|
Leasing
Revenue
|
|
$
|
8
|
|
|
$
|
17
|
|
|
$
|
22
|
|
Sales
Operating Profit
|
|
$
|
55
|
|
|
$
|
51
|
|
|
$
|
40
|
|
Leasing
Operating Profit
|
|
$
|
4
|
|
|
$
|
10
|
|
|
$
|
12
|
|
Income
tax expense
|
|
$
|
22
|
|
|
$
|
23
|
|
|
$
|
20
|
|
Income
from Discontinued Operations
|
|
$
|
37
|
|
|
$
|
38
|
|
|
$
|
32
|
|
Basic
Earnings Per Share
|
|
$
|
0.89
|
|
|
$
|
0.89
|
|
|
$
|
0.76
|
|
Diluted
Earnings Per Share
|
|
$
|
0.88
|
|
|
$
|
0.88
|
|
|
$
|
0.75
|
|
The results of operations from these
properties in prior years were reclassified from continuing operations to
discontinued operations to conform to the current year’s accounting
presentation. Consistent with the Company’s intention to reinvest the sales
proceeds into new investment property, the proceeds from the sales of property
treated as discontinued operations were deposited in escrow accounts for
tax-deferred reinvestment in accordance with Section 1031 of the Internal
Revenue Code.
3. ACQUISITION
On August 29, 2008, Matson Global
Distribution Services (“MGDS”), a wholly owned subsidiary of Matson Integrated
Logistics, acquired substantially all of the assets and assumed certain
liabilities of Pacific American Services, LLC (“PACAM”), a regional,
warehousing, packaging and distribution company specializing in value-added
handling of domestic, import and export goods, headquartered in Oakland,
California. The acquired net tangible assets of PACAM consisted primarily of
cash and cash equivalents, accounts receivable, prepaid expenses and fixed
assets, partially offset by accounts payable, and other current and long-term
liabilities that MGDS assumed. PACAM was acquired to expand the Company’s
warehousing and distribution service capabilities.
The purchase price was approximately
$24 million in cash, including transaction costs. The total purchase price was
allocated to the tangible and intangible assets acquired and liabilities assumed
based upon their respective estimated fair values at the acquisition date, with
the excess purchase price allocated to goodwill. This allocation is subject to
finalization of the valuation of certain assets and liabilities. Approximately
$3 million was allocated to fixed assets, $2 million was allocated to accounts
receivable, accounts payable and other accrued liabilities, $9 million was
allocated to identifiable intangibles, principally customer relationships, and
$10 million was allocated to goodwill. Since the date of the acquisition,
identifiable intangibles have been amortized to general and administrative
expense assuming an average useful life of 13 years. The goodwill recorded is
deductible for tax purposes.
The results of operations of PACAM are
included in the Company’s consolidated financial statements commencing on August
29, 2008. The Company has not presented unaudited pro forma results of
operations because the acquisition of PACAM is not material to its consolidated
results of operations, financial position or cash flows.
4. INVESTMENTS
IN AFFILIATES
At December 31, 2008 and 2007,
investments consisted principally of equity in limited liability companies, each
of which was accounted for using the equity method of accounting because either:
(i) the entity was not within the scope of FASB Interpretation No. 46 (revised
December 2003) Consolidation
of Variable Interest Entities (“FIN 46R”), as amended, (ii) the entity
was not determined to be a variable interest entity (“VIE”), or (iii) the entity
was a VIE, but the Company was determined not to be the primary beneficiary.
Consolidated retained earnings at December 31, 2008 that represent undistributed
earnings of investments in affiliates was approximately $30 million. Dividends
and distributions from unconsolidated affiliates totaled $30 million, $36
million, and $71 million for the years ended December 31, 2008, 2007 and 2006,
respectively.
The
Company’s investments in affiliates are summarized, by industry, as follows (in
millions):
|
|
2008
|
|
|
2007
|
|
Investment
in Unconsolidated Affiliated Companies:
|
|
|
|
|
|
|
|
|
Real
Estate
|
|
$
|
164
|
|
|
$
|
135
|
|
Transportation
|
|
|
44
|
|
|
|
49
|
|
Total
Investments
|
|
$
|
208
|
|
|
$
|
184
|
|
Operating results include the
Company’s proportionate share of income (loss) from its equity method
investments. A summary of financial information for the Company’s equity method
investments by industry at December 31 is as follows (in millions):
|
2008
|
2007
|
|
|
|
|
|
|
Real
Estate
|
Transportation
|
Real
Estate
|
Transportation
|
|
|
|
|
|
Current
assets
|
|
$
|
61
|
|
|
$
|
46
|
|
|
$
|
151
|
|
|
$
|
47
|
|
Noncurrent
assets
|
|
|
497
|
|
|
|
113
|
|
|
|
302
|
|
|
|
120
|
|
Total
assets
|
|
$
|
558
|
|
|
$
|
159
|
|
|
$
|
453
|
|
|
$
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$
|
61
|
|
|
$
|
35
|
|
|
$
|
107
|
|
|
$
|
29
|
|
Noncurrent
liabilities
|
|
|
148
|
|
|
|
11
|
|
|
|
68
|
|
|
|
14
|
|
Total
liabilities
|
|
$
|
209
|
|
|
$
|
46
|
|
|
$
|
175
|
|
|
$
|
43
|
|
|
|
Year
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$
|
73
|
|
|
$
|
132
|
|
|
$
|
311
|
|
Operating
costs and expenses
|
|
|
47
|
|
|
|
90
|
|
|
|
248
|
|
Operating
income
|
|
$
|
26
|
|
|
$
|
42
|
|
|
$
|
63
|
|
Income
from continuing operations
|
|
$
|
22
|
|
|
$
|
38
|
|
|
$
|
54
|
|
Net
income (loss)
|
|
$
|
22
|
|
|
$
|
38
|
|
|
$
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$
|
505
|
|
|
$
|
519
|
|
|
$
|
501
|
|
Operating
costs and expenses
|
|
|
502
|
|
|
|
494
|
|
|
|
477
|
|
Operating
income
|
|
$
|
3
|
|
|
$
|
25
|
|
|
$
|
24
|
|
Income
from continuing operations*
|
|
$
|
13
|
|
|
$
|
32
|
|
|
$
|
37
|
|
Net
income
|
|
$
|
13
|
|
|
$
|
32
|
|
|
$
|
37
|
|
* Includes earnings from equity
method investments held by the investee.
Real Estate: At December 31,
2008, the Company and its real estate subsidiaries had investments in various
joint ventures that operate and/or develop real estate. The Company does not
have a controlling financial interest, as interpreted under FIN 46R, in any of
these ventures and, accordingly, accounts for its investments in the real estate
ventures using the equity method of accounting. A summary of the Company’s
principal investments is as follows:
a)
|
Kukui’ula: In
April 2002, the Company entered into a joint venture with an affiliate of
DMB Associates, Inc., an Arizona-based developer of master-planned
communities, for the development of Kukui`ula, a 1,000-acre master planned
resort residential community located in Poipu, Kauai, planned for
approximately 1,000 to 1,200 high-end residential units. In 2004, A&B
exercised its option to contribute to the joint venture up to 40 percent
of the project’s future capital requirements. Offsite construction
commenced in 2005 and onsite infrastructure work commenced in
2006. Mass grading commenced in 2007 and the resort core
grading was completed in January 2008. In 2008, construction was completed
on two major roadways, subdivision improvements for parcels Y (88
lots) and M1/M4 (35 lots), and the first three holes of the golf course.
Construction also commenced on parcel M2/M3 (55 lots) and vertical
construction of the project’s plantation club and spa began. Construction
also continued on water systems and the project’s commercial center. As of
December 31, 2008, a total of 80 lots have closed, including 13 lots
in 2008. The capital contributed by the Company to the joint venture,
including the value of land initially contributed, was $101 million as of
December 31, 2008. Construction work on infrastructure and amenities is
ongoing and being phased to better match the expected pace of growth in
the community, without impacting the long-term vision and quality of the
project.
|
Due to the
challenging real estate environment and limited financing options available for
real estate projects, in February 2009, DMB Communities II (“DMBC”), an
affiliate of DMB Associates, Inc. and the Company’s Kukui’ula joint venture
partner, advised the Company that it is evaluating its ability to fund the
joint venture in the future. As a result, the Company and DMBC have engaged
in discussions to renegotiate the terms of the Kukui’ula joint venture operating
agreement. These discussions are preliminary in nature and include a range
of operating and financing scenarios. No decisions or agreements have yet been
reached by the parties. The Company has a 50-percent voting interest in the
venture.
b)
|
Kai
Malu at Wailea: In April 2004, the Company entered into a joint
venture with Armstrong Builders, Ltd. for development of the 25-acre MF-8
parcel at Wailea into 150 duplex units, averaging 1,800 square feet per
unit. Sales commenced in 2006 and a total of 135 units have
closed as of December 31, 2008, including 27 units that closed in
2008. The Company has a 50-percent voting interest in the
venture.
|
c)
|
Ka
Milo at Mauna Lani: In April 2004, the Company entered into a
joint venture with Brookfield Homes Hawaii Inc., NYSE:BHS, (“Brookfield”)
to develop a 30.5-acre residential parcel in the Mauna Lani Resort on the
island of Hawaii. The project is planned for the development
of 37 single-family units and 100 duplex townhomes. A total 27
units were constructed in 2007 and 2008 and, as of December 31, 2008,
twelve units had closed and 15 units remained available for sale at
December 31, 2008. Due to current market conditions, construction of the
remaining units in the project have been deferred. The Company has a
50-percent voting interest in the
venture.
|
d)
|
Crossroads
Plaza: In June 2004, the Company entered into a joint venture with
Intertex Hasley, LLC, for the development of a 56,000-square-foot
mixed-use neighborhood retail center on 6.5 acres of commercial-zoned land
in Valencia, California. The property was acquired in August
2004. The sale of a pad site building closed in 2007, and construction of
the center was substantially completed in 2008. As of December 31, 2008,
occupancy was 56 percent. The Company has a 50-percent voting interest in
the venture.
|
e)
|
Centre
Pointe Marketplace: In April 2005, the Company entered into a
joint venture with Intertex Centre Pointe Marketplace, LLC, for the
development of a 105,700 square-foot retail center on a 10.2-acre parcel
in Valencia, California. The sale of several pad site buildings closed in
2007. Vertical construction was substantially completed in 2008, with five
of seven buildings closed in 2008 and the remaining two buildings are
expected to close in 2010. The Company has a 50-percent voting interest in
the venture.
|
f)
|
Bridgeport
Marketplace: In July 2005, the Company entered into a joint venture with
Intertex Bridgeport Marketplace, LLC for the development of a 27.8
acres in Valencia, California. The parcel was subdivided into a 5-acre
parcel for a public park, a 7.3-acre parcel sold to a church in 2007, and
a 15.5-acre parcel for the development of a 130,000 square-foot retail
center. Vertical construction of the center commenced in 2007 and is
nearing completion with 98 percent of the retail and office space under
binding leases. The Company has a 50-percent voting interest in the
venture.
|
g)
|
Waiawa: In
August 2006, the Company entered into a joint venture with an affiliate of
Gentry Investment Properties, for the development of a 1,000-acre
master-planned primary residential community (530 residential-zoned acres)
in Central Oahu. Due to current market conditions and higher projected
construction costs, A&B is working with the venture partner and
landowner on alternative development arrangements. The Company has a
50-percent voting interest in the
venture.
|
h)
|
Bakersfield: In
November 2006, the Company entered into a joint venture with Intertex
P&G Retail, LLC, for the planned development of a 575,000 square-foot
retail center on a 57.3-acre commercial parcel in Bakersfield,
California. The parcel was acquired in November 2006.
Development plans are currently on hold due to current economic
conditions. The Company has a 50-percent voting interest in the
venture.
|
i)
|
Kukui’ula
Village: In August 2007, the Company entered into a joint
venture with DMB Kukui`ula Village LLC for the development of Kukui’ula
Village, a planned 91,700 square-foot commercial center located at the
entrance of the Kukui’ula project. Vertical construction commenced in
2008, and the center is projected to be completed in 2009. As of December
31, 2008, the center is 55 percent leased, but leasing activity has slowed
due to softening economic conditions. The Company has a 50-percent voting
interest in the venture.
|
j)
|
Santa
Barbara Ranch: In November 2007, the Company entered into a
joint venture with Vintage Communities, LLC (“Vintage”), a residential
developer headquartered in Newport Beach, California. Vintage and its
affiliates intend to develop 1,040 acres for an exclusive large-lot
subdivision, located 12 miles north of the City of Santa Barbara, and is
continuing work on planning and entitlement. The joint venture owns
approximately 22 acres in the project. As of December 31, 2008, the
Company had invested approximately $15 million in the joint venture. Due
to the economic downturn, the Company has declined to provide any further
equity funding. Accordingly, Vintage and its affiliate have the option,
expiring in July 2009, to purchase the Company’s investment for $15
million plus a 12 percent preferred return (“Preferred Return”). If
Vintage and its affiliate fail to exercise this option, the Company, in
its sole discretion, may cause the joint venture to sell certain Santa
Barbara land parcels. In 2008, due to the deterioration in the local real
estate market, the Company recorded a $3 million impairment loss,
consisting of a $1.5 million loss on its investment and a $1.5 million
equity in loss in the joint venture. The Company has a 50-percent voting
interest in the venture.
|
k)
|
Palmdale
Trade and Commerce Center: In December 2007, the Company
entered into a joint venture with Intertex Palmdale Trade & Commerce
Center LLC, for the planned development of a 315,000 square-foot mixed-use
commercial office and light industrial condominium complex on 18.2 acres
in Palmdale, California, located 60 miles northeast of Los Angeles and 25
miles northeast of Valencia. The parcel was contributed to the venture in
2008. Due to current market conditions, the venture is re-evaluating
product design and timing of development. The Company has a
50-percent voting interest in the
venture.
|
Transportation: Matson
owns a 35-percent membership interest in an LLC with SSA Marine Inc., named SSA
Terminals, LLC (“SSAT”), which provides stevedoring and terminal services at
five terminals in three West Coast ports to the Company and other shipping
lines. Matson accounts for its interest in SSAT under the equity method of
accounting. The “Cost of transportation services” included approximately $145
million, $150 million, and $146 million for 2008, 2007, and 2006, respectively,
paid to this unconsolidated affiliate for terminal services.
The Company’s equity in earnings of
its unconsolidated transportation affiliate of $5 million, $11 million, and $13
million for 2008, 2007, and 2006, respectively, were included on the
consolidated income statements with costs of transportation services because the
affiliate is integrally related to the Company’s Ocean Transportation segment,
providing all terminal services to Matson on the U.S. West Coast.
5. PROPERTY
Property on the consolidated balance
sheets includes the following (in millions):
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Vessels
|
|
$
|
1,209
|
|
|
$
|
1,193
|
|
Machinery
and equipment
|
|
|
596
|
|
|
|
588
|
|
Buildings
|
|
|
522
|
|
|
|
483
|
|
Land
|
|
|
146
|
|
|
|
154
|
|
Water,
power and sewer systems
|
|
|
115
|
|
|
|
110
|
|
Other
property improvements
|
|
|
112
|
|
|
|
106
|
|
Total
|
|
|
2,700
|
|
|
|
2,634
|
|
Less
accumulated depreciation and amortization
|
|
|
(1,110
|
)
|
|
|
(1,052
|
)
|
Property
– net
|
|
$
|
1,590
|
|
|
$
|
1,582
|
|
6. CAPITAL
CONSTRUCTION FUND
Matson is party to an agreement with
the United States government that established a Capital Construction Fund
(“CCF”) under provisions of the Merchant Marine Act, 1936, as amended. The
agreement has program objectives for the acquisition, construction, or
reconstruction of vessels and for repayment of existing vessel indebtedness.
Deposits to the CCF are limited by certain applicable earnings. Such deposits
are tax deductions in the year made; however, they are taxable, with interest
payable from the year of deposit, if withdrawn for general corporate purposes or
other non-qualified purposes, or upon termination of the agreement. Qualified
withdrawals for investment in vessels and certain related equipment do not give
rise to a current tax liability, but reduce the depreciable bases of the vessels
or other assets for income tax purposes.
Amounts deposited into the CCF are a
preference item for calculating federal alternative minimum taxable income.
Deposits not committed for qualified purposes within 25 years from the date of
deposit will be treated as non-qualified withdrawals over the subsequent five
years. As of December 31, 2008, the oldest CCF deposits date from 2008.
Management believes that all amounts on deposit in the CCF at the end of 2008
will be used or committed for qualified purposes prior to the expiration of the
applicable 25-year periods.
Under the terms of the CCF agreement,
Matson may designate certain qualified earnings as “accrued deposits” or may
designate, as obligations of the CCF, qualified withdrawals to reimburse
qualified expenditures initially made with operating funds. Such accrued
deposits to, and withdrawals from, the CCF are reflected on the Consolidated
Balance Sheets either as obligations of the Company’s current assets or as
receivables from the CCF.
The Company has classified its
investments in the CCF as “held-to-maturity” and, accordingly, has not reflected
temporary unrealized market gains and losses on the consolidated balance sheets
or consolidated statements of income. The long-term nature of the CCF program
supports the Company’s intention to hold these investments to
maturity.
At December 31, 2008 and 2007, the
balances on deposit in the CCF, $0.1 million and $0.6 million, respectively,
consisted of investments in mortgage-backed securities with fair values that
approximated amortized cost. Fair value of the mortgage-backed securities was
determined based on identical or substantially similar security values. No
central exchange exists for these securities; they are traded over-the-counter.
The Company earned $0.1 million each year in 2007 and 2006 on its investments in
mortgage-backed securities.
7. NOTES
PAYABLE AND LONG-TERM DEBT
At
December 31, 2008 and 2007, notes payable and long-term debt consisted of the
following (in millions):
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Revolving
Credit loans, (1.16% for 2008 and 5.37% for
2007)
|
|
$
|
135
|
|
|
$
|
119
|
|
Title
XI Bonds:
|
|
|
|
|
|
|
|
|
5.27%,
payable through 2029
|
|
|
46
|
|
|
|
48
|
|
5.34%,
payable through 2028
|
|
|
44
|
|
|
|
46
|
|
Term
Loans:
|
|
|
|
|
|
|
|
|
4.79%,
payable through 2020
|
|
|
81
|
|
|
|
88
|
|
5.55%,
payable through 2017
|
|
|
50
|
|
|
|
50
|
|
5.53%,
payable through 2016
|
|
|
50
|
|
|
|
50
|
|
4.10%,
payable through 2012
|
|
|
30
|
|
|
|
35
|
|
5.56%,
payable through 2016
|
|
|
25
|
|
|
|
25
|
|
6.20%,
payable through 2013
|
|
|
11
|
|
|
|
11
|
|
6.38%,
payable through 2017
|
|
|
8
|
|
|
|
-
|
|
7.55%,
payable through 2009
|
|
|
7
|
|
|
|
15
|
|
7.42%,
payable through 2010
|
|
|
6
|
|
|
|
9
|
|
4.31%,
payable through 2010
|
|
|
6
|
|
|
|
9
|
|
5.88%,
payable through 2014
|
|
|
3
|
|
|
|
-
|
|
7.57%,
payable through 2009
|
|
|
2
|
|
|
|
4
|
|
Total
debt
|
|
|
504
|
|
|
|
509
|
|
Less
current portion
|
|
|
(52
|
)
|
|
|
(57
|
)
|
Long-term
debt
|
|
$
|
452
|
|
|
$
|
452
|
|
Long-term Debt
Maturities: At December 31, 2008,
debt maturities during the next five years and thereafter are $52 million in
2009, $38 million in 2010, $83 million in 2011, $39 million in 2012, $50 million
in 2013 and $242 million thereafter.
