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<br>
UNITED STATES<br>
SECURITIES AND EXCHANGE COMMISSION<br>
<br>
Washington, D.C. 20549<br>
<br>
FORM 10-K<br>
<br>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF<br>
THE SECURITIES EXCHANGE ACT OF 1934<br>
<br>
For the fiscal year ended December 31, 2001<br>
Commission file number 0-565<br>
<br>
ALEXANDER & BALDWIN, INC.<br>
(Exact name of registrant as specified in its charter)<br>
<br>
Hawaii 99-0032630<br>
(State or other<br>
jurisdiction (I.R.S.<br>
of incorporation or Employer Identification<br>
organization) No.)<br>
<br>
822 Bishop Street<br>
Post Office Box 3440, Honolulu, Hawaii 96801<br>
(Address of principal executive offices and zip code)<br>
<br>
808-525-6611<br>
(Registrant's telephone number, including area code)<br>
<br>
Securities registered pursuant to Section 12(b) of the Act:<br>
None<br>
<br>
Securities registered pursuant to Section 12(g) of the Act:<br>
Common Stock, without par value<br>
(Title of Class)<br>
<br>
Number of shares of Common Stock outstanding at February 14, 2002:<br>
40,606,808<br>
<br>
Aggregate market value of Common Stock held by non-affiliates at February 14,<br>
2002:<br>
$937,859,339<br>
<br>
Indicate by check mark whether the registrant (1) has filed all reports<br>
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of<br>
1934 during the preceding 12 months (or for such shorter period that the<br>
registrant was required to file such reports), and (2) has been subject to such<br>
filing requirements for the past 90 days. Yes X No<br>
--- ---<br>
<br>
Indicate by check mark if disclosure of delinquent filers pursuant to Item<br>
405 of Regulation S-K is not contained herein, and will not be contained, to<br>
the best of registrant's knowledge, in definitive proxy or information<br>
statements incorporated by reference in Part III of this Form 10-K or any<br>
amendment to this Form 10-K. [X]<br>
<br>
Documents Incorporated By Reference<br>
Portions of Registrant's Proxy Statement dated March 11, 2002 (Part III of Form<br>
10-K).<br>
<br>
<br>
<PLAINTEXT><br>
<br>
<br>
TABLE OF CONTENTS<br>
<br>
<br>
<br>
PART I<br>
Page<br>
----<br>
<br>
Items 1. & 2. Business and Properties........................................................ 1<br>
<br>
A. Ocean Transportation........................................................... 1<br>
(1) Freight Services.......................................................... 1<br>
(2) Vessels................................................................... 2<br>
(3) Terminals................................................................. 2<br>
(4) Other Services............................................................ 4<br>
(5) Competition............................................................... 4<br>
(6) Labor Relations........................................................... 5<br>
(7) Rate Regulation........................................................... 5<br>
<br>
B. Property Development and Management............................................ 5<br>
(1) General................................................................... 5<br>
(2) Planning and Zoning....................................................... 6<br>
(3) Residential Projects...................................................... 6<br>
(4) Commercial and Industrial Properties...................................... 8<br>
<br>
C. Food Products.................................................................. 11<br>
(1) Production................................................................ 11<br>
(2) Marketing of Sugar and Coffee............................................. 12<br>
(3) Competition and Sugar Legislation......................................... 12<br>
(4) Properties and Water...................................................... 13<br>
<br>
D. Employees and Labor Relations.................................................. 14<br>
<br>
E. Energy......................................................................... 15<br>
<br>
Item 3. Legal Proceedings.................................................................... 15<br>
<br>
Item 4. Submission of Matters to a Vote of Security Holders.................................. 16<br>
<br>
Executive Officers of the Registrant............................................................ 16<br>
<br>
PART II<br>
<br>
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................ 16<br>
<br>
Item 6. Selected Financial Data.............................................................. 18<br>
<br>
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 19<br>
<br>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................... 25<br>
<br>
Item 8. Financial Statements and Supplementary Data.......................................... 26<br>
<br>
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 57<br>
<br>
<br>
i<br>
<br>
<br>
<br>
<br>
<br>
<br>
<br>
PART III<br>
Page<br>
----<br>
Item 10. Directors and Executive Officers of the Registrant.............. 58<br>
<br>
A. Directors....................................................... 58<br>
<br>
B. Executive Officers of the Registrant............................ 58<br>
<br>
Item 11. Executive Compensation.......................................... 59<br>
<br>
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 59<br>
<br>
Item 13. Certain Relationships and Related Transactions.................. 59<br>
<br>
PART IV<br>
<br>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 60<br>
<br>
A. Financial Statements............................................ 60<br>
<br>
B. Financial Statement Schedules................................... 60<br>
<br>
C. Exhibits Required by Item 601 of Regulation S-K................. 60<br>
<br>
D. Reports on Form 8-K............................................. 65<br>
<br>
Signatures................................................................. 66<br>
<br>
Independent Auditors' Consent.............................................. 68<br>
<br>
<br>
ii<br>
<br>
<PLAINTEXT><br>
<br>
<br>
ALEXANDER & BALDWIN, INC.<br>
<br>
FORM 10-K<br>
<br>
Annual Report for the Fiscal Year<br>
Ended December 31, 2001<br>
<br>
PART I<br>
<br>
ITEMS 1 AND 2. BUSINESS AND PROPERTIES<br>
<br>
Alexander & Baldwin, Inc. ("A&B") is a diversified corporation with most of<br>
its operations centered in Hawaii. It was founded in 1870 and incorporated in<br>
1900. Ocean transportation operations and related shoreside operations of A&B<br>
are conducted by a wholly-owned subsidiary, Matson Navigation Company, Inc.<br>
("Matson"), and several Matson subsidiaries. Real property and food products<br>
operations are conducted by A&B and certain other wholly-owned subsidiaries of<br>
A&B.<br>
<br>
The industry segments of A&B are as follows:<br>
<br>
A. Ocean Transportation--carrying freight, primarily between various ports<br>
on the United States Pacific Coast and major Hawaii ports and Guam;<br>
chartering vessels to third parties; providing terminal, stevedoring and<br>
container equipment maintenance services in Hawaii; arranging intermodal<br>
transportation in North America; and providing supply and distribution<br>
services.<br>
<br>
B. Property Development and Management--purchasing, developing, selling,<br>
managing and leasing retail, office, industrial, commercial and<br>
residential properties, in Hawaii and on the U.S. Mainland.<br>
<br>
C. Food Products--growing sugar cane and coffee in Hawaii; producing bulk<br>
raw sugar, specialty food-grade sugars, molasses and green coffee;<br>
marketing and distributing roasted coffee and green coffee; providing<br>
sugar and molasses hauling and storage, general freight and petroleum<br>
hauling in Hawaii; and generating and selling electricity.<br>
<br>
For information about the revenue, operating profits and identifiable assets<br>
of A&B's industry segments for the three years ended December 31, 2001, see<br>
Note 14 ("Industry Segments") to A&B's financial statements in Item 8 below.<br>
<br>
DESCRIPTION OF BUSINESS AND PROPERTIES<br>
<br>
A. Ocean Transportation<br>
<br>
(1) Freight Services<br>
<br>
Matson's Hawaii Service offers containership freight services between the<br>
ports of Los Angeles, Oakland, Seattle, and the major ports in Hawaii, which<br>
are located on the islands of Oahu, Kauai, Maui and Hawaii. Roll-on/roll-off<br>
service is provided between California and the major ports in Hawaii. Container<br>
cargo also is received at and delivered to Portland, Oregon, and moved overland<br>
between Portland and Seattle at no extra charge.<br>
<br>
Matson is the principal carrier of ocean cargo between the United States<br>
Pacific Coast and Hawaii. In 2001, Matson carried 149,636 containers (compared<br>
with 151,496 in 2000) and 122,389 motor vehicles (compared with 132,186 in<br>
2000) between those destinations. In response to a weakening Hawaii economy and<br>
declining demand, Matson reduced its Hawaii Service fleet from eight vessels to<br>
seven vessels in January 2002. Principal westbound cargoes carried by Matson to<br>
Hawaii include refrigerated commodities, dry containers of mixed commodities,<br>
<br>
1<br>
<br>
<br>
<br>
packaged foods, motor vehicles, and building materials. Principal eastbound<br>
cargoes carried by Matson from Hawaii include motor vehicles, household goods,<br>
canned pineapple, refrigerated containers of fresh pineapple, and dry<br>
containers of mixed commodities. The preponderance of Matson's Hawaii Service<br>
revenue is derived from the westbound carriage of containerized freight and<br>
motor vehicles.<br>
<br>
Matson's Guam Service provides containership freight service between the<br>
United States Pacific Coast and Guam and Micronesia. Matson's Guam Service is a<br>
component of the Pacific Alliance Service, a strategic alliance established in<br>
1996 by Matson and American President Lines, Ltd. ("APL") to provide freight<br>
service between the United States Pacific Coast and Hawaii, Guam, and several<br>
Far East ports. In 2001, Matson carried 17,225 containers (compared with 18,165<br>
in 2000) and 2,750 automobiles (compared with 2,616 in 2000) in the Guam<br>
Service. The alliance currently utilizes five vessels (three Matson vessels and<br>
two APL vessels) in a schedule which provides service from the United States<br>
Pacific Coast to Guam and Micronesia, continuing through Far East ports, and<br>
returning to California.<br>
<br>
Matson's Mid-Pacific Service offers container and conventional freight<br>
service between the United States Pacific Coast and the ports of Kwajalein,<br>
Ebeye and Majuro in the Republic of the Marshall Islands and Johnston Island,<br>
all via Honolulu.<br>
<br>
See "Rate Regulation" below with respect to Matson's freight rates.<br>
<br>
(2) Vessels<br>
<br>
Matson's cargo fleet consists of eleven containerships, two combination<br>
container/trailerships, one roll-on/roll-off barge, two container barges<br>
equipped with cranes which serve the neighbor islands of Hawaii and one<br>
container barge equipped with cranes in the Mid-Pacific Service. These<br>
seventeen vessels represent an investment of approximately $694,618,000<br>
expended over the past 31 years. The majority of vessels in the Matson cargo<br>
fleet have been acquired with the assistance of withdrawals from a Capital<br>
Construction Fund established under Section 607 of the Merchant Marine Act,<br>
1936, as amended. Matson's fleet is aging and includes six vessels that will be<br>
between 29 and 32 years old in 2002. During 2001, Matson actively began<br>
pursuing vessel replacement alternatives.<br>
<br>
Currently, three containerships are time-chartered to APL in connection with<br>
the Pacific Alliance Service. Two container/trailerships previously<br>
bareboat-chartered to Sea Star Line, LLC, which operates the vessels in the<br>
Florida-Puerto Rico trade, and in which Matson has a minority investment<br>
interest, were sold to Sea Star Line, LLC in January 2002.<br>
<br>
Matson's fleet units are described on the list on the following page.<br>
<br>
As a complement to its fleet, Matson owns approximately 15,000 containers,<br>
10,670 container chassis, 730 auto-frames and miscellaneous other equipment.<br>
Capital expenditures by Matson in 2001 for vessels, equipment and systems<br>
totaled approximately $28,000,000.<br>
<br>
(3) Terminals<br>
<br>
Matson Terminals, Inc. ("Matson Terminals"), a wholly-owned subsidiary of<br>
Matson, provides container stevedoring, container equipment maintenance and<br>
other terminal services for Matson and other ocean carriers at its 108-acre<br>
marine terminal in Honolulu. Matson Terminals owns and operates seven cranes at<br>
the terminal, which handled 383,506 containers in 2001 (compared with 402,500<br>
in 2000) and can accommodate three vessels at one time. In 2001, Matson<br>
Terminals substantially completed a $32 million terminal improvement project at<br>
the Honolulu terminal, which included the conversion from a straddle<br>
carrier-based container handling system to a wheeled chassis-based system. The<br>
conversion is expected to increase terminal storage density, improve<br>
productivity, and reduce costs. Matson Terminals' lease with the State of<br>
Hawaii runs through September 2016.<br>
<br>
2<br>
<br>
<br>
<br>
MATSON NAVIGATION COMPANY, INC.<br>
FLEET--2/1/02<br>
<br>
<br>
<br>
Usable Cargo Capacity<br>
--------------------------------------------<br>
Containers Vehicles<br>
Year Maximum Maximum ----------------------------- --------------<br>
Official Year Recon- Speed Deadweight Reefer<br>
Vessel Name Number Built structed Length (Knots) (Long Tons) 20' 24' 40' Slots TEUs (1) Autos Trailers<br>
- ----------- -------- ----- -------- ---------- ------- ----------- --- --- ----- ------ -------- ----- --------<br>
<br>
Diesel-Powered Ships<br>
- --------------------<br>
R.J. PFEIFFER....... 979814 1992 713'6" 23.0 27,100 48 171 988 300 2,229 -- --<br>
MOKIHANA (2)........ 655397 1983 860'2" 23.0 30,167 182 0 1,340 408 2,824 -- --<br>
MAHIMAHI (2)........ 653424 1982 860'2" 23.0 30,167 182 0 1,340 408 2,824 -- --<br>
MANOA (2)........... 651627 1982 860'2" 23.0 30,187 182 0 1,340 408 2,824 -- --<br>
Steam-Powered Ships<br>
- -------------------<br>
KAUAI............... 621042 1980 1994 720'5 1/2" 22.5 26,308 -- 458 538 300 1,626 44 --<br>
