SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
|
|
SECURITIES
EXCHANGE ACT OF 1934
|
|
For
the quarterly period ended
September
30, 2009
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
|
|
SECURITIES
EXCHANGE ACT OF 1934
|
|
For
the transition period from ______________________ to
_________________
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|
Commission
file number
000-00565
|
ALEXANDER
& BALDWIN, INC.
|
(Exact
name of registrant as specified in its
charter)
|
Hawaii
|
99-0032630
|
(State
or other jurisdiction of
incorporation or
organization
)
|
(I.R.S.
Employer
Identification
No.)
|
|
|
P.
O. Box 3440, Honolulu, Hawaii
822 Bishop Street, Honolulu,
Hawaii
(Address
of principal executive offices)
|
9680l
96813
(Zip
Code)
|
|
(Registrant’s
telephone number, including area
code)
|
|
(Former
name, former address, and former
|
|
fiscal
year, if changed since last report)
|
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
Yes
x
No
o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer
x
Accelerated
filer
o
Non-accelerated
filer
o
(Do not
check if a smaller reporting
company) Smaller
reporting company
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
Number of shares of common stock
outstanding as of September 30,
2009:
41,042,035
PART
I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
ALEXANDER
& BALDWIN, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Income
(In
millions, except per-share amounts) (Unaudited)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$
|
375.9
|
|
|
$
|
456.2
|
|
|
$
|
1,049.8
|
|
|
$
|
1,494.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of goods sold, services and rentals
|
|
|
323.3
|
|
|
|
384.7
|
|
|
|
897.8
|
|
|
|
1,245.5
|
|
Selling,
general and administrative
|
|
|
35.6
|
|
|
|
38.1
|
|
|
|
116.8
|
|
|
|
117.8
|
|
Operating
costs and expenses
|
|
|
358.9
|
|
|
|
422.8
|
|
|
|
1,014.6
|
|
|
|
1,363.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
17.0
|
|
|
|
33.4
|
|
|
|
35.2
|
|
|
|
131.2
|
|
Other
Income and (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on insurance settlement
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
7.7
|
|
Equity
in income of real estate affiliates
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
0.5
|
|
|
|
10.3
|
|
Loss
on investment
|
|
|
--
|
|
|
|
(0.9
|
)
|
|
|
--
|
|
|
|
(0.9
|
)
|
Interest
income
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
0.9
|
|
Interest
expense
|
|
|
(6.7
|
)
|
|
|
(5.8
|
)
|
|
|
(19.2
|
)
|
|
|
(17.5
|
)
|
Income
Before Taxes
|
|
|
10.7
|
|
|
|
27.2
|
|
|
|
16.8
|
|
|
|
131.7
|
|
Income
Taxes
|
|
|
4.6
|
|
|
|
7.9
|
|
|
|
6.7
|
|
|
|
48.2
|
|
Income
From Continuing Operations
|
|
|
6.1
|
|
|
|
19.3
|
|
|
|
10.1
|
|
|
|
83.5
|
|
Income
From Discontinued Operations (net of income taxes)
|
|
|
2.4
|
|
|
|
17.5
|
|
|
|
14.0
|
|
|
|
25.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
8.5
|
|
|
$
|
36.8
|
|
|
$
|
24.1
|
|
|
$
|
108.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
0.15
|
|
|
$
|
0.47
|
|
|
$
|
0.25
|
|
|
$
|
2.02
|
|
Discontinued
operations
|
|
|
0.06
|
|
|
|
0.42
|
|
|
|
0.34
|
|
|
|
0.61
|
|
Net
income
|
|
$
|
0.21
|
|
|
$
|
0.89
|
|
|
$
|
0.59
|
|
|
$
|
2.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
0.15
|
|
|
$
|
0.46
|
|
|
$
|
0.25
|
|
|
$
|
2.01
|
|
Discontinued
operations
|
|
|
0.06
|
|
|
|
0.43
|
|
|
|
0.34
|
|
|
|
0.60
|
|
Net
income
|
|
$
|
0.21
|
|
|
$
|
0.89
|
|
|
$
|
0.59
|
|
|
$
|
2.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Number of Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
41.0
|
|
|
|
41.3
|
|
|
|
41.0
|
|
|
|
41.3
|
|
Diluted
|
|
|
41.2
|
|
|
|
41.5
|
|
|
|
41.0
|
|
|
|
41.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Dividends Per Share
|
|
$
|
0.315
|
|
|
$
|
0.315
|
|
|
$
|
0.945
|
|
|
$
|
0.920
|
|
See Notes
to Condensed Consolidated Financial Statements.
ALEXANDER
& BALDWIN, INC. AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets
(In
millions) (Unaudited)
|
|
September
30,
|
|
December
31,
|
|
|
2009
|
|
2008
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
16
|
|
|
$
|
19
|
|
Accounts
and notes receivable, net
|
|
|
183
|
|
|
|
163
|
|
Inventories
|
|
|
38
|
|
|
|
28
|
|
Real
estate held for sale
|
|
|
11
|
|
|
|
20
|
|
Section
1031 exchange proceeds
|
|
|
--
|
|
|
|
23
|
|
Prepaid
expenses and other assets
|
|
|
33
|
|
|
|
31
|
|
Total
current assets
|
|
|
281
|
|
|
|
284
|
|
Investments
in Affiliates
|
|
|
219
|
|
|
|
208
|
|
Real
Estate Developments
|
|
|
85
|
|
|
|
78
|
|
Property,
at cost
|
|
|
2,775
|
|
|
|
2,700
|
|
Less
accumulated depreciation and amortization
|
|
|
1,170
|
|
|
|
1,110
|
|
Property
– net
|
|
|
1,605
|
|
|
|
1,590
|
|
Other
Assets
|
|
|
141
|
|
|
|
190
|
|
Total
|
|
$
|
2,331
|
|
|
$
|
2,350
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Notes
payable and current portion of long-term debt
|
|
$
|
59
|
|
|
$
|
52
|
|
Accounts
payable
|
|
|
111
|
|
|
|
105
|
|
Payroll
and vacation benefits
|
|
|
19
|
|
|
|
18
|
|
Accrued
and other liabilities
|
|
|
70
|
|
|
|
63
|
|
Total
current liabilities
|
|
|
259
|
|
|
|
238
|
|
Long-term
Liabilities:
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
412
|
|
|
|
452
|
|
Deferred
income taxes
|
|
|
413
|
|
|
|
414
|
|
Employee
benefit plans
|
|
|
128
|
|
|
|
122
|
|
Uninsured
claims and other liabilities
|
|
|
53
|
|
|
|
52
|
|
Total
long-term liabilities
|
|
|
1,006
|
|
|
|
1,040
|
|
Commitments
and Contingencies (Note 3)
|
|
|
|
|
|
|
|
|
Shareholders’
Equity:
|
|
|
|
|
|
|
|
|
Capital
stock
|
|
|
33
|
|
|
|
33
|
|
Additional
capital
|
|
|
208
|
|
|
|
204
|
|
Accumulated
other comprehensive loss
|
|
|
(90
|
)
|
|
|
(96
|
)
|
Retained
earnings
|
|
|
926
|
|
|
|
942
|
|
Cost
of treasury stock
|
|
|
(11
|
)
|
|
|
(11
|
)
|
Total
shareholders' equity
|
|
|
1,066
|
|
|
|
1,072
|
|
Total
|
|
$
|
2,331
|
|
|
$
|
2,350
|
|
See Notes
to Condensed Consolidated Financial Statements.
ALEXANDER
& BALDWIN, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
(In
millions) (Unaudited)
|
Nine
Months Ended
|
|
September
30,
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities
|
$
|
78
|
|
|
$
|
202
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
(27
|
)
|
|
|
(91
|
)
|
Proceeds
from disposal of property and other assets
|
|
31
|
|
|
|
17
|
|
Proceeds
from insurance settlement related to 2005 casualty loss
|
|
--
|
|
|
|
8
|
|
Deposits
into Capital Construction Fund
|
|
(4
|
)
|
|
|
(7
|
)
|
Withdrawals
from Capital Construction Fund
|
|
4
|
|
|
|
7
|
|
Acquisition
of business, net of cash acquired
|
|
--
|
|
|
|
(24
|
)
|
Increase
in investments
|
|
(17
|
)
|
|
|
(55
|
)
|
Reduction
in investments
|
|
5
|
|
|
|
5
|
|
Net
cash used in investing activities
|
|
(8
|
)
|
|
|
(140
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
Proceeds
from issuances of long-term debt
|
|
215
|
|
|
|
52
|
|
Payments
of long-term debt
|
|
(238
|
)
|
|
|
(38
|
)
|
Proceeds
from (payments on) short-term borrowings, net
|
|
(10
|
)
|
|
|
3
|
|
Proceeds
from issuances of capital stock, including increase (decrease) in excess
tax benefit
|
|
(1
|
)
|
|
|
2
|
|
Repurchase
of capital stock
|
|
--
|
|
|
|
(50
|
)
|
Dividends
paid
|
|
(39
|
)
|
|
|
(38
|
)
|
Net
cash used in financing activities
|
|
(73
|
)
|
|
|
(69
|
)
|
|
|
|
|
|
|
|
|
Net
Decrease in Cash and Cash Equivalents
|
$
|
(3
|
)
|
|
$
|
(7
|
)
|
|
|
|
|
|
|
|
|
Other
Cash Flow Information:
|
|
|
|
|
|
|
|
Interest
paid
|
$
|
(19
|
)
|
|
$
|
(19
|
)
|
Income
taxes paid
|
$
|
(26
|
)
|
|
$
|
(59
|
)
|
|
|
|
|
|
|
|
|
Other
Non-cash Information:
|
|
|
|
|
|
|
|
Depreciation
and amortization expense
|
$
|
79
|
|
|
$
|
74
|
|
Tax-deferred
real estate sales
|
$
|
48
|
|
|
$
|
82
|
|
Tax-deferred
real estate purchases
|
$
|
(90
|
)
|
|
$
|
(23
|
)
|
See Notes
to Condensed Consolidated Financial Statements.
Alexander
& Baldwin, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Description of
Business:
Founded in 1870, Alexander & Baldwin, Inc.
(“A&B” or the “Company”) is incorporated under the laws of the State of
Hawaii. A&B operates in five segments in three
industries: Transportation, Real Estate and Agribusiness. These
industries are described below:
Transportation:
The Transportation
Industry consists of Ocean Transportation and Logistics Services segments. The
Ocean Transportation segment, which is conducted through Matson Navigation
Company, Inc. (“Matson”), a wholly-owned subsidiary of A&B, is an
asset-based business that derives its revenue primarily through the carriage of
containerized freight between various U.S. Pacific Coast, Hawaii, Guam, China
and other Pacific island ports. Additionally, the Ocean Transportation segment
has a 35 percent interest in an entity (SSA Terminals, LLC or “SSAT”) that
provides terminal and stevedoring services at U.S. Pacific Coast facilities. The
Logistics Services segment is a non-asset based business that is a provider of
domestic and international rail intermodal service (“Intermodal”), long-haul and
regional highway brokerage, specialized hauling, flat-bed and project work,
less-than-truckload, expedited/air freight services, and warehousing and
distribution services (collectively “Highway”).
