Matson, Inc. - FORM 8-K/A - EX-99.1 - EXHIBIT 99.1 - April 3, 2012

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


On December 1, 2011, Alexander & Baldwin, Inc. (“A&B” or the “Company”), announced that its Board of Directors unanimously approved a plan to pursue the separation (the “Separation”) of the Company to create two independent, publicly traded companies:
 
A Hawaii-based land company with interests in real estate development, commercial real estate and agriculture, which will retain the Alexander & Baldwin, Inc. name (“Alexander & Baldwin”); and
 
An ocean transportation company serving the U.S. West Coast, Hawaii, Guam, Micronesia and China, and a domestic logistics company all under the Matson name (“Matson”).
 
The separation is expected to be completed in the third quarter of 2012 through a tax-free Spin-off of Alexander & Baldwin from Matson.
 
On February 13, 2012, A&B entered into an Agreement and Plan of Merger to reorganize itself as a holding company incorporated in Hawaii.  The holding company structure will help facilitate the separation by allowing A&B to organize and segregate the assets of its different businesses in an efficient manner prior to the separation and facilitate the third party and governmental consent and approval process.  In addition, the holding company reorganization will help preserve A&B’s status as a U.S. citizen under certain U.S. maritime and vessel documentation laws (popularly referred to as the Jones Act) by, among other things, limiting the percentage of outstanding shares of common stock in the holding company that may be owned (of record or beneficially) or controlled in the aggregate by non-U.S. citizens (as defined by the Jones Act) to a maximum permitted percentage of 22%.
 
Promptly following the holding company merger, the Company will reorganize its assets so that A&B’s real estate development, real estate leasing and agricultural businesses are contributed to a newly formed subsidiary, A&B II, Inc. (“New A&B”).  The Company will complete the Separation by distributing to its shareholders, on a pro rata basis, all of the issued and outstanding shares of New A&B common stock.  In connection with the Separation, New A&B will file a registration statement on Form 10 with the SEC and, when declared effective, shareholders will receive an information statement with extensive disclosure concerning the Separation, New A&B and the A&B businesses.
 
The unaudited pro forma condensed consolidated financial statements are derived from the historical consolidated financial statements of A&B.  The unaudited pro forma condensed consolidated financial statements are being presented to give effect to the Separation, as a result of which, A&B’s real estate development, real estate leasing and agricultural businesses will be excluded.  The remaining company will operate the ocean transportation and logistics businesses and be renamed Matson, Inc. (“Matson”).  The following unaudited pro forma condensed consolidated financial statements should be read in conjunction with the Company’s annual reports on Form 10-K and other filings with the Securities and Exchange Commission.  The presentation of the unaudited pro forma condensed consolidated financial statements assumes that the Separation occurred on December 31, 2011 for the condensed consolidated balance sheet and at the beginning of the year for the condensed consolidated statement of income for the year ended December 31, 2011.  For the years ended December 31, 2010 and 2009, the unaudited pro forma condensed consolidated statements of income give effect to the Separation and exclude the results of Alexander & Baldwin.  The unaudited pro forma condensed consolidated financial statements are not intended to be a complete presentation of Matson’s financial position or results of operations had the Separation and related transactions contemplated by the Agreement and Plan of Merger and related agreements occurred for the period indicated.  In addition, the unaudited pro forma condensed consolidated financial statements are provided for illustrative and informational purposes only and are not necessarily indicative of Matson’s future results of operations or financial condition had the Separation been completed on the dates assumed.  The pro forma adjustments are based on available information and assumptions that A&B management believes are reasonable, reflect the impacts of events directly attributable to the Separation, are factually supportable, and for purposes of the statements of income, are expected to have a continuing impact on Matson.
 
The unaudited pro forma condensed consolidated statement of income for the year ended December 31, 2011 reflects Matson’s results as if the Separation and related transactions described below had occurred as of January 1, 2011.  The unaudited pro forma condensed consolidated balance sheet as of December 31, 2011 reflects Matson’s results as if the Separation and related transactions described below had occurred on December 31, 2011.  The unaudited pro forma condensed consolidated statements of income for the years December 31, 2010 and 2009 exclude the results of Alexander & Baldwin.
 
The unaudited pro forma consolidated condensed financial statements give effect to the following:
 
·  
the distribution, upon the Separation, of the assets, liabilities and equity of Alexander & Baldwin;
 
·  
the issuance of debt, the related debt issuance costs and interest for the period required for the tax-free contribution of cash from Matson to Alexander & Baldwin;
 
·  
a tax-free contribution of cash from Matson to Alexander & Baldwin.
 
Matson estimates that additional administrative expenses, not included in the pro forma financial statements, amounting to approximately $8 to $10 million annually will be incurred in future periods related directly to costs associated with operating as a publicly traded company.  These costs include incremental employee related costs for additional headcount, higher external audit fees and expenses, Board of Director fees and expenses and other costs required to operate as an independent publicly traded company.
 
See the notes to the unaudited pro forma consolidated financial information for a more detailed discussion of these transactions.
 