MAUI................ 591709 1978 1993 720'5 1/2" 22.5 26,623 -- 458 538 300 1,626 -- --<br>
MATSONIA............ 553090 1973 1987 760'0" 21.5 22,501 16 128 771 201 1,712 450 56<br>
LURLINE............. 549900 1973 1982 826'6" 21.5 22,213 6 162 713 292 1,379 220 81<br>
EWA (3)............. 530140 1972 1978 787'8" 21.0 38,747 286 276 681 228 1,979 -- --<br>
CHIEF GADAO......... 530138 1971 1978 787'8" 21.0 37,346 230 464 597 274 1,981 -- --<br>
LIHUE............... 530137 1971 1978 787'8" 21.0 38,656 286 276 681 188 1,979 -- --<br>
MANULANI............ 528400 1970 720'5 1/2" 22.5 27,109 26 160 659 221 1,536 -- --<br>
MANUKAI (3)......... 524219 1970 720'5 1/2" 22.5 27,107 -- 537 416 251 1,476 -- --<br>
Tugs and Barges<br>
- ---------------<br>
WAIALEALE (4)....... 978516 1991 345'0" -- 5,621 -- -- -- 35 -- 230 45<br>
ISLANDER (5)........ 933804 1988 372'0" -- 6,837 -- 276 24 70 380 -- --<br>
MAUNA LOA (5)....... 676973 1984 350'0" -- 4,658 -- 144 72 84 316 -- --<br>
HALEAKALA (5)....... 676972 1984 350'0" -- 4,658 -- 144 72 84 316 -- --<br>
<br>
<br>
<br>
<br>
<br>
Molasses<br>
----------<br>
<br>
Vessel Name Short Tons<br>
- ----------- ----------<br>
<br>
Diesel-Powered Ships<br>
- --------------------<br>
R.J. PFEIFFER....... --<br>
MOKIHANA (2)........ --<br>
MAHIMAHI (2)........ --<br>
MANOA (2)........... --<br>
Steam-Powered Ships<br>
- -------------------<br>
KAUAI............... 2,600<br>
MAUI................ 2,600<br>
MATSONIA............ 4,300<br>
LURLINE............. 2,100<br>
EWA (3)............. --<br>
CHIEF GADAO......... --<br>
LIHUE............... --<br>
MANULANI............ 5,300<br>
MANUKAI (3)......... 5,300<br>
Tugs and Barges<br>
- ---------------<br>
WAIALEALE (4)....... --<br>
ISLANDER (5)........ --<br>
MAUNA LOA (5)....... 2,100<br>
HALEAKALA (5)....... 2,100<br>
<br>
- --------<br>
(1) "Twenty-foot Equivalent Units" (including trailers). TEU is a standard<br>
measure of cargo volume correlated to the volume of a standard 20-foot dry<br>
cargo container.<br>
(2) Time-chartered to APL until February 2006.<br>
(3) Reserve Status<br>
(4) Roll-on/Roll-off Barge<br>
(5) Container Barge<br>
<br>
3<br>
<br>
<br>
<br>
SSA Terminals, LLC, a joint venture formed by Matson and Stevedoring<br>
Services of America in July 1999, provides terminal and stevedoring services at<br>
West Coast terminal facilities in Los Angeles, Long Beach, Oakland and Seattle.<br>
<br>
Capital expenditures incurred by Matson Terminals for terminals and<br>
equipment totaled approximately $31,100,000 in 2001.<br>
<br>
(4) Other Services<br>
<br>
Matson Intermodal System, Inc. ("Matson Intermodal") is an intermodal<br>
marketing company which arranges North American rail and truck transportation<br>
for shippers and carriers, frequently in conjunction with ocean transportation.<br>
Through volume purchases of rail and motor carrier transportation services,<br>
augmented by such services as shipment tracing and single-vendor invoicing,<br>
Matson Intermodal is able to reduce transportation costs for customers. Matson<br>
Intermodal currently has 40 offices and manages 30 equipment depots across the<br>
United States Mainland.<br>
<br>
In July 2001, Matson Services Company, Inc. ("Matson Services"), a<br>
wholly-owned subsidiary of Matson, sold the two tugboats which it had employed<br>
in Hawaiian waters to provide harbor assistance to vessels calling at the<br>
islands of Hawaii and Maui. Matson Services was dissolved effective December<br>
31, 2001.<br>
<br>
Matson Logistics Solutions, Inc. ("Matson Logistics"), a wholly-owned<br>
subsidiary of Matson, provides supply chain, transportation management, and<br>
project cargo management services to Matson customers and others. In 2001,<br>
Matson Logistics entered the air freight business by entering into an alliance<br>
with an existing international air freight forwarder.<br>
<br>
(5) Competition<br>
<br>
Matson's Hawaii and Guam Services have one major containership competitor,<br>
which serves Long Beach, Oakland, Tacoma, Honolulu and Guam.<br>
<br>
Other competitors in the Hawaii Service include two common carrier barge<br>
services, unregulated proprietary and contract carriers of bulk cargoes, and<br>
air cargo services. Although air freight competition is intense for<br>
time-sensitive or perishable cargoes, historic and projected inroads of such<br>
competition in cargo volume are limited by the amount of cargo space available<br>
in passenger aircraft and by generally higher air freight rates.<br>
<br>
Matson vessels are operated on schedules which make available to shippers<br>
and consignees regular day-of-the-week sailings from the United States Pacific<br>
Coast and day-of-the-week arrivals in Hawaii. Under its current schedule,<br>
Matson operates 182 Hawaii round-trip voyages per year, 75 percent more than<br>
its closest competitor, and arranges additional voyages when cargo volumes<br>
require additional capacity. This service is attractive to customers because<br>
more frequent arrivals permit customers to lower inventory costs. In addition,<br>
Matson competes by offering more comprehensive service to customers, supported<br>
by its scope of equipment and its efficiency and experience in the handling of<br>
containerized cargoes, and by competitive pricing.<br>
<br>
The carriage of cargo between the United States Pacific Coast and Hawaii on<br>
foreign-built or foreign-documented vessels is prohibited by Section 27 of the<br>
Merchant Marine Act, 1920, frequently referred to as the Jones Act. However,<br>
foreign-flag vessels carrying cargo to Hawaii from foreign sources provide<br>
indirect competition for Matson's container freight service between the United<br>
States Pacific Coast and Hawaii. Far East countries, Australia, New Zealand and<br>
South Pacific islands have direct foreign-flag services to Hawaii.<br>
<br>
In response to coordinated efforts by various interests to convince Congress<br>
to repeal the Jones Act, Matson joined other businesses and organizations in<br>
1995 to form the Maritime Cabotage Task Force, which supports the<br>
<br>
4<br>
<br>
<br>
<br>
retention of the Jones Act and other cabotage laws. Repeal of the Jones Act<br>
would allow all foreign-flag vessel operators, which do not have to abide by<br>
U.S. laws and regulations, to sail between American ports, in direct<br>
competition with Matson and other U.S. operators which must comply with such<br>
laws and regulations. The Task Force seeks to inform elected officials and the<br>
public about the economic, national security, commercial, safety and<br>
environmental benefits of the Jones Act and similar cabotage laws.<br>
<br>
Matson Intermodal competes for freight with a number of large and small<br>
companies engaged in intermodal transportation. Matson Logistics competes with<br>
many larger providers of logistics services and with transportation companies<br>
whose services include logistics.<br>
<br>
(6) Labor Relations<br>
<br>
The absence of strikes and the availability of labor through hiring halls<br>
are important to the maintenance of profitable operations by Matson. Matson's<br>
operations have not been disrupted significantly by strikes in the past 30<br>
years. See "Employees and Labor Relations" below for a description of labor<br>
agreements and certain unfunded liabilities for multi-employer pension plans to<br>
which Matson and Matson Terminals contribute.<br>
<br>
(7) Rate Regulation<br>
<br>
Matson is subject to the jurisdiction of the Surface Transportation Board<br>
with respect to its domestic rates. A rate in the noncontiguous domestic trade<br>
is presumed reasonable and will not be subject to investigation if the<br>
aggregate of increases and decreases is not more than 7.5 percent above, or<br>
more than 10 percent below, the rate in effect one year before the effective<br>
date of the proposed rate, subject to increase or decrease by the percentage<br>
change in the U.S. Producer Price Index. Matson filed a 3.5 percent<br>
across-the-board increase in its Hawaii Service shipping rates, which became<br>
effective on February 14, 2001. Also in 2001, Matson reduced its fuel surcharge<br>
in its Hawaii and Guam Services by one percentage point, from 4.25 percent to<br>
3.25 percent, effective November 25, 2001.<br>
<br>
B. Property Development and Management<br>
<br>
(1) General<br>
<br>
A&B and its subsidiaries own approximately 90,900 acres of land, consisting<br>
of approximately 90,600 acres in Hawaii and approximately 300 acres elsewhere,<br>
as follows:<br>
<br>
<br>
<br>
Location No. of Acres<br>
-------- ------------<br>
<br>
Oahu...... 36<br>
Maui...... 68,709<br>
Kauai..... 21,892<br>
California 122<br>
Texas..... 65<br>
Washington 13<br>
Arizona... 35<br>
Nevada.... 19<br>
Colorado.. 10<br>
------<br>
TOTAL.. 90,901<br>
======<br>
<br>
<br>
As described more fully in the table below, the bulk of this acreage currently<br>
is used for agricultural and related activities, and includes pasture land,<br>
watershed land, and conservation reserves. The balance is used or planned for<br>
development or other urban uses. An additional 3,270 acres on Maui and Kauai<br>
are leased from third parties.<br>
<br>
5<br>
<br>
<br>
<br>
<br>
<br>
No. of<br>
Current Use Acres<br>
----------- ------<br>
<br>
Hawaii<br>
------<br>
Fully-entitled urban (defined below)... 1,246<br>
Agricultural, pasture and miscellaneous 60,100<br>
Watershed land/conservation............ 29,291<br>
U.S. Mainland<br>
-------------<br>
Fully-entitled urban................... 254<br>
Agriculture, pasture and miscellaneous. 10<br>
------<br>
TOTAL............................... 90,901<br>
======<br>
<br>
<br>
A&B and its subsidiaries are actively involved in the entire spectrum of<br>
land development, including planning, zoning, financing, constructing,<br>
purchasing, managing and leasing, and selling and exchanging real property.<br>
<br>
(2) Planning and Zoning<br>
<br>
The entitlement process for development of property in Hawaii is both<br>
time-consuming and costly, involving numerous State and County regulatory<br>
approvals. For example, conversion of an agriculturally-zoned parcel to<br>
residential zoning usually requires the following approvals:<br>
<br>
. amendment of the County general plan to reflect the desired residential<br>
use;<br>
<br>
. approval by the State Land Use Commission to reclassify the parcel from<br>
the "Agricultural" district to the "Urban" district;<br>
<br>
. County approval to rezone the property to the precise residential use<br>
desired; and,<br>
<br>
. if the parcel is located in the Special Management Area, the granting of<br>
a Special Management Area permit by the County.<br>
<br>
The entitlement process is complicated by the conditions, restrictions and<br>
exactions that are placed on these approvals, including, among others, the<br>
construction of infrastructure improvements, payment of impact fees,<br>
restrictions on the permitted uses of the land, provision of affordable<br>
housing, and/or mandatory fee sale of portions of the project.<br>
<br>
A&B actively works with regulatory agencies, commissions and legislative<br>
bodies at various levels of government to obtain zoning reclassification of<br>
land to its highest and best use. A&B designates a parcel as "fully-entitled"<br>
or "fully-zoned" when all necessary government land use approvals have been<br>
obtained.<br>
<br>
As described in more detail below, in 2001, work to obtain entitlements for<br>
urban use focused on (i) obtaining Community Plan designations for various A&B<br>
lands on Maui, and (ii) obtaining County entitlements for a proposed<br>
single-family subdivision and proposed hotel on Maui. The Community Plans serve<br>
to guide planning and development activity on Maui. A&B has obtained and<br>
continues to seek various urban designations for its undeveloped lands within<br>
the four Community Plans where most of its Maui lands are located.<br>
<br>
(3) Residential Projects<br>
<br>
A&B is pursuing a number of residential projects in Hawaii, including:<br>
<br>
(a) Kukui'Ula. Kukui'Ula is a 1,045-acre master planned resort residential<br>
community located in Poipu, Kauai. Approximately 837 acres are fully entitled<br>
for up to 900 hotel and vacation ownership (timeshare) units, 3,000 residential<br>
units, a golf course, and commercial uses. The balance of the project is<br>
partially entitled and planned for<br>
<br>
6<br>
<br>
<br>
<br>
up to 750 residential units. During 2001, the Company engaged in a number of<br>
development activities intended to position the project for development and for<br>
securing joint venture partners, including the following:<br>
<br>
. Civil engineering design commenced on Koloa Plantations, Kukui'Ula's<br>
second residential project. Approximately 95 one-half acre lots are<br>
planned.<br>
<br>
. The project's water master plan was updated, and two potential water<br>
sources were identified to supply potable water for the initial phase of<br>
development. Agreements defining the Company's participation in these<br>
water projects are undergoing final review by the Department of Water of<br>
the County of Kauai.<br>
<br>
. Preliminary civil engineering design of backbone infrastructure<br>
commenced for the major project roadway.<br>
<br>
. The initial phase of beach improvements was implemented, and<br>
archaeological mitigation and preservation plans were prepared for<br>
inventoried archaeological sites.<br>
<br>
In September 2001, a non-binding letter of intent was entered into with a<br>
Mainland-based developer of master-planned communities, for the joint venture<br>
development of Kukui'Ula. Based on due diligence activities completed to date,<br>
a joint venture agreement could be finalized in the first quarter of 2002.<br>
<br>
Sales at Koloa Estates, Kukui'Ula's first for-sale residential project,<br>
neared completion in 2001. Lot sales at this 32-lot subdivision commenced in<br>
September 1999. As of January 31, 2002, 28 lots have been sold, with three lots<br>
in escrow and one lot reserved. The average sales price of the 31 lots sold or<br>
in escrow was $149,200.<br>
<br>
(b) The Vintage at Kaanapali. Located on 17 acres in the Kaanapali Golf<br>
Estates project in Kaanapali, Maui, and surrounded by the Kaanapali South Golf<br>
Course, this project was developed as 73 detached single-family homes under a<br>