Real
Estate:
The
Real Estate Industry consists of two segments, both of which have operations in
Hawaii and on the U.S. mainland. The Real Estate Sales segment generates its
revenues through the development and sale of land and commercial and residential
properties. The Real Estate Leasing segment owns, operates, and manages retail,
office, and industrial properties.
Agribusiness:
Agribusiness, which
contains one segment, produces bulk raw sugar, specialty food-grade sugars, and
molasses; produces, markets, and distributes roasted coffee and green coffee;
provides general trucking services, mobile equipment maintenance and repair
services, and self-service storage in Hawaii; and generates and sells, to the
extent not used in the Company’s operations, electricity.
(1)
|
The
Condensed Consolidated Financial Statements are unaudited. Because of the
nature of the Company’s operations, the results for interim periods are
not necessarily indicative of results to be expected for the year. While
these Condensed Consolidated Financial Statements reflect all normal
recurring adjustments that are, in the opinion of management, necessary
for fair presentation of the results of the interim period, they do not
include all of the information and footnotes required by U.S. generally
accepted accounting principles for complete financial statements.
Therefore, the interim Condensed Consolidated Financial Statements should
be read in conjunction with the Consolidated Financial Statements and
Notes thereto included in the Company’s Annual Report filed on Form 10-K
for the year ended December 31, 2008. Subsequent events were evaluated
through October 29, 2009, the date these Condensed Consolidated Financial
Statements were issued.
|
(2)
|
In
June 2009, the Financial Accounting Standards Board (“FASB”) issued FASB
Accounting Standards Codification (“ASC”) Topic 810 (formerly FASB
Statement No. 167,
Amendments to FASB
Interpretation No. 46R
). ASC Topic 810 amends the consolidation
guidance applicable to variable interest entities and requires enhanced
disclosures about an enterprise’s involvement in a variable interest
entity. The Topic also requires ongoing assessments of whether an
enterprise is the primary beneficiary of a variable interest entity. ASC
Topic 810 is effective beginning January 1, 2010. The Company is currently
reviewing the effect of ASC Topic 810, but does not expect that the
adoption will have a material effect on the Company’s consolidated
financial position, results of operations, or cash
flows.
|
(3)
|
Commitments
and Contingencies: Commitments and financial arrangements that
are not recorded on the Company’s condensed consolidated balance sheet at
September 30, 2009, included the following, other than operating lease
commitments (in millions):
|
Standby
letters of
credit (a) $10
Performance
and customs
bonds (b)
$29
Benefit
plan withdrawal
obligations (c)
$65
These
amounts are not recorded on the Company’s condensed consolidated balance sheet
and it is not expected that the Company or its subsidiaries will be called upon
to advance funds under these commitments.
|
(a)
|
Represents
letters of credit issued by the Company’s lenders, of which, approximately
$8 million enable the Company to qualify as a self-insurer for state and
federal workers’ compensation liabilities. Additionally, the balance also
includes approximately $2 million of letters of credit related to certain
of the Company’s real estate
projects.
|
|
(b)
|
Represents
bonds issued by the Company’s sureties, of which, approximately $16
million relate to U.S. customs bonds, approximately $11 million relate to
real estate construction projects in Hawaii, and approximately $2 million
relate to transportation and other
matters.
|
|
(c)
|
Represents
the withdrawal liabilities for multiemployer pension plans, in which
Matson is a participant. The withdrawal liability aggregated approximately
$65 million as of the most recent valuation dates. Management has no
present intention of withdrawing from, and does not anticipate termination
of any of the aforementioned plans.
|
Indemnity Agreements:
For
certain real estate joint ventures, the Company may be obligated under bond
indemnities to complete construction of the real estate development if the joint
venture does not perform. These indemnities are designed to protect the surety.
To date, no such indemnities have been called upon. Under the provisions of the
“Guarantees” Topic of the FASB ASC, the Company recorded liabilities for three
indemnities it provided in connection with surety bonds issued to cover
construction activities, such as project amenities, roads, utilities, and other
infrastructure, at three of its joint ventures. The fair values of the
liabilities recorded were not material. Under the indemnities, the Company and
its joint venture partners agree to indemnify the surety bond issuer from all
loss and expense arising from the failure of the joint venture to complete the
specified bonded construction. The maximum potential amount of aggregate future
payments is a function of the amount covered by outstanding bonds at the time of
default by the joint venture, reduced by the amount of work completed to
date.
Completion Guarantees
: For
certain real estate joint ventures, the Company may be required to perform work
to complete construction if the joint venture fails to complete construction.
These guarantees are intended to assure the joint venture’s lender that the
project will be completed as represented to the lender. To date, none of these
guarantees has been called upon. Under the provisions of the “Guarantees” Topic
of the FASB ASC, the Company recorded liabilities for two completion guarantees
it provided in connection with joint venture development projects. The fair
values of these liabilities were not material. Under the completion guarantees,
the Company and its joint venture partners agree to complete development of
specified development work if the joint venture fails to complete development.
The maximum potential amount of aggregate future payments related to the
Company’s completion guarantees is a function of the work agreed to be
completed, reduced by the amount of work completed to date at the time of
default by the joint venture.
Legal Proceedings:
In
connection with the complaint filed by the Shipbuilders Council of America, Inc.
and Pasha Hawaii Transport Lines LLC against the U.S. Department of Homeland
Security, the U.S. Coast Guard and the National Vessel Documentation Center (the
“Mokihana case”), the U.S. District Court for the Eastern District of Virginia
had previously vacated its preliminary order granting summary judgment to the
plaintiffs in the Mokihana case, and suspended the matter pending the outcome of
an appeal to the United States Court of Appeals for the Fourth Circuit in a case
referred to by the District Court as the Seabulk Trader case. The
judge stated that the Fourth Circuit’s review of the major component test in the
Seabulk Trader case could be a potentially dispositive issue in the Mokihana
case. Such case was decided in favor of the plaintiffs by another
judge in the same District Court and is reported at 551 F.Supp.2d 447. Matson
filed an amicus brief in support of the Coast Guard’s decision in the Seabulk
Trader case. On August 21, 2009, the Fourth Circuit issued a decision in the
Seabulk Trader case, reversing the District Court’s judgment. The Fourth Circuit
found that the Coast Guard’s interpretation of the major component test was
persuasive. The Fourth Circuit decision is reported at 2009 U.S. App. LEXIS
18867. On October 20, 2009, the judge in the Mokihana case ordered the parties
to submit briefs addressing the effect of the Fourth Circuit's decision on the
issues currently pending in the Mokihana case. The Company, at this time, is
unable to predict the outcome of the lawsuit or the financial impact, if any, of
this lawsuit.
The
Company and Matson were named as defendants in a consolidated civil lawsuit
purporting to be a class action in the U.S. District Court for the Western
District of Washington in Seattle. The lawsuit alleged violations of
the antitrust laws and also named as a defendant Horizon Lines, Inc., another
domestic carrier operating in the Hawaii and Guam trades. On August 18,
2009, the court granted the defendants’ motion to dismiss the
complaint. The court granted plaintiffs leave to amend the complaint
within thirty days to allege claims consistent with the court's order. The court
subsequently extended plaintiffs’ time to file an amended complaint to May 10,
2010. If the plaintiffs file an amended complaint, the Company and
Matson will continue to vigorously defend themselves in this lawsuit. The
Company, at this time, is unable to predict the outcome of the lawsuit or the
financial impact, if any, of this lawsuit.
In
addition to the above matters, the Company and certain subsidiaries are parties
to various other legal actions and are contingently liable in connection with
claims and contracts arising in the normal course of business, the outcome of
which, in the opinion of management after consultation with legal counsel, will
not have a material adverse effect on the Company’s consolidated financial
position or results of operations.
(4)
|
Earnings
Per Share (“EPS”): The denominator used to compute basic and diluted
earnings per share is as follows (in
millions):
|
|
|
Quarter
Ended
September
30,
|
|
Nine
Months
Ended
September
30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Denominator
for basic EPS – weighted average shares
|
|
41.0
|
|
41.3
|
|
41.0
|
|
41.3
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Employee/director
stock options, non-vested common stock,
and
restricted stock units
|
|
0.2
|
|
0.2
|
|
--
|
|
0.3
|
|
Denominator
for diluted EPS – weighted average shares
|
|
41.2
|
|
41.5
|
|
41.0
|
|
41.6
|
|
Basic
earnings per share is computed based on the weighted-average number of common
shares outstanding during the period. Diluted earnings per share is computed
based on the weighted-average number of common shares outstanding adjusted by
the number of additional shares that would have been outstanding had the
potentially dilutive common shares been issued. Potentially dilutive shares of
common stock include non-qualified stock options, non-vested common stock, and
restricted stock units.
The
computation of weighted average dilutive shares outstanding excluded
non-qualified stock options to purchase approximately 1.5 million and 0.5
million shares of common stock for the three months ended September 30, 2009 and
2008, respectively. The computation of weighted average dilutive shares
outstanding excluded non-qualified stock options to purchase approximately 1.9
million and 1.0 million shares of common stock for the nine months ended
September 30, 2009 and 2008, respectively. These options were excluded because
the options’ exercise prices were greater than the average market price of the
Company’s common stock for the periods presented and, therefore, the effect
would be anti-dilutive.
(5)
|
Share-Based
Compensation: Through September 30, 2009, the Company granted
non-qualified stock options to purchase approximately 478,000 shares of
the Company’s common stock. The weighted average grant-date fair value of
each stock option granted, using the Black-Scholes-Merton option pricing
model, was $2.79 using the following weighted average assumptions:
volatility of 24.8%, risk-free interest rate of 1.9%, dividend yield of
5.4%, and expected term of 5.8
years.
|
Activity
in the Company’s stock option plans through September 30, 2009 was as follows
(in thousands, except weighted average exercise price and weighted average
contractual life):
|
|
|
|
|
Predecessor
Plans
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
1998
|
|
|
1998
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
2007
|
|
|
Employee
|
|
|
Directors’
|
|
|
Total
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Plan
|
|
|
Plan
|
|
|
Plan
|
|
|
Shares
|
|
|
Price
|
|
|
Life
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
January 1, 2009
|
|
|
480
|
|
|
|
1,316
|
|
|
|
239
|
|
|
|
2,035
|
|
|
$
|
39.71
|
|
|
|
|
|
|
|
Granted
|
|
|
478
|
|
|
|
--
|
|
|
|
--
|
|
|
|
478
|
|
|
$
|
23.33
|
|
|
|
|
|
|
|
Exercised
|
|
|
--
|
|
|
|
(11
|
)
|
|
|
--
|
|
|
|
(11
|
)
|
|
$
|
26.24
|
|
|
|
|
|
|
|
Forfeited
and expired
|
|
|
--
|
|
|
|
(14
|
)
|
|
|
(43
|
)
|
|
|
(57
|
)
|
|
$
|
29.77
|
|
|
|
|
|
|
|
Outstanding,
September 30, 2009
|
|
|
958
|
|
|
|
1,291
|
|
|
|
196
|
|
|
|
2,445
|
|
|
$
|
36.80
|
|
|
|
6.3
|
|
|
$
|
7,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
September 30, 2009
|
|
|
161
|
|
|
|
1,199
|
|
|
|
196
|
|
|
|
1,556
|
|
|
$
|
38.50
|
|
|
|
4.9
|
|
|
$
|
2,751
|
|
The
following table summarizes non-vested common stock and restricted stock unit
activity through September 30, 2009 (in thousands, except weighted-average,
grant-date fair value amounts):
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
Plans
|
|
|
|
|
|
|
Plan
|
|
|
Weighted
|
|
|
Non-Vested
|
|
|
Weighted
|
|
|
|
Restricted
|
|
|
Average
|
|
|
Common
|
|
|
Average
|
|
|
|
Stock
|
|
|
Grant-Date
|
|
|
Stock
|
|
|
Grant-Date
|
|
|
|
Units
|
|
|
Fair
Value
|
|
|
Shares
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
January 1, 2009
|
|
|
160
|
|
|
$
|
46.68
|
|
|
|
94
|
|
|
$
|
47.48
|
|
Granted
|
|
|
389
|
|
|
$
|
23.59
|
|
|
|
--
|
|
|
$
|
--
|
|
Vested
|
|
|
(97
|
)
|
|
$
|
45.01
|
|
|
|
(69
|
)
|
|
$
|
47.23
|
|
Canceled
|
|
|
(18
|
)
|
|
$
|
28.43
|
|
|
|
--
|
|
|
$
|
--
|
|
Outstanding
September 30, 2009
|
|
|
434
|
|
|
$
|
27.10
|
|
|
|
25
|
|
|
$
|
48.15
|
|
The above
awards consist of time-based awards and performance-based awards. The time-based
awards vest ratably over three years. Performance-based awards also vest ratably
over three years, provided certain performance targets, measured at the end of
the award year, are achieved.