Revolving Credit
Facilities:
The Company has two revolving senior credit facilities with six commercial banks
that expire in December 2011. The revolving credit facilities provide for an
aggregate commitment of $325 million, which consists of $225 million and $100
million facilities for A&B and Matson, respectively. Amounts drawn under the
facilities bear interest at London Interbank Offered Rate (“LIBOR”) plus a
spread ranging from 0.225 percent to 0.475 percent based on the Company’s
S&P rating. The agreement contains certain restrictive covenants, the most
significant of which requires the maintenance of minimum shareholders’ equity
levels, minimum unencumbered property investment values, and a maximum ratio of
debt to earnings before interest, depreciation, amortization and taxes. At
December 31, 2008, $65 million was outstanding, $11 million in letters of credit
had been issued against the facility, and $249 million remained available for
borrowing. As of December 31, 2008, $45 million drawn on this facility was
classified as non-current because the Company had the ability and intent to
refinance the drawn amount on a long-term basis.
Matson has a $105 million secured
reducing revolving credit agreement with DnB NOR Bank ASA and ING Bank N.V. that
expires in June 2015. The maximum amount that can be outstanding on the facility
declines in eight annual commitment reductions of $10.5 million each, commencing
in June 2007. The incremental borrowing rate for the facility is 0.225 percent
over LIBOR through June 2010. For the remaining term, the incremental borrowing
rate is 0.300 percent over LIBOR. The agreement contains certain restrictive
covenants, the most significant of which requires the maintenance of minimum net
worth levels, minimum working capital levels, and maximum ratio of long-term
debt to net worth. At December 31, 2008, $70 million was outstanding and $14
million remained available for borrowing.
The Company has a replenishing $400
million three-year unsecured note purchase and private shelf agreement with
Prudential Investment Management, Inc. and its affiliates (collectively,
“Prudential”) under which the Company may issue notes in an aggregate amount up
to $400 million, less the sum of all principal amounts then outstanding on any
notes issued by the Company or any of its subsidiaries to Prudential and the
amount of any notes that are committed under the note purchase agreement. The
Prudential agreement contains certain restrictive covenants that are
substantially the same as the covenants contained in the aggregate $325 million
revolving senior credit facilities. The ability to draw additional amounts under
the Prudential facility expires on April 19, 2012 and borrowings under the shelf
facility bear interest at rates that are determined at the time of the
borrowing. During 2006 and 2007, the Company borrowed, under a series of
committed notes, $125 million at rates ranging from 5.53 percent to 5.56
percent. At December 31, 2008, $143 million was available under the
facility.
On January
29, 2009, A&B committed to a fourth series of senior promissory notes,
Series D notes, totaling $100 million under its Prudential facility. The Company
intends to use the proceeds for general corporate purposes. The funding date of
the draw under the facility will be at A&B’s discretion, but must occur by
March 9, 2009. The notes carry interest at an annual fixed-rate of 6.9 percent
with a final maturity on March 9, 2020. Interest will be paid semi-annually,
commencing in September 2009, and the principal under the note will be repaid in
annual installments commencing in March 2012, according to the following
schedule (in millions):
|
|
Principal
Payments
|
|
|
|
|
|
|
2012
|
|
$
|
10
|
|
2013
|
|
|
5
|
|
2014
|
|
|
5
|
|
2015
|
|
|
5
|
|
2016
|
|
|
10
|
|
Thereafter
|
|
|
65
|
|
Total
|
|
$
|
100
|
|
The unused borrowing capacity under all
revolving credit and term facilities as of December 31, 2008 totaled $406
million.
Title XI Bonds: In
August 2004, Matson partially financed the delivery of the MV Maunawili with
$55 million of 5.27 percent fixed-rate, 25-year term, U.S. government
Guaranteed Ship Financing Bonds, more commonly known as Title XI bonds. These
bonds, which are secured by the MV Maunawili, are payable in
$1.1 million semiannual payments that commenced in January 2005.
In September 2003, Matson partially
financed the delivery of the MV Manukai with
$55 million of 5.34 percent fixed-rate, 25-year term, Title XI bonds. These
bonds, which are secured by the MV Manukai, are payable in
$1.1 million semiannual payments that commenced in March 2004.
Vessel Secured Term
Debt: Matson has an Amended and Restated Note Agreement with
The Prudential Insurance Company of America and Pruco Life Insurance for $120
million. Included in the agreement are Series A and Series B notes. Series A
represents a $15 million note and Series B represents 15-year term notes
totaling $105 million. Both series are secured by the MV Manulani. The Series A
note carries interest at 4.31 percent with $6 million currently outstanding. The
Series B notes carry interest at 4.79 percent with $81 million currently
outstanding.
Real Estate Secured Term
Debt: In June 2005, A&B Properties, Inc., a wholly owned
subsidiary of the Company, assumed $11.4 million of secured debt in connection
with the purchase of an office building in Phoenix, Arizona. This term loan,
with an outstanding amount of $11 million at December 31, 2008, carries interest
at 6.2 percent and matures in October 2013.
In December 2008, A&B Properties,
Inc. assumed approximately $13 million of secured debt, with a fair value of $11
million at the time of acquisition, under two notes in connection with the
purchase of the Midstate 99 Distribution Center in Visalia, California. At
December 31, 2008, the notes had principal amounts of $9 million and $4 million,
and carry interest at 6.38 percent and 5.88 percent, respectively. The $9
million note matures in August 2017 and the $4 million note matures in April
2014.
8. LEASES
The Company as Lessee: Principal non-cancelable
operating leases include land, office and terminal facilities, containers and
equipment, leased for periods that expire through 2031. Management expects that,
in the normal course of business, most operating leases will be renewed or
replaced by other similar leases. Rental expense under operating leases totaled
$31 million, $32 million, and $37 million for 2008, 2007, and 2006,
respectively. Rental expense for operating leases that provide for future
escalations are accounted for on a straight-line basis. Future minimum payments
under non-cancelable operating leases as of December 31, 2008 were as follows
(in millions):
|
|
Operating
Leases
|
|
|
|
|
|
|
2009
|
|
$
|
17
|
|
2010
|
|
|
14
|
|
2011
|
|
|
12
|
|
2012
|
|
|
12
|
|
2013
|
|
|
12
|
|
Thereafter
|
|
|
36
|
|
Total
minimum lease payments
|
|
$
|
103
|
|
In addition to the future minimum lease
payments above, the Company has an operating lease for terminal facilities in
Honolulu that includes a minimum annual commitment, which is calculated by the
lessor based on capital improvements by the lessor and an allocation of lessor
operating expenses. The Company’s payments of volume-based charges to the lessor
must meet or exceed the minimum annual commitment. The Company’s volume-based
payments to the lessor were approximately $16 million in 2008, $17 million in
2007, and $17 million in 2006, and there were no minimum annual guarantee
payments in any year.
The Company as Lessor: The Company leases
land, buildings, and land improvements under operating leases. The historical
cost of, and accumulated depreciation on, leased property at December 31, 2008
and 2007 were as follows (in millions):
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Leased
property - real estate
|
|
$
|
693
|
|
|
$
|
660
|
|
Less
accumulated depreciation
|
|
|
(102
|
)
|
|
|
(99
|
)
|
Property
under operating leases - net
|
|
$
|
591
|
|
|
$
|
561
|
|
Total rental income under these
operating leases for each of the three years in the period ended December 31,
2008 was as follows (in millions):
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
rentals
|
|
$
|
82
|
|
|
$
|
80
|
|
|
$
|
74
|
|
Contingent
rentals (based on sales volume)
|
|
|
4
|
|
|
|
4
|
|
|
|
3
|
|
Total
|
|
$
|
86
|
|
|
$
|
84
|
|
|
$
|
77
|
|
Future
minimum rentals on non-cancelable leases at December 31, 2008 were as follows
(in millions):
|
|
Operating
Leases
|
|
|
|
|
|
|
2009
|
|
$
|
71
|
|
2010
|
|
|
59
|
|
2011
|
|
|
45
|
|
2012
|
|
|
35
|
|
2013
|
|
|
25
|
|
Thereafter
|
|
|
82
|
|
Total
|
|
$
|
317
|
|
9. EMPLOYEE
BENEFIT PLANS
The Company has funded single-employer
defined benefit pension plans that cover substantially all non-bargaining unit
employees and certain bargaining unit employees. In addition, the
Company has plans that provide certain retiree health care and life insurance
benefits to substantially all salaried and to certain hourly employees.
Employees are generally eligible for such benefits upon retirement and
completion of a specified number of years of credited service. The Company does
not pre-fund these benefits and has the right to modify or terminate certain of
these plans in the future. Certain groups of retirees pay a portion of the
benefit costs.
As of December 31, 2006, the Company
adopted the recognition and disclosure provisions of SFAS No. 158, as
required. This standard amends FASB Statements No. 87, 88, 106 and
132(R) and requires an employer to recognize the overfunded or underfunded
status of a defined benefit postretirement plan (other than a multiemployer
plan) as an asset or liability in its statement of financial position and to
recognize changes in that funded status in the year in which the changes occur
through comprehensive income. The pension asset or liability is the
difference between the plan assets at fair value and the projected benefit
obligation as of year end. For other postretirement benefit plans,
the asset or liability is the difference between the plan assets at fair value
and the accumulated postretirement benefit obligation as of year
end.
Asset Allocations, Investments and
Plan Administration: The Company’s weighted-average asset
allocations at December 31, 2008 and 2007, and 2008 year-end target allocation,
by asset category, were as follows:
|
|
Target
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Domestic
equity securities
|
|
60
|
%
|
|
50
|
%
|
|
63
|
%
|
International
equity securities
|
|
10
|
%
|
|
12
|
%
|
|
13
|
%
|
Debt
securities
|
|
15
|
%
|
|
9
|
%
|
|
9
|
%
|
Real
estate
|
|
15
|
%
|
|
16
|
%
|
|
12
|
%
|
Other
and cash
|
|
-
|
-
|
|
13
|
%
|
|
3
|
%
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
The Company has an Investment Committee
that meets regularly with investment advisors to establish investment policies,
direct investments and select investment options. The Investment Committee is
also responsible for appointing trustees and investment managers. The Company’s
investment policy permits investments in marketable securities, such as domestic
and foreign stocks, domestic and foreign bonds, venture capital, real estate
investments, and cash equivalents. Equity investments in the defined benefit
plan assets do not include any direct holdings of the Company’s stock but may
include such holdings to the extent that the stock is included as part of
certain mutual fund holdings.
Contributions are determined annually
for each plan by the Company’s pension administrative committee, based upon the
actuarially determined minimum required contribution under the Employee
Retirement Income Security Act of 1974 (“ERISA”), as amended, the Pension
Protection Act of 2006 (the “Act”), and the maximum deductible contribution
allowed for tax purposes. For the plans covering employees who are members of
collective bargaining units, the benefit formulas are determined according to
the collective bargaining agreements, either using career average pay as the
base or a flat dollar amount per year of service. The benefit formulas for the
remaining defined benefit plans are based on final average pay. The Company did
not make any contributions during 2008 or 2007 to its defined benefit pension
plans. In 2009, the Company expects to make required contributions of
approximately $0.4 million. The Company’s funding policy is to contribute cash
to its pension plans so that it meets at least the minimum contribution
requirements.
In October 2007, the Company modified
its defined benefit pension benefit formulas that would apply to new employees
hired after December 31, 2007. Under the modification, new employees will earn
retirement benefits based on a fixed percentage of their eligible compensation,
plus interest. The plan interest credit rate will vary from year-to-year based
on the ten-year U.S. Treasury rate. Under the modification, employees hired on
or after January 1, 2008 are fully vested upon completion of three years of
service.
Benefit Plan Assets and
Obligations: The measurement date for the Company’s benefit
plan disclosures is December 31st of each
year. The status of the funded defined benefit pension plan and the unfunded
accumulated post-retirement benefit plans at December 31, 2008 and 2007 are
shown below (dollars in millions):
|
|
Pension
Benefits
|
|
|
Other
Post-retirement Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
$
|
303
|
|
|
$
|
297
|
|
|
$
|
48
|
|
|
$
|
51
|
|
Service
cost
|
|
|
8
|
|
|
|
7
|
|
|
|
1
|
|
|
|
1
|
|
Interest
cost
|
|
|
19
|
|
|
|
17
|
|
|
|
3
|
|
|
|
3
|
|
Plan
participants’ contributions
|
|
|
--
|
|
|
|
--
|
|
|
|
2
|
|
|
|
2
|
|
Actuarial
(gain) loss
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
(4
|
)
|
Benefits
paid
|
|
|
(16
|
)
|
|
|
(16
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
Settlements
|
|
|
(1
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Amendments
|
|
|
2
|
|
|
|
--
|
|
|
|
1
|
|
|
|
--
|
|
Benefit
obligation at end of year
|
|
$
|
314
|
|
|
$
|
303
|
|
|
$
|
52
|
|
|
$
|
48
|
|
Change
in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of year
|
|
|
379
|
|
|
|
349
|
|
|
|
--
|
|
|
|
--
|
|
Actual
return on plan assets
|
|
|
(118
|
)
|
|
|
46
|
|
|
|
--
|
|
|
|
--
|
|
Settlements
|
|
|
(1
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Benefits
paid
|
|
|
(16
|
)
|
|
|
(16
|
)
|
|
|
--
|
|
|
|
--
|
|
Fair
value of plan assets at end of year
|
|
$
|
244
|
|
|
$
|
379
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
Status and Recognized Liability
|
|
$
|
(70
|
)
|
|
$
|
76
|
|
|
$
|
(52
|
)
|
|
$
|
(48
|
)
|
The accumulated benefit obligation for
the Company’s qualified pension plans were $284 million and $273 million as of
December 31, 2008 and 2007, respectively. Amounts recognized on the consolidated
balance sheets and in accumulated other comprehensive loss at December 31, 2008
and 2007 are as follows (in millions):
|
|
Pension
Benefits
|
|
|
Other
Post-retirement Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
assets
|
|
$
|
3
|
|
|
$
|
80
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Current
liabilities
|
|
|
--
|
|
|
|
--
|
|
|
|
(3
|
)
|
|
|
(2
|
)
|
Non-current
liabilities
|
|
|
(73
|
)
|
|
|
(4
|
)
|
|
|
(49
|
)
|
|
|
(46
|
)
|
Total
|
|
$
|
(70
|
)
|
|
$
|
76
|
|
|
$
|
(52
|
)
|
|
$
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss (gain) (net of taxes)
|
|
$
|
87
|
|
|
$
|
(3
|
)
|
|
$
|
(1
|
)
|
|
$
|
(3
|
)
|
Unrecognized
prior service cost (net of taxes)
|
|
|
3
|
|
|
|
1
|
|
|
|
--
|
|
|
|
--
|
|
Total
|
|
$
|
90
|
|
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
|
$
|
(3
|
)
|
The
information for qualified pension plans with an accumulated benefit obligation
in excess of plan assets at December 31, 2008 and 2007 is shown below (in
millions):
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Projected
benefit obligation
|
|
$
|
248
|
|
|
$
|
37
|
|
Accumulated
benefit obligation
|
|
$
|
221
|
|
|
$
|
32
|
|
Fair
value of plan assets
|
|
$
|
177
|
|
|
$
|
33
|
|
The estimated prior service cost for
the defined benefit pension plans that will be amortized from accumulated other
comprehensive income into net periodic benefit cost in 2009 is $0.6 million. The
estimated net loss that will be recognized in net periodic pension cost for the
defined benefit pension plans in 2009 is $11.1 million. The estimated prior
service credit for the other defined benefit postretirement plans that will be
amortized from accumulated other comprehensive income into net periodic pension
benefit in 2009 is negligible. The estimated net gain for the other
defined benefit postretirement plans that will be amortized from accumulated
other comprehensive income into net periodic pension benefit in 2009 is $0.5
million.
Unrecognized gains and losses of the
post-retirement benefit plans are amortized over five years. Although current
health costs are expected to increase, the Company attempts to mitigate these
increases by maintaining caps on certain of its benefit plans, using lower cost
health care plan options where possible, requiring that certain groups of
employees pay a portion of their benefit costs, self-insuring for certain
insurance plans, encouraging wellness programs for employees, and implementing
measures to mitigate future benefit cost increases.
The Company has determined that its
post-retirement prescription drug plans are actuarially equivalent to Part D of
the Medicare Prescription Drug Improvement and Modernization Act of 2003. The
2008 post-retirement obligations include the benefits of the Act’s subsidy.
These amounts are not material.