 

 
 
 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 

YEAR ENDED DECEMBER 31, 2011

 
Pro forma Adjustments
  

(in millions, except per share amounts)
  
A&B Historical
      
Distribution of Alexander & Baldwin (a)
      
Issuance of debt and contribution of cash
        
Matson Pro forma for the Spin-off
  
Revenue
$
1,722.4
    
$
(259.7
)
  
$
-
      
$
1,462.7
  
Operating Costs and Expenses:
                                
Operating costs
  
1,463.5
      
(182.1
)
    
-
        
1,281.4
  
Equity in income of terminal joint venture
  
(8.6
)
    
-
      
-
        
(8.6
)
Selling, general and administrative
  
154.0
      
(42.0
)
    
0.2
  
(b)
    
112.2
  
Total operating costs and expenses
  
1,608.9
      
(224.1
)
    
0.2
        
1,385.0
  
Operating Income
  
113.5
      
(35.6
)
    
(0.2
)
      
77.7
  
Other Income and (Expense):
                                
Other income and (expense)
  
(1.5
)
    
2.8
                
1.3
  
Interest expense
  
(24.8
)
    
17.1
      
(7.0
)
(c)
    
(14.7
)
Income From Continuing Operations Before Income Taxes (e)
  
87.2
      
(15.7
)
    
(7.2
)
      
64.3
  
Income taxes
  
32.3
      
(7.2
)
    
(2.8
)
(d)
    
22.3
  
Income From Continuing Operations
$
54.9
    
$
(8.5
)
  
$
(4.4
)
    
$
42.0
  
                                 
Basic Earnings per Share of Common Stock:
                                
Continuing operations
$
1.32
                      
$
1.01
  
Diluted Earnings per Share of Common Stock:
                                
Continuing operations
$
1.31
                      
$
1.00
  
Weighted Average Number of Shares Outstanding:
                                
Basic
  
41.6
                        
41.6
  
Diluted
  
42.0
                        
42.0
  


 
 
 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
YEAR ENDED DECEMBER 31, 2010

 
Pro forma Adjustments
  


(in millions, except per share amounts)
  
A&B Historical
      
Distribution   of Alexander & Baldwin (a)
      
Matson Pro forma for the Spin-off
  
Revenue
$
1,613.5
    
$
(242.9
)
  
$
1,370.6
  
Operating Costs and Expenses:
                      
Operating costs
  
1,342.2
      
(196.1
)
    
1,146.1
  
Equity in income of terminal joint venture
  
(12.8
)
    
-
      
(12.8
)
Selling, general and administrative
  
157.9
      
(45.1
)
    
112.8
  
Total operating costs and expenses
  
1,487.3
      
(241.2
)
    
1,246.1
  
Operating Income
  
126.2
      
(1.7
)
    
124.5
  
Other Income and (Expense):
                      
Other income and (expense)
  
13.6
      
(12.1
)
    
1.5
  
Interest expense
  
(25.5
)
    
17.3
      
(8.2
)
Income From Continuing Operations Before Income Taxes
  
114.3
      
3.5
      
117.8
  
Income taxes
  
44.9
      
1.8
      
46.7
  
Income From Continuing Operations
$
69.4
    
$
1.7
    
$
71.1
  
                       
Basic Earnings per Share of Common Stock:
                      
Continuing operations
$
1.68
            
$
1.72
  
Diluted Earnings per Share of Common Stock:
                      
Continuing operations
$
1.67
            
$
1.71
  
Weighted Average Number of Shares Outstanding:
                      
Basic
  
41.2
              
41.2
  
Diluted
  
41.5
              
41.5
  



 
 
 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
YEAR ENDED DECEMBER 31, 2009

 
Pro forma Adjustments
  


(in millions, except per share amounts)
  
A&B Historical
      
Distribution of Alexander & Baldwin (a)
      
Matson Pro forma for the Spin-off
  
Revenue
$
1,392.4
    
$
(183.3
)
  
$
1,209.1
  
Operating Costs and Expenses:
                      
Operating costs
  
1,209.5
      
(172.5
)
    
1,037.0
  
Equity in income of terminal joint venture
  
(6.2
)
    
-
      
(6.2
)
Selling, general and administrative
  
154.2
      
(40.6
)
    
113.6
  
Total operating costs and expenses
  
1,357.5
      
(213.1
)
    
1,144.4
  
Operating Income
  
34.9
      
29.8
      
64.7
  
Other Income and (Expense):
                      
Other income and (expense)
  
3.6
      
(3.2
)
    
0.4
  
Interest expense
  
(25.9
)
    
16.8
      
(9.1
)
Income From Continuing Operations Before Income Taxes
  
12.6
      
43.4
      
56.0
  
Income taxes
  
5.0
      
17.5
      
22.5
  
Income From Continuing Operations
$
7.6
    
$
25.9
    
$
33.5
  
                       
Basic Earnings per Share of Common Stock:
                      
Continuing operations
$
0.19
            
$
0.82
  
Diluted Earnings per Share of Common Stock:
                      