A summary
of the compensation cost related to share-based payments is as follows (in
millions):
|
|
Quarter
Ended
|
|
|
Nine
Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
200
9
|
|
|
2008
|
|
|
200
9
|
|
|
2008
|
|
Share-based
expense (net of estimated forfeitures):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
0.8
|
|
|
$
|
0.9
|
|
|
$
|
2.5
|
|
|
$
|
2.5
|
|
Non-vested common stock/Restricted
stock units
|
|
|
1.2
|
|
|
|
1.9
|
|
|
|
3.8
|
|
|
|
6.0
|
|
Total
share-based expense
|
|
|
2.0
|
|
|
|
2.8
|
|
|
|
6.3
|
|
|
|
8.5
|
|
Total
recognized tax benefit
|
|
|
(0.6
|
)
|
|
|
(0.8
|
)
|
|
|
(1.9
|
)
|
|
|
(2.2
|
)
|
Share-based
expense (net of tax)
|
|
$
|
1.4
|
|
|
$
|
2.0
|
|
|
$
|
4.4
|
|
|
$
|
6.3
|
|
(6)
|
Accounting
for and Classification of Discontinued Operations: As required by FASB ASC
Subtopic 205-20,
Discontinued
Operations
, the sales of certain income-producing assets are
classified as discontinued operations if (i) the operations and cash flows
of the component have been, or will be, eliminated from the ongoing
operations of the Company as a result of the disposal transaction and (ii)
the Company will not have any significant continuing involvement in the
operations of the component after the disposal transaction. Certain
income-producing properties that are classified as “held for sale” under
the requirements of FASB ASC Subtopic 205-20, are also treated as
discontinued operations. Depreciation on these assets ceases upon
classification as discontinued operations. Sales of land, residential
units, and office condominium units are generally considered inventory and
are not included in discontinued
operations.
|
Discontinued operations consisted of
(in millions):
|
|
Quarter
Ended
|
|
|
Nine
Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
200
9
|
|
|
200
8
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations (net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of assets
|
|
$
|
2.3
|
|
|
$
|
16.5
|
|
|
$
|
13.1
|
|
|
$
|
21.2
|
|
Leasing operations
|
|
|
0.1
|
|
|
|
1.0
|
|
|
|
0.9
|
|
|
|
3.8
|
|
Total
|
|
$
|
2.4
|
|
|
$
|
17.5
|
|
|
$
|
14.0
|
|
|
$
|
25.0
|
|
Discontinued
operations includes the results for properties that were sold through September
30, 2009 and, if applicable, the operating results of properties still owned,
but meet the definition of “discontinued operations” under FASB ASC Subtopic
205-20. Operating results included in the Condensed Consolidated Statements of
Income and the segment results (Note 9) for the third quarter and first nine
months of 2008 have been restated to reflect property that was classified as
discontinued operations subsequent to September 30, 2008.
(7)
|
Comprehensive
income for the three and nine months ended September 30, 2009 and 2008
consisted of (in millions):
|
|
|
Quarter
Ended
|
|
|
Nine
Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
8.5
|
|
|
$
|
36.8
|
|
|
$
|
24.1
|
|
|
$
|
108.5
|
|
Amortization
of unrealized pension asset loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
prior service costs
|
|
|
1.9
|
|
|
|
0.1
|
|
|
|
5.7
|
|
|
|
0.3
|
|
Other
|
|
|
--
|
|
|
|
--
|
|
|
|
0.1
|
|
|
|
0.6
|
|
Comprehensive
income (net of tax)
|
|
$
|
10.4
|
|
|
$
|
36.9
|
|
|
$
|
29.9
|
|
|
$
|
109.4
|
|
(8)
|
Pension
and Post-retirement Plans: The Company has defined benefit
pension plans that cover substantially all non-bargaining unit and certain
bargaining unit employees. The Company also has unfunded
non-qualified plans that provide benefits in excess of the amounts
permitted to be paid under the provisions of the tax law to participants
in qualified plans. The assumptions related to discount rates, expected
long-term rates of return on invested plan assets, salary increases, age,
mortality and health care cost trend rates, along with other factors, are
used in determining the assets, liabilities and expenses associated with
pension benefits. Management reviews the assumptions annually with its
independent actuaries, taking into consideration existing and future
economic conditions and the Company’s intentions with respect to these
plans. Management believes that its assumptions and estimates for 2009 are
reasonable. Different assumptions, however, could result in
material changes to the assets, obligations and costs associated with
benefit plans.
|
|
The
components of net periodic benefit cost (income) for the third quarters of
2009 and 2008 were as follows (in
millions):
|
|
|
Pension Benefits
|
|
Post-retirement Benefits
|
|
|
200
9
|
|
2008
|
|
200
9
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
2.0
|
|
|
$
|
2.0
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
Interest
cost
|
|
|
4.8
|
|
|
|
4.6
|
|
|
|
0.8
|
|
|
|
0.7
|
|
Expected
return on plan assets
|
|
|
(5.0
|
)
|
|
|
(7.9
|
)
|
|
|
--
|
|
|
|
--
|
|
Amortization
of prior service cost
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
--
|
|
Amortization
of net (loss) gain
|
|
|
2.9
|
|
|
|
--
|
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
Net
periodic benefit cost (income)
|
|
$
|
4.9
|
|
|
$
|
(1.2
|
)
|
|
$
|
1.0
|
|
|
$
|
0.6
|
|
The
components of net periodic benefit cost (income) for the first nine months of
2009 and 2008 were as follows (in millions):
|
|
Pension Benefits
|
|
Post-retirement Benefits
|
|
|
200
9
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
6.0
|
|
|
$
|
6.0
|
|
|
$
|
0.6
|
|
|
$
|
0.6
|
|
Interest
cost
|
|
|
14.4
|
|
|
|
13.9
|
|
|
|
2.4
|
|
|
|
2.1
|
|
Expected
return on plan assets
|
|
|
(15.0
|
)
|
|
|
(23.6
|
)
|
|
|
--
|
|
|
|
--
|
|
Amortization
of prior service cost
|
|
|
0.6
|
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
--
|
|
Amortization
of net (loss) gain
|
|
|
8.7
|
|
|
|
--
|
|
|
|
(0.3
|
)
|
|
|
(0.9
|
)
|
Net
periodic benefit cost (income)
|
|
$
|
14.7
|
|
|
$
|
(3.3
|
)
|
|
$
|
3.0
|
|
|
$
|
1.8
|
|
|
Based
on the actuarial report as of January 1, 2009, the 2009 return on plan
assets is not expected to exceed the sum of the service cost, interest
cost and amortization components, resulting in a net periodic pension
expense of $4.9 million for the third quarter of 2009 and an expected
$19.5 million for the full year. The increase in net periodic pension
expense in 2009 relative to 2008 is principally due to a decrease in the
fair value of pension assets from $379 million at the end of 2007 to $244
million at the end of 2008. In 2009, the Company does not expect that it
will be required to make cash contributions to its pension
plans.
|
(9)
|
Segment
results for the quarter and the nine months ended September 30, 2009 and
2008 were as follows (in millions)
(unaudited):
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ocean
transportation
|
|
$
|
234.2
|
|
|
$
|
272.8
|
|
|
$
|
653.8
|
|
|
$
|
784.2
|
|
Logistics
services
|
|
|
82.3
|
|
|
|
118.1
|
|
|
|
238.8
|
|
|
|
336.2
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
25.2
|
|
|
|
26.2
|
|
|
|
78.3
|
|
|
|
82.3
|
|
Sales
|
|
|
14.9
|
|
|
|
77.2
|
|
|
|
61.4
|
|
|
|
295.8
|
|
Less
amounts reported in discontinued operations
|
|
|
(10.2
|
)
|
|
|
(72.6
|
)
|
|
|
(53.8
|
)
|
|
|
(93.1
|
)
|
Agribusiness
|
|
|
32.5
|
|
|
|
37.5
|
|
|
|
79.4
|
|
|
|
96.2
|
|
Reconciling
Items
|
|
|
(3.0
|
)
|
|
|
(3.0
|
)
|
|
|
(8.1
|
)
|
|
|
(7.1
|
)
|
Total
revenue
|
|
$
|
375.9
|
|
|
$
|
456.2
|
|
|
$
|
1,049.8
|
|
|
$
|
1,494.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit, Net Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ocean
transportation
|
|
$
|
24.2
|
|
|
$
|
31.4
|
|
|
$
|
44.8
|
|
|
$
|
84.7
|
|
Logistics
services
|
|
|
2.2
|
|
|
|
5.1
|
|
|
|
5.5
|
|
|
|
14.4
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
10.2
|
|
|
|
11.1
|
|
|
|
33.2
|
|
|
|
37.6
|
|
Sales
|
|
|
3.5
|
|
|
|
25.8
|
|
|
|
18.7
|
|
|
|
76.3
|
|
Less
amounts reported in discontinued operations
|
|
|
(4.0
|
)
|
|
|
(28.4
|
)
|
|
|
(23.7
|
)
|
|
|
(40.6
|
)
|
Agribusiness
|
|
|
(13.8
|
)
|
|
|
(6.7
|
)
|
|
|
(27.0
|
)
|
|
|
(6.8
|
)
|
Total
operating profit
|
|
|
22.3
|
|
|
|
38.3
|
|
|
|
51.5
|
|
|
|
165.6
|
|
Interest
Expense
|
|
|
(6.7
|
)
|
|
|
(5.8
|
)
|
|
|
(19.2
|
)
|
|
|
(17.5
|
)
|
General
Corporate Expenses
|
|
|
(4.9
|
)
|
|
|
(5.3
|
)
|
|
|
(15.5
|
)
|
|
|
(16.4
|
)
|
Income
From Continuing Operations Before Income Taxes
|
|
|
10.7
|
|
|
|
27.2
|
|
|
|
16.8
|
|
|
|
131.7
|
|
Income
Taxes
|
|
|
4.6
|
|
|
|
7.9
|
|
|
|
6.7
|
|
|
|
48.2
|
|
Income
From Continuing Operations
|
|
|
6.1
|
|
|
|
19.3
|
|
|
|
10.1
|
|
|
|
83.5
|
|
Income
From Discontinued Operations (net of income taxes)
|
|
|
2.4
|
|
|
|
17.5
|
|
|
|
14.0
|
|
|
|
25.0
|
|
Net
Income
|
|
$
|
8.5
|
|
|
$
|
36.8
|
|
|
$
|
24.1
|
|
|
$
|
108.5
|
|
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The
following analysis of the consolidated financial condition and results of
operations of Alexander & Baldwin, Inc. and its subsidiaries (collectively,
the “Company”) should be read in conjunction with the condensed consolidated
financial statements and related notes thereto included in Item 1 of this Form
10-Q.