Components of the net periodic benefit
cost and other amounts recognized in other comprehensive income for the defined
benefit pension plans and the post-retirement health care and life insurance
benefit plans and the weighted average assumptions used to determine benefit
information during 2008, 2007, and 2006, are shown below (in
millions):
|
Pension
Benefits
|
|
|
Other
Post-retirement Benefits
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Components
of Net Periodic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
Cost/(Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
$
|
8
|
|
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest
cost
|
|
18
|
|
|
|
17
|
|
|
|
17
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Expected
return on plan assets
|
|
(32
|
)
|
|
|
(28
|
)
|
|
|
(26
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Recognition
of net (gain) loss
|
|
--
|
|
|
|
--
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
--
|
|
|
|
1
|
|
Amortization
of prior service cost
|
|
1
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Recognition
of loss (gain) due to settlement
|
|
1
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(1
|
)
|
|
|
--
|
|
Net
periodic benefit cost/(income)
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
--
|
|
|
|
3
|
|
|
|
3
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Changes in Plan Assets and Benefit Obligations Recognized in Other
Comprehensive Income (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption
of FASB 158
|
|
--
|
|
|
|
--
|
|
|
|
11
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(1
|
)
|
Net
loss (gain)
|
|
90
|
|
|
|
(12
|
)
|
|
|
--
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
--
|
|
Amortization
of unrecognized gain
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1
|
|
|
|
--
|
|
|
|
--
|
|
Prior
service cost
|
|
1
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Amortization
of prior service cost (credit)
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Total
recognized in other comprehensive income
|
|
91
|
|
|
|
(12
|
)
|
|
|
11
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Total
recognized in net periodic benefit cost and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other comprehensive
income
|
$
|
87
|
|
|
$
|
(16
|
)
|
|
$
|
11
|
|
|
$
|
5
|
|
|
$
|
1
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
6.25
|
%
|
|
|
6.25
|
%
|
|
|
6.00
|
%
|
|
|
6.25
|
%
|
|
|
6.25
|
%
|
|
|
6.00
|
%
|
Expected
return on plan assets
|
|
8.50
|
%
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate
of compensation increase
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
Initial
health care cost trend rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.00
|
%
|
|
|
9.00
|
%
|
|
|
9.00
|
%
|
Ultimate
rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Year
ultimate rate is reached
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
2011
|
|
The expected return on plan assets is
based on the Company’s historical returns combined with long-term expectations,
based on the mix of plan assets, asset class returns, and long-term inflation
assumptions, after consultation with the firm used by the Company for actuarial
calculations. One-, three-, and five-year pension returns were (33.1) percent,
(4.0) percent, and 2.1 percent, respectively. The long-term average return
(since 1989) has been approximately 7.9 percent. Over the long-term, the
actual returns have generally exceeded the benchmark returns used by the Company
to evaluate performance of its fund managers. While market performance in 2008
has significantly reduced the Company’s actual long-term rate of return, the
Company continues to believe that a long-term rate of return of 8.5% remains
appropriate given the Company’s target allocation of approximately 70 percent to
equities. Excluding 2008 plan performance, the Company’s long-term rate of
return (since 1989) was 10.7 percent.
As of December 31, 2008, the market
value of the Company’s defined benefit plans totaled approximately $244 million,
compared with $379 million as of December 31, 2007. As a result of realized and
unrealized losses, the Company expects net periodic pension expense to increase
to approximately $20 million in 2009.
If the assumed health care cost trend
rate were increased or decreased by one percentage point, the accumulated
post-retirement benefit obligation, as of December 31, 2008, 2007 and 2006, and
the net periodic post-retirement benefit cost for 2008, 2007 and 2006, would
have increased or decreased as follows (in millions):
|
Other
Post-retirement Benefits
|
|
|
One
Percentage Point
|
|
|
Increase
|
|
|
Decrease
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
on total of service and interest cost components
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Effect
on post-retirement benefit obligation
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
Non-qualified Benefit
Plans: The Company has non-qualified supplemental pension
plans covering certain employees and retirees, which provide for incremental
pension payments from the Company’s general funds so that total pension benefits
would be substantially equal to amounts that would have been payable from the
Company’s qualified pension plans if it were not for limitations imposed by
income tax regulations. The funded status, relating to these unfunded plans,
totaled $(30) million at December 31, 2008. A 6.0 percent discount rate was used
to determine the 2008 obligation. The expense associated with the non-qualified
plans was $4 million in each year ended December 31, 2008, 2007, and 2006. As of
December 31, 2008, the amount recognized in accumulated other comprehensive
income for unrecognized loss, net of tax, was approximately $5 million, and the
amount recognized as unrecognized prior service credit, net of tax, was
negligible. The estimated net loss that will be recognized in net periodic
pension cost in 2009 is approximately $1 million. The estimated prior service
credit that will be amortized from accumulated other comprehensive income into
net periodic pension benefit over the next fiscal year is
negligible.
Estimated Benefit
Payments: The estimated future benefit payments for the next
ten years are as follows (in millions):
|
|
Pension
|
|
Non-qualified
|
|
Post-retirement
|
Year
|
|
Benefits
|
|
Plan
Benefits
|
|
Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
$
|
18
|
|
|
|
|
$
|
8
|
|
|
|
|
$
|
3
|
|
|
2010
|
|
|
|
18
|
|
|
|
|
|
13
|
|
|
|
|
|
3
|
|
|
2011
|
|
|
|
19
|
|
|
|
|
|
1
|
|
|
|
|
|
4
|
|
|
2012
|
|
|
|
19
|
|
|
|
|
|
1
|
|
|
|
|
|
4
|
|
|
2013
|
|
|
|
20
|
|
|
|
|
|
2
|
|
|
|
|
|
4
|
|
|
2014-2018
|
|
|
|
115
|
|
|
|
|
|
11
|
|
|
|
|
|
20
|
|
|
Multiemployer
Plans: Matson participates in 10 multiemployer plans and has
an estimated withdrawal obligation with respect to four of these plans that
totals approximately $60 million. Management has no present intention of
withdrawing from and does not anticipate termination of any of these plans.
Total contributions to the multiemployer pension plans covering personnel in
shoreside and seagoing bargaining units were $13 million in 2008, $12 million in
2007, and $11 million in 2006.
Union collective bargaining
agreements provide that total employer contributions during the terms of the
agreements must be sufficient to meet the normal costs and amortization payments
required to be funded during those periods. Contributions are generally based on
union labor paid or cargo volume. A portion of such contributions is for
unfunded accrued actuarial liabilities of the plans being funded over periods of
25 to 40 years, which began between 1967 and 1976.
The multiemployer plans are subject to
the plan termination insurance provisions of ERISA and are paying premiums to
the Pension Benefit Guaranty Corporation (“PBGC”). The statutes provide that an
employer who withdraws from, or significantly reduces its contribution
obligation to, a multiemployer plan generally will be required to continue
funding its proportional share of the plan’s unfunded vested
benefits.
Under special rules approved by the
PBGC and adopted by the Pacific Coast longshore plan in 1984, Matson could cease
Pacific Coast cargo-handling operations permanently and stop contributing to the
plan without any withdrawal liability, provided that the plan meets certain
funding obligations as defined in the plan. Accordingly, no withdrawal
obligation for this plan is included in the total estimated withdrawal
obligation.
Defined Contribution Plans:
The Company sponsors defined contribution plans that qualify under Section
401(k) of the Internal Revenue Code and provides matching contributions of up to
4% of eligible employee compensation. The Company’s matching contributions
expensed under these plans totaled $2.0 million, $1.9 million, and $1.8 million
for the years ended December 31, 2008, 2007, and 2006,
respectively. The Company also maintains profit sharing plans, and if
a minimum threshold of Company performance is achieved, provides contributions
of 1 percent to 3 percent, depending upon Company performance above the minimum
threshold. The contribution expense for these plans totaled $1 million, $2
million, and $2 million for the years ended December 31, 2008, 2007, and 2006,
respectively.
10. INCOME
TAXES
The income tax expense on income from
continuing operations for each of the three years in the period ended
December 31, 2008 consisted of the following (in millions):
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
59
|
|
|
$
|
59
|
|
|
$
|
23
|
|
State
and Foreign
|
|
|
5
|
|
|
|
4
|
|
|
|
3
|
|
Current
|
|
|
64
|
|
|
|
63
|
|
|
|
26
|
|
Deferred
|
|
|
(9
|
)
|
|
|
--
|
|
|
|
28
|
|
Total
continuing operations tax expense
|
|
$
|
55
|
|
|
$
|
63
|
|
|
$
|
54
|
|
Matson recorded a current tax benefit
of $2 million for a deposit of $4 million into CCF in 2008, a $3 million tax
benefit for a deposit of $8 million in 2007 and $36 million for a
deposit of $95 million in 2006. The current tax benefits in the three years
reduced the current income tax payable, but did not reduce total income tax
expense because a reduction in the current income tax expense was offset by an
increase in deferred tax expense. Additional information about the CCF is
included in Note 6.
Income tax expense for 2008, 2007, and
2006 differs from amounts computed by applying the statutory federal rate to
income from continuing operations before income taxes for the following reasons
(in millions):
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computed
federal income tax expense
|
|
$
|
53
|
|
|
$
|
59
|
|
|
$
|
50
|
|
State
income taxes
|
|
|
4
|
|
|
|
5
|
|
|
|
5
|
|
Other—net
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Income
tax expense
|
|
$
|
55
|
|
|
$
|
63
|
|
|
$
|
54
|
|
Total State and Federal tax credits
totaled approximately $3 million in 2008, and $2 million annually
for 2007 and 2006. The credits related to capital goods excise tax
credits, credits for investments in qualified high-tech businesses, enterprise
zone credits, credits for the production of electricity from qualified
facilities, and credits for expenditures on rehabilitation of certified historic
structures.
The tax effects of temporary
differences that give rise to significant portions of the deferred tax assets
and deferred tax liabilities at December 31 of each year are as follows (in
millions):
|
|
2008
|
|
|
2007
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Capital
loss carry-forward
|
|
$
|
3
|
|
|
$
|
5
|
|
Benefit
plans
|
|
|
75
|
|
|
|
9
|
|
Insurance
reserves
|
|
|
9
|
|
|
|
10
|
|
Other
|
|
|
11
|
|
|
|
15
|
|
Total
deferred tax assets
|
|
|
98
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Basis
differences for property and equipment
|
|
|
304
|
|
|
|
316
|
|
Tax-deferred
gains on real estate transactions
|
|
|
181
|
|
|
|
155
|
|
Capital
Construction Fund
|
|
|
5
|
|
|
|
4
|
|
Joint
ventures and other investments
|
|
|
6
|
|
|
|
9
|
|
Other
|
|
|
17
|
|
|
|
12
|
|
Total
deferred tax liabilities
|
|
|
513
|
|
|
|
496
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax liability
|
|
$
|
415
|
|
|
$
|
457
|
|
The realization of the deferred tax
assets related to the capital loss carryover is dependent upon the future
generation of capital gains. Management considers projected future transactions
and tax planning strategies in making this assessment. Management believes it is
more likely than not that the Company will generate such gains before the
capital loss carry-forward expires in 2010. Therefore, no valuation allowance
was established for this deferred tax asset as of December 31,
2008.
The Company also has California
alternative minimum tax credit carryforwards of approximately $1 million at
December 31, 2008 to reduce future California state income taxes over an
indefinite period.
The Company’s income taxes payable has
been reduced by the tax benefits from share-based compensation. The Company
receives an income tax benefit for exercised stock options calculated as the
difference between the fair market value of the stock issued at the time of
exercise and the option exercise price, tax effected. The Company also receives
an income tax benefit for non-vested stock and restricted stock units when they
vest, measured as the fair market value of the stock at the time of vesting, tax
effected. The net tax benefits from share-based transactions were $1.1 million,
$1.9 million, and $1.3 million for 2008, 2007, and 2006, respectively, and the
portion of the tax benefit related to the excess of the tax deduction over the
amount reported as expense under SFAS No. 123R was reflected as an increase to
additional capital in the consolidated statements of shareholders’
equity.
The Company adopted FIN 48 on January
1, 2007. A reconciliation of the beginning and ending amount of gross
unrecognized tax benefits is as follows (in millions):
Balance
at January 1, 2007
|
|
$
|
10
|
|
Additions
for tax positions of prior years
|
|
|
3
|
|
Reductions
for tax positions of prior years
|
|
|
(2
|
)
|
Reductions
for lapse of statute of limitations
|
|
|
(1
|
)
|
Balance
at December 31, 2007
|
|
|
10
|
|
Additions
for tax positions of prior years
|
|
|
--
|
|
Reductions
for tax positions of prior years
|
|
|
(1
|
)
|
Reductions
for lapse of statute of limitations
|
|
|
(3
|
)
|
Balance
at December 31, 2008
|
|
$
|
6
|
|
Of the total unrecognized benefits at
December 31, 2008, $6 million represents the amount that, if recognized, would
favorably affect the Company’s effective rate in future periods, and
approximately $0.6 million represents gross accrued interest. The Company
expects a decrease in gross unrecognized benefits, including interest, in the
next 12 months as a result of a lapse of the applicable statute of limitations,
for which approximately $ 0.7 million would favorably impact the effective tax
rate.
The
Company recognizes potential accrued interest and penalties related to
unrecognized tax benefits in income tax expense. To the extent interest and
penalties are not ultimately assessed with respect to the settlement of
uncertain tax positions, amounts accrued will be reduced and reflected as a
reduction of the overall income tax provision. As of December 31, 2008,
approximately $0.6 million of potential interest expense was accrued. There were
no amounts accrued as penalties as of December 31, 2008. For 2008, the amount of
interest expense recognized in income tax expense related to unrecognized tax
benefits was negligible, and no potential penalties were recognized in income
tax expense related to unrecognized tax benefits.
The Company is no longer
subject to U.S. federal income tax audits for years before 2005. The Internal
Revenue Service may audit the Company’s federal income tax returns for years
subsequent to 2004. Additionally, the Company is routinely involved in state and
local income tax audits. Substantially all material state, local, and foreign
income tax matters have been concluded for years through 2003.
11. SHARE-BASED
AWARDS
2007 Incentive Compensation
Plan: On April 26, 2007, the Company’s shareholders approved the 2007
Incentive Compensation Plan (the “2007 Plan”) which serves as a successor to the
1998 Stock Option/Stock Incentive Plan, the 1998 Non-Employee Director Stock
Option Plan, the Restricted Stock Bonus Plan and the Non-Employee Director Stock
Retainer Plan (the “Predecessor Plans”). Under the 2007 Plan, 2,215,000 shares
of common stock were initially reserved for issuance. The approval of the 2007
Plan did not affect any options or stock issuances outstanding under the
Predecessor Plans. To the extent any of those options subsequently terminate
unexercised or those stock issuances are forfeited prior to vesting, the number
of shares of common stock subject to those terminated options, together with the
forfeited shares, will be added to the share reserve available for issuance
under the 2007 Plan, up to an additional 750,000 shares. However, no further
awards may be made under the Predecessor Plans subsequent to the approval of the
2007 Plan.
As of December 31, 2008, 1,406,127
shares of its common stock were reserved for future issuance of share-based
awards under the 2007 Plan.
The 2007 Plan consists of four separate
incentive compensation programs: (i) the discretionary grant program, (ii) the
stock issuance program, (iii) the incentive bonus program and (iv) the automatic
grant program for the non-employee members of the Company’s Board of Directors.
Share-based compensation is generally awarded under three of the four programs.
Those three programs are more fully described below.
Discretionary Grant Program –
Under the Discretionary Grant Program, stock options may be granted with an
exercise price no less than 100 percent of the fair market value (defined as the
closing market price) of the Company’s common stock on the date of the grant.
Options generally become exercisable ratably over three years and have a maximum
contractual term of 10 years. The Company estimates the grant-date fair value of
its stock options using a Black-Scholes valuation model.
Stock Issuance Program –
Under the Stock Issuance Program, shares of common stock or restricted stock
units may be granted. Generally, time-based equity awards vest ratably over
three years and performance-based equity awards (granted prior to December 31,
2008) vest after one year, provided that certain performance targets are
achieved. Performance-based equity awards granted after December 31, 2008 are
subject to a one-year performance condition and a three-year service vesting
condition.
Automatic Grant Program – The
Automatic Grant Program supersedes and replaces the Company’s 1998 Non-Employee
Director Stock Option Plan and the Non-Employee Director Stock Retainer Plan. At
each annual shareholder meeting, non-employee directors will receive an award of
restricted stock units that entitle the holder to an equivalent number of shares
of common stock upon vesting. Awards of restricted stock units granted under the
program generally vest ratably over three years.
The shares of common stock authorized
to be issued under the 2007 Plan may be drawn from shares of the Company’s
authorized but unissued common stock or from shares of its common stock that the
Company acquires, including shares purchased on the open market or in private
transactions.
Predecessor Plans: Adopted in
1998, the Company’s 1998 Stock Option/Stock Incentive Plan (“1998 Plan”)
provided for the issuance of non-qualified stock options and common stock to
employees of the Company. Under the 1998 Plan, option prices could not be less
than the fair market value of the Company’s common stock on the dates of grant
and the options became exercisable over periods determined, at the dates of
grant, by the Compensation Committee of the A&B Board of Directors that
administers the plan. Generally, options vested ratably over three years and
expired ten years from the date of grant. Payments for options exercised may be
made in cash or in shares of the Company’s stock. If an option to purchase
shares is exercised within five years of the date of grant and if payment is
made in shares of the Company’s stock, the option holder may receive, under a
reload feature, a new stock option grant for such number of shares as is equal
to the number surrendered, with an option price not less than the greater of the
fair market value of the Company’s stock on the date of exercise or one and
one-half times the original option price. The 1998 Plan also permitted the
issuance of shares of the Company’s common stock. Generally, grants of
time-based, non-vested stock vests ratably over three years and
performance-based, non-vested stock vests in one year, provided that certain
performance targets are achieved. The 1998 Plan was superseded by the 2007 Plan
and no further grants will be made under the 1998 Plan.
Adopted in 1989, the Company’s 1989
Stock Option/Stock Incentive Plan (“1989 Plan”) is substantially the same as the
1998 Plan, except that each option is generally exercisable in full one year
after the date granted. The 1989 Plan terminated in January 1999, and options
granted through 1998 were exercised or terminated in 2008.
Director Stock Option
Plans: The
Company had two Director stock option plans that were superseded by the 2007
Plan. Under the 1998 Non-Employee Director Stock Option Plan (“1998 Director
Plan”), each non-employee Director of the Company, elected at an Annual Meeting
of Shareholders, was automatically granted, on the date of each such Annual
Meeting, an option to purchase 8,000 shares of the Company’s common stock at the
fair market value of the shares on the date of grant. Each option to purchase
shares generally became exercisable ratably over three years following the date
granted.
The 1989 Non-Employee Director Stock
Option Plan (“1989 Director Plan”) was substantially the same as the 1998
Director Plan, except that each option generally became exercisable in-full one
year after the date granted. This plan terminated in January 1999, and options
granted through termination were exercised or terminated in 2008.
SFAS No. 123R requires companies to
estimate the fair value of stock option awards on the date of grant. The Company
estimates the grant-date fair value of its stock options using a
Black-Scholes-Merton option-pricing model.
The weighted average grant-date fair
values of the options granted during 2008, 2007, and 2006 were $7.88, $10.91,
and $13.96, respectively, per option, using the range of assumptions provided in
the table below:
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Expected
volatility
|
|
19.5%-19.8%
|
|
19.0%-19.5%
|
|
22.1%-22.7%
|
Expected
term (in years)
|
|
5.8
|
|
5.8-5.9
|
|
6.3-8.1
|
Risk-free
interest rate
|
|
3.1%-3.5%
|
|
4.8%-5.0%
|
|
4.5%-5.1%
|
Dividend
yield
|
|
2.6%
|
|
2.1%-2.2%
|
|
1.7%-2.4%
|
|
•
|
Expected
volatility was primarily determined using the historical volatility of
A&B common stock over the expected term, but the Company may also
consider future events and other factors that it reasonably concludes
marketplace participants might
consider.
|
|
•
|
The
expected term of the awards represents expectations of future employee
exercise and post-vesting termination behavior and was primarily based on
historical experience. The Company analyzed various groups of employees
and considered expected or unusual trends that would likely affect this
assumption and determined that approximately 5.8 years was reasonable for
2008.
|
|
•
|
The
risk free interest rate was based on U.S. Government treasury yields for
periods equal to the expected term of the option on the grant
date.
|
|
•
|
The
expected dividend yield is based on the Company’s current and historical
dividend policy.
|
Application of alternative assumptions
could produce significantly different estimates of the fair value of share-based
compensation and, consequently, significantly affect the related amounts
recognized in the consolidated statements of income.