condominium regime. Home construction began in February 2000 and was completed<br>
in June 2001. All 73 homes were sold by July 2001. The units were sold at an<br>
average price of $590,000.<br>
<br>
(c) The Summit at Kaanapali. In January 2000, the Company acquired an<br>
additional 17 acres in the Kaanapali Golf Estates project. This land is being<br>
developed into 55 single-family homes or house lots. Site work construction was<br>
completed in May 2001 and construction of the 17 homes in Phase I commenced in<br>
June 2001. Five units were completed and closed as of December 31, 2001, at an<br>
average price of $1.1 million. As of January 31, 2002, an additional eight<br>
units were in escrow.<br>
<br>
(d) HoloHolo Ku. In October 2001, the Company entered into a joint venture<br>
with Kamuela Associates LLC for the development of 44 detached single-family<br>
homes under a condominium regime, on an 8.5-acre parcel in Kamuela on the<br>
island of Hawaii. An additional 7.2-acre estate lot is available for sale.<br>
Construction commenced early November 2001 and sales are projected to begin<br>
closing in the fourth quarter of 2002. As of January 31, 2002, there were 28<br>
binding sales contracts in escrow.<br>
<br>
(e) Kai Lani. In September 2001, the Company entered into a joint venture<br>
agreement with Armstrong Kai Lani Corporation for the development of 116<br>
townhouse units on an 11-acre parcel in the Ko Olina Resort on Oahu.<br>
Construction commenced February 2002.<br>
<br>
(f) Waikiki Project. On November 1, 2001, the Company acquired a 1.63-acre<br>
vacant, fee simple development site in Waikiki, Oahu, for approximately $3.6<br>
million. The property, located at the entrance to Waikiki, is zoned for<br>
high-rise residential use and limited commercial uses. Planning and design work<br>
for a high-rise condominium development is expected to take place in 2002.<br>
<br>
(g) Other Maui Subdivisions. The Company continues to seek entitlements for<br>
two other single-family subdivisions on Maui: (i) an approximately 200-unit<br>
subdivision on 67 acres in Haliimaile (Upcountry, Maui), and (ii) an<br>
approximately 400-unit subdivision on 210 acres in Spreckelsville, which<br>
includes the possible expansion of the nearby nine-hole Maui Country Club golf<br>
course into an 18-hole course. A final decision by the Maui County Council on<br>
the Company's zoning application for the Haliimaile project was anticipated in<br>
2001. However, due to general water and traffic issues for the Upcountry<br>
region, final Council action is not anticipated until the second half of 2002.<br>
Approval of the Spreckelsville project was sought from the Maui County Council<br>
as part of its ten-year update of the Wailuku-Kahului Community Plan. Primarily<br>
in response to concerns raised over potential traffic impacts, the<br>
<br>
7<br>
<br>
<br>
<br>
Council Planning Committee, in September 2001, voted against including<br>
Spreckelsville in the Community Plan. However, because of the project's<br>
positive planning features, the Committee recommended that the Company file a<br>
separate Community Plan application in order to have the project impacts<br>
evaluated under an environmental impact assessment.<br>
<br>
In May 2001, a Disposition Agreement was entered into for the bulk sale of<br>
the 86.4-acre Maunaolu agricultural subdivision (minimum two-acre sized lots).<br>
Closing could be accomplished in the first half of 2002.<br>
<br>
(4) Commercial and Industrial Properties<br>
<br>
An important source of property revenue is the lease rental income the<br>
Company receives from nearly 5.4 million leasable square feet of industrial and<br>
commercial building space, ground leases on 275 acres for commercial/industrial<br>
use, and leases on 10,930 acres for agricultural/pasture use.<br>
<br>
(a) Hawaii Commercial/Industrial Properties<br>
<br>
In Hawaii, most of the approximately 1.5 million square feet of<br>
income-producing commercial and industrial properties owned by the Company are<br>
located in the central Kahului/Wailuku area of Maui and in central Oahu. They<br>
consist primarily of three shopping centers and ten office buildings, as well<br>
as twelve other improved commercial and industrial properties. The average<br>
occupancy for the Hawaii improved commercial properties increased to 90% in<br>
2001, from 86% in 2000. The improvement was due primarily to the high tenancies<br>
in recently-acquired properties.<br>
<br>
The Pacific Guardian Complex, consisting of an eighteen-story office<br>
building and an adjacent two-story commercial complex, having a total leasable<br>
area of 136,100 square feet, was acquired in February 2001. The property is<br>
located in the Kapiolani business district on the island of Oahu. In June 2001,<br>
the 124,600-square-foot Kaneohe Bay Shopping Center, located in the suburban<br>
community of Kaneohe, Oahu, was added to the portfolio. Both properties were<br>
98% occupied at the time of acquisition. These acquisitions were made through<br>
tax-deferred exchanges under Section 1031 of the Internal Revenue Code, as<br>
amended ("Code").<br>
<br>
8<br>
<br>
<br>
<br>
The primary Hawaii commercial/industrial properties are as follows:<br>
<br>
<br>
<br>
Leasable Area<br>
Property Location Type (sq. ft.)<br>
-------- ---------------- ---------------- -------------<br>
<br>
Maui Mall.................. Kahului, Maui Retail 192,600<br>
Pacific Guardian Complex... Honolulu, Oahu Office 136,100<br>
Kaneohe Bay Shopping Center Kaneohe, Oahu Retail 124,600<br>
P&L Warehouse.............. Kahului, Maui Warehouse 104,100<br>
Kahului Shopping Center.... Kahului, Maui Retail 99,400<br>
Ocean View Center.......... Honolulu, Oahu Office 99,200<br>
Hawaii Business Park....... Pearl City, Oahu Warehouse 85,200<br>
Haseko Center.............. Honolulu, Oahu Office 84,200<br>
One Main Plaza............. Wailuku, Maui Office 81,600<br>
Wakea Business Center...... Kahului, Maui Warehouse/Retail 61,500<br>
Kahului Office Building.... Kahului, Maui Office 55,400<br>
Fairway Shops at Kaanapali. Kaanapali, Maui Retail 35,000<br>
Kahului Office Center...... Kahului, Maui Office 31,000<br>
Apex Building.............. Kahului, Maui Retail 28,100<br>
Stangenwald Building....... Honolulu, Oahu Office 27,100<br>
Judd Building.............. Honolulu, Oahu Office 20,200<br>
<br>
<br>
A number of other commercial and industrial projects are being developed on<br>
Maui, Oahu and Kauai, including:<br>
<br>
(i) Triangle Square. Construction of Kele Center, a 15,000-square-foot<br>
commercial building at Triangle Square, near the Kahului Airport on Maui, was<br>
completed in June 2001. A 4,500-square-foot national franchise restaurant<br>
opened in October 2001, and a 1,200-square-foot national haircare salon is<br>
scheduled to open in early 2002. Construction of a 6,200-square-foot automobile<br>
dealership was completed in October 2001, and the dealership opened for<br>
business that same month. Ground leases and build-to-suit opportunities are<br>
being pursued for the remaining 4.5 acres at Triangle Square.<br>
<br>
(ii) Maui Business Park. Located in Kahului, Maui, the initial phase of<br>
Maui Business Park consists of Phase IA (37.4 saleable acres), completed in<br>
1995, and Phase IB (32.0 saleable acres), completed in 2000.<br>
<br>
Phase IA includes the 349,305-square-foot Maui Marketplace retail center,<br>
which is owned by a third party and occupies 20.3 acres of the subdivision.<br>
Maui Marketplace includes national tenants such as Lowe's Home Improvement<br>
Warehouse, Office Max, Sports Authority, Old Navy, Border's Books and Music,<br>
and Pier 1. The remaining area of Phase IA consists of 30 lots with an average<br>
size of 22,900 square feet, of which one lot was sold and one lot was leased in<br>
2001. Thirteen lots (7.3 saleable acres) remain available for sale or lease.<br>
<br>
In Phase IB, Home Depot completed construction of a 135,000-square-foot<br>
store in May 2001. In February 2001, Wal-Mart purchased a 14.0-acre parcel in<br>
the subdivision and completed construction of a 142,000-square-foot store in<br>
October 2001. The remaining area consists of 10 lots with an average size of<br>
18,800 square feet, of which one lot was sold and one lot was leased in 2001.<br>
Eight lots (3.7 saleable acres) remain available for sale or lease.<br>
<br>
As part of the County of Maui's ten-year update of the Wailuku-Kahului<br>
Community Plan, referred to above,<br>
the Company is seeking the approval of approximately 175 acres for future<br>
expansion of Maui Business Park. Based on concerns raised by Maui County<br>
Council members over, among other things, whether the expansion areas were too<br>
close to Kahului Airport, the Council Planning Committee voted against<br>
recommending approval of the expansion areas. Following the Company's efforts<br>
to address these concerns, on January 11, 2002, the County Council voted to<br>
send the expansion proposal back to the Planning Committee for reconsideration.<br>
<br>
(iii) Kahului Airport Hotel. In January 2001, land use applications were<br>
filed with the County of Maui for the development of a 140-room,<br>
moderately-priced hotel on 3.4 acres, at the entrance to Kahului Airport. The<br>
hotel, to be operated under the Courtyard by Marriott brand, requires Community<br>
Plan, zoning and special management area approvals before development can<br>
proceed. A required environmental assessment for the project was completed in<br>
July 2001. In September 2001, the Maui Planning Commission recommended approval<br>
of the land use applications to<br>
<br>
9<br>
<br>
<br>
<br>
the Maui County Council, and in January 2002, the Council's Land Use Committee<br>
recommended approval of the land use applications to the Council. Final Council<br>
action is anticipated in the second quarter of 2002.<br>
<br>
(iv) Fairway Shops at Kaanapali. Construction of this 35,500-square-foot<br>
resort retail center in Kaanapali, Maui commenced in July 2001 and was<br>
completed in December 2001. The center is located on a 3.2-acre site along<br>
Honoapiilani Highway, the main corridor between Lahaina and Kapalua. Leasing<br>
activities have commenced, but have been adversely affected by the September 11<br>
impacts on tourism.<br>
<br>
(v) Port Allen Marina Center. Pursuant to a long-term master plan for the<br>
development of 80 acres at Port Allen, Kauai, construction began in October<br>
2001 on a 26,000-square-foot retail center located on 1.7 acres. Construction<br>
is expected to be complete by the third quarter of 2002.<br>
<br>
(vi) Mill Town Center. Located in Waipahu, Oahu (approximately 12 miles<br>
from Honolulu), the Mill Town Center is a light-industrial subdivision<br>
consisting of 27.5 saleable acres being developed in two phases. Phase IA<br>
(10.2 saleable acres), completed in 1999, consists of 23 fee simple industrial<br>
lots. Four lots were sold to commercial and industrial businesses in 2001 and<br>
eight lots (3.2 saleable acres) remain available for sale or lease.<br>
<br>
Construction of infrastructure improvements for Phase IB (17.3 saleable<br>
acres) was delayed in 2001 due to the discovery of lead contamination in<br>
approximately four acres of the subdivision. Infrastructure construction<br>
commenced in August 2001 on the unaffected portion of the site. Remediation<br>
activities on the affected portion commenced in December 2001 and are expected<br>
to be completed in early 2002. Construction of the remaining infrastructure for<br>
Phase IB is expected to be completed by mid-2002. Marketing activities<br>
commenced in 2001. In November 2001, an affiliate of Japan-based Fuji Photo<br>
Film Co., Ltd. purchased a 3.0-acre parcel in Phase IB and commenced<br>
construction of a 54,000-square-foot office, film processing and warehouse<br>
facility. The remaining portion of Phase IB consists of 31 lots (14.3 saleable<br>
acres), with an average size of 20,100 square feet.<br>
<br>
(b) U.S. Mainland Commercial/Industrial Properties<br>
<br>
On the U.S. Mainland, the Company owns a portfolio of commercial and<br>
industrial properties, acquired primarily by way of tax-deferred exchanges<br>
under Code Section 1031, comprising a total of approximately 4.0 million square<br>
feet of leasable area, as follows:<br>
<br>
<br>
<br>
Leasable Area<br>
Property Location Type (sq. ft.)<br>
- -------- -------------------- ------------------------ -------------<br>
<br>
Ontario Distribution Center.... Ontario, CA Warehouse 895,500<br>
Great Southwest Industrial..... Dallas, TX Warehouse 842,900<br>
Ontario-Pacific Business Centre Ontario, CA Warehouse 246,100<br>
Valley Freeway Corporate Park.. Kent, WA Warehouse 229,100<br>
Airport Square................. Reno, NV Retail 170,800<br>
San Pedro Plaza................ San Antonio, TX Office 163,800<br>
2868 Prospect Park............. Sacramento, CA Office 160,700<br>
Day Creek Industrial........... Ontario, CA Warehouse 147,300<br>
Arbor Park..................... San Antonio, TX Retail 139,500<br>
Mesa South Center.............. Phoenix, AZ Retail 133,600<br>
Moulton Plaza.................. Laguna Hills, CA Retail 133,600<br>
San Jose Avenue Warehouse...... City of Industry, CA Warehouse 126,000<br>
Southbank II................... Phoenix, AZ Office 120,800<br>
Village at Indian Wells........ Indian Wells, CA Retail 104,600<br>
2450 Venture Oaks.............. Sacramento, CA Office 99,000<br>
Northwest Business Center...... San Antonio, TX Service Center/Warehouse 87,100<br>
Carefree Court................. Carefree, AZ Retail 85,000<br>
Wilshire Center................ Greeley, CO Retail 46,700<br>
Market Square.................. Greeley, CO Retail 43,300<br>
<br>
<br>
10<br>
<br>
<br>
<br>
In January 2001, the Company sold its Bainbridge Property portfolio located<br>
on Bainbridge Island, WA. This portfolio included two retail properties and an<br>
office building, having a combined leasable area of 114,600 square feet. In<br>
June 2001, the Company acquired the Carefree Court shopping center, located in<br>
the resort community of Carefree, AZ, situated north of Scottsdale, AZ. This<br>
property was acquired as part of a Code Section 1031 exchange. In February<br>
2002, the Company sold the Great Southwest Industrial property, located in<br>
Dallas, TX.<br>
<br>
A&B's Mainland commercial properties achieved an average occupancy rate of<br>