FORWARD-LOOKING
STATEMENTS
The Company, from time to time, may
make or may have made certain forward-looking statements, whether orally or in
writing, such as forecasts and projections of the Company’s future performance
or statements of management’s plans and objectives. These statements are
“forward-looking” statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements may be contained
in, among other things, Securities and Exchange Commission (“SEC”) filings, such
as the Forms 10-K, 10-Q and 8-K, the Annual Report to Shareholders, press
releases made by the Company, the Company’s Internet Web sites (including Web
sites of its subsidiaries), and oral statements made by the officers of the
Company. Except for historical information contained in these written or oral
communications, such communications contain forward-looking statements. New risk
factors emerge from time to time and it is not possible for the Company to
predict all such risk factors, nor can it assess the impact of all such risk
factors on the Company’s business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Accordingly, forward-looking
statements cannot be relied upon as a guarantee of future results and involve a
number of risks and uncertainties that could cause actual results to differ
materially from those projected in the statements, including, but not limited to
the factors that are described in Part I, Item 1A under the caption of “Risk
Factors” of the Company’s 2008 Annual Report on Form 10-K. The Company is not
required, and undertakes no obligation, to revise or update forward-looking
statements or any factors that may affect actual results, whether as a result of
new information, future events, or circumstances occurring after the date of
this report.
OVERVIEW
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (“MD&A”) is designed to
provide a discussion of the Company’s financial condition, results of
operations, liquidity and certain other factors that may affect its future
results from the perspective of management. The discussion that follows is
intended to provide information that will assist in understanding the changes in
the Company’s financial statements from period to period, the primary factors
that accounted for those changes, and how certain accounting principles,
policies and estimates affect the Company’s financial statements. MD&A is
provided as a supplement to the condensed consolidated financial statements and
notes herein, and should be read in conjunction with the Company’s 2008 Annual
Report on Form 10-K as well as the Company’s reports on Forms 10-Q and 8-K and
other publicly available information.
MD&A
is presented in the following sections:
• Business
Overview
• Consolidated
Results of Operations
• Analysis
of Operating Revenue and Profit by Segment
• Liquidity
and Capital Resources
• Business
Outlook
• Other
Matters
BUSINESS
OVERVIEW
Alexander & Baldwin, Inc.
(“A&B”), founded in 1870, is a multi-industry corporation headquartered in
Honolulu that operates in five segments in three industries—Transportation, Real
Estate, and Agribusiness.
Transportation:
The Transportation Industry consists of Ocean Transportation and Logistics
Services segments. The Ocean Transportation segment, which is conducted through
Matson Navigation Company, Inc. (“Matson”), a wholly-owned subsidiary of
A&B, is an asset-based business that derives its revenue primarily through
the carriage of containerized freight between various U.S. Pacific Coast,
Hawaii, Guam, China and other Pacific island ports. Additionally, the Ocean
Transportation segment has a 35 percent interest in an entity (“SSAT”) that
provides terminal and stevedoring services at U.S. Pacific Coast
facilities.
The Logistics Services segment, which
is conducted through Matson Integrated Logistics, Inc. (“MIL”), a wholly-owned
subsidiary of Matson, is a non-asset based business that is a provider of
domestic and international rail intermodal service (“Intermodal”), long-haul and
regional highway brokerage, specialized hauling, flat-bed and project work,
less-than-truckload, expedited/air freight services, and warehousing and
distribution services (collectively “Highway”). Warehousing and distribution
services are provided by Matson Global Distribution Services, Inc. (“MGDS”), a
subsidiary of MIL.
Real
Estate:
The Real Estate Industry consists of two segments, both of which
have operations in Hawaii and on the U.S. mainland. The Real Estate Sales
segment generates its revenues through the development and sale of land,
commercial and residential properties. The Real Estate Leasing segment owns,
operates, and manages retail, office, and industrial properties. Real estate
activities are conducted through A&B Properties, Inc. and various other
wholly-owned subsidiaries of A&B.
Agribusiness:
Agribusiness, a division of A&B, contains one segment and produces bulk raw
sugar, specialty food-grade sugars, and molasses; produces, markets, and
distributes roasted coffee and green coffee; provides general trucking services,
mobile equipment maintenance, and repair services; and generates and sells, to
the extent not used in the Company’s operations, electricity.
CONSOLIDATED
RESULTS OF OPERATIONS
Consolidated
– Third quarter of 2009 compared with 2008
|
|
Quarter
Ended September 30,
|
(dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
Operating
Revenue
|
|
$
|
375.9
|
|
$
|
456.2
|
|
-18
|
%
|
Operating
Costs and Expenses
|
|
|
358.9
|
|
|
422.8
|
|
-15
|
%
|
Operating
Income
|
|
|
17.0
|
|
|
33.4
|
|
-49
|
%
|
Other
Income and (Expense)
|
|
|
(6.3
|
)
|
|
(6.2
|
)
|
-2
|
%
|
Income
Before Taxes
|
|
|
10.7
|
|
|
27.2
|
|
-61
|
%
|
Income
Taxes
|
|
|
(4.6
|
)
|
|
(7.9
|
)
|
-42
|
%
|
Discontinued
Operations (net of income taxes)
|
|
|
2.4
|
|
|
17.5
|
|
-86
|
%
|
Net
Income
|
|
$
|
8.5
|
|
$
|
36.8
|
|
-77
|
%
|
|
|
|
|
|
|
|
|
|
|
Basic
Earnings per Share
|
|
$
|
0.21
|
|
$
|
0.89
|
|
-76
|
%
|
Diluted
Earnings per Share
|
|
$
|
0.21
|
|
$
|
0.89
|
|
-76
|
%
|
Operating
revenue for the third quarter of 2009 decreased $80.3 million, or
18 percent, compared with the third quarter of 2008. This decrease was
principally due to $38.6 million lower revenue for Ocean Transportation and
$35.8 million lower revenue for Logistics Services. The reasons for the revenue
changes are described below, by business segment, in the Analysis of Operating
Revenue and Profit by Segment.
Operating
costs and expenses for the third quarter of 2009 decreased $63.9 million, or 15
percent, compared with the third quarter of 2008. The decrease in operating
costs and expenses was principally due to $61.5 million in lower operating costs
for the transportation segments and a $2.5 million decrease in selling, general
and administrative expenses. The reasons for the operating cost and expense
changes are described below, by business segment, in the Analysis of Operating
Revenue and Profit by Segment.
Other
income and (expense) was essentially unchanged for the third quarter of 2009
compared with the third quarter of 2008, but included $0.9 million in higher
interest expense, principally the result of a higher weighted-average interest
rate in 2009, offset by a $0.9 million loss on investment in 2008.
Income
taxes for the third quarter of 2009 were lower than the third quarter of 2008
due to lower income. The effective tax rate in 2009 was higher than the rate in
2008 principally due to non-deductible expenses that had a greater impact on the
effective rate as a result of lower income relative to 2008, as well as newly
enacted tax legislation which unfavorably affected the effective
rate.
Consolidated
– First nine months of 2009 compared with 2008
|
|
Nine
Months Ended September 30,
|
(dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
Operating
Revenue
|
|
$
|
1,049.8
|
|
$
|
1,494.5
|
|
-30
|
%
|
Operating
Costs and Expenses
|
|
|
1,014.6
|
|
|
1,363.3
|
|
-26
|
%
|
Operating
Income
|
|
|
35.2
|
|
|
131.2
|
|
-73
|
%
|
Other
Income and (Expense)
|
|
|
(18.4
|
)
|
|
0.5
|
|
NM
|
|
Income
Before Taxes
|
|
|
16.8
|
|
|
131.7
|
|
-87
|
%
|
Income
Taxes
|
|
|
(6.7
|
)
|
|
(48.2
|
)
|
-86
|
%
|
Discontinued
Operations (net of income taxes)
|
|
|
14.0
|
|
|
25.0
|
|
-44
|
%
|
Net
Income
|
|
$
|
24.1
|
|
$
|
108.5
|
|
-78
|
%
|
|
|
|
|
|
|
|
|
|
|
Basic
Earnings per Share
|
|
$
|
0.59
|
|
$
|
2.63
|
|
-78
|
%
|
Diluted
Earnings per Share
|
|
$
|
0.59
|
|
$
|
2.61
|
|
-77
|
%
|
Operating
revenue for the first nine months of 2009 decreased $444.7 million, or 30
percent, compared with the same period in 2008. This decrease was
principally due to $203.4 million lower revenue from Real Estate Sales (after
excluding Real Estate Sales revenue classified as discontinued operations),
$130.4 million lower revenue for Ocean Transportation, $97.4 million lower
Logistics Services revenue, and $16.8 million lower revenue for Agribusiness.
The reasons for the revenue changes are described below, by business segment, in
the Analysis of Operating Revenue and Profit by Segment.
Operating
costs and expenses for the first nine months of 2009 decreased $348.7 million,
or 26 percent, compared with the same period in 2008 due to $168.7 million in
lower costs for the Real Estate Industry and $181.3 million in lower costs for
the Transportation industries. The reasons for the operating cost and expense
changes are described below, by business segment, in the Analysis of Operating
Revenue and Profit by Segment.
Other
income and (expenses) decreased $18.9 million in the first nine months of 2009
compared with the same period in 2008, due primarily to $9.8 million in lower
real estate joint venture income, a $7.7 million gain on a 2005 fire insurance
settlement recognized in 2008, and $1.7 million in higher interest expense in
2009 resulting from lower capitalized interest and a higher weighted-average
interest rate.
Income taxes in the first nine months
of 2009 were lower than the first nine months of 2008 due primarily to lower
income. The higher effective tax rate in 2009 was due to the same reasons cited
for the quarter.