The following table summarizes stock
option activity for the Company’s plans for each of the three years in the
period ended December 31, 2008 (in thousands, except exercise price
amounts):
|
|
|
|
Employee
Plans
|
|
Director
Plans
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
1998
|
|
1989
|
|
|
|
Average
|
|
Average
|
|
Aggregate
|
|
|
|
2007
|
|
1998
|
|
1989
|
|
Director
|
|
Director
|
|
Total
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Plan
|
|
Plan
|
|
Plan
|
|
Plan
|
|
Plan
|
|
Shares
|
|
Price
|
|
Life
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005
|
|
--
|
|
1,190
|
|
38
|
|
216
|
|
42
|
|
1,486
|
|
$31.16
|
|
|
|
|
|
Granted
|
|
--
|
|
174
|
|
--
|
|
56
|
|
--
|
|
230
|
|
$51.54
|
|
|
|
|
|
Exercised
|
|
--
|
|
(110
|
)
|
(11
|
)
|
(6
|
)
|
(12
|
)
|
(139
|
)
|
$26.34
|
|
|
|
|
|
Forfeited
& Expired
|
|
--
|
|
(20
|
)
|
--
|
|
--
|
|
--
|
|
(20
|
)
|
$40.92
|
|
|
|
|
|
December
31, 2006
|
|
--
|
|
1,234
|
|
27
|
|
266
|
|
30
|
|
1,557
|
|
$34.47
|
|
|
|
|
|
Granted
|
|
3
|
|
280
|
|
--
|
|
--
|
|
--
|
|
283
|
|
$48.24
|
|
|
|
|
|
Exercised
|
|
--
|
|
(157
|
)
|
(14
|
)
|
(21
|
)
|
(21
|
)
|
(213
|
)
|
$28.72
|
|
|
|
|
|
Forfeited
& Expired
|
|
--
|
|
(4
|
)
|
--
|
|
--
|
|
--
|
|
(4
|
)
|
$51.29
|
|
|
|
|
|
December
31, 2007
|
|
3
|
|
1,353
|
|
13
|
|
245
|
|
9
|
|
1,623
|
|
$37.62
|
|
|
|
|
|
Granted
|
|
483
|
|
--
|
|
--
|
|
--
|
|
--
|
|
483
|
|
$45.39
|
|
|
|
|
|
Exercised
|
|
--
|
|
(33
|
)
|
(13
|
)
|
(6
|
)
|
(9
|
)
|
(61
|
)
|
$27.69
|
|
|
|
|
|
Forfeited
and expired
|
|
(6
|
)
|
(4
|
)
|
--
|
|
--
|
|
--
|
|
(10
|
)
|
$47.33
|
|
|
|
|
|
Outstanding
December 31, 2008
|
|
480
|
|
1,316
|
|
--
|
|
239
|
|
--
|
|
2,035
|
|
$39.71
|
|
6.1
|
|
$204,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
or expected to vest
|
|
475
|
|
1,303
|
|
--
|
|
237
|
|
--
|
|
2,015
|
|
$35.74
|
|
6.1
|
|
$202,101
|
|
Exercisable
December 31, 2008
|
|
1
|
|
1,076
|
|
--
|
|
220
|
|
--
|
|
1,297
|
|
$35.74
|
|
4.7
|
|
$204,142
|
|
The following table summarizes
non-vested common stock and restricted stock unit activity through December 31,
2008 (in thousands, except weighted-average, grant-date fair value
amounts):
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
2007
|
|
|
|
|
Plans
|
|
|
|
|
|
|
Plan
|
|
|
Weighted
|
|
Non-Vested
|
|
|
Weighted
|
|
|
|
Restricted
|
|
|
Average
|
|
Common
|
|
|
Average
|
|
|
|
Stock
|
|
|
Grant-Date
|
|
Stock
|
|
|
Grant-Date
|
|
|
|
Units
|
|
|
Fair
Value
|
|
Shares
|
|
|
Fair
Value
|
|
December
31, 2005
|
|
--
|
|
|
--
|
|
184
|
|
|
$41.38
|
|
Granted
|
|
--
|
|
|
--
|
|
155
|
|
|
$52.38
|
|
Vested
|
|
--
|
|
|
--
|
|
(57
|
)
|
|
$41.97
|
|
Forfeited
|
|
--
|
|
|
--
|
|
(8
|
)
|
|
$47.90
|
|
December
31, 2006
|
|
--
|
|
|
--
|
|
274
|
|
|
$47.28
|
|
Granted
|
|
18
|
|
|
$54.20
|
|
247
|
|
|
$48.19
|
|
Vested
|
|
--
|
|
|
--
|
|
(150
|
)
|
|
$48.53
|
|
Forfeited
|
|
--
|
|
|
--
|
|
|
|
|
|
|
December
31, 2007
|
|
18
|
|
|
$54.20
|
|
371
|
|
|
$47.74
|
|
Granted
|
|
183
|
|
|
$46.00
|
|
--
|
|
|
--
|
|
Vested
|
|
(8
|
)
|
|
$53.59
|
|
(276
|
)
|
|
$47.35
|
|
Forfeited
|
|
(33
|
)
|
|
$45.38
|
|
(1
|
)
|
|
$46.62
|
|
Outstanding
December 31, 2008
|
|
160
|
|
|
$46.68
|
|
94
|
|
|
$47.48
|
|
A summary of the compensation cost and
other measures related to share-based payments is as follows (in
millions):
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Share-based
expense (net of estimated forfeitures):
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
3
|
|
Non-vested
stock & restricted stock units
|
|
|
8
|
|
|
|
13
|
|
|
|
7
|
|
Total
share-based expense
|
|
|
11
|
|
|
|
16
|
|
|
|
10
|
|
Total
recognized tax benefit
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
(3
|
)
|
Share-based
expense (net of tax)
|
|
$
|
8
|
|
|
$
|
12
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
received upon option exercise
|
|
$
|
2
|
|
|
$
|
6
|
|
|
$
|
3
|
|
Intrinsic
value of options exercised
|
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
3
|
|
Tax
benefit realized upon option exercise
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
1
|
|
Fair
value of stock vested
|
|
$
|
13
|
|
|
$
|
7
|
|
|
$
|
3
|
|
As of December 31, 2008, there was $3.8
million of total unrecognized compensation cost related to unvested stock
options. That cost is expected to be recognized over a weighted average period
of approximately 1.7 years. As of December 31, 2008, unrecognized compensation
cost related to non-vested stock and restricted stock units was $5.4 million.
The unrecognized cost for non-vested stock and restricted stock units is
expected to be recognized over a weighted average period of 1.4
years.
12. COMMITMENTS,
GUARANTEES AND CONTINGENCIES
Commitments, Guarantees and
Contingencies: Commitments and financial arrangements,
excluding capital lease commitments that are described in Note 8, included the
following as of December 31, 2008 (in millions):
Arrangement
|
|
|
2008
|
|
|
|
|
|
|
Standby
letters of credit
|
(a)
|
|
$ |
11 |
|
Bonds
|
(b)
|
|
$ |
29 |
|
Benefit
plan withdrawal obligations
|
(c)
|
|
$ |
60 |
|
These amounts are not recorded on the
Company’s consolidated balance sheet and it is not expected that the Company or
its subsidiaries will be called upon to advance funds under these
commitments.
|
(a)
|
Consists
of standby letters of credit, issued by the Company’s lenders under the
Company’s revolving credit facilities. Approximately $9 million of the
letters of credit are required to allow the Company to qualify as a
self-insurer for state and federal workers’ compensation liabilities. The
balance includes approximately $2 million for insurance-related matters,
principally in the Company’s real estate business. In the event the
letters of credit are drawn upon, the Company would be obligated to
reimburse the issuer of the letter of credit. None of the letters of
credit has been drawn upon to date, and the Company believes it is
unlikely that any of these letters of credit will be drawn
upon.
|
|
(b)
|
Consists
of approximately $11 million of construction bonds related to real estate
projects in Hawaii, approximately $16 million in U.S. customs bonds, and
approximately $2 million related to transportation and other matters. In
the event the bonds are drawn upon, the Company would be obligated to
reimburse the surety that issued the bond. None of the bonds has been
drawn upon to date, and the Company believes it is unlikely that any of
these bonds will be drawn upon.
|
|
(c)
|
Represents
the withdrawal liabilities for multiemployer pension plans, in which
Matson is a participant. The withdrawal liability aggregated approximately
$60 million as of the most recent valuation date. Management has no
present intention of withdrawing from and does not anticipate termination
of any of the aforementioned plans.
|
Indemnity Agreements: For
certain real estate joint ventures, the Company may be obligated under bond
indemnities in order to complete construction of the real estate development if
the joint venture does not perform. These indemnities are designed to protect
the surety. To date, no such indemnities have been called upon. Under the
provisions of FASB Interpretation No. 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others—an interpretation of FASB Statements No. 5, 57, and 107
and rescission of FASB Interpretation No. 34 (“FIN 45”), the Company
recorded liabilities for three indemnities it provided in connection with surety
bonds issued to cover construction activities, such as project amenities, roads,
utilities, and other infrastructure, at three of its joint ventures. The fair
values of the liabilities recorded were not material at December 31, 2008 and
2007. Under the indemnities, the Company and its joint venture partners agreed
to indemnify the surety bond issuer from all loss and expense arising from the
failure of the joint venture to complete the specified bonded construction. The
maximum potential amount of aggregate future payments is a function of the
amount covered by outstanding bonds at the time of default by the joint venture,
reduced by the amount of work completed to date. As of December 31, 2008, the
maximum potential amount of aggregate future payments under bonds outstanding
was $107 million, computed as $197 million of bonds outstanding, less the value
of work completed, which totaled approximately $90 million. The Company and its
joint venture partners also entered into mutual indemnification agreements under
which each partner agrees to indemnify the other partner for its share of the
obligation under the bonds. Including amounts recoverable from the Company’s
joint venture partners under the mutual indemnification agreements, the
Company’s maximum potential amount of aggregate future payments under
indemnities at December 31, 2008 was approximately $43 million.
Completion Guarantees: For
certain real estate joint ventures, the Company may be required to perform work
to complete construction if the joint venture fails to complete construction.
These guarantees are intended to assure the joint venture’s lender that the
project will be completed as represented to the lender. To date, no such
guarantees have been called upon. Under the provisions of FIN 45, the Company
recorded liabilities for two completion guarantees it provided in connection
with joint venture development projects. The fair values of these liabilities
were not material at December 31, 2008 and 2007. Under the completion
guarantees, the Company and its joint venture partners agree to complete
development of specified development work if the joint venture fails to complete
development. The maximum potential amount of aggregate future payments related
to the Company’s completion guarantees is a function of the work agreed to be
completed, reduced by the amount of work completed to date at the time of
default by the joint venture. As of December 31, 2008, the maximum potential
amount of aggregate future payments under completion guarantees outstanding was
$1.3 million, computed as $12.0 million of project work guaranteed, less the
value of work completed, which totaled approximately $10.7 million. The
Company’s share of the maximum potential amount of aggregate future payments
under indemnities at December 31, 2008 was approximately $0.9
million.
Certain of the businesses in which the
Company holds a non-controlling interest have long-term debt obligations. Other
than obligations described above, those investee obligations do not have
recourse to the Company and the Company’s “at-risk” amounts are limited to its
investment. These investments are more fully described in Note 4.
Environmental
Matters: As with most industrial and land development
companies of its size, the Company’s shipping, real estate, and agricultural
businesses have certain risks that could result in expenditures for
environmental remediation. It is the Company’s policy, as part of its due
diligence process for all acquisitions, to use third-party environmental
consultants to investigate the environmental risks and to require disclosure
from land sellers of known environmental risks. Despite these precautions, there
can be no assurance that the Company will avoid material liabilities relating to
environmental matters affecting properties currently or previously owned by the
Company. No estimate of such potential liabilities can be made although the
Company may, from time to time, purchase property which requires modest
environmental clean-up costs after appropriate due diligence. In such instances,
the Company takes steps prior to acquisition to gain assurance as to the precise
scope of work required and costs associated with removal, site restoration
and/or monitoring, using detailed investigations by environmental consultants.
By adhering to the policies described above, the Company does not believe that
environmental clean-up costs will have a material effect on its future results
of operations or financial position. The Company believes that based on all
information available to it, the Company is in compliance, in all material
respects, with applicable environmental laws and regulations.
In late 2003, the Company paid $1.6
million to settle a claim for payment of environmental remediation costs
incurred by the current owner of a sugar refinery site in Hawaii that previously
was sold by the Company in 1994. In connection with this settlement, the Company
assumed responsibility to remediate certain parcels of the site and accrued an
undiscounted obligation of approximately $2 million for the estimated
remediation costs. The commencement of environmental cleanup is dependent upon
studies to be performed by the Department of Health of the State of
Hawaii.
Other Contingencies: A&B owns 16,000 acres
of watershed lands in East Maui that supply a significant portion of the
irrigation water used by HC&S. A&B also held four water
licenses to another 30,000 acres owned by the State of Hawaii in East Maui,
which over the years has supplied approximately two-thirds of the irrigation
water used by HC&S. The last of these water license agreements
expired in 1986, and all four agreements were then extended as revocable permits
that were renewed annually. In 2001, a request was made to the State
Board of Land and Natural Resources (the “BLNR”) to replace these revocable
permits with a long-term water lease. Pending the conclusion by the
BLNR of this contested case hearing on the request for the long-term lease, the
BLNR has renewed the existing permits on a holdover basis. If the
Company is not permitted to divert stream waters from State lands in East Maui
for its use, it would have a material adverse effect on the Company’s
sugar-growing operations.
In
addition, on May 24, 2001, petitions were filed by a third party, requesting
that the Commission on Water Resource Management of the State of Hawaii (“Water
Commission”) amend interim instream flow standards (“IIFS”) in 27 East Maui
streams that feed the Company’s irrigation system. On September 25,
2008, the Water Commission took action on eight of the petitions, resulting in
some quantity of water being returned to the streams rather than being utilized
for irrigation purposes. Over an interim period, which is expected to last at
least a year, the Water Commission will monitor the results of the
implementation of the IIFS for the eight streams, and proceed with assessing
whether an amendment of IIFS for the remaining 19 East Maui streams is
appropriate. While the loss of the water as a result of the Water Commission’s
action on the eight petitions may not significantly impair the Company’s
sugar-growing operations, similar losses of water on the remaining 19 streams
would have a material adverse effect on the Company’s sugar-growing operations.
The Company, at this time, is unable to determine what action the Water
Commission will take with respect to all 27 streams.
On
June 25, 2004, two organizations filed with the Water Commission a petition
to amend IIFS for four streams in West Maui to increase the amount of water to
be returned to these streams. The West Maui irrigation system
provides approximately one-tenth of the irrigation water used by
HC&S. The Water Commission’s deliberations on whether to amend
the current IIFS for the West Maui streams are currently ongoing, and an adverse
decision could result in some quantity of water being returned to the streams,
rather than being utilized for irrigation purposes, which may have a material
adverse effect on the Company’s sugar-growing operations. A decision
by the Water Commission is not expected until the second half of
2009.
On
December 10, 2007, the Shipbuilders Council of America, Inc. and Pasha
Hawaii Transport Lines LLC filed a complaint against the U.S. Department of
Homeland Security, the U.S. Coast Guard and the National Vessel Documentation
Center in the U.S. District Court for the Eastern District of Virginia (the
“Mokihana case”). The complaint sought review of a certificate of
documentation with a coastwise endorsement issued by the National Vessel
Documentation Center after concluding that Matson’s C9 vessel Mokihana had not
been rebuilt abroad. Matson intervened in the action. On
September 30, 2008, the District Court entered a preliminary order granting
summary judgment to the plaintiffs and was to have issued an opinion setting
forth the basis for the ruling and the relief to have been granted, which relief
may have affected the right of Matson to operate Mokihana in the domestic
trade. Prior to the issuance of such opinion, on November 6, 2008,
the judge assigned to the case vacated the preliminary order granting summary
judgment to the plaintiffs and stayed the matter pending the outcome of an
appeal to the United States Court of Appeals for the Fourth Circuit in a case
referred to by the District Court as the Seabulk Trader case. Such
case was decided in favor of the plaintiffs by another judge in the same
District Court and is reported at 551 F.Supp. 2d 447. While the
Seabulk Trader case involves certain issues similar in nature to the Mokihana
case, the Company believes the two cases are distinguishable in various
respects. A decision in the Seabulk Trader case is expected in
2009. Matson has filed an amicus brief in the support of the Coast
Guard’s decision in that case. The Company is unable to predict, at
this time, the outcome of the appeal in the Seabulk Trader case or the possible
effect of such outcome on the Mokihana case. The Company also is
unable to predict, at this time, the outcome or financial impact, if any, of the
Mokihana case.
In a
separate but related matter, the same plaintiffs asked the United States
Department of Transportation Maritime Administration (“Marad”) to investigate
the continued eligibility of nine of Matson’s vessels, including Mokihana, to
participate in the Capital Construction Fund (“CCF”) and cargo preference
programs as a result of modifications performed, or to be performed, in foreign
shipyards. Marad issued an Opinion and Order on March 18, 2008,
stating that it would be guided by prior Coast Guard rulings with respect to
CCF, that all Matson vessels would retain their CCF eligibility unless the court
reversed the Coast Guard’s final determination with respect to Mokihana, and
that all vessels would retain their cargo preference eligibility but requested
further information on Mokihana and Lurline. On December 9, 2008,
after reviewing information provided by Matson, Marad issued a Final Opinion and
Order ordering that Lurline and Mokihana be excluded from preference for
carriage of government civilian cargo, pursuant to 46 U.S.C. 55305, for three
years. Matson has filed a request for reconsideration with
Marad. The decision has no immediate financial effect because these
vessels are currently deployed in the Hawaii trade and do not carry civilian
preference cargo.
In another
separate but related matter, the Coast Guard Marine Safety Center informed
Matson on December 24, 2008 that the same plaintiffs had requested
reconsideration of the Coast Guard’s June 2006 Mokihana major conversion
determination. The Coast Guard had earlier ruled that the work to be
performed on Mokihana in the foreign and U.S. shipyards was minor and,
therefore, would not necessitate certain safety and maintenance
upgrades. The Coast Guard has asked the Shipbuilders Council and
Pasha to respond to issues as to their standing to request reconsideration and
the timeliness of the request. Matson believes that the Coast Guard's
determination was correct and will submit comments supporting it. The
Company is unable to predict, at this time, the outcome or financial impact, if
any, of this matter.