93%, as compared to the 2000 average of 96%. The decrease primarily resulted<br>
from an increase in available space in the Great Southwest Industrial property.<br>
<br>
C. Food Products<br>
<br>
(1) Production<br>
<br>
A&B has been engaged in activities relating to the production of cane sugar<br>
and molasses in Hawaii since 1870, and production of coffee in Hawaii since<br>
1987. A&B's current food products operations consist of a sugar plantation on<br>
the island of Maui, operated by its Hawaiian Commercial & Sugar Company<br>
("HC&S") division, and a coffee farm on the island of Kauai, operated by its<br>
Kauai Coffee Company, Inc. ("Kauai Coffee") subsidiary.<br>
<br>
HC&S is Hawaii's largest producer of raw sugar, having produced 191,512 tons<br>
of raw sugar in 2001, or about 70% of the raw sugar produced in Hawaii,<br>
compared with 210,269 tons of raw sugar in 2000. The decrease in production was<br>
due primarily to an extended drought. Total Hawaii sugar production, in turn,<br>
amounted to approximately four percent of total United States sugar production.<br>
HC&S harvested 15,101 acres of sugar cane in 2001, compared with 17,266 acres<br>
in 2000. The decrease in acres harvested was due primarily to a<br>
later-than-expected factory startup in 2001 and unexpected factory problems and<br>
weather delays toward the end of the 2001 harvesting season. Yields averaged<br>
12.7 tons of sugar per acre in 2001, compared with 12.2 tons per acre in 2000.<br>
The average cost per ton of sugar produced at HC&S was $371 in 2001, compared<br>
with $331 in 2000. The increase in cost per ton was attributable to higher<br>
operating costs and lower sugar production. As a by-product of sugar<br>
production, HC&S also produced 71,207 tons of molasses in 2001, compared with<br>
70,551 tons in 2000.<br>
<br>
In 2001, 8,848 tons of the raw sugar produced by HC&S were produced as<br>
specialty food-grade raw sugars and sold under HC&S's Maui Brand(R) trademark.<br>
A $2.4 million expansion of the production facilities for these sugars was<br>
completed in February 2001. Further expansion is planned for 2002.<br>
<br>
During 2001, Kauai Coffee had approximately 3,400 acres of coffee trees<br>
under cultivation. The harvest of the 2001 coffee crop yielded approximately<br>
3.8 million pounds of green coffee, compared with 2.8 million pounds in 2000.<br>
The increased production was due primarily to better weather conditions in 2001.<br>
<br>
Due to weaknesses in the panelboard market, production problems and poor<br>
operating results, a development panelboard plant ceased operations and was<br>
abandoned. The plant, operated by Hawaiian DuraGreen, Inc., a wholly-owned<br>
subsidiary of A&B, produced panelboard from bagasse, a by-product in the<br>
production of sugar. A&B recorded operating losses and closure costs of<br>
$2,964,000, and a $11,387,000 write-down of the production assets, as a result<br>
of this action.<br>
<br>
HC&S and McBryde Sugar Company, Limited ("McBryde"), the parent company of<br>
Kauai Coffee, produce electricity for internal use and for sale to the local<br>
electric utility companies. HC&S's power is produced by burning bagasse, by<br>
hydroelectric power generation and, when necessary, by burning fossil fuels,<br>
whereas McBryde produces power solely by hydroelectric generation. The price<br>
for the power sold by HC&S and McBryde is equal to the utility companies'<br>
"avoided cost" of not producing such power themselves. In addition, HC&S<br>
receives a capacity payment to provide a guaranteed power generation capacity<br>
to the local utility. (See "Energy" below.)<br>
<br>
Kahului Trucking & Storage, Inc., a subsidiary of A&B, provides sugar and<br>
molasses hauling and storage, petroleum hauling, mobile equipment maintenance<br>
and repair services, and self-service storage facilities on Maui.<br>
<br>
11<br>
<br>
<br>
<br>
Kauai Commercial Company, Incorporated, another subsidiary of A&B, provides<br>
similar services on Kauai, as well as general trucking services.<br>
<br>
(2) Marketing of Sugar and Coffee<br>
<br>
Substantially all of the raw sugar produced in Hawaii is purchased, refined<br>
and marketed by C&H Sugar Company, Inc. ("C&H"), of which A&B owns a 36 percent<br>
common stock interest. The results of A&B's equity investment in C&H are<br>
reported in A&B's financial statements as an investment in an affiliate. C&H<br>
processes the raw cane sugar at its refinery at Crockett, California, and<br>
markets the refined products primarily in the western and central United<br>
States. HC&S markets its specialty food-grade raw sugars to food and beverage<br>
producers and to retail stores under its Maui Brand(R) label, and to<br>
distributors which repackage the sugars under their own labels. HC&S's largest<br>
food-grade raw sugar customers are Cumberland Packing Corp. and Sugar Foods<br>
Corporation, which repackage HC&S's turbinado sugar for their "Sugar in the<br>
Raw" products.<br>
<br>
Hawaiian Sugar & Transportation Cooperative ("HS&TC"), a cooperative<br>
consisting of the two remaining sugar cane growers in Hawaii (including HC&S),<br>
has a ten-year supply contract with C&H, ending in June 2003, pursuant to which<br>
the growers sell their raw sugar to C&H at a price equal to the New York #14<br>
Contract settlement price, less a discount and less costs of sugar vessel<br>
discharge and stevedoring. This price, after deducting the marketing,<br>
operating, distribution, transportation and interest costs of HS&TC, reflects<br>
the gross revenue to the Hawaii sugar growers, including HC&S. Notwithstanding<br>
the ten-year supply contract, HC&S arranged directly with C&H for the forward<br>
pricing of a substantial portion of its 2001 harvest, as described in Item 7A<br>
("Quantitative and Qualitative Disclosures About Market Risk") below. In<br>
addition, as of January 15, 2002, 30% of the expected 2002 harvest has been<br>
forward priced.<br>
<br>
At Kauai Coffee, coffee marketing efforts are directed toward developing a<br>
market for premium-priced, estate-grown Kauai green coffee. Most of the coffee<br>
crop is being marketed on the U.S. Mainland and in Asia as green (unroasted)<br>
coffee. In addition to the sale of green coffee, Kauai Coffee produces and<br>
sells roasted, packaged coffee in Hawaii under the "Kauai Coffee" trademark.<br>
<br>
(3) Competition and Sugar Legislation<br>
<br>
Hawaii sugar growers produce more sugar per acre than other major producing<br>
areas of the world, but that advantage is partially offset by Hawaii's high<br>
labor costs and the distance to the U.S. Mainland market. Hawaiian refined<br>
sugar is marketed primarily west of Chicago. This is also the largest beet<br>
sugar growing and processing area and, as a result, the only market area in the<br>
United States which produces more sugar than it consumes. Sugar from sugar<br>
beets is the greatest source of competition in the refined sugar market for the<br>
Hawaiian sugar industry.<br>
<br>
The overall U.S. caloric sweetener market continues to grow. The use of<br>
non-caloric (artificial) sweeteners accounts for a relatively small percentage<br>
of the domestic sweetener market. The anticipated increased use of high<br>
fructose corn syrup and artificial sweeteners is not expected to affect sugar<br>
markets significantly in the near future.<br>
<br>
The U.S. Congress historically has sought, through legislation, to assure a<br>
reliable domestic supply of sugar at stable and reasonable prices. The current<br>
protective legislation for domestic sugar, the Federal Agriculture Improvement<br>
and Reform Act (the "1996 Farm Bill"), provides a sugar loan program for the<br>
1996 through 2002 crops, with a loan rate (support price) of 18 cents per pound<br>
for raw sugar. The loan rate represents the value of sugar given as collateral<br>
for government price-support loans. The government is required to administer<br>
the sugar program at no net cost, and this is accomplished by adjusting fees<br>
and quotas for imported sugar to maintain the domestic price at a level that<br>
discourages producers from defaulting on loans. The ten-year supply contract<br>
between HS&TC and C&H limits HC&S's ability to place sugar under loan pursuant<br>
to the sugar loan program. The 1996 Farm Bill also eliminated marketing<br>
allotments, thereby removing the means of limiting domestic production. The<br>
1.25-million-ton minimum import quota set under the General Agreement on Tariff<br>
and Trade ("GATT") is retained in the 1996 Act.<br>
<br>
<br>
12<br>
<br>
<br>
<br>
During 2001, legislation was developed for a new omnibus farm bill ("2002<br>
Farm Bill"). A House farm bill, entitled the Farm Security Act of 2001, was<br>
approved by the U.S. House of Representatives on October 5, 2001. Among other<br>
things, that bill seeks to continue for ten years the current marketing loan<br>
program at current loan rates for sugar, and seeks to reestablish marketing<br>
allotments which are expected to stabilize prices. A Senate farm bill, with<br>
identical provisions for sugar, was approved by the U.S. Senate on February 13,<br>
2002. The 2002 Farm Bill is expected to be approved in 2002.<br>
<br>
In 2001, U.S. domestic raw sugar prices averaged 21.09 cents per pound,<br>
above the 20-year lows experienced in 2000, but still below historical<br>
averages. The pricing situation has improved, but continues to be challenging,<br>
even to efficient producers like HC&S. A chronological chart of the average<br>
U.S. domestic raw sugar prices, based on the average daily New York Contract<br>
#14 settlement price for domestic raw sugar, is shown below:<br>
<br>
[CHART]<br>
<br>
<br>
<br>
<br>
<br>
Jan-98 22.11<br>
FEB 21.79<br>
MAR 21.74<br>
APR 22.2<br>
MAY 22.28<br>
JUN 22.298<br>
JUL 22.32<br>
AUG 22.3<br>
SEP 22.25<br>
OCT 22.15<br>
NOV 22.03<br>
DEC 21.97<br>
Jan-99 22.41<br>
FEB 22.34<br>
MAR 22.55<br>
APR 22.58<br>
MAY 22.65<br>
JUN 22.63<br>
JUL 22.61<br>
AUG 21.31<br>
SEP 20.10<br>
OCT 20.51<br>
NOV 17.45<br>
DEC 17.67<br>
Jan-00 17.70<br>
FEB 17.05<br>
MAR 18.46<br>
APR 19.41<br>
MAY 19.12<br>
JUN 19.26<br>
JUL 17.64<br>
AUG 18.13<br>
SEP 18.97<br>
OCT 21.20<br>
NOV 21.39<br>
DEC 20.53<br>
Jan-01 20.81<br>
FEB 21.18<br>
MAR 21.40<br>
APR 21.51<br>
MAY 21.19<br>
JUN 21.04<br>
JUL 20.64<br>
AUG 21.01<br>
SEP 20.87<br>
OCT 20.85<br>
NOV 21.19<br>
DEC 21.35<br>
<br>
<br>
<br>
<br>
Liberalized international trade agreements, such as the GATT, include<br>
provisions relating to agriculture which can affect the U.S. sugar or sweetener<br>
industries materially. A "side" agreement that modified the North American Free<br>
Trade Agreement ("NAFTA") alleviated some of the sugar producers' concerns by<br>
limiting Mexico's exports of sugar to the U.S. under NAFTA. However, the export<br>
ceiling provided for in the side agreement increased to 250,000 tons of sugar<br>
in 2000, and will be eliminated in 2007. The increased sugar supply could<br>
affect domestic sugar prices adversely.<br>
<br>
Kauai Coffee competes with coffee growers located worldwide, including<br>
Hawaii. Due to an oversupply of coffee in the marketplace, coffee commodity<br>
prices dropped significantly in 2000 and continued to drop to record lows in<br>
2001.<br>
<br>
(4) Properties and Water<br>
<br>
The HC&S sugar plantation, the largest in Hawaii, consists of approximately<br>
43,300 acres of land, including 2,000 acres leased from the State of Hawaii and<br>
1,300 acres under lease from private parties. Over 37,000 acres are under<br>
cultivation, and the balance either is used for contributory purposes, such as<br>
roads and plant sites, or is not suitable for cultivation.<br>
<br>
McBryde owns approximately 9,500 acres of land on Kauai, of which<br>
approximately 2,400 acres are used for watershed and other conservation uses,<br>
approximately 3,400 acres are used by Kauai Coffee, and the remaining acreage<br>
is leased to various agricultural enterprises for cultivation of a variety of<br>
crops and for pasturage.<br>
<br>
Large quantities of water are needed by HC&S and Kauai Coffee for their<br>
sugar cane and coffee growing operations. Because of the importance of water,<br>
access to water, reliable sources of supply and efficient irrigation systems<br>
are crucial for the successful growing of sugar cane and coffee. A&B's<br>
plantations use a "drip" irrigation system that distributes water to the roots<br>
through small holes in plastic tubes. All of the cultivated cane land farmed by<br>
HC&S is drip irrigated. All of Kauai Coffee's fields also are drip irrigated.<br>
<br>
13<br>
<br>
<br>
<br>
A&B owns 16,000 acres of watershed lands on Maui, which supply a portion of<br>
the irrigation water used by HC&S. A&B also held four water licenses to 38,000<br>
acres owned by the State of Hawaii, which over the years supplied approximately<br>
one-third of the irrigation water used by HC&S. The last of these water license<br>
agreements expired in 1986, and all four agreements have since been extended as<br>
revocable permits that are renewable annually. In 2001, a request was made to<br>
the State Board of Land and Natural Resources to replace these revocable<br>
permits with a long-term water lease. Pending a contested case hearing before<br>
the Board on the request for the long-term lease, the Board approved a<br>
month-to-month holdover of the existing permits.<br>
<br>
D. Employees and Labor Relations<br>
<br>
As of December 31, 2001, A&B and its subsidiaries had approximately 2,054<br>
regular full-time employees. About 916 regular full-time employees were engaged<br>
in the growing of sugar cane and coffee and the production of raw sugar and<br>
green coffee, 927 were engaged in ocean transportation, 44 were engaged in<br>
property development and management, and the balance was in administration and<br>
miscellaneous operations. Approximately 55% were covered by collective<br>
bargaining agreements with unions.<br>
<br>
As of December 31, 2001, Matson and its subsidiaries also had approximately<br>
317 seagoing employees. Approximately 26% of Matson's regular full-time<br>
employees and all of the seagoing employees were covered by collective<br>
bargaining agreements.<br>
<br>
Historically, collective bargaining with longshore and seagoing unions has<br>