ANALYSIS
OF OPERATING REVENUE AND PROFIT BY SEGMENT
TRANSPORTATION
INDUSTRY
Ocean
Transportation – Third quarter of 2009 compared with 2008
|
|
Quarter
Ended September 30,
|
(dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
Revenue
|
|
$
|
234.2
|
|
$
|
272.8
|
|
-14
|
%
|
Operating
profit
|
|
$
|
24.2
|
|
$
|
31.4
|
|
-23
|
%
|
Operating
profit margin
|
|
|
10.3
|
%
|
|
11.5
|
%
|
|
|
Volume
(Units)*
|
|
|
|
|
|
|
|
|
|
Hawaii
containers
|
|
|
35,100
|
|
|
39,900
|
|
-12
|
%
|
Hawaii
automobiles
|
|
|
21,200
|
|
|
21,800
|
|
-3
|
%
|
China
containers
|
|
|
12,400
|
|
|
12,300
|
|
1
|
%
|
Guam
containers
|
|
|
3,500
|
|
|
3,600
|
|
-3
|
%
|
*
Container volumes included for the period are based on the voyage departure
date, but revenue and operating profit are adjusted to reflect the percentage of
revenue and operating profit earned during the reporting period for voyages that
straddle the beginning and/or end of each reporting period.
Ocean Transportation revenue for the
third quarter of 2009 decreased $38.6 million, or 14 percent, compared with the
third quarter of 2008. This decrease was principally due to a $23.5 million
reduction in fuel surcharges and a $17.8 million decrease due to lower net
volumes. Rates and cargo mix were favorable in the Hawaii trade in the third
quarter of 2009 relative to 2008, while rates in the China trade declined
quarter-over-quarter.
Total Hawaii container volume for the
third quarter of 2009 was down 12 percent compared to the third quarter of 2008,
reflecting reduced shipments from a broad-based decline in demand caused by the
continuing softness in Hawaii’s economy. Matson’s Hawaii automobile volume for
the quarter was also 3 percent lower than the third quarter of last year,
primarily due to the timing of automobile rental fleet replacement activity.
China container volume increased 1 percent in the third quarter of 2009 compared
with 2008, due to the addition of a third port of call at Xiamen,
China.
Operating profit for the third quarter
of 2009 decreased $7.2 million, or 23 percent, compared with the third quarter
of 2008. Approximately $11.3 million of the change was due to lower volume
described above, $3.8 million was due to higher terminal costs resulting from
increased contractual stevedoring rates, and $2.7 million was attributable to
higher pension costs. The decrease in operating profit was partially offset by
$5.8 million in lower vessel costs, principally related to efficient fleet
deployment initiatives, $1.5 million in lower general and administrative
expenses, and $1.3 million related to improved yields and cargo mix. General and
administrative expenses were lower principally due to Matson’s cost saving
efforts, including the first quarter’s headcount reduction program.
Additionally, Matson’s share of SSAT joint venture earnings increased $1.2
million, primarily the result of cost reductions related to management’s
efforts. Earnings from joint ventures are not included in revenue, but are
included in operating profit.
Ocean
Transportation – First nine months of 2009 compared with 2008
|
|
Nine
Months Ended September 30,
|
(dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
Revenue
|
|
$
|
653.8
|
|
$
|
784.2
|
|
-17
|
%
|
Operating
profit
|
|
$
|
44.8
|
|
$
|
84.7
|
|
-47
|
%
|
Operating
profit margin
|
|
|
6.9
|
%
|
|
10.8
|
%
|
|
|
Volume
(Units)*
|
|
|
|
|
|
|
|
|
|
Hawaii
containers
|
|
|
101,900
|
|
|
116,800
|
|
-13
|
%
|
Hawaii
automobiles
|
|
|
62,800
|
|
|
71,000
|
|
-12
|
%
|
China
containers
|
|
|
33,100
|
|
|
36,700
|
|
-10
|
%
|
Guam
containers
|
|
|
10,500
|
|
|
10,600
|
|
-1
|
%
|
*
Container volumes included for the period are based on the voyage departure
date, but revenue and operating profit are adjusted to reflect the percentage of
revenue and operating profit earned during the reporting period for voyages that
straddle the beginning and/or end of the reporting period.
Ocean Transportation revenue for the
first nine months of 2009 decreased $130.4 million, or 17 percent, compared with
the first nine months of 2008. This decrease was due to $79.6 million of lower
revenue resulting from lower net volumes and $72.4 million in reduced fuel
surcharges, partially offset by a $22.9 million net improvement in
yields.
Hawaii container volumes for the first
nine months of 2009 were lower due to the same factors cited for the quarter.
Hawaii auto volume was lower in 2009 due to lower new car shipments from
manufacturers to Hawaii auto dealers as a result of the economic downturn, as
well as the timing of rental fleet replacement activity. China container volumes
were 10 percent lower in 2009 due to weak demand for imports in the U.S.
Mainland as a result of the U.S. recession.
Operating profit for the first nine
months of 2009 decreased $39.9 million, or 47 percent, compared with the first
nine months of 2008. Approximately $56.1 million of the change was due to lower
volumes, $8.6 million was due to higher terminal costs as a result of higher
contractual stevedoring rates, $3.5 million was attributable to higher net
general and administrative expenses, and $2.9 million was due to higher drydock
expenses. General and administrative expenses were higher principally due to
$8.0 million in higher pension expenses and a first quarter 2009 expense of $6.0
million, related to Matson’s headcount reduction program, but these increases
were partially offset by various general and administrative cost savings
initiatives, including the ongoing benefit of the headcount reduction program.
Additionally, the decrease in operating profit was partially offset by a $22.9
million improvement in yields and cargo mix, $8.0 million in reduced vessel
expenses that were principally the result of efficient fleet deployment
initiatives, and $1.9 million in lower transportation expenses resulting from
reduced ocean carrier and truck costs.
Logistics
Services – Third quarter of 2009 compared with 2008
|
|
Quarter
Ended September 30,
|
(dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
Intermodal
revenue
|
|
$
|
48.2
|
|
$
|
73.9
|
|
-35
|
%
|
Highway
revenue
|
|
|
34.1
|
|
|
44.2
|
|
-23
|
%
|
Total
Revenue
|
|
$
|
82.3
|
|
$
|
118.1
|
|
-30
|
%
|
Operating
profit
|
|
$
|
2.2
|
|
$
|
5.1
|
|
-57
|
%
|
Operating
profit margin
|
|
|
2.7
|
%
|
|
4.3
|
%
|
|
|
Logistics Services revenue for the
third quarter of 2009 decreased $35.8 million, or 30 percent, compared with the
third quarter of 2008. This decrease was principally due to lower Intermodal and
full truckload Highway volume, which decreased by 19 percent and 9 percent,
respectively, as well as lower Intermodal and Highway rates driven primarily by
lower fuel surcharges and competitive pricing pressure. The reduction in Highway
volume is reflective of a general softening in the Highway market as a result of
the U.S. recession. The reduction in Intermodal volumes, while also impacted by
the U.S. recession, was also impacted by competitive actions resulting from
direct agreements between steamship lines and rail providers. The decrease in
Highway revenue was partially offset by MGDS’s warehousing operations revenue,
which was $3.4 million higher than the prior quarter. MGDS’s revenue increase in
the quarter was primarily due to the acquisition of Pacific American Services,
LLC (“PACAM”), a San Francisco bay-area regional warehousing, packaging and
distribution company, in the latter part of the third quarter of
2008.
Logistics Services operating profit for
the third quarter of 2009 decreased $2.9 million, or 57 percent, compared with
the third quarter of 2008. Operating profit decreased principally due to lower
volume and rates previously cited, but was also due to margin compression
resulting from excess capacity in the market.
Logistics
Services – First nine months of 2009 compared with 2008
|
|
Nine
Months Ended September 30,
|
(dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
Intermodal
revenue
|
|
$
|
139.5
|
|
$
|
212.2
|
|
-34
|
%
|
Highway
revenue
|
|
|
99.3
|
|
|
124.0
|
|
-20
|
%
|
Total
Revenue
|
|
$
|
238.8
|
|
$
|
336.2
|
|
-29
|
%
|
Operating
profit
|
|
$
|
5.5
|
|
$
|
14.4
|
|
-62
|
%
|
Operating
profit margin
|
|
|
2.3
|
%
|
|
4.3
|
%
|
|
|
Logistics Services revenue for the
first nine months of 2009 decreased $97.4 million, or 29 percent, compared with
the first nine months of 2008. This decrease was principally due to lower
Intermodal and Highway volume, which decreased by 23 percent and 10 percent,
respectively, as well as lower Intermodal and Highway rates driven primarily by
lower fuel surcharges and competitive pricing pressures. The lower Intermodal
and Highway volumes were due to the same factors cited for the quarter. The
decrease in Highway revenue was partially offset by MGDS’s warehousing
operations revenue, which was $15.3 million higher than the first nine months of
2008. The increase in MGDS’s results was primarily due to the acquisition of
PACAM in the third quarter of 2008.
Logistics Services operating profit for
the first nine months of 2009 decreased $8.9 million, or 62 percent, compared
with the first nine months of 2008. The decrease in operating profit was due to
the same reasons cited for the quarter.
REAL
ESTATE INDUSTRY
Real Estate Leasing and Real Estate
Sales revenue and operating profit are analyzed before subtracting amounts
related to discontinued operations. This is consistent with how the
Company evaluates and makes decisions regarding capital allocation,
acquisitions, and dispositions for the Company’s real estate businesses. A
discussion of discontinued operations for the real estate business is included
separately.
Effect of Property Sales Mix on
Operating Results: Direct year-over-year comparison of the real
estate sales results may not provide a consistent, measurable barometer of
future performance because results from period to period are significantly
affected by joint venture income and the mix of property sales. Operating
results, by virtue of each project’s asset class, geography, and timing, are
inherently episodic. Earnings from joint venture investments are not included in
segment revenue, but are included in operating profit. The mix of real estate
sales in any year or quarter can be diverse and can include developed
residential real estate, commercial properties, developable subdivision lots,
undeveloped land, and property sold under threat of condemnation. The sale of
undeveloped land and vacant parcels in Hawaii generally provides higher margins
than does the sale of developed and commercial property, due to the low
historical-cost basis of the Company’s Hawaii land. Consequently, real estate
sales revenue trends, cash flows from the sales of real estate, and the amount
of real estate held for sale on the balance sheets do not necessarily indicate
future profitability trends for this segment. Additionally, the operating profit
reported in each quarter does not necessarily follow a percentage of sales trend
because the cost basis of property sold can differ significantly between
transactions. The reporting of real estate sales is also affected by the
classification of certain real estate sales as discontinued
operations.
Real
Estate Leasing – Third quarter of 2009 compared with 2008
|
|
Quarter
Ended September 30,
|
(dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
Revenue
|
|
$
|
25.2
|
|
$
|
26.2
|
|
-4
|
%
|
Operating
profit
|
|
$
|
10.2
|
|
$
|
11.1
|
|
-8
|
%
|
Operating
profit margin
|
|
|
40.5
|
%
|
|
42.4
|
%
|
|
|
Occupancy
Rates:
|
|
|
|
|
|
|
|
|
|
Mainland
|
|
|
83
|
%
|
|
95
|
%
|
-12
|
%
|
Hawaii
|
|
|
95
|
%
|
|
98
|
%
|
-3
|
%
|
Leasable
Space (million sq. ft.):
|
|
|
|
|
|
|
|
|
|
Mainland
|
|
|
7.1
|
|
|
5.9
|
|
20
|
%
|
Hawaii
|
|
|
1.4
|
|
|
1.3
|
|
8
|
%
|
Real
Estate Leasing revenue for the third quarter of 2009, before subtracting amounts
presented as discontinued operations, was 4 percent lower than 2008, due to
lower occupancies and rents in the mainland and Hawaii portfolios, the timing of
property sales and acquisitions, and the partial non-reinvestment of 1031
proceeds from the sale of Marina Shores that occurred in the third quarter of
2008. Occupancy for the mainland portfolio decreased 12 percentage points in the
third quarter of 2009 as compared to the third quarter of 2008, primarily due to
the placement of Savannah Logistics Park Building B into service in March 2009
and the acquisition of Republic Distribution Center subsequent to the second
quarter of 2008, as well as a reduction in occupancy levels principally related
to two other industrial properties.