On April
21, 2008, Matson was served with a grand jury subpoena from the U.S. District
Court for the Middle District of Florida for documents and information relating
to water carriage in connection with the Department of Justice’s investigation
into the pricing and other competitive practices of carriers operating in the
domestic trades. Matson understands that while the investigation
currently is focused on the Puerto Rico trade, it also includes pricing and
other competitive practices in connection with all domestic trades, including
the Alaska, Hawaii and Guam trades. Matson does not operate vessels
in the Puerto Rico and Alaska trades. It does operate vessels in the
Hawaii and Guam trades. Matson has cooperated, and will continue to
cooperate, fully with the Department of Justice. If the Department of
Justice believes that any violations have occurred on the part of Matson or the
Company, it could seek civil or criminal sanctions, including monetary
fines. The Company is unable to predict, at this time, the outcome or
financial impact, if any, of this investigation.
The
Company and Matson have been named as defendants in civil lawsuits purporting to
be class actions alleging violations of the antitrust laws and seeking treble
damages and injunctive relief. As of January 8, 2009, the Company was
aware of 26 such lawsuits. All of the lawsuits have been or
will be transferred and consolidated into a consolidated civil lawsuit in the
U.S. District Court for the Western District of Washington in Seattle purporting
to be a class action. Another domestic shipping carrier operating in
the Hawaii and Guam trades, Horizon Lines, Inc., has also been named as a
defendant in the consolidated civil lawsuit. The plaintiffs filed a
consolidated class action complaint on February 2, 2009. The Company
and Matson intend to file a motion to dismiss the complaint by March
2009. The Company and Matson will vigorously defend themselves in
this lawsuit. The Company is unable to predict, at this time, the
outcome or financial impact, if any, of this lawsuit.
In June 2006, Matson and its Long
Beach terminal operator, SSAT LLC, completed negotiations of an amendment to the
Preferential Assignment Agreement with the City of Long Beach that includes
changes requested by Matson to implement its new China Service as well as
environmental covenants applicable to vessels which call at Pier C. The
environmental requirements are part of programs proposed by both the ports of
Los Angeles and Long Beach designed to reduce airborne emissions in the port
area. Under the amendment, Matson is required to install equipment on all its
motor vessels to allow them to accept a shore-based electrical power source
instead of using the vessel’s diesel generators while in port (“cold ironing”)
and to phase out calls by its steamships by 2020. In December 2008, the Office
of Administrative Law approved regulations put forth by the California Air
Resources Board (“CARB”) which mandate cold ironing of diesel powered container
ships at major ports starting in 2014. The CARB regulations put the
responsibility for shoreside electrical infrastructure on the terminal operator.
Our lease agreement commits the Port of Long Beach to providing the shoreside
infrastructure and construction is scheduled to begin in 2009. However, the Port
of Oakland has not yet made a commitment to provide the required infrastructure
at the Company’s Oakland terminal and therefore, SSAT may be held responsible
for this cost. The cost of the required infrastructure improvements has not
been estimated. The modifications to Matson’s vessels to accommodate cold
ironing will occur at each of their next scheduled out–of-water drydockings. One
vessel commenced retrofitting in 2008 and another is scheduled for
2009. The estimated costs of the modifications are projected at $13.7
million for the eight motor vessels including design and engineering costs, and
the cost for vessel stepdown transformers to accommodate the power provided at
the dock. As of December 31, 2008, approximately $1.8 million has been incurred.
The costs of the modifications have been recorded as capital assets because they
provide future economic benefits.
The Company and certain subsidiaries
are parties to other 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.
13. INDUSTRY
SEGMENTS
Operating segments are components of an
enterprise that engage in business activities from which it may earn revenues
and incur expenses, whose operating results are regularly reviewed by the chief
operating decision maker to make decisions about resources to be allocated to
the segment and assess its performance, and for which discrete financial
information is available. The Company’s chief operating decision maker is its
Chief Executive Officer. Based on the foregoing, the Company has five segments
that operate in three industries: Transportation, Real Estate and
Agribusiness.
The Transportation Industry consists of
two segments. Ocean Transportation carries freight between various U.S. Pacific
Coast, major Hawaii ports, Guam, China and other Pacific ports and provides
terminal, stevedoring and container equipment management services in Hawaii.
Logistics Services arranges domestic and international rail intermodal service,
long-haul and regional highway brokerage, specialized hauling, flat-bed and
project work, less-than-truckload, expedited freight services, and warehousing
and distribution services.
The Real Estate Industry consists of
two segments. The Real Estate Sales segment generates its revenues through the
development and sale of land, commercial and residential properties. The Real
Estate Leasing segment owns, operates, and manages retail, office, and
industrial properties. When property that was previously leased is sold, the
revenue and operating profit are included with the Real Estate Sales
segment.
Agribusiness, which consists of one
segment, grows sugar cane and coffee; produces bulk raw sugar, specialty
food-grade sugars, and molasses; produces, markets, and distributes roasted
coffee and green coffee; provides general trucking services, mobile equipment
maintenance and repair services, and self-service storage in Hawaii; and
generates and sells, to the extent not used in the Company’s operations,
electricity.
The accounting policies of the
operating segments are described in the summary of significant accounting
policies. Reportable segments are measured based on operating profit, exclusive
of non-operating or unusual transactions, interest expense, general corporate
expenses, and income taxes.
INDUSTRY
SEGMENTS (CONTINUED)
Industry segment information for each
of the three years ended December 31, 2008 is summarized below (in
millions):
For
the Year
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ocean
transportation
|
|
$
|
1,023.7
|
|
|
$
|
1,006.9
|
|
|
$
|
945.8
|
|
Logistics
services
|
|
|
436.0
|
|
|
|
433.5
|
|
|
|
444.2
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
107.8
|
|
|
|
108.5
|
|
|
|
100.6
|
|
Sales
|
|
|
350.2
|
|
|
|
117.8
|
|
|
|
97.3
|
|
Less
amounts reported in discontinued operations1
|
|
|
(133.0
|
)
|
|
|
(112.0
|
)
|
|
|
(111.7
|
)
|
Agribusiness
|
|
|
124.3
|
|
|
|
123.7
|
|
|
|
127.4
|
|
Reconciling
Items 2
|
|
|
(10.7
|
)
|
|
|
(9.2
|
)
|
|
|
(14.2
|
)
|
Total
revenue
|
|
$
|
1,898.3
|
|
|
$
|
1,669.2
|
|
|
$
|
1,589.4
|
|
Operating
Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ocean
transportation3
|
|
$
|
105.8
|
|
|
$
|
126.5
|
|
|
$
|
105.6
|
|
Logistics
services
|
|
|
18.5
|
|
|
|
21.8
|
|
|
|
20.8
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
47.8
|
|
|
|
51.6
|
|
|
|
50.3
|
|
Sales3
|
|
|
95.6
|
|
|
|
74.4
|
|
|
|
49.7
|
|
Less
amounts reported in discontinued operations1
|
|
|
(59.1
|
)
|
|
|
(61.0
|
)
|
|
|
(52.3
|
)
|
Agribusiness
|
|
|
(12.9
|
)
|
|
|
0.2
|
|
|
|
6.9
|
|
Total
operating profit
|
|
|
195.7
|
|
|
|
213.5
|
|
|
|
181.0
|
|
Interest
expense, net4
|
|
|
(23.7
|
)
|
|
|
(18.8
|
)
|
|
|
(15.0
|
)
|
General
corporate expenses
|
|
|
(21.0
|
)
|
|
|
(27.3
|
)
|
|
|
(22.3
|
)
|
Income
from continuing operations before income taxes
|
|
|
151.0
|
|
|
|
167.4
|
|
|
|
143.7
|
|
Income
taxes
|
|
|
(55.1
|
)
|
|
|
(63.2
|
)
|
|
|
(53.7
|
)
|
Income
from continuing operations
|
|
|
95.9
|
|
|
|
104.2
|
|
|
|
90.0
|
|
Discontinued
operations
|
|
|
36.5
|
|
|
|
38.0
|
|
|
|
32.5
|
|
Net
income
|
|
$
|
132.4
|
|
|
$
|
142.2
|
|
|
$
|
122.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Prior
year amounts restated for amounts treated as discontinued operations. See
Notes 1 and 2 for additional
information.
|
2
|
Includes
inter-segment revenue, interest income, and other income classified as
revenue for segment reporting
purposes.
|
3
|
The Ocean Transportation segment
includes approximately $5.2 million, $10.7 million, and $13.3 million of
equity in earnings from its investment in SSAT for 2008, 2007, and 2006,
respectively. The Real Estate Sales segment includes approximately $9.0
million, $22.6 million, and $14.4 million in equity in earnings from its
various real estate joint ventures for 2008, 2007, and 2006,
respectively.
|
4
|
Includes
Ocean Transportation interest expense of $11.6 million for 2008, $13.9
million for 2007, and $13.3 million for 2006. Substantially all other
interest expense was at the parent
company.
|
INDUSTRY
SEGMENTS (CONTINUED)
Identifiable
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ocean
transportation5
|
|
$
|
1,153.9
|
|
|
$
|
1,215.0
|
|
|
$
|
1,185.3
|
|
Logistics
services
|
|
|
74.2
|
|
|
|
58.6
|
|
|
|
56.4
|
|
Real
estate leasing
|
|
|
590.2
|
|
|
|
595.4
|
|
|
|
525.5
|
|
Real
estate sales5
|
|
|
344.6
|
|
|
|
408.9
|
|
|
|
295.0
|
|
Agribusiness
|
|
|
172.2
|
|
|
|
174.6
|
|
|
|
168.7
|
|
Other
|
|
|
15.1
|
|
|
|
26.6
|
|
|
|
20.3
|
|
Total
assets
|
|
$
|
2,350.2
|
|
|
$
|
2,479.1
|
|
|
$
|
2,251.2
|
|
Capital
Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ocean
transportation
|
|
$
|
35.5
|
|
|
$
|
65.8
|
|
|
$
|
217.1
|
|
Logistics
services6
|
|
|
2.4
|
|
|
|
2.0
|
|
|
|
1.7
|
|
Real
estate leasing7
|
|
|
100.2
|
|
|
|
124.5
|
|
|
|
93.0
|
|
Real
estate sales8
|
|
|
0.6
|
|
|
|
0.3
|
|
|
|
1.3
|
|
Agribusiness
|
|
|
15.2
|
|
|
|
20.5
|
|
|
|
15.0
|
|
Other
|
|
|
0.8
|
|
|
|
0.3
|
|
|
|
1.5
|
|
Total
capital expenditures
|
|
$
|
154.7
|
|
|
$
|
213.4
|
|
|
$
|
329.6
|
|
Depreciation
and Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ocean
transportation
|
|
$
|
66.1
|
|
|
$
|
63.2
|
|
|
$
|
58.1
|
|
Logistics
services
|
|
|
2.3
|
|
|
|
1.5
|
|
|
|
1.5
|
|
Real
estate leasing1
|
|
|
17.9
|
|
|
|
15.7
|
|
|
|
14.1
|
|
Real
estate sales
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.1
|
|
Agribusiness
|
|
|
11.5
|
|
|
|
10.7
|
|
|
|
10.1
|
|
Other
|
|
|
2.7
|
|
|
|
1.3
|
|
|
|
0.9
|
|
Total
depreciation and amortization
|
|
$
|
100.7
|
|
|
$
|
92.6
|
|
|
$
|
84.8
|
|
5
|
The Ocean Transportation segment
includes approximately $44.6 million, $48.6 million, and $49.8 million
related to its investment in SSAT as of December 31, 2008, 2007, and 2006,
respectively. The Real Estate Sales segment includes approximately $162.1
million, $134.1 million, and $98.4 million related to its investment in
various real estate joint ventures as of December 31, 2008, 2007, and
2006, respectively.
|
6
|
Excludes
expenditures related to Matson Integrated Logistics’ acquisitions, which
are classified as Payments for Purchases of Investments in Cash Flows from
Investing Activities within the Consolidated Statements of Cash
Flows.
|
7
|
Represents
gross capital additions to the leasing portfolio, including gross
tax-deferred property purchases that are reflected as non-cash
transactions in the Consolidated Statements of Cash
Flows.
|
8
|
Excludes capital expenditures for
real estate developments held for sale which are classified as Cash Flows
from Operating Activities within the Consolidated Statements of Cash
Flows. Operating cash flows for capital expenditures related to real
estate developments were $39 million, $110 million, and $69 million, for
2008, 2007, and 2006,
respectively.
|
14. QUARTERLY
INFORMATION (Unaudited)
Segment results by quarter for 2008 are
listed below (in millions, except per-share amounts):
|
|
2008
|
|
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ocean
transportation
|
|
$
|
243.0
|
|
|
$
|
268.4
|
|
|
$
|
272.8
|
|
|
$
|
239.5
|
|
Logistics
services
|
|
|
102.6
|
|
|
|
115.5
|
|
|
|
118.1
|
|
|
|
99.8
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
28.8
|
|
|
|
27.3
|
|
|
|
26.2
|
|
|
|
25.5
|
|
Sales
|
|
|
187.4
|
|
|
|
31.2
|
|
|
|
77.2
|
|
|
|
54.4
|
|
Less
amounts reported in discontinued operations 1
|
|
|
(3.8
|
)
|
|
|
(14.5
|
)
|
|
|
(71.0
|
)
|
|
|
(43.7
|
)
|
Agribusiness
|
|
|
22.5
|
|
|
|
36.2
|
|
|
|
37.5
|
|
|
|
28.1
|
|
Reconciling
Items 2
|
|
|
(1.5
|
)
|
|
|
(2.6
|
)
|
|
|
(3.0
|
)
|
|
|
(3.6
|
)
|
Total
revenue
|
|
$
|
579.0
|
|
|
$
|
461.5
|
|
|
$
|
457.8
|
|
|
$
|
400.0
|
|
Operating
Profit (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ocean
transportation
|
|
$
|
15.9
|
|
|
$
|
37.4
|
|
|
$
|
31.4
|
|
|
$
|
21.1
|
|
Logistics
services
|
|
|
4.7
|
|
|
|
4.6
|
|
|
|
5.1
|
|
|
|
4.1
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
13.9
|
|
|
|
12.6
|
|
|
|
11.1
|
|
|
|
10.2
|
|
Sales
|
|
|
41.4
|
|
|
|
9.1
|
|
|
|
25.8
|
|
|
|
19.3
|
|
Less
amounts reported in discontinued operations1
|
|
|
(2.1
|
)
|
|
|
(8.3
|
)
|
|
|
(27.7
|
)
|
|
|
(21.0
|
)
|
Agribusiness
|
|
|
4.8
|
|
|
|
(4.9
|
)
|
|
|
(6.7
|
)
|
|
|
(6.1
|
)
|
Total
operating profit
|
|
|
78.6
|
|
|
|
50.5
|
|
|
|
39.0
|
|
|
|
27.6
|
|
Interest
Expense
|
|
|
(6.1
|
)
|
|
|
(5.6
|
)
|
|
|
(5.8
|
)
|
|
|
(6.2
|
)
|
General
Corporate Expenses
|
|
|
(5.7
|
)
|
|
|
(5.4
|
)
|
|
|
(5.3
|
)
|
|
|
(4.6
|
)
|
Income
From Continuing Operations before Income Taxes
|
|
|
66.8
|
|
|
|
39.5
|
|
|
|
27.9
|
|
|
|
16.8
|
|
Income
taxes
|
|
|
(26.1
|
)
|
|
|
(15.0
|
)
|
|
|
(8.1
|
)
|
|
|
(5.9
|
)
|
Income
From Continuing Operations
|
|
|
40.7
|
|
|
|
24.5
|
|
|
|
19.8
|
|
|
|
10.9
|
|
Discontinued
Operations1
|
|
|
1.4
|
|
|
|
5.1
|
|
|
|
17.0
|
|
|
|
13.0
|
|
Net
Income
|
|
$
|
42.1
|
|
|
$
|
29.6
|
|
|
$
|
36.8
|
|
|
$
|
23.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.02
|
|
|
$
|
0.72
|
|
|
$
|
0.89
|
|
|
$
|
0.58
|
|
Diluted
|
|
$
|
1.01
|
|
|
$
|
0.71
|
|
|
$
|
0.89
|
|
|
$
|
0.58
|
|
1 See Note 2 for discussion of
discontinued operations.
2 Includes
inter-segment revenue, interest income, and other income classified as revenue
for segment reporting purposes.
Segment results by quarter for 2007 are
listed below (in millions, except per-share amounts):
|
|
2007
|
|
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ocean
transportation
|
|
$
|
231.6
|
|
|
$
|
253.1
|
|
|
$
|
259.9
|
|
|
$
|
262.3
|
|
Logistics
services
|
|
|
102.9
|
|
|
|
112.4
|
|
|
|
110.4
|
|
|
|
107.8
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
28.8
|
|
|
|
26.4
|
|
|
|
26.3
|
|
|
|
27.0
|
|
Sales
|
|
|
6.5
|
|
|
|
0.4
|
|
|
|
78.5
|
|
|
|
32.4
|
|
Less
amounts reported in discontinued operations 1
|
|
|
(4.9
|
)
|
|
|
(4.7
|
)
|
|
|
(78.2
|
)
|
|
|
(24.2
|
)
|
Agribusiness
|
|
|
17.2
|
|
|
|
38.5
|
|
|
|
37.3
|
|
|
|
30.7
|
|
Reconciling
Items 2
|
|
|
(2.0
|
)
|
|
|
(1.8
|
)
|
|
|
(2.4
|
)
|
|
|
(3.0
|
)
|
Total
revenue
|
|
$
|
380.1
|
|
|
$
|
424.3
|
|
|
$
|
431.8
|
|
|
$
|
433.0
|
|
Operating
Profit (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ocean
transportation
|
|
$
|
18.8
|
|
|
$
|
39.1
|
|
|
$
|
38.5
|
|
|
$
|
30.1
|
|
Logistics
services
|
|
|
5.6
|
|
|
|
5.5
|
|
|
|
6.0
|
|
|
|
4.7
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
15.0
|
|
|
|
12.3
|
|
|
|
12.2
|
|
|
|
12.1
|
|
Sales
|
|
|
8.8
|
|
|
|
4.5
|
|
|
|
37.9
|
|
|
|
23.2
|
|
Less
amounts reported in discontinued operations1
|
|
|
(3.0
|
)
|
|
|
(2.9
|
)
|
|
|
(37.7
|
)
|
|
|
(17.4
|
)
|
Agribusiness
|
|
|
3.6
|
|
|
|
0.5
|
|
|
|
(3.2
|
)
|
|
|
(0.7
|
)
|
Total
operating profit
|
|
|
48.8
|
|
|
|
59.0
|
|
|
|
53.7
|
|
|
|
52.0
|
|
Interest
Expense
|
|
|
(4.3
|
)
|
|
|
(4.1
|
)
|
|
|
(4.8
|
)
|
|
|
(5.6
|
)
|
General
Corporate Expenses
|
|
|
(6.9
|
)
|
|
|
(6.6
|
)
|
|
|
(6.0
|
)
|
|
|
(7.8
|
)
|
Income
From Continuing Operations before Income Taxes
|
|
|
37.6
|
|
|
|
48.3
|
|
|
|
42.9
|
|
|
|
38.6
|
|
Income
taxes
|
|
|
(14.8
|
)
|
|
|
(18.1
|
)
|
|
|
(17.3
|
)
|
|
|
(13.0
|
)
|
Income
From Continuing Operations
|
|
|
22.8
|
|
|
|
30.2
|
|
|
|
25.6
|
|
|
|
25.6
|
|
Discontinued
Operations1
|
|
|
1.9
|
|
|
|
1.8
|
|
|
|
23.5
|
|
|
|
10.8
|
|
Net
Income
|
|
$
|
24.7
|
|
|
$
|
32.0
|
|
|
$
|
49.1
|
|
|
$
|
36.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.58
|
|
|
$
|
0.75
|
|
|
$
|
1.15
|
|
|
$
|
0.86
|
|
Diluted
|
|
$
|
0.58
|
|
|
$
|
0.74
|
|
|
$
|
1.14
|
|
|
$
|
0.85
|
|
1 See Note 2 for discussion of
discontinued operations.