been complex and difficult. However, Matson and Matson Terminals consider their<br>
relations with those unions, other unions, and their non-union employees<br>
generally to be satisfactory.<br>
<br>
Matson's seagoing employees are represented by six unions, three<br>
representing unlicensed crew members and three representing licensed crew<br>
members. Matson negotiates directly with these unions. Collective bargaining<br>
agreements with the unions representing unlicensed crew members are expected to<br>
be renewed in mid-2002 without service interruption.<br>
<br>
SSA Terminals LLC ("SSAT"), the previously-described joint venture of Matson<br>
and Stevedoring Services of America ("SSA"), provides stevedoring and terminal<br>
services for Matson vessels calling at U.S. Pacific Coast ports. Matson, SSA,<br>
and SSAT are members of the Pacific Maritime Association ("PMA") which, on<br>
behalf of its members, negotiates collective bargaining agreements with the<br>
International Longshore Workers Union ("ILWU") on the Pacific Coast. Matson<br>
Terminals provides stevedoring and terminal services to Matson vessels calling<br>
at Honolulu. Matson Terminals is a member of the Hawaii Stevedore Industry<br>
Committee which, on behalf of its members, negotiates with the ILWU in Hawaii.<br>
Collective bargaining agreements with ILWU longshore workers on the Pacific<br>
Coast and in Hawaii are expected to be renewed in mid-2002 without service<br>
interruption.<br>
<br>
During 2001, Matson renewed its collective bargaining agreement with ILWU<br>
clerical workers at Los Angeles for a three-year term and expects to renew its<br>
agreement with ILWU clerical workers at Oakland in mid-2002 without service<br>
interruption.<br>
<br>
Matson contributed during 2001 to multi-employer pension plans for vessel<br>
crews. If Matson were to withdraw from or significantly reduce its obligation<br>
to contribute to one of the plans, Matson would review and evaluate data,<br>
actuarial assumptions, calculations and other factors used in determining its<br>
withdrawal liability, if any, and, in the event of material disagreement with<br>
such determination, would pursue the various means available to it under<br>
federal law for the adjustment or removal of its withdrawal liability. Matson<br>
Terminals participates in a multi-employer pension plan for its Hawaii<br>
longshore employees. For a discussion of withdrawal liabilities under the<br>
Hawaii longshore and seagoing plans, see Note 10 to A&B's financial statements<br>
in Item 8 below.<br>
<br>
Bargaining unit employees of HC&S are covered by two collective bargaining<br>
agreements with the ILWU. The agreements with the HC&S production unit<br>
employees and clerical bargaining unit employees were extended in 2001 and will<br>
expire January 31, 2003. A collective bargaining agreement with the ILWU for<br>
production employees of<br>
<br>
14<br>
<br>
<br>
<br>
Hawaiian DuraGreen, Inc. was negotiated, but all production employees<br>
subsequently were terminated in connection with the shutdown of the panelboard<br>
plant. The collective bargaining agreements covering the two ILWU bargaining<br>
units at Kahului Trucking & Storage, Inc. will expire on March 31, 2006 and on<br>
June 30, 2002 (the latter is expected to be renewed without service<br>
interruption). The two collective bargaining agreements with Kauai Commercial<br>
Company, Incorporated employees represented by the ILWU were renegotiated in<br>
2001 and will expire April 30, 2004. The collective bargaining agreement with<br>
the ILWU for the production unit employees of Kauai Coffee was renegotiated in<br>
2001 and will expire on January 31, 2004.<br>
<br>
E. Energy<br>
<br>
Matson and Matson Terminals purchase residual fuel oil, lubricants, gasoline<br>
and diesel fuel for their operations. Residual fuel oil is by far Matson's<br>
largest energy-related expense. In 2001, Matson vessels consumed approximately<br>
1.8 million barrels of residual fuel oil, the same as in 2000.<br>
<br>
Residual fuel oil prices paid by Matson started in 2001 at $127.50 per<br>
metric ton and ended the year at $103.00 per metric ton. A high of $180.50 per<br>
metric ton occurred in June, and a low of $92.00 per metric ton occurred in<br>
November. Sufficient fuel for Matson's requirements is expected to be available<br>
in 2002.<br>
<br>
As has been the practice with sugar plantations throughout Hawaii, HC&S uses<br>
bagasse, the residual fiber of the sugar cane plant, as a fuel to generate<br>
steam for the production of most of the electrical power for sugar milling and<br>
irrigation pumping operations. In addition to bagasse, HC&S uses diesel fuel<br>
oil, boiler fuel oil, and coal to produce power, principally for pumping<br>
irrigation water during the factory shutdown period when bagasse is not being<br>
produced. Since 1992, when suppliers of boiler fuel oil to HC&S discontinued<br>
regular shipments as a result of unlimited liability concerns arising from<br>
federal and state environmental laws, boiler fuel oil has been provided to HC&S<br>
on a space available basis. In 2001, HC&S produced 203,650 MWH of electric<br>
power and sold 61,074 MWH, compared with 217,279 MWH produced and 67,105 MWH<br>
sold in 2000. The reduction in power produced and sold was caused by HC&S's<br>
increased need to pump irrigation water, due to drought conditions. HC&S's oil<br>
use decreased to 68,999 barrels in 2001, from the 100,313 barrels used in 2000.<br>
Coal use for power generation increased, from 61,222 short tons in 2000 to<br>
62,389 short tons in 2001. The decrease in fuel oil used is attributed to<br>
HC&S's shutdown of one of its two sugar mills in 2000.<br>
<br>
In 2001, McBryde produced 30,637 MWH of hydroelectric power, compared with<br>
31,971 MWH of hydroelectric power produced in 2000. Power sales in 2001<br>
amounted to 21,216 MWH, compared with 23,375 MWH sold in 2000. The reduction in<br>
power production and sales was due primarily to continued drought conditions in<br>
2001.<br>
<br>
ITEM 3. LEGAL PROCEEDINGS<br>
<br>
See "Business and Properties--Ocean Transportation--Rate Regulation" above<br>
for a discussion of rate and other regulatory matters in which Matson is<br>
routinely involved.<br>
<br>
On September 14, 1998, Matson was served with a complaint filed by the<br>
Government of Guam with the Surface Transportation Board ("STB"), alleging that<br>
Sea-Land Services, Inc. ("Sea-Land"), American President Lines, Ltd. ("APL")<br>
and Matson have charged unreasonable rates in the Guam trade since January<br>
1991. Matson did not enter the trade until February 1996. On November 12, 1998,<br>
Matson filed an answer, denying that its rates have been unreasonable. Matson,<br>
Sea-Land and APL filed a joint motion to dismiss the complaint on February 16,<br>
1999. On November 15, 2001, the STB issued a decision, granting the motion in<br>
part and denying it in part. The STB dismissed the claim of discrimination,<br>
dismissed the aggregate rate challenge for shipments prior to September 10,<br>
1996, dismissed APL as a defendant based on the statute of limitations, and<br>
permitted the Caribbean Shippers Association to intervene. The parties have<br>
until April 9, 2002 to file initial briefs addressing the appropriate rate<br>
reasonableness methodology to be applied to the remaining issue of whether the<br>
aggregate rates charged by Matson and Sea-Land in the Guam trade after<br>
September 10, 1996 are reasonable. Reply briefs will be due on June 3, 2002.<br>
<br>
15<br>
<br>
<br>
<br>
A&B and its subsidiaries are parties to, or may be contingently liable in<br>
connection with, other legal actions arising in the normal conduct of their<br>
businesses, the outcomes of which, in the opinion of management after<br>
consultation with counsel, would not have a material adverse effect on A&B's<br>
results of operations or financial position.<br>
<br>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS<br>
<br>
Not applicable.<br>
<br>
EXECUTIVE OFFICERS OF THE REGISTRANT<br>
<br>
For the information about executive officers of A&B required to be included<br>
in this Part I, see paragraph B of "Directors and Executive Officers of the<br>
Registrant" in Part III below, which is incorporated into Part I by reference.<br>
<br>
PART II<br>
<br>
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS<br>
<br>
A&B common stock is listed on The Nasdaq Stock Market and trades under the<br>
symbol "ALEX". As of February 14, 2002, there were 4,233 shareholders of record<br>
of A&B common stock. In addition, Cede & Co., which appears as a single record<br>
holder, represents the holdings of thousands of beneficial owners of A&B common<br>
stock.<br>
<br>
A summary of daily stock transactions is listed in the Nasdaq National<br>
Market Issues section of major newspapers. Trading volume averaged 135,600<br>
shares a day in 2001, compared with 98,900 in 2000 and 105,800 in 1999.<br>
Currently, 19 firms make a market in ALEX.<br>
<br>
The quarterly high and low sales prices and closing prices, as reported by<br>
The Nasdaq Stock Market, and cash dividends paid per share of common stock, for<br>
2000 and 2001, were as follows:<br>
<br>
<br>
<br>
Market Price<br>
Dividends -----------------------<br>
Paid High Low Close<br>
2001 --------- ------- ------- -------<br>
----<br>
<br>
First Quarter................ $0.225 $29.609 $21.063 $21.375<br>
Second Quarter............... 0.225 25.840 20.610 25.750<br>
Third Quarter................ 0.225 26.430 21.120 23.410<br>
Fourth Quarter............... 0.225 27.920 21.600 26.700<br>
<br>
2000<br>
----<br>
First Quarter................ $0.225 $22.783 $17.938 $20.625<br>
Second Quarter............... 0.225 24.625 19.250 22.063<br>
Third Quarter................ 0.225 27.500 21.875 26.000<br>
Fourth Quarter............... 0.225 28.250 21.625 26.250<br>
<br>
<br>
Although A&B expects to continue paying quarterly cash dividends on its<br>
common stock, the declaration and payment of dividends in the future are<br>
subject to the discretion of the Board of Directors and will depend upon A&B's<br>
financial condition, results of operations, cash requirements and other factors<br>
deemed relevant by the Board of Directors. A&B strives to pay the highest<br>
possible dividends commensurate with operating and capital needs. A&B has paid<br>
cash dividends in every quarter since 1903. The most recent increase in the<br>
quarterly dividend rate was effective in the first quarter of 1998, from 22<br>
cents a share to 22.5 cents. In 2001, dividend payments to shareholders<br>
<br>
16<br>
<br>
<br>
<br>
totaled $36.5 million, which was 33% of reported net income for the year. The<br>
following dividend schedule for 2002 has been set, subject to final approval by<br>
the Board of Directors:<br>
<br>
<br>
<br>
Quarterly Dividend Declaration Date Record Date Payment Date<br>
------------------ ---------------- ----------- ------------<br>
<br>
First....... January 24 February 14 March 7<br>
Second...... April 25 May 6 June 6<br>
Third....... June 27 August 1 September 5<br>
Fourth...... October 24 November 7 December 5<br>
<br>
<br>
A&B common stock is included in the Dow Jones Transportation Index, the Dow<br>
Jones Composite Index, the Dow Jones Marine Transportation Index, the Dow Jones<br>
Sustainability Group Index and the S&P MidCap 400 Index.<br>
<br>
The number of shares of A&B common stock repurchased by A&B during each of<br>
the three years ended December 31, 2001 was as follows:<br>
<br>
<br>
<br>
Shares Average Price<br>
Year Repurchased (per share)<br>
---- ----------- -------------<br>
<br>
2001......................... 105,000 $21.61<br>
2000......................... 2,378,195 $20.29<br>
1999......................... 1,564,500 $22.26<br>
<br>
<br>
17<br>
<br>
<br>
<br>
ITEM 6. SELECTED FINANCIAL DATA<br>
<br>
The following financial data should be read in conjunction with Item 8,<br>
"Financial Statements and Supplementary Data," and Item 7, "Management's<br>
Discussion and Analysis of Financial Condition and Results of Operations" :<br>
<br>
<br>
<br>
2001 2000 1999 1998 1997<br>
---------- ---------- ---------- ---------- ----------<br>
(dollars and shares in thousands, except per-share amounts)<br>
<br>
ANNUAL OPERATIONS<br>
Total revenue/1/............................. $1,190,073 $1,068,646 $ 999,998 $1,343,475 $1,310,176<br>
Deduct:<br>
Cost of goods sold and operating expenses/1/. 908,777 849,375 812,783 1,174,881 1,065,470<br>
Depreciation and amortization............... 75,433 72,304 73,901 88,500 88,558<br>
Interest expense............................ 18,658 24,252 17,774 24,799 28,936<br>
Income taxes................................ 67,392 44,391 32,961 24,352 45,825<br>
---------- ---------- ---------- ---------- ----------<br>
Income from continuing operations before<br>
accounting changes......................... 119,813 78,324 62,579 30,943 81,387<br>
Discontinued operations...................... (9,185) -- -- -- --<br>
Cumulative effect of change in accounting<br>
methods.................................... -- 12,250 -- (5,801) --<br>
---------- ---------- ---------- ---------- ----------<br>
Net income................................... $ 110,628 $ 90,574 $ 62,579 $ 25,142 $ 81,387<br>
========== ========== ========== ========== ==========<br>
Comprehensive income......................... $ 48,691 $ 103,050 $ 48,711 $ 33,327 $ 88,326<br>
Earnings per share before accounting changes:<br>
Basic....................................... $ 2.96 $ 1.92 $ 1.45 $ 0.69 $ 1.80<br>
Diluted..................................... $ 2.94 $ 1.91 $ 1.45 $ 0.69 $ 1.80<br>
Return on beginning equity................... 15.9% 13.5% 9.0% 3.5% 11.9%<br>
Cash dividends per share..................... $ 0.90 $ 0.90 $ 0.90 $ 0.90 $ 0.88<br>
Average number of shares outstanding......... 40,535 40,898 43,206 44,760 45,182<br>
Gross profit percentage/1/................... 23.6% 23.0% 22.1% 17.0% 20.1%<br>
Effective income tax rate.................... 36.0% 36.5% 34.5% 45.4% 36.0%<br>
<br>
MARKET PRICE RANGE PER SHARE<br>
High........................................ $ 29.609 $ 28.250 $ 27.125 $ 31.125 $ 29.375<br>
Low......................................... 20.610 17.938 18.625 18.813 24.375<br>
Close....................................... 26.700 26.250 22.813 23.250 27.313<br>
<br>
AT YEAR END<br>