Operating
profit for the third quarter of 2009, before subtracting amounts presented as
discontinued operations, was 8 percent lower than 2008. Operating profit was
lower for the same reasons cited for the revenue decrease, but was also due to
higher depreciation and amortization expenses, due to the increase in the lease
portfolio’s depreciable basis resulting from the reinvestment of gains from
leased property sales under 1031 exchange transactions.
Leasable space increased by a net 1.3
million square feet in the third quarter of 2009 compared with the third quarter
of 2008, principally due to the following activity:
Acquisitions
|
|
Dispositions
|
Date
|
Property
|
|
Date
|
Property
|
9-08
|
Republic
Distribution Center (TX)
|
|
8-08
|
Boardwalk
Shopping Center (TX)
|
11-08
|
Midstate
99 Distribution Center (CA)
|
|
9-08
|
Marina
Shores Shopping Center (CA)
|
2-09
|
Activity
Distribution Center (CA)
|
|
11-08
|
Venture
Oaks Office Building (CA)
|
3-09
|
Waipio
Industrial Center (HI)
|
|
various
|
Leased
fee parcels
|
3-09
|
Savannah
Logistics Park Bldg. B* (GA)
|
|
3-09
|
Southbank
II (AZ)
|
8-09
|
Northpoint
Industrial (CA)
|
|
6-09
|
Hawaii
Business Park (HI)
|
9-09
|
Waipio
Shopping Center (HI)
|
|
9-09
|
San
Jose Avenue Warehouse (CA)
|
*
Savannah Logistics Park Building B was acquired in 2008, but placed into service
in March 2009
Real
Estate Leasing – First nine months of 2009 compared with 2008
|
|
Nine
Months Ended September 30,
|
(dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
Revenue
|
|
$
|
78.3
|
|
$
|
82.3
|
|
-5
|
%
|
Operating
profit
|
|
$
|
33.2
|
|
$
|
37.6
|
|
-12
|
%
|
Operating
profit margin
|
|
|
42.4
|
%
|
|
45.7
|
%
|
|
|
Occupancy
Rates:
|
|
|
|
|
|
|
|
|
|
Mainland
|
|
|
86
|
%
|
|
96
|
%
|
-10
|
%
|
Hawaii
|
|
|
95
|
%
|
|
98
|
%
|
-3
|
%
|
Real Estate Leasing revenue for the
first nine months of 2009, before subtracting amounts presented as discontinued
operations, was 5 percent lower than 2008, due to a $1.4 million business
interruption insurance payment received in 2008 for a 2005 fire at Kahului
Shopping Center, as well as the same factors cited for the quarter.
Operating profit for the first nine
months of 2009, before subtracting amounts presented as discontinued operations,
was 12 percent lower than 2008, in part due to the insurance payment cited
previously. Excluding this payment, leasing operating profit was 8 percent lower
than 2008, principally due to the factors cited for the quarter, as well as
higher depreciation and amortization expenses and an increase in reserves for
bad debt.
Real
Estate Sales – Third quarter and first nine months of 2009 compared with
2008
|
|
Quarter
Ended September 30,
|
(dollars
in millions)
|
|
2009
|
|
2008
|
Change
|
Improved
property sales
|
|
$
|
8.3
|
|
$
|
61.2
|
-86
|
%
|
Development
sales
|
|
|
2.3
|
|
|
7.1
|
-68
|
%
|
Unimproved/other
property sales
|
|
|
4.3
|
|
|
8.9
|
-52
|
%
|
Total
revenue
|
|
$
|
14.9
|
|
$
|
77.2
|
-81
|
%
|
Operating
profit before joint ventures
|
|
$
|
3.2
|
|
$
|
25.5
|
-87
|
%
|
Earnings
from joint ventures
|
|
|
0.3
|
|
|
0.3
|
--
|
%
|
Total
operating profit
|
|
$
|
3.5
|
|
$
|
25.8
|
-86
|
%
|
|
|
Nine
Months Ended September 30,
|
(dollars
in millions)
|
|
2009
|
|
2008
|
Change
|
Improved
property sales
|
|
$
|
41.5
|
|
$
|
73.3
|
-43
|
%
|
Development
sales
|
|
|
5.2
|
|
|
211.8
|
-98
|
%
|
Unimproved/other
property sales
|
|
|
14.7
|
|
|
10.7
|
37
|
%
|
Total
revenue
|
|
$
|
61.4
|
|
$
|
295.8
|
-79
|
%
|
Operating
profit before joint ventures
|
|
$
|
18.2
|
|
$
|
66.0
|
-72
|
%
|
Earnings
from joint ventures
|
|
|
0.5
|
|
|
10.3
|
-95
|
%
|
Total
operating profit
|
|
$
|
18.7
|
|
$
|
76.3
|
-75
|
%
|
The composition of sales in the third
quarter and nine months ended September 30, 2009 and 2008 are described
below.
2009 Third
Quarter
:
Real
Estate Sales revenue, before subtracting amounts presented as discontinued
operations, was $14.9 million, principally related to the sale of San Jose
Avenue Warehouse, an industrial property in California, and the sale of two
parcels on Maui.
2009 – Nine
Months Ended September 30
:
Revenue for the first nine
months of 2009, before subtracting amounts presented as discontinued operations,
was $61.4 million and included the sale of San Jose Avenue Warehouse in
California, Hawaii Business Park on Oahu, Southbank II office building in
Arizona, five leased fee parcels in Kahului on Maui, six Keola La’i residential
condominiums on Oahu, two Keala’ula single-family homes on Kauai and four
non-core land parcels on Maui. Operating profit for the first nine months of
2009 also included joint venture income of $0.5 million, principally related to
two joint ventures in Valencia, California.
2008 Third
Quarter
:
Real
Estate Sales revenue, before subtracting amounts presented as discontinued
operations, was $77.2 million, and was principally due to the sales of Marina
Shores Shopping Center in California and a 3.9-acre vacant commercial property
in Kahului, Maui in September, as well as the sale of Boardwalk Shopping Center
in Texas in August. Additionally, six residential units and one commercial space
at the Company’s Keola La’i residential condominium project on Oahu, one home at
the Company’s Keala’ula single-family residential project, and a land parcel on
Maui closed during the quarter.
2008 – Nine
Months Ended September 30
:
Revenue for the first nine
months of 2008, before subtracting amounts presented as discontinued operations,
was $295.8 million and was principally related to the closings of 324 Keola La’i
condominium residential units, two mainland shopping centers, Kahului Town
Terrace rental apartments and 28 Keala’ula single-family homes on Kauai.
Operating profit for the first nine months of 2008 also included joint venture
income of $10.3 million, principally related to sales at the Company’s Kai Malu
residential joint venture development on Maui and the partial sale of several
buildings at the Company’s Centre Pointe retail/office joint venture development
in Valencia, California. Additionally, real estate sales operating profit for
the first nine months of 2008 included $7.7 million, representing a final
insurance settlement for the 2005 fire at Kahului Shopping Center that occurred
in the first quarter of 2008.
Real
Estate Discontinued Operations – 2009 compared with 2008
The
revenue and operating profit on real estate discontinued operations for the
third quarter and first nine months of 2009 and 2008 were as
follows:
|
|
Quarter
Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
(dollars
in millions, before tax)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Sales
revenue
|
|
$
|
10.0
|
|
|
$
|
69.7
|
|
|
$
|
51.5
|
|
|
$
|
82.5
|
|
Leasing
revenue
|
|
$
|
0.2
|
|
|
$
|
2.9
|
|
|
$
|
2.3
|
|
|
$
|
10.6
|
|
Sales
operating profit
|
|
$
|
3.8
|
|
|
$
|
26.8
|
|
|
$
|
22.2
|
|
|
$
|
34.5
|
|
Leasing
operating profit
|
|
$
|
0.2
|
|
|
$
|
1.6
|
|
|
$
|
1.5
|
|
|
$
|
6.1
|
|
2009
:
The revenue and expenses of
Hawaii Business Park, an industrial property on Oahu, Southbank II, an office
building in Arizona, San Jose Avenue Warehouse, an industrial property in
California, and various parcels on Maui have been classified as discontinued
operations.
2008
:
The revenue and expenses of
land previously leased to a telecommunications tenant on Maui, a commercial
leased fee parcel on Maui, a multi-tenant residential rental property, and two
retail properties on the mainland have been classified as discontinued
operations.
The leasing revenue and operating
profit noted above includes the results for properties that were sold through
September 30, 2009 and, if applicable, the operating results of properties still
owned, but meet the definition of “discontinued operations” under FASB ASC
Subtopic 205-20. Revenue and operating profit for the third quarter and the nine
months ended September 30, 2008 have been restated to reflect property that was
classified as discontinued operations subsequent to September 30,
2008.
AGRIBUSINESS
The operating results of the
Agribusiness segment are highly dependent on a number of factors, including
seasonality and weather conditions. Weather conditions represent one of the most
important factors affecting operating results because weather affects yields,
volume of electricity generation, plantings, harvesting, and factory operations.
Consequently, operating results from the Agribusiness segment will vary from
period to period.
Agribusiness
– Third quarter of 2009 compared with 2008
|
|
Quarter
Ended September 30,
|
(dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
Revenue
|
|
$
|
32.5
|
|
$
|
37.5
|
|
-13
|
%
|
Operating
loss
|
|
$
|
(13.8
|
)
|
$
|
(6.7
|
)
|
-2
|
X
|
Operating
profit margin
|
|
|
-42.5
|
%
|
|
-17.9
|
%
|
|
|
Tons
sugar produced
|
|
|
53,700
|
|
|
50,500
|
|
6
|
%
|
Agribusiness revenue for the third
quarter of 2009 decreased $5.0 million, or 13 percent, compared with the
third quarter of 2008. The decrease was primarily due to $5.3 million in lower
power revenue, the result of lower power prices and sales volumes. Power prices,
which decreased by more than 50 percent in the quarter compared to the prior
year quarter, are determined by an avoided cost calculation for the public
utilities in Hawaii, and have been negatively impacted by a reduction in fossil
fuel costs.
Operating loss for the third quarter of
2009 increased $7.1 million compared with the third quarter of 2008. The
increase was primarily due to a $6.0 million reduction in power sales margins,
principally due to the factors resulting in reduced revenue cited above, and a
$2.2 million reduction in sugar margins. Sugar margins are determined using
estimates of full-year production costs and volumes. While full year costs for
raw sugar are estimated to be below 2008 levels despite the significant increase
in pension expense, sugar margins are well below 2008 levels due to lower
forecasted 2009 production volumes resulting from severe drought conditions in
2007-2008. The high fixed-cost nature of the sugar cultivation and processing
operations leads to disproportionate reductions in profitability when production
volumes decline.