2 Includes
inter-segment revenue, interest income, and other income classified as revenue
for segment reporting purposes.
15. PARENT
COMPANY CONDENSED FINANCIAL INFORMATION
Set forth below are the unconsolidated
condensed financial statements of Alexander & Baldwin, Inc. (“Parent
Company”). The significant accounting policies used in preparing these financial
statements are substantially the same as those used in the preparation of the
consolidated financial statements as described in Note 1, except that, for
purposes of the tables presented in this footnote, subsidiaries are carried
under the equity method.
The following table presents the Parent
Company’s condensed Balance Sheets as of December 31, 2008 and 2007 (in
millions):
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
--
|
|
|
$
|
3
|
|
Accounts
and notes receivable, net
|
|
|
3
|
|
|
|
3
|
|
Income
tax receivable
|
|
|
24
|
|
|
|
--
|
|
Section
1031 exchange proceeds
|
|
|
23
|
|
|
|
--
|
|
Prepaid
expenses and other
|
|
|
23
|
|
|
|
19
|
|
Total
current assets
|
|
|
73
|
|
|
|
25
|
|
Investments:
|
|
|
|
|
|
|
|
|
Subsidiaries
consolidated, at equity
|
|
|
1,131
|
|
|
|
1,097
|
|
Property,
at Cost
|
|
|
432
|
|
|
|
451
|
|
Less
accumulated depreciation and amortization
|
|
|
219
|
|
|
|
212
|
|
Property
-- net
|
|
|
213
|
|
|
|
239
|
|
Due
from Subsidiaries
|
|
|
--
|
|
|
|
87
|
|
Other
Assets
|
|
|
43
|
|
|
|
47
|
|
Total
|
|
$
|
1,460
|
|
|
$
|
1,495
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
28
|
|
|
$
|
32
|
|
Accounts
payable
|
|
|
8
|
|
|
|
5
|
|
Income
taxes payable
|
|
|
--
|
|
|
|
10
|
|
Non-qualified
benefit plans
|
|
|
4
|
|
|
|
4
|
|
Other
|
|
|
12
|
|
|
|
15
|
|
Total
current liabilities
|
|
|
52
|
|
|
|
66
|
|
Long-term
Debt
|
|
|
200
|
|
|
|
212
|
|
Employee
benefit plans
|
|
|
49
|
|
|
|
8
|
|
Non-qualified
benefit plans
|
|
|
17
|
|
|
|
16
|
|
Other
Long-term Liabilities
|
|
|
6
|
|
|
|
7
|
|
Deferred
Income Taxes
|
|
|
30
|
|
|
|
56
|
|
Due
to Subsidiaries
|
|
|
34
|
|
|
|
--
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
Shareholders’
Equity:
|
|
|
|
|
|
|
|
|
Capital
stock
|
|
|
33
|
|
|
|
34
|
|
Additional
capital
|
|
|
204
|
|
|
|
200
|
|
Accumulated
other comprehensive loss
|
|
|
(96
|
)
|
|
|
(4
|
)
|
Retained
earnings
|
|
|
942
|
|
|
|
911
|
|
Cost
of treasury stock
|
|
|
(11
|
)
|
|
|
(11
|
)
|
Total
shareholders’ equity
|
|
|
1,072
|
|
|
|
1,130
|
|
Total
|
|
$
|
1,460
|
|
|
$
|
1,495
|
|
The following
table presents the Parent Company’s condensed Statements of Income for the years
ended December 31, 2008, 2007 and 2006 (in millions):
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Agribusiness
|
|
$
|
91
|
|
|
$
|
92
|
|
|
$
|
97
|
|
Real
estate leasing
|
|
|
23
|
|
|
|
22
|
|
|
|
20
|
|
Real
estate sales
|
|
|
6
|
|
|
|
6
|
|
|
|
1
|
|
Interest
and other
|
|
|
3
|
|
|
|
8
|
|
|
|
9
|
|
Total
revenue
|
|
|
123
|
|
|
|
128
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of agribusiness goods and services
|
|
|
110
|
|
|
|
97
|
|
|
|
96
|
|
Cost
of real estate sales and leasing
|
|
|
12
|
|
|
|
12
|
|
|
|
9
|
|
Selling,
general and administrative
|
|
|
21
|
|
|
|
28
|
|
|
|
24
|
|
Interest
and other
|
|
|
14
|
|
|
|
12
|
|
|
|
7
|
|
Income
taxes
|
|
|
(14
|
)
|
|
|
(7
|
)
|
|
|
--
|
|
Total
costs and expenses
|
|
|
143
|
|
|
|
142
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Continuing Operations
|
|
|
(20
|
)
|
|
|
(14
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations, net of income taxes
|
|
|
16
|
|
|
|
2
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) Before Equity in Income of Subsidiaries
Consolidated
|
|
|
(4
|
)
|
|
|
(12
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in Income from Continuing Operations of Subsidiaries
Consolidated
|
|
|
115
|
|
|
|
118
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in Income from Discontinued Operations of Subsidiaries
Consolidated
|
|
|
21
|
|
|
|
36
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
132
|
|
|
|
142
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income (Loss), net of income taxes
|
|
|
(91
|
)
|
|
|
15
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
$
|
41
|
|
|
$
|
157
|
|
|
$
|
122
|
|
The following table presents the
Parent Company’s condensed Statements of Cash Flows for the years ended December
31, 2008, 2007 and 2006 (in millions):
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash
Flows from Operations (including dividends received from
subsidiaries)
|
|
$
|
144
|
|
|
$
|
17
|
|
|
$
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(16
|
)
|
|
|
(18
|
)
|
|
|
(35
|
)
|
Purchase
of investments
|
|
|
(12
|
)
|
|
|
--
|
|
|
|
--
|
|
Proceeds
from disposal of property and sale of investments
|
|
|
9
|
|
|
|
5
|
|
|
|
22
|
|
Net
cash used by investing activities
|
|
|
(19
|
)
|
|
|
(13
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in intercompany payables/receivables
|
|
|
(4
|
)
|
|
|
(15
|
)
|
|
|
(6
|
)
|
Proceeds
from (repayments of) long-term debt, net
|
|
|
(16
|
)
|
|
|
85
|
|
|
|
58
|
|
Proceeds
from issuance of capital stock, including tax benefit
|
|
|
2
|
|
|
|
8
|
|
|
|
5
|
|
Repurchases
of capital stock
|
|
|
(59
|
)
|
|
|
(33
|
)
|
|
|
(72
|
)
|
Dividends
paid
|
|
|
(51
|
)
|
|
|
(48
|
)
|
|
|
(42
|
)
|
Net
cash used in financing activities
|
|
|
(128
|
)
|
|
|
(3
|
)
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) for the year
|
|
|
(3
|
)
|
|
|
1
|
|
|
|
(5
|
)
|
Balance,
beginning of year
|
|
|
3
|
|
|
|
2
|
|
|
|
7
|
|
Balance,
end of year
|
|
$
|
--
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
(13
|
)
|
|
$
|
(12
|
)
|
|
$
|
(7
|
)
|
Income
taxes paid, net of refunds
|
|
$
|
(63
|
)
|
|
$
|
(55
|
)
|
|
$
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Non-cash Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
$
|
15
|
|
|
$
|
15
|
|
|
$
|
13
|
|
Tax-deferred
property sales
|
|
$
|
60
|
|
|
$
|
--
|
|
|
$
|
13
|
|
Tax-deferred
property purchases
|
|
$
|
(5
|
)
|
|
$
|
--
|
|
|
$
|
(13
|
)
|
General
Information: The Parent Company is headquartered in Honolulu,
Hawaii and is engaged in the operations that are generally described in Note 13,
“Industry Segments.” Additional information related to the Parent Company is
described in the foregoing notes to the consolidated financial
statements.
Long-term Debt: At
December 31, 2008 and 2007, long-term debt consisted of the following (in
millions):
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Revolving
Credit loans (1.12% for 2008 and 5.28% for
2007)
|
|
$
|
55
|
|
|
$
|
54
|
|
Term
Loans:
|
|
|
|
|
|
|
|
|
5.53%,
payable through 2016
|
|
|
50
|
|
|
|
50
|
|
5.56%,
payable through 2016
|
|
|
25
|
|
|
|
25
|
|
5.55%,
payable through 2017
|
|
|
50
|
|
|
|
50
|
|
4.10%,
payable through 2012
|
|
|
30
|
|
|
|
35
|
|
7.55%,
payable through 2009
|
|
|
7
|
|
|
|
15
|
|
7.42%,
payable through 2010
|
|
|
6
|
|
|
|
9
|
|
6.20%,
payable through 2013
|
|
|
3
|
|
|
|
2
|
|
7.57%,
payable through 2009
|
|
|
2
|
|
|
|
4
|
|
Total
|
|
|
228
|
|
|
|
244
|
|
Less
current portion
|
|
|
(28
|
)
|
|
|
(32
|
)
|
Long-term
debt
|
|
$
|
200
|
|
|
$
|
212
|
|
Long-term Debt
Maturities: At December 31, 2008,
maturities of all long-term debt during the next five years are $28 million in
2009, $17 million in 2010, $61 million in 2011, $18 million in 2012, $21 million
in 2013, and $83 million thereafter.
Revolving Credit
Facilities:
The Company has a revolving senior credit facility with six commercial banks
that expires in December 2011. The revolving credit facility provides for a
commitment of $225 million. Amounts drawn under the facility bear interest at
London Interbank Offered Rate (“LIBOR”) plus a spread ranging from 0.225 percent
to 0.475 percent based on the Company’s S&P rating. The agreement contains
certain restrictive covenants, the most significant of which require the
maintenance of minimum shareholders’ equity levels, minimum property investment
values, and a maximum ratio of total debt to earnings before interest,
depreciation, amortization, and taxes. At December 31, 2008, $55 million was
outstanding, $2 million in letters of credit had been issued against the
facility, and $168 million remained available for borrowing. As of December 31,
2008, $45 million drawn on this facility was classified as non-current because
the Company had the ability and intent to refinance the balance on a long-term
basis.
The Company has a replenishing $400
million three-year unsecured note purchase and private shelf agreement with
Prudential Investment Management, Inc. and its affiliates (collectively,
“Prudential”) under which the Company may issue notes in an aggregate amount up
to $400 million, less the sum of all principal amounts then outstanding on any
notes issued by the Company or any of its subsidiaries to Prudential and the
amount of any notes that are committed under the note purchase agreement. The
Prudential agreement contains certain restrictive covenants that are
substantially the same as the covenants contained in the aggregate $325 million
revolving senior credit facilities. The ability to draw additional amounts under
the Prudential facility expires on April 19, 2012 and borrowings under the shelf
facility bear interest at rates that are determined at the time of the
borrowing. During 2006 and 2007, the Company borrowed, under a series of
committed notes, $125 million at rates ranging from 5.53 percent to 5.56
percent. At December 31, 2008, $143 million was available under the
facility.
On January
29, 2009, the Company committed to a fourth series of senior promissory notes,
Series D notes, totaling $100 million under its Prudential facility. The Company
intends to use the proceeds for general corporate purposes. The funding date of
the draw under the facility will be at Company’s discretion, but must occur by
March 9, 2009. The notes carry interest at an annual fixed-rate of 6.9 percent
with a final maturity on March 9, 2020. Interest will be paid semi-annually,
commencing in September 2009, and the principal under the note will be repaid in
annual installments commencing in March 2012, according to the following
schedule (in millions):
|
|
Principal
|
|
|
|
Payments
|
|
|
|
|
|
2012
|
|
$ |
10 |
|
2013
|
|
|
5 |
|
2014
|
|
|
5 |
|
2015
|
|
|
5 |
|
2016
|
|
|
10 |
|
Thereafter
|
|
|
65 |
|
Total
|
|
$ |
100 |
|
Real Estate Secured Term
Debt: In June 2005, the Company, together with its real-estate
subsidiaries, purchased an office building in Phoenix, Arizona, and assumed $11
million of mortgage-secured debt. A&B owns approximately 24 percent of the
Phoenix office building. At December 31, 2008, approximately $3 million of the
$11 million was recorded on the parent company’s books, consistent with
ownership of the property. The property is jointly and severally owned by three
subsidiaries of the Company.
Dividends from Subsidiaries:
The Company received dividends from Matson totaling $60 million for each of the
last three years ended December 31, 2008, 2007, and 2006.
16. RELATED
PARTY TRANSACTIONS
Related Party
Transactions: Note 4 includes additional information about
transactions with unconsolidated affiliates, and which affiliates are/were also
related parties, due to the Company’s minority interest
investments.
Hawaiian Sugar & Transportation
Cooperative (“HS&TC”) is a raw sugar marketing and transportation
cooperative that the Company uses to market and transport its sugar to C&H
Sugar Company, Inc. (“C&H”). Under the terms of a supply contract between
HS&TC and C&H, which expires with the 2009 crop, C&H is obligated to
purchase, and HS&TC is obligated to sell, all of the raw sugar delivered to
HS&TC by the Hawaii sugar growers, at prices determined by the quoted
domestic sugar market. The price that the Hawaii sugar growers receive for the
sale of raw sugar is the C&H contract price, reduced for the operating,
transportation and interest costs incurred by HS&TC, net of revenue
generated by HS&TC for charter voyages. Revenue from raw sugar and molasses
sold to HS&TC was $45 million, $53 million, and $59 million, during 2008,
2007, and 2006, respectively. At December 31, 2008, 2007, and 2006 the Company
had amounts receivable from HS&TC of $3 million, $5 million, and $11
million, respectively.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
ITEM
9A. CONTROLS AND PROCEDURES
A. Disclosure Controls and
Procedures
The Company’s management, with the
participation of the Company’s Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company’s disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) as of the end of the period covered by this report. Based on
such evaluation, the Company’s Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, the Company’s
disclosure controls and procedures are effective.
B. Internal Control over Financial
Reporting
(a) See page 59 for
management’s annual report on internal control over financial
reporting.
(b) See page 60 for attestation
report of the independent registered public accounting firm.
(c) There have not been any
changes in the Company’s internal control over financial reporting (as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
Company’s fiscal fourth quarter that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial
reporting.
ITEM
9B. OTHER INFORMATION
Not applicable.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
A. Directors
For
information about the directors of A&B, see the section captioned “Election
of Directors” in A&B’s proxy statement dated March 12, 2009 (“A&B’s
2009 Proxy Statement”), which section is incorporated herein by
reference.
B. Executive
Officers
The name
of each executive officer of A&B (in alphabetical order), age (in
parentheses) as of February 20, 2009, 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
Exchange Act by A&B’s directors and executive officers, see the subsection
captioned “Section 16(a) Beneficial Ownership Reporting Compliance” in A&B’s
2009 Proxy Statement, which subsection is incorporated herein by
reference. For a discussion of change in control agreements and an
Executive Transition Agreement between A&B and certain of A&B’s
executive officers, and the Executive Severance Plan, see the subsections
captioned “Other Potential Post-Employment Payments” in A&B’s 2009 Proxy
Statement, which subsections are incorporated herein by reference.
James
S. Andrasick (65)
Chairman
of the Board of Matson, 10/08-present; President and Chief Executive Officer of
Matson, 7/02-9/08; Executive Vice President of A&B, 4/02-4/04; Chief
Financial Officer and Treasurer of A&B, 6/00-2/04; Senior Vice President of
A&B, 6/00-4/02; first joined A&B or a subsidiary in 2000.
Christopher
J. Benjamin (45)
Senior
Vice President of A&B, 7/05-present; Chief Financial Officer of A&B,
2/04-present; Treasurer of A&B, 5/06-present; Vice President of A&B,
4/03-6/05; Director, Corporate Development & Planning of A&B,
8/01-4/03; first joined A&B or a subsidiary in 2001.
Norbert
M. Buelsing (57)
President
of A & B Properties, Inc., 10/08-present; Executive Vice President
of A & B Properties, Inc., 1/99-9/08; first joined A&B or a
subsidiary in 1990.
Meredith
J. Ching (52)
Senior
Vice President (Government & Community Relations) of A&B, 6/07-present;
Vice President of A&B, 10/92-6/07; first joined A&B or a subsidiary in
1982.
Nelson
N. S. Chun (56)
Senior
Vice President and Chief Legal Officer, 7/05-present; Vice President and General
Counsel of A&B, 11/03-6/05; Partner, Cades Schutte LLP, 10/83-11/03; first
joined A&B or a subsidiary in 2003.
Matthew
J. Cox (47)
President
of Matson, 10/08-present; Executive Vice President and Chief Operating Officer
of Matson, 7/05-9/08; Senior Vice President and Chief Financial Officer of
Matson, 6/01-6/05; Controller of Matson, 6/01-1/03; first joined A&B or a
subsidiary in 2001.
W.
Allen Doane (61)
Chairman
of the Board of A&B, 4/06-present; Chief Executive Officer of A&B, and
Director of A&B and Matson, 10/98-present; President of A&B, 10/98-9/08;
Chairman of Matson, 7/02-1/04, 4/06-9/08; Vice Chairman of Matson, 12/98-7/02,
1/04-4/06; first joined A&B or a subsidiary in 1991.