Shareholders of record...................... 4,252 4,438 4,761 5,125 5,481<br>
Shares outstanding.......................... 40,529 40,353 42,526 44,028 44,881<br>
Shareholders' equity........................ $ 710,667 $ 693,651 $ 670,963 $ 694,642 $ 719,588<br>
Per-share................................. 17.54 17.19 15.78 15.78 16.03<br>
Total assets................................ 1,544,419 1,666,012 1,561,460 1,605,640 1,704,798<br>
Working capital............................. 24,445 55,861 59,805 67,113 114,806<br>
Cash and cash equivalents................... 19,291 3,451 3,333 86,818 21,623<br>
Real estate developments - noncurrent....... 47,840 62,628 60,810 57,690 68,056<br>
Investments - noncurrent.................... 33,021 183,141 158,726 159,068 102,813<br>
Capital Construction Fund................... 158,737 150,405 145,391 143,303 148,610<br>
Long-term debt - noncurrent................. 207,378 330,766 277,570 255,766 292,885<br>
Current ratio............................... 1.1 to 1 1.4 to 1 1.4 to 1 1.4 to 1 1.7 to 1<br>
Capital stock price/earnings ratio.......... 9.8 to 1 11.9 to 1 15.7 to 1 41.5 to 1 15.2 to 1<br>
<br>
- --------<br>
/1/ See Note 2 to the consolidated financial statements in Item 8 for<br>
information regarding changes which were made in 2000 in presentation for<br>
certain revenues and expenses.<br>
<br>
18<br>
<br>
<br>
<br>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS<br>
OF OPERATIONS<br>
<br>
The following analysis of the consolidated financial condition and results<br>
of operations of Alexander & Baldwin, Inc. and its subsidiaries (collectively,<br>
the "Company") should be read in conjunction with the consolidated financial<br>
statements and related notes thereto.<br>
<br>
FORWARD-LOOKING STATEMENTS<br>
<br>
The Company, from time to time, may make or may have made certain<br>
forward-looking statements, whether orally or in writing, such as forecasts and<br>
projections of the Company's future performance or statements of management's<br>
plans and objectives. These statements are "forward-looking" statements as that<br>
term is defined in the Private Securities Litigation Reform Act of 1995. Such<br>
forward-looking statements may be contained in, among other things, Securities<br>
and Exchange Commission (SEC) filings, such as the Forms 10-K, press releases<br>
made by the Company, the Company's Internet Web sites (including Web sites of<br>
its subsidiaries), and oral statements made by the officers of the Company.<br>
Except for historical information contained in these written or oral<br>
communications, such communications contain forward-looking statements. These<br>
forward-looking statements involve a number of risks and uncertainties that<br>
could cause actual results to differ materially from those projected in the<br>
statements, including, but not limited to: (1) impact of events of September<br>
11, 2001; (2) economic conditions in Hawaii and elsewhere; (3) market demand;<br>
(4) competitive factors and pricing pressures in the Company's primary markets;<br>
(5) legislative and regulatory environments at the federal, state and local<br>
levels, such as government rate regulations, land-use regulations, government<br>
administration of the U.S. sugar program, and modifications to or retention of<br>
cabotage laws; (6) dependence on third-party suppliers; (7) fuel prices; (8)<br>
raw sugar prices; (9) labor relations; (10) risks associated with current or<br>
future litigation and resolution of tax issues with the IRS and state tax<br>
authorities; (11) the performance of unconsolidated affiliates and ventures;<br>
and (12) other risk factors described elsewhere in these communications and<br>
from time to time in the Company's filings with the SEC.<br>
<br>
CONSOLIDATED RESULTS OF OPERATIONS<br>
<br>
Consolidated Earnings and Revenue: Net income in 2001 was $110,628,000, or<br>
$2.73 per basic share, versus $90,574,000, or $2.21 per basic share, in 2000<br>
and $62,579,000, or $1.45 per basic share, in 1999. Revenue in 2001 was<br>
$1,190,073,000, compared with revenue of $1,068,646,000 in 2000 and<br>
$999,998,000 in 1999.<br>
<br>
Accounting Changes and Significant Transactions<br>
<br>
2001: Results for 2001 include the sales of the Company's marketable<br>
equity securities. The sales of these securities resulted in cash receipts of<br>
approximately $134,722,000, pre-tax gains of approximately $125,478,000 and<br>
after-tax gains of about $77,788,000 ($1.92 per basic share). The Company also<br>
donated appreciated stock with an approximate fair value of $7,500,000 to its<br>
charitable foundation. These sales are described more fully in Note 5 to the<br>
consolidated financial statements included in Item 8.<br>
<br>
The Company reduced the carrying value of its equity investments in C&H<br>
Sugar Company, Inc. ("C&H") by $28,600,000. This resulted in an after-tax<br>
charge of $17,732,000 ($0.44 per basic share). In addition, the Company wrote<br>
off $4,823,000 of power generation equipment, resulting in a $3,087,000<br>
after-tax charge to earnings ($0.08 per basic share). These impairments are<br>
discussed more fully in Note 4 to the consolidated financial statements<br>
included in Item 8.<br>
<br>
The Company discontinued and abandoned its panelboard manufacturing<br>
subsidiary on Maui. This discontinued operation resulted in a $9,185,000<br>
after-tax charge to earnings ($0.23 per basic share). This is described in Note<br>
3 to the consolidated Financial statements included in Item 8.<br>
<br>
2000: The Company made two changes in accounting methods (See Note 2 to<br>
the consolidated financial statements). The first change was for vessel<br>
drydocking costs at Matson. Previously, the estimated costs for future<br>
drydocking of vessels were accrued in advance of the drydocking. Subsequent<br>
payments were charged against the accrued liability. Under the new method,<br>
drydocking expenditures that benefit future periods are capitalized and<br>
<br>
19<br>
<br>
<br>
<br>
depreciated. This change increased 2000 net income by $12,250,000 (net of<br>
income tax expense of $7,668,000), or $0.29 per basic share. The second change<br>
was for the presentation of certain costs recorded in the ocean transportation<br>
and property leasing segments, which previously were recorded as an offset to<br>
revenue. This change did not affect net income.<br>
<br>
1999: Following continuing operating losses, depressed coffee prices and<br>
negative cash flows at Kauai Coffee Company, Inc. ("Kauai Coffee"), the<br>
Company's coffee plantation, the Company recorded an after-tax charge of<br>
$9,571,000, or $0.22 per basic share, to write down the recorded value of<br>
orchards and other non-current assets to their estimated fair values.<br>
<br>
RESULTS OF INDUSTRY SEGMENT OPERATIONS<br>
<br>
Detailed information related to the operations and financial performance of<br>
the Company's Industry Segments is included in Note 14 of Item 8 "Financial<br>
Statements and Supplementary Data." The following information should be read in<br>
relation to information contained in that Note.<br>
<br>
2001 Compared with 2000<br>
<br>
Ocean Transportation revenue of $796,840,000 was $53,852,000, or six<br>
percent, lower than the $850,692,000 reported for 2000. Operating profit of<br>
$62,264,000 was $31,468,000, or 34 percent, lower than the $93,732,000 reported<br>
during the prior year. The revenue and operating profit declines were directly<br>
attributable to cargo volumes and productivity issues.<br>
<br>
Matson's total Hawaii Service container volume, at 149,636 units, was one<br>
percent lower than 2000 container volume of 151,496 units. Matson's total<br>
Hawaii Service automobile volume, at 122,389 units, was seven percent lower<br>
than 2000 automobile volume of 132,186 units. The lower cargo and automobile<br>
volumes were primarily the result of the weakened Hawaii economy following the<br>
September 11, 2001 terrorist attacks on the United States of America. These<br>
attacks had a significantly adverse effect on air travel. This reduced Hawaii<br>
tourism and, in turn, significantly reduced the fourth quarter carriage of<br>
commercial cargo and automobiles to Hawaii. In January 2002, Matson reduced the<br>
number of vessels in the Hawaii Service from eight to seven.<br>
<br>
In addition to the lower container and automobile carriage, transition<br>
problems related to a terminal improvement project at Matson's Honolulu<br>
terminal reduced productivity during the fourth quarter. Lower results from<br>
Matson's investments in a shipping operation in Puerto Rico and from a<br>
stevedoring joint venture also adversely affected the total-year results.<br>
<br>
A 3.5 percent increase in Hawaii Service rates announced in 2000 took effect<br>
in February 2001. Total fuel costs decreased by $7,609,000 in 2001 versus 2000,<br>
resulting in a decrease in the fuel surcharge from 4.25% to 3.25%.<br>
<br>
Property Leasing revenue of $70,685,000 was 14 percent higher than 2000<br>
revenue of $62,105,000 and operating profit of $34,139,000 was 13 percent<br>
higher than 2000 operating profit of $30,120,000. These increases were due<br>
primarily to additions to the leased property portfolio and higher occupancy<br>
levels in the Hawaii portfolio and increased royalty revenue. Occupancy levels<br>
for the Mainland portfolio averaged 93 percent in 2001, versus 96 percent in<br>
2000. The Company owned four million square feet of leasable improved property<br>
on the Mainland at year-end 2001, the same as at the year-end 2000. Occupancy<br>
levels for the Hawaii properties averaged 90% in 2001, versus 86% in 2000. The<br>
Company owned 1.5 million square feet of leasable improved property in Hawaii<br>
at year-end 2001 compared with 1.2 million square feet at year-end 2000.<br>
<br>
Property Sales revenue of $89,156,000 for 2001 compared with $46,322,000 of<br>
revenue a year earlier. Operating profit was $17,926,000 for 2001 compared with<br>
operating profit of $24,228,000 for 2000. These fluctuations are due primarily<br>
to the changed composition of sales during the two years.<br>
<br>
20<br>
<br>
<br>
<br>
The mix of property sales in any year can be diverse. Sales can include<br>
property sold under threat of condemnation, developed residential real estate,<br>
commercial properties, developable subdivision lots and undeveloped land. The<br>
sale of undeveloped land and vacant parcels generally provides a greater<br>
contribution margin than does the sale of residential, developed and commercial<br>
property, due to the low historical-cost basis of the Company's Hawaii land.<br>
Consequently, property sales revenue trends and the amount of real estate held<br>
for sale on the balance sheets do not necessarily indicate future profitability<br>
for this segment.<br>
<br>
Sales in 2001 included a 14-acre parcel at Maui Business Park to Wal-Mart,<br>
three commercial properties in Bainbridge, Washington, a four-acre parcel on<br>
Maui, 82 residential properties and a 68-acre parcel for highway widening on<br>
Maui. Sales in 2000 included a ground lease under a Costco store, a 13-acre<br>
parcel at Maui Business Park, 16 business parcels and 28 residential properties.<br>
<br>
Food Products revenue of $104,376,000 in 2001 compared with revenue of<br>
$106,341,000 in 2000. Operating profit of $5,660,000 in 2001 was 25% lower than<br>
the $7,522,000 earned in 2000. The benefits of higher domestic raw sugar and<br>
molasses prices throughout 2001 and improved sales of natural sugars under the<br>
Maui Brand(R) label were more than offset by a write-off of power generation<br>
equipment which was no longer needed in the business, lower raw sugar<br>
production and power sales, and lower results from A&B's minority investment in<br>
C&H. The previously discussed impairment loss related to the Company's<br>
investment in C&H was not included in segment operating profit.<br>
<br>
HC&S produced 191,512 tons of raw sugar during 2001, compared with 210,269<br>
tons a year earlier. This lower production was the result of harvesting nearly<br>
12.5% fewer acres in 2001, compared with 2000, combined with extended drought<br>
conditions. Although drought conditions on Maui have lessened in late 2001 and<br>
early 2002, this remains a primary risk factor for this business segment's<br>
operations.<br>
<br>
For 2001, HC&S forward priced 95% of its 2001 crop at an average price of<br>
$21.13/cwt. This forward pricing program started with the 2001 crop, following<br>
an average sales price $19.10/cwt. for 2000. Through the forward pricing<br>
program, HC&S expects to stabilize its 2002 raw sugar sales prices above<br>
$21.00/cwt.<br>
<br>
A panelboard business, Hawaiian DuraGreen, was discontinued, due to<br>
depressed sales prices and production problems. This is described more fully in<br>
Note 3 to the consolidated financial statements included in Item 8.<br>
<br>
Other operating profit of $127,635,000 for 2001 was due primarily to the<br>
sales of marketable equity securities during 2001. This is described more fully<br>
in Note 5 of the consolidated financial statements included in Item 8.<br>
<br>
2000 Compared with 1999<br>
<br>
Ocean Transportation revenue of $850,692,000 was nine percent higher than<br>
1999 revenue of $778,535,000. Operating profit of $93,732,000 showed a<br>
12-percent improvement over 1999 operating profit of $83,778,000. Hawaii<br>
service container volume in 2000 was flat compared with 1999 and automobile<br>
volume was 31 percent higher. The primary revenue gains occurred in the<br>
lower-margin intermodal business. Operating results for 2000 benefited from<br>
improved performance by the Company's SSAT terminal operating joint venture and<br>
by its Matson Intermodal System subsidiary. Operating results for 1999 were<br>
affected adversely by lower productivity, due to disruptions related to the<br>
1999 renegotiation of longshore labor agreements.<br>
<br>
Matson's total Hawaii Service container volume was 151,496 units in 2000,<br>
compared with 151,215 units in 1999. Matson's total Hawaii Service automobile<br>
volume, at 132,186 units, was 31 percent higher than 1999 automobile volume of<br>
101,095 units.<br>
<br>
A 3.9 percent increase in Hawaii Service rates announced in 1999 took effect<br>
in February 2000. To mitigate partially the effect of rising fuel prices, the<br>