Agribusiness
– First nine months of 2009 compared with 2008
|
|
Nine
Months Ended September 30,
|
(dollars
in millions)
|
|
2009
|
|
2008
|
|
Change
|
Revenue
|
|
$
|
79.4
|
|
$
|
96.2
|
|
-17
|
%
|
Operating
loss
|
|
$
|
(27.0
|
)
|
$
|
(6.8
|
)
|
-4
|
X
|
Operating
profit margin
|
|
|
-34.0
|
%
|
|
-7.1
|
%
|
|
|
Tons
sugar produced
|
|
|
109,200
|
|
|
114,800
|
|
-5
|
%
|
Agribusiness revenue for the first nine
months of 2009 decreased $16.8 million, or 17 percent, compared with the
first nine months of 2008. The decrease was primarily due to a $13.9 million
reduction in power revenue, resulting from lower power prices and sales volumes,
and a $5.5 million reduction in raw sugar revenue due to lower production
volumes. The decrease in revenues was partially offset by a $2.5 million
increase in specialty sugar revenue resulting from higher sales volumes. Power
prices, which decreased by more than 50 percent in the first nine months of 2009
compared to the first nine months of 2008, are determined by an avoided cost
calculation for the public utilities in Hawaii, and have been negatively
impacted by both a reduction in fossil fuel costs and an unfavorable Hawaii
Public Utilities Commission modification to the avoided cost
formula.
Operating loss for the first nine
months of 2009 increased $20.2 million compared with the first nine months of
2008. The increase was primarily due to a $15.5 million reduction in power sales
margins and a $6.2 million reduction in sugar margins, due to the same reasons
cited in the quarter.
Year-to-date sugar production was 5
percent lower in 2009 than in 2008 due principally to lower average yields per
acre. The lower yields in 2009 were principally the result of severe drought
conditions in 2007-2008.
LIQUIDITY
AND CAPITAL RESOURCES
Overview:
Cash
flows provided by operating activities continue to be the Company’s most
significant source of liquidity. Additional sources of liquidity were provided
by available cash and cash equivalent balances as well as borrowings on
available credit facilities.
Cash Flows:
Cash
flows from operating activities totaled $78 million for the first nine months of
2009, compared with $202 million for the first nine months of 2008. This
decrease was due principally to proceeds from the sale of 318 units at the
Company’s Keola La’i residential condominium project in 2008 and lower 2009
Matson earnings, partially offset by lower real estate inventory development
expenditures in 2009.
Cash flows used in investing activities
totaled $8 million for the first nine months of 2009, compared with $140 million
used in the first nine months of 2008. The decrease in cash flows used in
investing activities for the first nine months of 2009 was due principally to
$64 million in lower 2009 capital expenditures for real estate investments and
ocean transportation assets, $24 million utilized in 2008 for the acquisition of
PACAM, $19 million utilized for the purchase of short-term investments in 2008,
and an $18 million decrease in 2009 related to investments in real estate joint
ventures.
Capital expenditures for the first nine
months of 2009 totaled $27 million compared with $91 million for the first nine
months of 2008. Capital expenditures for the first nine months of 2009 included
$12 million for real estate related acquisitions, development and property
improvements, $11 million for the purchase of transportation-related assets, and
$4 million related to agricultural operations. The $27 million reported in
capital expenditures on the condensed consolidated statement of cash flows for
2009 excludes $90 million of tax-deferred purchases since the Company did not
actually take control of the cash during the exchange period. The 2008
expenditures included $51 million for real estate related acquisitions,
development and property improvements, $29 million for the purchase of ocean
transportation-related assets, and $11 million related to agricultural
operations. The $91 million reported in capital expenditures on the condensed
consolidated statement of cash flows for 2008 excludes $23 million of
tax-deferred purchases since the Company did not actually take control of the
cash during the exchange period.
Cash flows used in financing activities
were $73 million for the first nine months of 2009, compared with $69 million
used in the first nine months of 2008. The increase in cash flows used in
financing activities was principally due to a $33 million reduction in debt in
2009, compared with a $17 million increase in debt in 2008, $2 million in
proceeds received for stock in 2008, partially offset by 2008 share repurchases,
totaling $50 million, in the first quarter of 2008.
The Company believes that funds
generated from results of operations, available cash and cash equivalents, and
available borrowings under credit facilities will be sufficient to finance the
Company’s business requirements for the next fiscal year, including working
capital, capital expenditures, dividends, and potential acquisitions and stock
repurchases. There can be no assurance, however, that the Company will continue
to generate cash flows at or above current levels or that it will be able to
maintain its ability to borrow under its available credit
facilities.
Sources of
Liquidity:
Additional sources of liquidity for the Company,
consisting of cash and cash equivalents, receivables, and sugar and coffee
inventories, totaled $221 million at September 30, 2009, an increase of $26
million from December 31, 2008. The increase was due primarily to a $20 million
increase in receivable balances and $8 million in higher sugar and coffee
inventories, partially offset by a $3 million decrease in cash and cash
equivalents.
The
Company also has various revolving credit and term facilities that provide
additional sources of liquidity for working capital requirements or investment
opportunities on a short-term as well as longer-term basis. The total debt as of
September 30, 2009 was $471 million compared to $504 million at the end of 2008.
As of September 30, 2009, available capacity under these facilities totaled $435
million.
Balance
Sheet:
Working capital was $22 million at September 30, 2009,
a decrease of $24 million from the consolidated balance at the end of 2008. The
decrease in working capital was due primarily to the receipt of $23 million of
expired Section 1031 exchange proceeds, a $13 million increase in accounts
payable and accrued and other liability balances, a $9 million decrease in real
estate held for sale, and a $3 million decrease in cash balances, partially
offset by a $20 million increase in accounts receivable balances, a $10 million
increase in inventories, and a $7 million increase in current portion of
long-term debt.
Other
assets decreased by $49 million, principally due to the reinvestment of
tax-deferred 1031 proceeds into Activity Distribution Center in California and
the Waipio Industrial Center in Honolulu.
Tax-Deferred Real Estate
Exchanges:
Sales
– During the third quarter of 2009, $12 million of proceeds from the sales of
the San Jose Avenue Warehouse, an industrial property in California, two parcels
on Maui, and the proceeds from a note receivable related to a previous property
sale, qualified for tax-deferral treatment under Internal Revenue Code Section
1031. During the third quarter of 2008, $68 million of proceeds from the sales
of Boardwalk Shopping Center, Marina Shores Shopping Center, a 3.9-acre vacant
commercial property on Maui, and a parcel on Maui qualified for potential
tax-deferral treatment under Internal Revenue Code Section 1031.
Purchases
– During the third
quarter of 2009, approximately $42 million of tax-deferred funds, including $2
million of reverse 1031 proceeds, were utilized to purchase Waipio Shopping
Center, a retail property on Oahu, and Northpoint Properties, a two-building
industrial property in California. During the third quarter of 2008,
approximately $18 million of tax-deferred funds were utilized to purchase the
Republic Distribution Center, a 313,000 square-foot logistics warehouse in
Texas.
The proceeds from 1031 tax-deferred
sales are held in escrow pending future use to purchase new real estate assets.
The proceeds from 1033 condemnations are held by the Company until the funds are
redeployed. As of September 30, 2009, there were approximately $6 million in
proceeds from tax-deferred sales that had not been reinvested.
The funds related to 1031 transactions
are not included in cash flows from investing activities in the Condensed
Consolidated Statement of Cash Flows but are disclosed as non-cash activities.
For “reverse 1031” transactions, the Company purchases a property in
anticipation of receiving funds from a future property sale. Funds used for
reverse 1031 purchases are included as capital expenditures on the Condensed
Consolidated Statement of Cash Flows and the related sales of property, for
which the proceeds are linked, are included as property sales in the
Statement.
Commitments, Contingencies and
Off-balance Sheet Arrangements:
A description of
other commitments, contingencies, and off-balance sheet arrangements
at September 30, 2009, and herein incorporated by reference, is included in Note
3 to the condensed consolidated financial statements of Item 1 in this Form
10-Q.
BUSINESS
OUTLOOK
The
Business Outlook provides the Company’s views on current market conditions, its
recent performance and its near-term prospects. All of the forward-looking
statements made herein are qualified by the inherent risks of the Company’s
operations and the markets it serves, as described more fully on pages 17-26 of
the Form 10-K in the Company’s 2008 Annual Report.
The
Company operates in multiple industries in domestic and international markets,
and its operations are impacted by regional, national and international economic
and market trends. Still, a majority of the Company’s operations are centered in
Hawaii and a corresponding measure of the Company’s performance is directly
influenced by the fundamentals of the Hawaii economy.
Throughout
the first three quarters of 2009, the Hawaii economy weakened as a result of
macro-economic trends that have affected U.S. Mainland and international
markets. The weakness in the Hawaii economy was driven by, and reflected in,
significantly lower levels of construction activity; significantly lower
occupancy levels at hotels; reduced visitor spending in the state; reduced
consumer demand for automobiles and other “big-ticket” discretionary items; and
reduction in real estate sales activity. The above factors will continue to
negatively impact the Company’s operations, most notably in reduced residential
real estate sales activity and lower levels of demand for cargo and auto
transport.
Similarly,
earnings challenges are expected to continue in other core markets in which the
Company operates, including: the U.S. West where the Company has commercial
property and limited development interests; Asia-U.S. West Coast trade lanes,
upon which the Company’s international shipping and stevedoring volumes are
dependent; and throughout the U.S. Mainland, whose economic activity drives
logistics volume.
In
addition, the Company will incur approximately $5 million in non-cash pension
expense in the fourth quarter of 2009, as a result of a previously reported
decline in the market value of pension assets in the Company’s various defined
benefit pension plans in 2008.
The
Company continues to implement measures to: maintain its stable financial
footing; reduce cost throughout its operations; optimize yields and revenues;
improve operating margins and cash flow; and position its businesses for
expected lower levels of economic activity. As a result, debt levels have been
reduced by $33 million through the first nine months of the year, capital
spending has been pared considerably, and the Company’s year-to-date cash flow
after capital investments has exceeded the corresponding amount for the same
period in 2008. Additionally, liquidity and debt capacity are
ample.
Over the course of the next eighteen
months, the Company expects to make several investments in leasing assets and in
distressed and higher return real estate development projects, and will seek
further expansion of its product and service offerings in its transportation
businesses. The Company’s balance sheet and cash flow strength provide an
opportunity to make investments to grow the Company’s various businesses and
leverage core competencies.
Transportation
: Matson’s 2009
third quarter operating and financial performance continues to improve in
relation to earlier year performance, as the economic benefit of a series of
cost reduction and network configuration initiatives are realized. Matson has
been able to offset a portion of the volume-related earnings impact in its trade
lanes through improved yields and better cargo mix, and by capturing
efficiencies in its fleet and shore-side asset deployment. Matson’s vessel
utilization has improved steadily throughout the year, which is an important
driver of the improvement in its operating profit margin. Further significant
reductions or modifications to the fleet deployment are not expected in 2009. At
SSAT, the Company’s joint venture that operates terminals on the U.S. West
Coast, previously expected benefits stemming from the addition of a large
customer in the summer of 2009 began to materialize during the most recent
quarter.