Kevin
L. Halloran (46)
Vice
President (Corporate Development and Investor Relations) of A&B,
4/07-present; Director, Corporate Finance and Investor Relations, 10/06-4/07;
Business Development Consultant, ADXPO, 1/06-10/06; External Consultant, Hawaii
Biotech and Cardax Pharmaceuticals, 1/05-10/06; Co-Founder and Vice President,
Media Venture Partners, Inc., 1/90-12/04; Co-Founder and Publisher, Venture
Magazine, 1/01-12/04; first joined A&B or a subsidiary in 2006.
Paul
K. Ito (38)
Vice
President of A&B, 4/07-present; Controller of A&B, 5/06-present;
Director, Internal Audit of A&B, 4/05-4/06; Senior Manager,
Deloitte & Touche LLP, 5/96-3/05; first joined A&B or a subsidiary
in 2005.
Stanley
M. Kuriyama (55)
President
of A&B, 10/08-present; President and Chief Executive Officer, Land Group,
7/05-9/08; Chief Executive Officer and Vice Chairman of A & B
Properties, Inc., 12/99-9/08; Vice President (Properties Group) of A&B,
2/99-4/04; first joined A&B or a subsidiary in 1992.
Alyson
J. Nakamura (43)
Secretary
of A&B, 2/99-present; Assistant Secretary of A&B, 6/94-1/99; first
joined A&B or a subsidiary in 1994.
Son-Jai
Paik (36)
Vice
President (Human Resources) of A&B, 1/07-present; Vice President, Human
Resources, LINA Korea, CIGNA Corporation, 3/03-12/06; Human Resources Director,
Cigna International Expatriate Benefits, CIGNA Corporation, 12/01-2/03; first
joined A&B or a subsidiary in 2007.
C. Corporate
Governance
For
information about the Audit Committee of the A&B Board of Directors, see the
section captioned “Certain Information Concerning the Board of Directors” in
A&B’s 2009 Proxy Statement, which section is incorporated herein by
reference.
D. Code
of Ethics
For
information about A&B’s Code of Ethics, see the subsection captioned “Code
of Ethics” in A&B’s 2009 Proxy Statement, which subsection is incorporated
herein by reference.
ITEM
11. EXECUTIVE COMPENSATION
See the
section captioned “Executive Compensation” and the subsection captioned
“Compensation of Directors” in A&B’s 2009 Proxy Statement, which section and
subsection are incorporated herein by reference.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
See the
section captioned “Security Ownership of Certain Shareholders” and the
subsection titled “Security Ownership of Directors and Executive Officers” in
A&B’s 2009 Proxy Statement, which section and subsection are incorporated
herein by reference. See the Equity Compensation Plan Information
table in Item 5 of Part II.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
See the
section captioned “Election of Directors” and the subsection captioned “Certain
Relationships and Transactions” in A&B’s 2009 Proxy Statement, which section
and subsection are incorporated herein by reference.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information
concerning principal accountant fees and services appears in the section
captioned “Ratification of Appointment of Independent Auditors” in A&B’s
2009 Proxy Statement, which section is incorporated herein by
reference.
PART
IV
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. Financial
Statements
The
financial statements are set forth in Item 8 of Part II
above.
B. Financial
Statement Schedules
All
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 000-00565. Shareholders may obtain
copies of exhibits for a copying and handling charge of $0.15 per page by
writing to Alyson J. Nakamura, Secretary, Alexander & Baldwin,
Inc., P. O. Box 3440, Honolulu, Hawaii 96801.
3. Articles
of incorporation and bylaws.
3.a. Restated
Articles of Association of Alexander & Baldwin, Inc., 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. Revised
Bylaws of Alexander & Baldwin, Inc. (as amended through
January 25, 2007) (Exhibit 3.b. to A&B’s Form 10-K for the
year ended December 31, 2006).
4. Instruments
defining rights of security holders, including indentures.
4.b. Debt.
4.b. (i) $400,000,000
Note Purchase and Private Shelf Agreement among Alexander & Baldwin, Inc.,
Prudential Investment Management, Inc., The Prudential Insurance Company of
America, Prudential Retirement Insurance and Annuity Company, Gibraltar Life
Insurance Co., Ltd., and The Prudential Insurance Company, Ltd., dated as of
April 19, 2006 (Exhibit 10.1 to A&B’s Form 8-K dated April 20,
2006).
(ii) Amendment,
dated April 9, 2007, to Note Purchase and Private Shelf Agreement among
Alexander & Baldwin, Inc., Prudential Investment Management, Inc., The
Prudential Insurance Company of America, Prudential Retirement Insurance and
Annuity Company, Gibraltar Life Insurance Co., Ltd., and The Prudential
Insurance Company, Ltd., dated as of April 19, 2006 (Exhibit 4.b.(ii) to
A&B’s Form 10-Q for the quarter ended June 30, 2007).
(iii) Amendment,
dated March 8, 2009, to Note Purchase and Private Shelf Agreement among
Alexander & Baldwin, Inc., Prudential Investment Management, Inc., The
Prudential Insurance Company of America, Prudential Retirement Insurance and
Annuity Company, Gibraltar Life Insurance Co., Ltd., and The Prudential
Insurance Company, Ltd., dated as of April 19, 2006 (Exhibit 4.b.(iii) to
A&B’s Form 8-K dated February 20, 2009).
10. Material
contracts.
10.a. (i) Note
Agreement among Alexander & Baldwin, Inc., 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).
(ii) Amendment
dated as of May 20, 1994 to the Note Agreement among Alexander &
Baldwin, Inc., A&B-Hawaii, Inc. and The Prudential Insurance Company of
America, dated as of June 4, 1993 (Exhibit 10.a.(xviv) to A&B’s
Form 10-Q for the quarter ended June 30, 1994).
(iii) Amendment
dated as of June 30, 1995 to the Note Agreement, among Alexander &
Baldwin, Inc., A&B-Hawaii, Inc. and The Prudential Insurance Company of
America, dated as of June 4, 1993 (Exhibit 10.a.(xxvii) to A&B’s
Form 10-Q for the quarter ended June 30, 1995).
(iv) Amendment
dated as of November 29, 1995 to the Note Agreement among Alexander &
Baldwin, Inc., A&B-Hawaii, Inc. and The Prudential Insurance Company of
America, dated as of June 4, 1993 (Exhibit 10.a.(xvii) to A&B’s Form
10-K for the year ended December 31, 1995).
(v) Amendment
dated as of January 16, 2007 to the Note Agreement among Alexander &
Baldwin, Inc., A&B-Hawaii, Inc. and The Prudential Insurance Company of
America, dated as of June 4, 1993- (Exhibit 10.a.(v) to A&B’s
Form 10-K for the year ended December 31, 2006).
(vi) 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).
(vii) First
Amendment, dated as of February 5, 1999, to the 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.(xxii) to A&B’s Form 10-K for the year ended December 31,
1998).
(viii) Private
Shelf Agreement between Alexander & Baldwin, Inc. and Prudential
Insurance Company of America, dated as of April 25, 2001 (Exhibit 10.a.(xlvii)
to A&B’s Form 10-Q for the quarter ended June 30, 2001).
(ix) Amendment,
dated as of April 25, 2001, to the Note Agreement among Alexander &
Baldwin, Inc., A&B-Hawaii, Inc. and The Prudential Insurance Company of
America, dated as of June 4, 1993, and the 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.(xlviii)
to A&B’s Form 10-Q for the quarter ended June 30, 2001).
(x) Amendment,
dated April 9, 2007, to (i) Note Agreement among Alexander & Baldwin,
Inc., A&B-Hawaii, Inc. and The Prudential Insurance Company of America,
dated as of June 4, 1993; (ii) Private Shelf Agreement between
Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and Prudential
Insurance Company of America, dated as of August 2, 1996; and (iii) Private
Shelf Agreement between Alexander & Baldwin, Inc. and Prudential
Insurance Company of America, dated as of April 25, 2001 (Exhibit 10.a.(xxv) to
A&B Form 10-Q for the quarter ended June 30, 2007).
(xi) Credit
Agreement, dated December 28, 2006, between Alexander & Baldwin, Inc.
and First Hawaiian Bank, Bank of America, N.A., Wells Fargo Bank, National
Association, BNP Paribas, American Savings Bank, F.S.B., and Bank of Hawaii
(Exhibit 10.1 to A&B’s Form 8-K dated December 28, 2006).
(xii) First
Amendment to Credit Agreement, dated March 7, 2008, between Alexander &
Baldwin, Inc. and First Hawaiian Bank, Bank of America, N.A., Wells Fargo Bank,
National Association, BNP Paribas, American Savings Bank, F.S.B., and Bank of
Hawaii (Exhibit 10.a.(xii) to A&B Form 10-Q for the quarter ended March 31,
2008).
(xiii) Amended
and Restated Note Agreement dated May 19, 2005 among Matson Navigation
Company, Inc., The Prudential Insurance Company of America, and Pruco Life
Insurance Company (Exhibit 10.1 to A&B’s Form 8-K dated May 19,
2005).
(xiv) Amendment,
dated December 19, 2007, to Amended and Restated Note Agreement dated May 19,
2005 among Matson Navigation Company, Inc., The Prudential Insurance Company of
America, and Pruco Life Insurance Company (Exhibit 10.a.(xiii) to A&B’s
Form 10-K for the year ended December 31, 2007).
(xv) First
Preferred Ship Mortgage dated May 19, 2005, between Matson Navigation
Company, Inc. and The Prudential Insurance Company of America (Exhibit 10.2
to A&B’s Form 8-K dated May 19, 2005).
(xvi) Security
Agreement between Matson Navigation Company, Inc. and the United States of
America, with respect to $55 million of Title XI ship financing bonds,
dated July 29, 2004 (Exhibit 10.a.(xxvi) to A&B’s Form 10-Q for the
quarter ended September 30, 2004).
(xvii) Amendment
No. 1 dated September 21, 2007, to Security Agreement between Matson Navigation
Company, Inc. and the United States of America, with respect to $55 million
of Title XI ship financing bonds, dated July 29, 2004 (Exhibit 10.a.(xxx)
to A&B’s Form 10-Q for the quarter ended September 30,
2007).
(xviii) Senior
Secured Reducing Revolving Credit Agreement between Matson Navigation Company,
Inc. and DnB NOR Bank ASA, dated June 28, 2005 (Exhibit 10.1 to A&B’s Form
8-K dated June 28, 2005).
(xix) Amendment
No. 1, dated November 30, 2007, to Senior Secured Reducing Revolving
Credit Agreement between Matson Navigation Company, Inc. and DnB NOR Bank ASA,
dated June 28, 2005 (Exhibit 10.a.(xviii) to A&B’s Form 10-K for
the year ended December 31, 2007).
(xx) Credit
Agreement, dated December 28, 2006, between Matson Navigation Company, Inc. and
First Hawaiian Bank, Bank of America, N.A., Wells Fargo Bank, National
Association, BNP Paribas, American Savings Bank, F.S.B., and Bank of Hawaii
(Exhibit 10.2 to A&B’s Form 8-K dated December 28, 2006).
(xxi) Second
Amendment to Credit Agreement, dated March 7, 2008, between Matson Navigation
Company, Inc. and First Hawaiian Bank, Bank of America, N.A., Wells Fargo Bank,
National Association, BNP Paribas, American Savings Bank, F.S.B., and Bank of
Hawaii (Exhibit 10.a.(xxi) to A&B Form 10-Q for the quarter ended March 31,
2008).
(xxii) First
Amendment, dated November 20, 2007, to Credit Agreement, dated
December 28, 2006, between Matson Navigation Company, Inc. and First
Hawaiian Bank, Bank of America, N.A., Wells Fargo Bank, National Association,
BNP Paribas, American Savings Bank, F.S.B., and Bank of Hawaii
(Exhibit 10.a.(xx) to A&B’s Form 10-K for the year ended
December 31, 2007).
(xxiii) Promissory
Note, dated September 18, 2003, by Deer Valley Financial Center, LLC, Huntington
Company, L.L.C., Geneva Company, L.L.C., and Metzger Deer Valley, LLC in favor
of PNC Bank, National Association (Exhibit 10.a.(xxxvi) to A&B’s Form 10-Q
for the quarter ended June 30, 2005).
(xxiv) Consent
and Assumption Agreement With Release and Modification of Loan Documents, dated
June 6, 2005, among Deer Valley Financial Center, LLC, Huntington Company,
L.L.C., Geneva Company, L.L.C., Metzger Deer Valley, LLC, R. Craig Hannay,
A&B Deer Valley LLC, ABP Deer Valley LLC, WDCI Deer Valley LLC, Alexander
& Baldwin, Inc., and Midland Loan Services, Inc. (Exhibit 10.a.(xxxvii)
to A&B’s Form 10-Q for the quarter ended June 30, 2005).
(xxv) Borrower’s
Certificate, dated June 6, 2005, by A&B Deer Valley LLC, ABP Deer Valley
LLC, and WDCI Deer Valley LLC in favor of Wells Fargo Bank N.A. (Exhibit
10.a.(xxxviii) to A&B’s Form 10-Q for the quarter ended June 30,
2005).
(xxvi) General
Contract of Indemnity, among Alexander & Baldwin, Inc., Kukui`ula
Development Company (Hawaii), LLC, DMB Kukui`ula LLC, and DMB Communities LLC,
in favor of Travelers Casualty and Surety Company of America, dated June 13,
2006 (Exhibit 10.1 to A&B’s Form 8-K dated June 14,
2006).
(xxvii) Mutual
Indemnification Agreement, among Kukui`ula Development Company (Hawaii), LLC,
DMB Kukui`ula LLC, DMB Communities LLC, and Alexander & Baldwin, Inc.,
dated June 14, 2006 (Exhibit 10.2 to A&B’s Form 8-K dated
June 14, 2006).
(xxviii) General
Agreement of Indemnity, among Alexander & Baldwin, Inc., Kukui`ula
Development Company (Hawaii), LLC, and DMB Communities LLC, in favor of Safeco
Insurance Company of America, dated August 30, 2006 and entered into September
5, 2006 (Exhibit 10.1 to A&B’s Form 8-K dated September 5,
2006).
(xxix) Mutual
Indemnification Agreement, among Kukui`ula Development Company (Hawaii), LLC,
DMB Kukui`ula LLC, DMB Communities LLC, and Alexander & Baldwin, Inc., dated
August 30, 2006 and entered into September 5, 2006 (Exhibit 10.2 to
A&B’s Form 8-K dated September 5, 2006).
(xxx) Floating
Continuing Guarantee, dated July 29, 2005, among Alexander & Baldwin, Inc.,
American AgCredit, PCA and other financial institutions (Exhibit 10.a.(xxxix) to
A&B’s Form 10-Q for the quarter ended June 30, 2005).
(xxxi) Amendment
to Floating Continuing Guaranty between Alexander & Baldwin, Inc. and
American AgCredit, PCA, dated July 7, 2008 (Exhibit 10.1 to A&B’s Form 8-K
dated July 7, 2008).
(xxxii) Vessel
Construction Contract between Matson Navigation Company, Inc. and Kvaerner
Philadelphia Shipyard Inc., dated May 29, 2002 (Exhibit 10.a.(xxvii) to
A&B’s Form 10-Q for the quarter ended June 30, 2002).
(xxxiii) Vessel
Purchase and Sale Agreement between Matson Navigation Company, Inc. and Kvaerner
Shipholding, Inc., dated May 29, 2002 (Exhibit 10.a.(xxviii) to A&B’s
Form 10-Q for the quarter ended June 30, 2002).
(xxxiv) Waiver
of Cancellation Provisions Vessel Construction Contracts among Matson Navigation
Company, Inc., Kvaerner Philadelphia Shipyard Inc. and Kvaerner Shipholding
Inc., dated December 30, 2002 (Exhibit 10.a.(xxx) to A&B’s Form 10-K
for the year ended December 31, 2002).
(xxxv) Shipbuilding
Contract (Hull 003) between Kvaerner Philadelphia Shipyard Inc. and Matson
Navigation Company, Inc., dated February 14, 2005 (Exhibit 10.a.(xxxix) to
A&B’s Form 10-K for the year ended December 31, 2004).
(xxxvi) Amendment
No. 1 dated February 18, 2005, to Shipbuilding Contract (Hull 003) between
Kvaerner Philadelphia Shipyard Inc. and Matson Navigation Company, Inc., dated
February 14, 2005 (Exhibit 10.a.(xl) to A&B’s Form 10-K for the year
ended December 31, 2004).
(xxxvii) Amendment
No. 2 dated October 28, 2005, to Shipbuilding Contract (Hull 003) between
Aker Philadelphia Shipyard, Inc. (formerly Kvaerner Philadelphia Shipyard Inc.)
and Matson Navigation Company, Inc., dated February 14, 2005
(Exhibit 10.a.(l) to A&B’s Form 10-K for the year ended
December 31, 2005).
(xxxviii) Shipbuilding
Contract (Hull BN460) between Kvaerner Philadelphia Shipyard Inc. and Matson
Navigation Company, Inc., dated February 14, 2005 (Exhibit 10.a.(xli) to
A&B’s Form 10-K for the year ended December 31, 2004).
(xxxix) Amendment
No. 1 dated February 18, 2005, to Shipbuilding Contract (Hull BN460)
between Kvaerner Philadelphia Shipyard Inc. and Matson Navigation Company, Inc.,
dated February 14, 2005 (Exhibit 10.a.(xlii) to A&B’s Form 10-K for the
year ended December 31, 2004).
(xl) Amendment
No. 2 dated October 28, 2005, to Shipbuilding Contract (Hull BN460) between
Aker Philadelphia Shipyard, Inc. (formerly Kvaerner Philadelphia Shipyard Inc.)
and Matson Navigation Company, Inc., dated February 14, 2005
(Exhibit 10.a.(liii) to A&B’s Form 10-K for the year ended
December 31, 2005).
(xli) Amendment
No. 3 dated July 7, 2006, to Shipbuilding Contract (Hull BN460) between
Aker Philadelphia Shipyard, Inc. and Matson Navigation Company, Inc., dated
February 14, 2005 (Exhibit 10.a.(lv) to A&B’s Form 10-Q for the quarter
ended June 30, 2006).
(xlii) Right
of First Refusal Agreement between Kvaerner Philadelphia Shipyard Inc. and
Matson Navigation Company, Inc., dated February 14, 2005
(Exhibit 10.a.(xliii) to A&B’s Form 10-K for the year ended
December 31, 2004).
(xliii) Amendment
No. 1 dated October 28, 2005, to Right of First Refusal Agreement between
Aker Philadelphia Shipyard, Inc. (formerly Kvaerner Philadelphia Shipyard Inc.)
and Matson Navigation Company, Inc., dated February 14, 2005
(Exhibit 10.a.(lv) to A&B’s Form 10-K for the year ended
December 31, 2005).