Continuing operations
$
0.19
            
$
0.82
  
Weighted Average Number of Shares Outstanding:
                      
Basic
  
41.0
              
41.0
  
Diluted
  
41.1
              
41.1
  

 

 

 
 
 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

YEAR ENDED DECEMBER 31, 2011

 
Pro forma Adjustments
  

(in millions)
  
A&B Historical
      
Distribution of Alexander & Baldwin (a)
      
Issuance of debt and contribution of cash
      
Matson Pro forma for the Spin-off
  
ASSETS
                              
Current Assets
                              
Cash and cash equivalents
$
21.5
    
$
(11.7
)
  
$
(2.3
)
(f)
$
7.5
  
Accounts and note receivable
  
173.2
      
(5.5
)
    
-
      
167.7
  
Inventories
  
40.5
      
(36.3
)
    
-
      
4.2
  
Real Estate held for sale
  
2.8
      
(2.8
)
    
-
      
-
  
Deferred income taxes
  
5.3
      
(4.0
)
    
-
      
1.3
  
Prepaid expense and other current assets
  
31.7
      
(4.5
)
    
-
      
27.2
  
Total current assets
  
275.0
      
(64.8
)
    
(2.3
)
    
207.9
  
Investments in Affiliates
  
347.3
      
(290.8
)
    
-
      
56.5
  
Real Estate Developments
  
143.3
      
(143.3
)
    
-
      
-
  
Property - net
  
1,633.7
      
(833.2
)
    
-
      
800.5
  
Employee Benefit Plan Assets
  
1.4
      
(1.4
)
    
-
      
-
  
Other Assets
  
143.6
      
(48.4
)
    
2.1
  
(g)
  
97.3
  
Total
$
2,544.3
    
$
(1,381.9
)
  
$
(0.2
)
  
$
1,162.2
  
                               
LIABILITIES AND SHAREHOLDERS’ EQUITY
                              
Current Assets
                              
Notes payable and current portion of long-term debt
$
51.9
    
$
(34.4
)
  
$
-
    
$
17.5
  
Accounts payable
  
156.2
      
(20.7
)
    
-
      
135.5
  
Payroll and vacation benefits
  
19.8
      
(3.8
)
    
-
      
16.0
  
Uninsured claims
  
8.1
      
(1.5
)
    
-
      
6.6
  
Due to affiliate
  
-
      
2.2
      
-
      
2.2
  
Accrued and other liabilities
  
42.7
      
(28.9
)
    
-
      
13.8
  
Total current liabilities
  
278.7
      
(87.1
)
    
-
      
191.6
  
Long-term Liabilities
                              
Long-term debt
  
507.3
      
(327.2
)
    
160.0
  
(h)
  
340.1
  
Deferred income taxes
  
417.6
      
(162.5
)
    
-
      
255.1
  
Employee benefit plans
  
167.6
      
(54.6
)
    
-
      
113.0
  
Due to affiliate
  
-
      
0.5
      
-
      
0.5
  
Uninsured claims and other liabilities
  
50.6
      
(26.3
)
    
-
      
24.3
  
Total long-term liabilities
  
1,143.1
      
(570.1
)
    
160.0
      
733.0
  
                               
Total Shareholders’ Equity
  
1,122.5
      
(724.7
)
    
(160.2
)
(i)
  
237.6
  
Total
$
2,544.3
    
$
(1,381.9
)
  
$
(0.2
)
  
$
1,162.2
  

 

 
 
 


NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 
(a)  
Reflects the operations, assets, liabilities and equity of Alexander & Baldwin which are expected to be distributed to shareholders upon Separation in the third quarter.
 
(b)  
Represents $0.2 million of expensed debt issuance costs related to the new credit facilities as discussed in note (h) below.
 
(c)  
Reflects increased annual interest expense of $6.8 million on borrowings under the new credit facilities and $0.2 million of amortization for the expected issuance costs of debt related to the new credit facilities as discussed in note (h) below.  Based on the estimated borrowings and interest rate in note (h) a 0.125% increase in interest rates would increase pro forma interest expense by $0.2 million.
 
(d)  
The effective tax rate is estimated to be 38.8%.
 
(e)  
The income from continuing operations before income taxes includes $7.1 million in shutdown expenses related to Matson’s second China Service which did not qualify for discontinued operations treatment.
 
(f)  
The amount includes cash debt issuance costs amounting to $2.3 million associated with the new credit facilities discussed in note (h) below.
 
(g)  
The amount includes the capitalized debt issuance costs of $2.1 million associated with the new credit facilities discussed in note (h) below.
 
(h)  
Reflects $160.0 million in long-term borrowings under the new credit facilities and new fixed long-term debt.  Matson expects to execute a new revolving credit facility and issue fixed long-term debt with an anticipated interest rate estimated to be approximately 4.25%.  The cash received from the issuance debt will be utilized for the tax-free contribution of cash from Matson to A&B as discuss in note (i).
 
(i)  
Reflects the expected tax-free contribution of cash from Matson to A&B amounting to $160.0 million and the expensed debt issuance as discussed in note (b) above.
 

 


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