1.75 percent fuel surcharge in effect at the end of 1999 was increased, in<br>
three steps, to 4.25 percent during 2000. Total fuel costs increased by<br>
$17,900,000 in 2000 versus 1999. This increased cost was only partially offset<br>
by the fuel surcharge.<br>
<br>
21<br>
<br>
<br>
<br>
Property Leasing revenue of $62,105,000 was 15 percent higher than 1999<br>
revenue of $53,910,000, and operating profit of $30,120,000 improved ten<br>
percent compared with 1999 operating profit of $27,497,000. These improvements<br>
were due to higher occupancy levels, increased rents and newly acquired<br>
properties. Occupancy rates for the Mainland properties averaged 96 percent in<br>
2000, versus 94 percent in 1999. The Company owned four million square feet of<br>
leasable property on the Mainland at year-end 2000, compared with 3.1 million<br>
square feet at year-end 1999. Occupancy levels for the Hawaii properties<br>
averaged 86 percent in 2000, versus 81 percent in 1999. The Company owned 1.2<br>
million square feet of leasable property in Hawaii at the end of both 2000 and<br>
1999.<br>
<br>
Property Sales revenue of $46,322,000 was down slightly from the $48,036,000<br>
in sales recorded in 1999, while operating profit of $24,228,000 was 39 percent<br>
higher than the $17,402,000 achieved in 1999, due to mix. Property sales in<br>
2000 included the ground lease for a Costco store, a 13-acre parcel at Maui<br>
Business Park, 16 business parcels and 28 residential properties. Sales in 1999<br>
included an office/research building in Seattle, two developed business<br>
parcels, three undeveloped parcels and 41 residential properties.<br>
<br>
Food Products revenue of $106,341,000 in 2000 compared with revenue of<br>
$116,362,000 in 1999. Operating profit of $7,522,000 in 2000 was 33 percent<br>
lower than the $11,310,000 earned in 1999. The primary reasons for the declines<br>
were U.S. raw sugar prices, which were 20 percent below historical levels,<br>
lower raw sugar production that resulted from continuing drought conditions on<br>
the island of Maui, and the write down of certain assets associated with the<br>
closure of the Company's raw sugar processing factory in Paia, Maui, which<br>
consolidated the processing operation into one factory. These factors were<br>
offset partially by benefit plan settlement gains, insurance-related gains at<br>
Hawaiian Commercial & Sugar Company ("HC&S"), the Company's raw sugar producing<br>
unit on Maui, and a profit turnaround at Kauai Coffee.<br>
<br>
Although HC&S harvested about the same number of acres, sugar production of<br>
approximately 210,000 tons in 2000 was eight percent lower than the prior<br>
year's production of 228,000 tons. Lower production was due to the drought<br>
conditions noted earlier. The average No. 14 domestic raw sugar price for 2000<br>
was $19.10/cwt. This was $3.08/cwt. below 1999's price of $22.18/cwt. and was<br>
the lowest level in 20 years.<br>
<br>
Results from Kauai Coffee showed a small profit for 2000, following a<br>
successful business re-engineering in 1999, which included the write-down of<br>
its orchards and processing equipment to fair values and the implementation of<br>
other business process improvements. In addition, sales and marketing efforts<br>
were improved during 2000.<br>
<br>
ECONOMIC OUTLOOK<br>
<br>
Although none of the Company's operations were directly affected by the East<br>
Coast terrorist attacks of September 11, 2001, the events compounded<br>
pre-existing concerns about the outlook for Hawaii's economy. They also created<br>
unprecedented uncertainty about how to assess the extent, pace and duration of<br>
the decline that continues to be felt throughout the United States. Pre-dating<br>
the terrorist attacks were a slowing of the United States' economy and the<br>
economic challenges in Asia. The combination of these events had a significant<br>
effect on 2001 fourth quarter tourism and, consequently, A&B's Ocean<br>
Transportation cargo volumes were lower than in previous quarters. The effect<br>
on real-estate activities was moderate and there was little effect on the<br>
Company's Food Products segment.<br>
<br>
The performance of the Ocean Transportation segment for 2002 will depend on<br>
Matson's realizing the benefits of its Honolulu terminal improvement project,<br>
balancing its service levels and cost structure to shipper demand and improving<br>
returns from both its shipping investment in Puerto Rico and its stevedoring<br>
joint venture.<br>
<br>
Even assuming continued economic recovery, Property Management & Development<br>
operating profit for 2002 is expected to be modestly lower than 2001 operating<br>
profit. Property leasing activity is forecast to continue at a steadily rising<br>
pace, due to properties acquired in 2001, rent rollovers and possible new<br>
acquisitions. Property sales revenue is expected to exceed 2001 sales revenue,<br>
but the contribution to operating profit is expected to be lower, due to the<br>
mix of higher basis property sales in 2002. Investment opportunities, in both<br>
development and income-producing properties, and especially in Hawaii, remain a<br>
primary growth focus.<br>
<br>
22<br>
<br>
<br>
<br>
The 2002 outlook for Food Products includes stable raw sugar prices, greater<br>
raw-sugar production, as drought conditions reverse, and tight cost controls.<br>
These positive factors are expected to boost Food Products' operating profit in<br>
2002.<br>
<br>
In the aggregate, with the combination of operating profit growth from a low<br>
base in Ocean Transportation, stable growth in Property Leasing, the timing of<br>
real-estate sales, the normal seasonality of the Food Products segment, and<br>
economic growth in Hawaii, it is likely that operating profit during the first<br>
two, and possibly three, quarters of 2002 will be lower than comparable 2001<br>
periods. It is expected that this would be followed by a return to more normal<br>
trends by the end of 2002.<br>
<br>
FINANCIAL CONDITION AND LIQUIDITY<br>
<br>
Liquid Resources: Liquid resources of the Company, comprising cash and cash<br>
equivalents, receivables, inventories and unused lines of credit, less accrued<br>
deposits to the Capital Construction Fund (CCF), totaled $527,856,000 at<br>
December 31, 2001, an increase of $282,784,000 from December 31, 2000. This net<br>
increase was due primarily to additional credit facilities (see next paragraph<br>
and Note 8), lower balances drawn on continuing facilities and higher cash<br>
balances, partially offset by the termination of a $25,000,000 credit facility<br>
that had expired in late 2000 and lower trade receivable balances.<br>
<br>
New Financing Agreements: During 2001, the Company increased its revolving<br>
credit and term loan agreement from $140,000,000 to $185,000,000 and extended<br>
the term of the facility for three years, entered into a $50,000,000 private<br>
shelf agreement and withdrew from a $25,000,000 uncommitted credit facility. In<br>
addition, the Company's subsidiary, Matson, added a new $40,000,000 revolving<br>
credit agreement and entered into a $50,000,000 private shelf agreement. This<br>
additional capacity is reflected in liquid resources and the nature of the<br>
facilities are described more fully in Note 8 to the consolidated financial<br>
statements. These new and increased credit facilities may be used for possible<br>
future real estate and ocean transportation related capital investments and<br>
acquisitions.<br>
<br>
Working Capital: Working capital was $24,445,000 at December 31, 2001, a<br>
decrease of $31,416,000 from a year earlier. The lower working capital was due<br>
primarily to higher income taxes and accounts payable, and to lower trade<br>
receivables and prepaid assets, partially offset by higher other assets held<br>
for sale and cash balances. The higher amount of income taxes payable was due<br>
to the sale of BancWest Corporation shares in late December 2001. The lower<br>
trade receivables balance was due primarily to a decrease in ocean<br>
transportation revenue and to the timing of billing cycles that overlap<br>
year-end. Higher other assets held for sale was due primarily to the<br>
anticipated sale of two vessels, as described in Note 5 to the consolidated<br>
financial statements. The fluctuations in accounts payable and prepaid assets<br>
were in the ordinary course of business.<br>
<br>
Receivables: At December 31, 2001, the Company had receivables totaling<br>
$130,491,000, compared with $141,553,000 a year earlier. These amounts are net<br>
of allowances for doubtful accounts of $7,252,000 and $6,579,000, respectively.<br>
The decline in receivables was mainly the result of lower Matson cargo during<br>
the fourth quarter of 2001. The Company's management believes that the quality<br>
of these receivables is good and that its reserves are adequate.<br>
<br>
Operating Cash Flows: Net cash provided by operations was $150,968,000 and<br>
$104,278,000 for 2001 and 2000, respectively. Net operating cash flows were<br>
used principally for capital expenditures, payments of debt, dividends,<br>
repurchases of capital stock and deposits into the CCF. Withdrawals from the<br>
CCF in 2001 were used principally for vessel modifications and equipment<br>
purchases. Approximately $41,928,000 of taxes related to the December sales of<br>
marketable equity securities was accrued as a current liability at year-end.<br>
Although this improved 2001 operating cash flows, when the taxes are paid, 2002<br>
operating cash flows will be comparably reduced.<br>
<br>
Capital Additions: Capital additions comprise capital expenditures for<br>
property and capital expenditures for real property (including the<br>
re-deployment of non-cash tax deferred funds to purchase property) but excludes<br>
capital expenditures for real-estate developments held for sale, since this<br>
latter item is treated as inventory on the<br>
<br>
23<br>
<br>
<br>
<br>
balance sheets. Capital additions during 2001 were $141,440,000, compared with<br>
$106,904,000 in 2000. Ocean transportation capital additions in 2001 of<br>
$59,669,000 were primarily for terminal improvements, vessel modifications,<br>
technology investments and the acquisition of container and terminal equipment.<br>
Property development and management capital additions in 2001 of $72,050,000<br>
included $42,257,000 for the redeployment of tax deferred sales proceeds into<br>
similar income producing assets and $29,793,000 for the development of real<br>
estate, for improvements to leased properties, and for the purchase of<br>
developed commercial property. Food products capital additions in 2001 of<br>
$9,454,000 were primarily for routine factory modifications and replacements.<br>
<br>
Other Financing Arrangements: As described in Notes 5 and 13 to the<br>
consolidated financial statements, the Company or its subsidiaries guarantee<br>
$31,500,000 of debt of an unconsolidated affiliate, guarantee up to $15,000,000<br>
of debt of an unconsolidated sugar marketing and transportation cooperative,<br>
and have $26,019,000 of standby letters of credit. These amounts are not<br>
recorded on the Company's balance sheet. The Company does not currently expect<br>
that it will be called upon to advance funds under these commitments.<br>
<br>
Other Commitments: Capital expenditures approved but not yet spent were<br>
$77,633,000 at December 31, 2001. These expenditures are primarily for real<br>
estate developments held for investment purposes, containers and operating<br>
equipment and vessel modifications. For 2002, internal cash flows and<br>
short-term borrowing facilities are expected to be sufficient to finance<br>
working capital needs, dividends, capital expenditures and debt service.<br>
<br>
Contingencies: The Company and certain subsidiaries are parties to various<br>
legal actions and are contingently liable in connection with claims and<br>
contracts arising in the normal course of business, the outcome of which, in<br>
the opinion of management after consultation with legal counsel, will not have<br>
a material adverse effect on the Company's financial position or results of<br>
operations.<br>
<br>
OTHER MATTERS<br>
<br>
Tax-Deferred Real Estate Exchanges: In 2001, the Company sold, on a<br>
tax-deferred basis, nine properties for $31,854,000. These included the sales<br>
of a 14-acre industrial lot to Wal-Mart, three commercial properties in<br>
Bainbridge, Washington and a four-acre parcel on Maui and the sale under threat<br>
of condemnation of a 68-acre parcel on Maui for highway widening. During the<br>
year, the Company reinvested $42,257,000 in four replacement properties. At<br>
December 31, 2001, $2,200,000 of tax deferred proceeds had not been reinvested<br>
compared to $12,900,000 at the end of 2000.<br>
<br>
Funds received in tax-deferred sales of like-kind property are held by a<br>
third party agent and are included in other non-current assets on the Balance<br>
Sheets. These proceeds and the subsequent purchases of replacement property are<br>
reported in the Statements of Cash Flows under the caption "Non-cash<br>
Activities." Funds received for sales under threat of condemnation are not<br>
required to be held by a third party agent and are included in cash flows from<br>
investing activities.<br>
<br>
Environmental Matters: As with most industrial and land-development<br>
companies of its size, the Company's operations have certain risks that could<br>
result in expenditures for environmental remediation. The Company believes that<br>
it is in compliance, in all material respects, with applicable environmental<br>
laws and regulations, and works proactively to identify potential environmental<br>
concerns. Management believes that appropriate liabilities have been accrued<br>
for environmental matters.<br>
<br>
Dependence on Information Technology Systems: The Company is partially<br>
dependent on information technology systems to support its ability to conduct<br>
business. These dependencies primarily include accounting, billing, payable,<br>
cargo booking, vessel scheduling and stowage, banking, payrolls and employee<br>
communications. All of these systems are vulnerable to reliability issues,<br>
integration and compatibility concerns, and security-threatening intrusions.<br>