*10.b.1. (i) Alexander &
Baldwin, Inc. 1998 Stock Option/Stock Incentive Plan
(Exhibit 10.b.1.(xxxii) to A&B’s Form 10-Q for the quarter ended March
31, 1998).
(ii) Amendment
No. 1 to the Alexander & Baldwin, Inc. 1998 Stock Option/Stock
Incentive Plan, dated October 25, 2000 (Exhibit 10.b.1.(xi) to A&B’s
Form 10-K for the year ended December 31, 2000).
(iii) Amendment
No. 2 to the Alexander & Baldwin, Inc. 1998 Stock Option/Stock
Incentive Plan, dated January 24, 2002 (Exhibit 10.b.1.(xlvi) to A&B’s
Form 10-Q for the quarter ended March 31, 2002).
(iv) Amendment
No. 3 to the Alexander & Baldwin, Inc. 1998 Stock Option/Stock
Incentive Plan, dated February 24, 2005 (Exhibit 10.b.1.(xiii) to A&B’s
Form 10-Q for the quarter ended March 31, 2005).
(v) Amendment
No. 4 to the Alexander & Baldwin, Inc. 1998 Stock Option/Stock Incentive
Plan, dated June 22, 2006 (Exhibit 10.b.1.(xiv) to A&B’s Form 10-Q for
the quarter ended June 30, 2006).
(vi) Amendment
No. 5 to the Alexander & Baldwin, Inc. 1998 Stock Option/Stock Incentive
Plan, dated October 26, 2006 (Exhibit 10.b.1.(xvii) to A&B’s Form 10-Q for
the quarter ended September 30, 2006).
(vii) Form
of Restricted Stock Issuance Agreement pursuant to the Alexander & Baldwin,
Inc. 1998 Stock Option/Stock Incentive Plan (Exhibit 10.b.1.(xv) to
A&B’s Form 10-Q for the quarter ended June 30, 2006).
(viii) Form
of Restricted Stock Issuance Agreement pursuant to the Alexander & Baldwin,
Inc. 1998 Stock Option/Stock Incentive Plan (Exhibit 10.b.1.(xix) to A&B’s
Form 10-K for the year ended December 31, 2006).
(ix) Form
of Non-Qualified Stock Option Agreement and Addendum pursuant to the Alexander
& Baldwin, Inc. 1998 Stock Option/Stock Incentive Plan
(Exhibit 10.b.1.(xvi) to A&B’s Form 10-Q for the quarter ended
June 30, 2006 and Exhibit 10.b.1.(xx) to A&B’s Form 10-K for the year
ended December 31, 2006, respectively).
(x) Form
of Non-Qualified Stock Option Agreement pursuant to the Alexander & Baldwin,
Inc. 1998 Stock Option/Stock Incentive Plan (Exhibit 10.b.1.(xxi) to A&B’s
Form 10-K for the year ended December 31, 2006).
(xi) Form
of Performance-Based Restricted Stock Issuance Agreement pursuant to the
Alexander & Baldwin, Inc. 1998 Stock Option/Stock Incentive Plan
(Exhibit 10.1 to A&B’s Form 8-K dated January 27,
2006).
(xii) Form
of Performance-Based Restricted Stock Issuance Agreement pursuant to the
Alexander & Baldwin, Inc. 1998 Stock Option/Stock Incentive Plan (Exhibit
10.b.1.(xxiii) to A&B’s Form 10-K for the year ended December 31,
2006).
(xiii) Alexander &
Baldwin, Inc. 1998 Non-Employee Director Stock Option Plan (Exhibit
10.b.1.(xxxiii) to A&B’s Form 10-Q for the quarter ended March 31,
1998).
(xiv) Amendment
No. 1 to the Alexander & Baldwin, Inc. 1998 Non-Employee Director Stock
Option Plan, dated October 25, 2000 (Exhibit 10.b.1.(xiii) to A&B’s Form
10-K for the year ended December 31, 2000).
(xv) Amendment
No. 2 to the Alexander & Baldwin, Inc. 1998 Non-Employee Director Stock
Option Plan, dated February 26, 2004 (Exhibit 10.b.1.(xiv) to A&B’s Form
10-Q for the quarter ended March 31, 2004).
(xvi) Amendment
No. 3 to the Alexander & Baldwin, Inc. 1998 Non-Employee Director Stock
Option Plan, dated June 23, 2004 (Exhibit 10.b.1.(xvi) to A&B’s Form 10-Q
for the quarter ended June 30, 2004).
(xvii) Amendment
No. 4 to the Alexander & Baldwin, Inc. 1998 Non-Employee Director Stock
Option Plan, dated October 26, 2006 (Exhibit 10.b.1(xxv) to A&B’s Form 10-Q
for the quarter ended September 30, 2006).
(xviii) Alexander
& Baldwin, Inc. Non-Employee Director Stock Retainer Plan, dated June 25,
1998 (Exhibit 10.b.1.(xxxiv) to A&B’s Form 10-Q for the quarter ended
June 30, 1998).
(xix) Amendment
No. 1 to Alexander & Baldwin, Inc. Non-Employee Director Stock Retainer
Plan, effective December 9, 1999 (Exhibit 10.b.1.(xi) to A&B’s Form 10-K for
the year ended December 31, 1999).
(xx) Alexander
& Baldwin, Inc. 2007 Incentive Compensation Plan (Exhibit 10.b.1.(xxxi)
to A&B’s Form 10-Q for the quarter ended March 31,
2007).
(xxi) Amendment
No. 1 to the Alexander & Baldwin, Inc. -2007 Incentive Compensation Plan,
dated June 28, 2007 (Exhibit 10.b.1.(xxxii) to A&B’s Form 10-Q for the
quarter ended June 30, 2007).
(xxii) Amendment
No. 2 to the Alexander & Baldwin, Inc. 2007 Incentive Compensation Plan,
dated December 13, 2007 (Exhibit 10.b.1.(xxxiii) to A&B’s
Form 10-K for the year ended December 31, 2007).
(xxiii) Form
of Restricted Stock Unit Award Agreement for Non-Employee Board Member pursuant
to Alexander & Baldwin, Inc. 2007 Incentive Compensation Plan
(Exhibit 10.b.1.(xxxii) to A&B’s Form 10-Q for the quarter ended
March 31, 2007).
(xxiv) Form
of Restricted Stock Unit Award Agreement (Deferral Election) for Non-Employee
Board Member pursuant to the Alexander & Baldwin, Inc. 2007 Incentive
Compensation Plan (Exhibit 10.b.1.(xxxv) to A&B’s Form 10-Q for the quarter
ended March 31, 2008).
(xxv) Deferral
Election Form for Restricted Stock Unit Award for Non-Employee Board Member
pursuant to the Alexander & Baldwin, Inc. 2007 Incentive Compensation Plan
(Exhibit 10.b.1.(xxxvi) to A&B’s Form 10-Q for the quarter ended March 31,
2008).
(xxvi) Form
of Restricted Stock Unit Award Agreement (No Deferral Election) for Non-Employee
Board Member pursuant to the Alexander & Baldwin, Inc. 2007 Incentive
Compensation Plan (Exhibit 10.b.1.(xxxvii) to A&B’s Form 10-Q for the
quarter ended March 31, 2008).
(xxvii) Form
of Notice of Grant of Stock Option pursuant to the Alexander & Baldwin, Inc.
2007 Incentive Compensation Plan (Exhibit 10.b.1.(xxxiv) to A&B’s Form 10-Q
for the quarter ended June 30, 2007).
(xxviii) Form
of Executive Stock Option Agreement pursuant to the Alexander & Baldwin,
Inc. 2007 Incentive Compensation Plan (Exhibit 10.b.1.(xxxv) to A&B’s Form
10-Q for the quarter ended June 30, 2007).
(xxix) Form
of Notice of Award of Time-Based Restricted Stock Units pursuant to the
Alexander & Baldwin, Inc. 2007 Incentive Compensation Plan (Exhibit
10.b.1.(xxxvi) to A&B’s Form 10-Q for the quarter ended June 30,
2007).
(xxx) Form
of Executive Time-Based Restricted Stock Unit Award Agreement pursuant to the
Alexander & Baldwin, Inc. 2007 Incentive Compensation Plan (Exhibit
10.b.1.(xxxvii) to A&B’s Form 10-Q for the quarter ended June 30,
2007).
(xxxi) Form
of Notice of Award of Performance-Based Restricted Stock Units pursuant to the
Alexander & Baldwin, Inc. 2007 Incentive Compensation Plan (Exhibit
10.b.1.(xxxviii) to A&B’s Form 10-Q for the quarter ended June 30,
2007).
(xxxii) Form
of Executive Performance-Based Restricted Stock Unit Award Agreement pursuant to
the Alexander & Baldwin, Inc. 2007 Incentive Compensation Plan (Exhibit
10.b.1.(xxxix) to A&B’s Form 10-Q for the quarter ended June 30,
2007).
(xxxiii) Addendum
to Stock Option Agreements, Performance-Based Restricted Stock Unit Award
Agreement, and Time-Based Restricted Stock Unit Award Agreement (Exhibit
10.b.1.(xli) to A&B’s Form 10-K for the year ended December 31,
2007).
(xxxiv) Form
of Notice of Grant of Stock Option pursuant to the Alexander & Baldwin, Inc.
2007 Incentive Compensation Plan (Exhibit 10.b.1.(xlv) to A&B’s Form 10-Q
for the quarter ended March 31, 2008).
(xxxv) Form
of Executive Stock Option Agreement pursuant to the Alexander & Baldwin,
Inc. 2007 Incentive Compensation Plan (Exhibit 10.b.1.(xlvi) to A&B’s Form
10-Q for the quarter ended March 31, 2008).
(xxxvi) Form
of Notice of Award of Time-Based Restricted Stock Units pursuant to the
Alexander & Baldwin, Inc. 2007 Incentive Compensation Plan (Exhibit
10.b.1.(xlvii) to A&B’s Form 10-Q for the quarter ended March 31,
2008).
(xxxvii) Form
of Executive Time-Based Restricted Stock Unit Award Agreement pursuant to the
Alexander & Baldwin, Inc. 2007 Incentive Compensation Plan (Exhibit
10.b.1.(xlviii) to A&B’s Form 10-Q for the quarter ended March 31,
2008).
(xxxviii) Form
of Notice of Award of Performance-Based Restricted Stock Units pursuant to the
Alexander & Baldwin, Inc. 2007 Incentive Compensation Plan (Exhibit
10.b.1.(xlix) to A&B’s Form 10-Q for the quarter ended March 31,
2008).
(xxxix) Form
of Executive Performance-Based Restricted Stock Unit Award Agreement pursuant to
the Alexander & Baldwin, Inc. 2007 Incentive Compensation Plan (Exhibit
10.b.1.(l) to A&B’s Form 10-Q for the quarter ended March 31,
2008).
(xl) Form
of Executive Time-Based Restricted Stock Unit Award Agreement pursuant to the
Alexander & Baldwin, Inc. 2007 Incentive Compensation Plan.
(xli) Form
of Notice of Award of Performance-Based Restricted Stock Unit pursuant to the
Alexander & Baldwin, Inc. 2007 Incentive Compensation Plan.
(xlii) Form
of Executive Performance-Based Restricted Stock Unit Award Agreement pursuant to
the Alexander & Baldwin, Inc. 2007 Incentive Compensation Plan.
(xliii) A&B
Deferred Compensation Plan for Outside Directors, amended and restated effective
as of January 1, 2008.
(xliv) A&B
Excess Benefits Plan, amended and restated effective as of January 1,
2008.
(xlv) A&B
Executive Survivor/Retirement Benefit Plan, amended and restated effective
January 1, 2005 (Exhibit 10.b.1.(xxvi) to A&B’s Form 10-Q for the
quarter ended June 30, 2006).
(xlvi) A&B
Executive Survivor/Retirement Benefit Plan, amended and restated effective
February 27, 2008 (Exhibit 10.b.1.(liv) to A&B’s Form 10-Q for the quarter
ended March 31, 2008).
(xlvii) A&B
1985 Supplemental Executive Retirement Plan, amended and restated effective as
of January 1, 2008.
(xlviii) 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).
(xlix) Amendment
No. 1 to the A&B Retirement Plan for Outside Directors, dated July 1,
1998 (Exhibit 10.b.1.(xlii) to A&B’s Form 10-Q for the quarter ended
September 30, 1998).
(l) Amendment
No. 2 to the A&B Retirement Plan for Outside Directors, dated October 25,
2000 (Exhibit 10.b.1.(xxxvi) to A&B’s Form 10-K for the year ended December
31, 2000).
(li) Amendment
No. 3 to the A&B Retirement Plan for Outside Directors, dated
December 9, 2004 (Exhibit 10.b.1.(xxxix) to A&B’s Form 10-K for
the year ended December 31, 2004).
(lii) Amendment
No. 4 to the A&B Retirement Plan for Outside Directors, dated February 24,
2005 (Exhibit 10.1 to A&B’s Form 8-K dated February 23, 2005).
(liii) Form
of Agreement entered into with certain executive officers.
(liv) Schedule
identifying executive officers who have entered into Form of Agreement
referenced in 10.b.1(l).
(lv) Alexander
& Baldwin, Inc. Executive Severance Plan, effective as of January 1,
2008.
(lvi) 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).
(lvii) Amendment
No. 1 to the Alexander & Baldwin, Inc. One-Year Performance Improvement
Incentive Plan, dated December 13, 2001 (Exhibit 10.b.1.(xxxvii) to A&B’s
Form 10-K for the year ended December 31, 2001).
(lviii) Amendment
No. 2 to the Alexander & Baldwin, Inc. One-Year Performance Improvement
Incentive Plan, dated February 25, 2004 (Exhibit 10.b.1.(xxxix) to A&B’s
Form 10-Q for the quarter ended March 31, 2004).
(lix) Amendment
No. 3 to the Alexander & Baldwin, Inc. One-Year Performance Improvement
Incentive Plan, dated December 7, 2005 (Exhibit 10.2 to A&B’s Form 8-K dated
December 7, 2005).
(lx) Amendment
No. 4 to the Alexander & Baldwin, Inc. One-Year Performance Improvement
Incentive Plan, dated October 24, 2007 (Exhibit 10.b.1.(lix) to A&B’s
Form 10-K for the year ended December 31, 2007).
(lxi) Amendment
No. 5 to the Alexander & Baldwin, Inc. One-Year Performance Improvement
Incentive Plan, dated December 13, 2007 (Exhibit 10.b.1.(lx) to A&B’s
Form 10-K for the year ended December 31, 2007).
(lxii) 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).
(lxiii) Amendment
No. 4 to the Alexander & Baldwin, Inc. Deferred Compensation Plan, dated
December 7, 2005 (Exhibit 10.1 to A&B’s Form 8-K dated December 7,
2005).
(lxiv) Alexander
& Baldwin, Inc. Deferred Compensation Plan, amended and restated effective
January 1, 2005 (Exhibit 10.b.1.(xlii) to A&B’s Form 10-Q for the
quarter ended June 30, 2006).
(lxv) 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).
(lxvi) Amendment
No. 1 to the Alexander & Baldwin, Inc. Restricted Stock Bonus Plan,
effective December 11, 1997 (Exhibit 10.b.1.(ii) to A&B’s Form 10-K for
the year ended December 31, 1997).
(lxvii) Amendment
No. 2 to the Alexander & Baldwin, Inc. Restricted Stock Bonus Plan, dated
June 25, 1998 (Exhibit 10.b.1.(xxxviii) to A&B’s Form 10-Q for the
quarter ended June 30, 1998).
(lxviii) Amendment
No. 3 to the Alexander & Baldwin, Inc. Restricted Stock Bonus Plan, dated
December 8, 2004 (Exhibit 10.b.1.(liii) to A&B’s Form 10-K for the
year ended December 31, 2004).
(lxix) Amendment
No. 4 to the Alexander & Baldwin, Inc. Restricted Stock Bonus Plan, dated
December 13, 2007 (Exhibit 10.b.1.(lxviii) to A&B’s Form 10-K for
the year ended December 31, 2007).
(lxx) Executive
Transition Agreement, dated August 28, 2008, between James S. Andrasick and
Matson Navigation Company, Inc. (Exhibit 10.b.1.(lxvii) to A&B’s Form 10-Q
for the quarter ended September 30, 2008).
21. Alexander
& Baldwin, Inc. Subsidiaries as of February 1, 2009.
23.
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Consent
of Deloitte & Touche LLP dated February 27,
2009.
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31.1
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Certification
of Chief Executive Officer, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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31.2
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Certification
of Chief Financial Officer, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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32.
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Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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*All exhibits listed under 10.b.1. are
management contracts or compensatory plans or arrangements.
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.
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ALEXANDER
& BALDWIN, INC.
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(Registrant)
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Date: February
27, 2009
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By: /s/
W. Allen Doane
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W.
Allen Doane, Chairman of the Board and
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Chief
Executive Officer
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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
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Title
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Date
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/s/
W. Allen Doane
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Chairman
of the Board and
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February
27, 2009
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W.
Allen Doane
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Chief
Executive Officer and Director
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/s/
Christopher J. Benjamin
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Senior
Vice President,
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February
27, 2009
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Christopher
J. Benjamin
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Chief
Financial Officer and Treasurer
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/s/
Paul K. Ito
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Vice
President, Controller
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February
27, 2009
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Paul.
K. Ito
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and
Assistant Treasurer
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/s/
W. Blake Baird
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Director
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February
27, 2009
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W.
Blake Baird
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/s/
Michael J. Chun
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Director
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February
27, 2009
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Michael
J. Chun
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/s/
Walter A. Dods, Jr.
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Director
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February
27, 2009
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Walter
A. Dods, Jr.
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/s/
Charles G. King
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Director
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February
27, 2009
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Charles
G. King
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/s/
Constance H. Lau
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Director
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February
27, 2009
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Constance
H. Lau
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/s/
Douglas M. Pasquale
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Director
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February
27, 2009
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Douglas
M. Pasquale
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/s/
Maryanna G. Shaw
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Director
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February
27, 2009
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Maryanna
G. Shaw
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/s/
Jeffrey N. Watanabe
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Director
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February
27, 2009
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Jeffrey
N. Watanabe
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CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent
to the incorporation by reference in Registration Statements No. 33-31922,
33-31923, 33-54825, and 333-69197 on Form S-8 of our report dated February 27,
2009, relating to the consolidated financial statements of Alexander &
Baldwin, Inc. and subsidiaries (which report expresses an unqualified opinion
and includes an explanatory paragraph relating to the changes in accounting for
uncertain tax positions and pension and postretirement benefits), and the
effectiveness of Alexander & Baldwin, Inc. and subsidiaries’ internal
control over financial reporting, appearing in this Annual Report on Form 10-K
of Alexander & Baldwin, Inc. and subsidiaries for the year ended December
31, 2008.
/s/
DELOITTE & TOUCHE LLP
February
27, 2009