For the
balance of 2009, and into the first half of 2010, the Company expects that
container volume in Hawaii will begin to flatten. In Guam, the Company expects
slight volume expansion in line with increased cargo movement related to a
military redeployment. Rates in both of these markets are expected to remain
stable. In China, lower demand and excess capacity led to a precipitous decline
in rates for Trans-Pacific cargo movement during the first half of the year.
Some rate recovery has since occurred, but volatility in volume and rates is
expected to continue. Similarly, volume and operating profit at SSAT will
continue to be impacted by reduced import volume from Asia until demand for
imports improve.
In the
third quarter of 2009, Matson Integrated Logistics continued to record lower
volume and rate levels, as compared to prior year’s levels, in its Highway and
Intermodal brokerages, reflective of the general economic contraction in the
U.S. as well as disintermediation in its international intermodal business. This
loss of Intermodal volume may diminish MIL’s earnings prospects in the future.
Additionally, demand is expected to continue to be suppressed, albeit at higher
levels than earlier in the year, as economic activity and general freight
movement recovers over time. Some sequential volume improvement in the Company’s
Highway brokerage was realized in the most recent quarter, and rate improvement
may materialize in parallel with increased demand as the economy recovers.
Warehousing and distribution revenue (volume) increased considerably during the
quarter, primarily due to a 2008 acquisition and to ongoing incremental volume
at the Company’s Savannah logistics facility. The Company will remain focused on
organic growth opportunities and improving operating efficiencies in its core
logistics businesses, and will seek to expand in new markets through strategic
recruiting initiatives.
Real Estate
: Sales of improved
properties and land parcels have been strong in 2009, notwithstanding a
challenging market environment. Property sales allow the Company to capture
embedded value created through appreciation and by the Company’s property and
asset management efforts, and proceeds are typically redeployed in assets
offering higher appreciation potential through efficient, tax-deferred 1031
exchanges. Sales are expected to continue apace, but the timing, pricing and
volume are difficult to forecast precisely and may be impacted by reduced
capital availability for buyers and recession-impacted operating
performance.
Conversely,
these same factors should generate improved real estate acquisition
opportunities for the Company. Over the course of the next year, the Company
expects to make several investments in projects in Hawaii. The timing and scale
of these investments, however, is not certain and will be dependent upon a
number of factors, including, but not limited to, return and risk thresholds,
underlying land valuations, and the availability of other capital investment
opportunities.
The
Company’s U.S. Mainland commercial property portfolio occupancy began to
stabilize in the most recent quarter, while high average occupancy levels in its
Hawaii portfolio (95 percent) have been maintained. Reduced occupancy levels in
the Company’s U.S. Mainland holdings are primarily due to the addition of over
465,000 acquired and untenanted square feet at two logistics facilities and
vacancies in two other industrial properties. Higher depreciation levels related
to recent acquisition activity are also expected, which will modestly impact
earnings in the future.
The
Company had minimal sales of developed property in the third quarter of 2009, as
primary and resort residential sales have dramatically declined from 2008
levels. The decreased sales activity generally mirrors the overall economic
contraction and buyers’ reduced access to mortgage financing. Residential unit
sales are expected to be minimal for the balance of 2009 and into
2010.
The
Company regularly reviews its real estate portfolio for potential impairment to
underlying asset valuation. In the fourth quarter of 2008, the Company recorded
a $3 million impairment loss related to its investment in its Santa Barbara
joint venture project. Protracted weakness in the real estate sector or
difficulty in obtaining or renewing project-level financing may affect the value
or feasibility of certain development projects owned by the Company or by its
joint ventures and could lead to impairment charges in the future.
Throughout
2009, the Company has modified the timing and scope of select development
projects and has continued to pursue entitlement, design and permitting at key
projects. These efforts are expected to improve near-term financial performance
through cost and capital deferral, while positioning the Company to meet
expected demand as real estate markets recover over time.
Agribusiness
: In the third
quarter of 2009, the Company’s Agribusiness operations generated a sizeable loss
attributable to reduced power sales, low sugar yields and non-cash pension
expenses. Power revenue has been impacted by lower rates, stemming from lower
crude oil prices and from a mid-2008 public utility commission ruling that
modified the avoided cost formula, and by lower volume. Low sugar yields are
primarily the result of the severe 2007-2008 drought. The Company expects that
fourth quarter losses will be considerably lower than second and third quarter
losses as a result of lower sugar sales due to the completion of the annual
harvest in late October. It is also expected that losses will moderate
significantly in 2010, primarily due to improved sugar pricing and forecasted
higher production levels.
The
Company’s Hawaiian Commercial & Sugar Company division and Gay &
Robinson (“G&R”) are members in Hawaiian Sugar & Transportation
Cooperative (“HS&TC”), a cooperative that provides marketing and
transportation services to its members. In the third quarter of 2009, G&R
announced that it would cease the production of sugar in the fourth quarter of
2009. As a result, G&R’s membership in the cooperative will terminate in the
fourth quarter of 2009. Since the Company will be the sole member in HS&TC
upon G&R’s withdrawal, the Company will consolidate HS&TC beginning in
the fourth quarter of 2009. The Company is currently finalizing the effect of
consolidating HS&TC.
A
comprehensive review of the Company’s sugar operations is underway. While
improved sugar prices and production levels will influence near term decisions
by the Company, a final determination of the future of these operations will be
highly dependent on critical rulings by the State of Hawaii Commission on Water
Resource Management on water allocations for both the West Maui and
East Maui water systems, where favorable water rulings are essential to the
long-term viability of the plantation. Resolution of the water cases is expected
in late 2009 or early 2010.
The
Company utilizes two primary sources of periodic economic forecasts for the
state of Hawaii: the University of Hawaii Economic Research Organization and the
State’s Department of Business, Economic Development & Tourism.
OTHER
MATTERS
Dividends:
On
October 22, 2009, the Company’s Board of Directors announced a fourth-quarter
2009 dividend of $0.315 per share, payable on December 3, 2009 to shareholders
of record as of the close of business on November 5, 2009.
Significant Accounting
Policies:
The Company’s significant accounting policies are
described in Note 1 of the consolidated financial statements included in Item 8
of the Company’s 2008 Form 10-K.
Critical Accounting
Estimates:
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America, upon which the Management’s Discussion and Analysis is based, requires
that management exercise judgment when making estimates and assumptions about
future events that may affect the amounts reported in the financial statements
and accompanying notes. Future events and their effects cannot be determined
with absolute certainty and actual results will, inevitably, differ from those
critical accounting estimates. These differences could be material. The most
significant accounting estimates inherent in the preparation of A&B’s
financial statements were described in Item 7 of the Company’s 2008 Form
10-K.
Officer and Management
Changes:
The following management changes occurred between
July 1, 2009 and October 29, 2009.
The
A&B Board of Directors has appointed A&B President Stanley M. Kuriyama
to the position of chief executive officer, effective January 1, 2010,
succeeding Chairman and Chief Executive Officer W. Allen Doane, who will retire
after 11 years as CEO. Kuriyama also has been named to serve on the A&B
board of directors, effective January 1, 2010. Doane will continue to serve
A&B as a director, and current Lead Independent Director Walter A. Dods, Jr.
will become chairman of the A&B board, also effective January 1,
2010.
James S.
Andrasick, chairman of the board of Matson Navigation Company, Inc., retired
effective August 31, 2009. Mr. Kuriyama was appointed chairman of the board of
Matson effective September 1, 2009.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Information
concerning market risk is incorporated herein by reference to Item 7A of the
Company’s Form 10-K for the fiscal year ended December 31,
2008. There has been no material change in the quantitative and
qualitative disclosure about market risk since December 31, 2008.
ITEM 4. CONTROLS
AND PROCEDURES
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(a)
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Disclosure
Controls and Procedures. The Company’s management, with the
participation of the Company’s Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company’s disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) as of the end of the period covered by this
report. Based on such evaluation, the Company’s Chief Executive
Officer and Chief Financial Officer have concluded that, as of the end of
such period, the Company’s disclosure controls and procedures are
effective.
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(b)
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Internal
Control Over Financial Reporting. There have not been any
changes in the Company’s internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial
reporting.
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PART
II. OTHER INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
In
connection with the complaint filed by the Shipbuilders Council of America, Inc.
and Pasha Hawaii Transport Lines LLC against the U.S. Department of Homeland
Security, the U.S. Coast Guard and the National Vessel Documentation Center (the
“Mokihana case”), the U.S. District Court for the Eastern District of Virginia
had previously vacated its preliminary order granting summary judgment to the
plaintiffs in the Mokihana case, and suspended the matter pending the outcome of
an appeal to the United States Court of Appeals for the Fourth Circuit in a case
referred to by the District Court as the Seabulk Trader case. The
judge stated that the Fourth Circuit’s review of the major component test in the
Seabulk Trader case could be a potentially dispositive issue in the Mokihana
case. Such case was decided in favor of the plaintiffs by another
judge in the same District Court and is reported at 551 F.Supp.2d 447. Matson
filed an amicus brief in support of the Coast Guard’s decision in the Seabulk
Trader case. On August 21, 2009, the Fourth Circuit issued a decision in the
Seabulk Trader case, reversing the District Court’s judgment. The Fourth Circuit
found that the Coast Guard’s interpretation of the major component test was
persuasive. The Fourth Circuit decision is reported at 2009 U.S. App. LEXIS
18867. On October 20, 2009, the judge in the Mokihana case ordered the parties
to submit briefs addressing the effect of the Fourth Circuit's decision on the
issues currently pending in the Mokihana case. The Company, at this time, is
unable to predict the outcome of the lawsuit or the financial impact, if any, of
this lawsuit.
The
Company and Matson were named as defendants in a consolidated civil lawsuit
purporting to be a class action in the U.S. District Court for the Western
District of Washington in Seattle. The lawsuit alleged violations of
the antitrust laws and also named as a defendant Horizon Lines, Inc., another
domestic carrier operating in the Hawaii and Guam trades. On August
18, 2009, the court granted the defendants’ motion to dismiss the
complaint. The court granted plaintiffs leave to amend the complaint
within thirty days to allege claims consistent with the court's
Order. The court subsequently extended plaintiffs’ time to file an
amended complaint to May 10, 2010. If the plaintiffs file an amended
complaint, the Company and Matson will continue to vigorously defend themselves
in this lawsuit. The Company, at this time, is unable to predict the outcome of
the lawsuit or the financial impact, if any, of this lawsuit.
ITEM
6. EXHIBITS
10.b.1.(xlv)
Amendment No. 1 to the A&B Excess Benefits Plan, effective as of January 1,
2008.
31.1 Certification
of Chief Executive Officer, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification
of Chief Financial Officer, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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ALEXANDER
& BALDWIN, INC.
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(Registrant)
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Date: October
29, 2009
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/s/
Christopher J. Benjamin
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Christopher
J. Benjamin
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Senior
Vice President,
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Chief
Financial Officer and Treasurer
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Date: October
29, 2009
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/s/
Paul K. Ito
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Paul
K. Ito
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Vice
President, Controller and
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Assistant
Treasurer
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EXHIBIT INDEX
10.b.1.(xlv)
Amendment No. 1 to the A&B Excess Benefits Plan, effective as of January 1,
2008.
31.1 Certification
of Chief Executive Officer, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification
of Chief Financial Officer, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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