The Company has had no significant instances of interruption to these systems.<br>
<br>
Management believes that its information technology and systems are adequate<br>
to meet the requirements of its business and operations. It continues to make<br>
investments of capital for infrastructure, system development and<br>
<br>
24<br>
<br>
<br>
<br>
maintenance, system security and staffing and staff development. However, there<br>
can be no assurances that future incidents, whether accidental or malicious,<br>
could not affect adversely the function of the Company's information systems<br>
and operations.<br>
<br>
Significant Accounting Policies: The Company's significant accounting<br>
policies and the impacts of newly issued accounting standards are described in<br>
Notes 1 and 2 to the consolidated financial statements included in Item 8.<br>
<br>
Management Changes: During 2001, the Company hired Raymond L. Smith as<br>
Matson's Chief Operating Officer, a newly created position, and hired Matthew<br>
J. Cox as Matson's Senior Vice President, Chief Financial Officer and<br>
Controller, the latter replacing Raymond J. Donohue, who retired. Also, in<br>
2001, Christopher J. Benjamin joined A&B as Director of Corporate Development<br>
and Planning, and Michael G. Wright joined A&B Properties, Inc. as Vice<br>
President, Acquisitions and Investments.<br>
<br>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK<br>
<br>
A&B, in the normal course of doing business, is exposed to the risks<br>
associated with fluctuations in the market value of certain financial<br>
instruments. A&B maintains a portfolio of investments, pension fund investments<br>
and, through its Capital Construction Fund, an investment in mortgage-backed<br>
securities. Details regarding these financial instruments are described in<br>
Notes 4, 5, 7 and 10 to the consolidated financial statements in Item 8,<br>
"Financial Statements and Supplementary Data."<br>
<br>
A&B also is exposed to changes in U.S. interest rates, primarily as a result<br>
of its borrowing and investing activities used to maintain liquidity and to<br>
fund business operations. Details regarding these matters are described in Note<br>
8 in Item 8, "Financial Statements and Supplementary Data." The Company does<br>
not use interest rate derivative instruments such as interest rate swaps,<br>
currency swaps, futures or options, to manage its exposure to interest rate<br>
risk or for speculative purposes but may choose to use such instruments to<br>
manage interest rate risk in the future.<br>
<br>
A&B's sugar plantation, HC&S, has a contract to sell its raw sugar<br>
production to Hawaiian Sugar & Transportation Cooperative ("HS&TC"), an<br>
unconsolidated sugar and marketing cooperative, in which the Company has an<br>
ownership interest, until June 2003. Under that contract, the price paid will<br>
fluctuate with the New York Contract #14 settlement price for domestic raw<br>
sugar, less a fixed discount. The Company also has an agreement with C&H Sugar<br>
Company, Inc, the primary purchaser of sugar from HS&TC, which allows the<br>
Company to forward price, with C&H, a portion of its raw sugar deliveries to<br>
HS&TC.<br>
<br>
The Company has no direct material exposure to foreign currency risks,<br>
although it is indirectly affected by changes in currency rates to the extent<br>
that this affects tourism in Hawaii.<br>
<br>
A&B believes that, as of December 31, 2001, its exposure to market risk<br>
fluctuations for its financial instruments was not material.<br>
<br>
25<br>
<br>
<br>
<br>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA<br>
<br>
<br>
<br>
Page<br>
----<br>
<br>
Management's Report............................................. 27<br>
Independent Auditors' Report.................................... 28<br>
Consolidated Statements of Income............................... 29<br>
Consolidated Statements of Cash Flows........................... 30<br>
Consolidated Balance Sheets..................................... 31<br>
Consolidated Statements of Shareholders' Equity................. 32<br>
Notes to Consolidated Financial Statements...................... 33<br>
1. Summary of Significant Accounting Policies............... 33<br>
2. Changes in Accounting Methods............................ 36<br>
3. Discontinued Operations.................................. 36<br>
4. Impairment of Long-Lived Assets and Investments.......... 37<br>
5. Investments.............................................. 38<br>
6. Property................................................. 40<br>
7. Capital Construction Fund................................ 40<br>
8. Notes Payable and Long-term Debt......................... 41<br>
9. Leases................................................... 42<br>
10. Employee Benefit Plans................................... 44<br>
11. Income Taxes............................................. 47<br>
12. Stock Options............................................ 47<br>
13. Related Party Transactions, Commitments and Contingencies 50<br>
14. Industry Segments........................................ 50<br>
15. Quarterly Information (Unaudited)........................ 53<br>
16. Parent Company Condensed Financial Information........... 55<br>
<br>
<br>
26<br>
<br>
<br>
<br>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING<br>
<br>
The management of Alexander & Baldwin, Inc. has the responsibility for<br>
preparing the accompanying consolidated financial statements and related notes<br>
accurately and objectively. The statements have been prepared in accordance<br>
with accounting principles generally accepted in the United States of America,<br>
consistently applied, and necessarily include amounts based on judgments and<br>
estimates made by management. Management also prepared the other information in<br>
this annual report and is responsible for its accuracy and consistency with the<br>
consolidated financial statements.<br>
<br>
The Company maintains internal control systems, and related policies and<br>
procedures, designed to provide reasonable assurance that assets are<br>
safeguarded, that transactions are properly executed and recorded in accordance<br>
with management's authorization, and that underlying accounting records may be<br>
relied upon for the accurate preparation of the consolidated financial<br>
statements and other financial information. The design, monitoring and revision<br>
of internal control systems involve, among other things, management's judgment<br>
with respect to the relative cost and expected benefits of specific control<br>
measures. The Company maintains an internal auditing function that evaluates<br>
and formally reports on the adequacy and effectiveness of internal controls,<br>
policies and procedures.<br>
<br>
The Company's consolidated financial statements have been audited by<br>
Deloitte & Touche LLP, its independent auditors, who have expressed their<br>
opinion with respect to the fairness, in all material aspects, of the<br>
presentation of financial position, results of operations and cash flows under<br>
accounting principles generally accepted in the United States of America.<br>
Management has made available to Deloitte & Touche LLP all of the Company's<br>
financial records and related data. Furthermore, management believes that all<br>
representations made to Deloitte & Touche LLP during its audit were valid and<br>
appropriate.<br>
<br>
The Board of Directors, through its Audit Committee (composed of<br>
non-employee directors), oversees management's responsibilities in the<br>
preparation of the consolidated financial statements and nominates the<br>
independent auditors, subject to shareholder election. The Audit Committee<br>
meets regularly with the external and internal auditors to evaluate the<br>
effectiveness of their work in discharging their respective responsibilities<br>
and to assure their independent and free access to the Committee.<br>
<br>
<br>
<br>
<br>
<br>
/s/ W. Allen Doane /s/ James S. Andrasick<br>
<br>
W. Allen Doane James S. Andrasick<br>
President and Chief Executive Officer Senior Vice President<br>
and Chief Financial Officer<br>
<br>
27<br>
<br>
<br>
<br>
INDEPENDENT AUDITORS' REPORT<br>
<br>
TO THE SHAREHOLDERS OF ALEXANDER & BALDWIN, INC.:<br>
<br>
We have audited the accompanying consolidated balance sheets of Alexander &<br>
Baldwin, Inc. and subsidiaries as of December 31, 2001 and 2000 , and the<br>
related consolidated statements of income, shareholders' equity, and cash flows<br>
for each of the three years in the period ended December 31, 2001. These<br>
financial statements are the responsibility of the Company's management. Our<br>
responsibility is to express an opinion on these financial statements based on<br>
our audits.<br>
<br>
We conducted our audits in accordance with auditing standards generally<br>
accepted in the United States of America. Those standards require that we plan<br>
and perform the audits to obtain reasonable assurance about whether the<br>
financial statements are free of material misstatement. An audit includes<br>
examining, on a test basis, evidence supporting the amounts and disclosures in<br>
the financial statements. An audit also includes assessing the accounting<br>
principles used and significant estimates made by management, as well as<br>
evaluating the overall financial statement presentation. We believe that our<br>
audits provide a reasonable basis for our opinion.<br>
<br>
In our opinion, such consolidated financial statements present fairly, in<br>
all material respects, the financial position of Alexander & Baldwin, Inc. and<br>
subsidiaries at December 31, 2001 and 2000, and the results of their operations<br>
and their cash flows for each of the three years in the period ended December<br>
31, 2001 in conformity with accounting principles generally accepted in the<br>
United States of America.<br>
<br>
As discussed in Note 2 to the consolidated financial statements, the Company<br>
adopted a new accounting standard for reporting discontinued operations in 2001<br>
and changed its method of accounting for vessel drydocking costs in 2000.<br>
<br>
/s/ Deloitte & Touche, LLP<br>
Deloitte & Touche LLP<br>
Honolulu, Hawaii<br>
January 24, 2002<br>
<br>
28<br>
<br>
<br>
<br>
ALEXANDER & BALDWIN, INC.<br>
CONSOLIDATED STATEMENTS OF INCOME<br>
(In thousands, except per-share amounts)<br>
<br>
<br>
<br>
Year Ended December 31,<br>
-------------------------------<br>
2001 2000 1999<br>
---------- ---------- --------<br>
<br>
Revenue:<br>
Ocean transportation....................................................... $ 787,173 $ 839,535 $768,414<br>
Property leasing........................................................... 70,247 61,710 53,416<br>
Property sales............................................................. 88,911 46,158 47,894<br>
Food products.............................................................. 105,976 102,229 113,680<br>
Gain on sale of investments................................................ 125,478 -- --<br>
Interest and dividends..................................................... 12,288 19,014 16,594<br>
---------- ---------- --------<br>
Total revenue............................................................ 1,190,073 1,068,646 999,998<br>
---------- ---------- --------<br>
Costs and Expenses:<br>
Cost of transportation services............................................ 656,795 687,223 628,104<br>
Cost of property sales and leasing services................................ 101,000 47,366 51,764<br>
Cost of agricultural goods and services.................................... 98,718 98,820 105,052<br>
Selling, general and administrative........................................ 99,097 88,270 86,354<br>
Impairment loss on long-lived assets and investments....................... 28,600 -- 15,410<br>
Interest expense........................................................... 18,658 24,252 17,774<br>
---------- ---------- --------<br>
Total costs and expenses................................................. 1,002,868 945,931 904,458<br>
---------- ---------- --------<br>
Income From Continuing Operations Before Income Taxes and Cumulative<br>
Effect of Change in Accounting Method..................................... 187,205 122,715 95,540<br>
Income taxes............................................................... 67,392 44,391 32,961<br>
---------- ---------- --------<br>
Income From Continuing Operations Before Cumulative Effect of Change In<br>
Accounting Method......................................................... 119,813 78,324 62,579<br>
Discontinued operations, net of income taxes (See Notes 2 and 3)........... (9,185) -- --<br>
Cumulative effect of change in accounting method, net of income taxes<br>
(See Note 2)............................................................. -- 12,250 --<br>
---------- ---------- --------<br>
Net Income.................................................................. 110,628 90,574 62,579<br>
Unrealized holding gains (losses) and reclassification of realized gains on<br>
securities (net of income taxes of $36,371, $7,525, and $8,088).......... (61,937) 12,476 (13,868)<br>
---------- ---------- --------<br>
Comprehensive Income........................................................ $ 48,691 $ 103,050 $ 48,711<br>
========== ========== ========<br>
Basic Earnings per Share of Common Stock:<br>
From continuing operations before cumulative effect of change in accounting $ 2.96 $ 1.92 $ 1.45<br>
Discontinued operations.................................................... (0.23) -- --<br>
Accounting change.......................................................... -- 0.29 --<br>
---------- ---------- --------<br>
Net income................................................................. $ 2.73 $ 2.21 $ 1.45<br>
========== ========== ========<br>
Diluted Earnings per Share of Common Stock:<br>
From continuing operations before cumulative effect of change in accounting $ 2.94 $ 1.91 $ 1.45<br>
Discontinued operations.................................................... (0.22) -- --<br>
Accounting change.......................................................... -- 0.30 --<br>
---------- ---------- --------<br>
Net income................................................................. $ 2.72 $ 2.21 $ 1.45<br>
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