-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EEnAHbFTF3mn16BxRQRRWYKFmoS0JUYVKWRfTs4SBTFJpeH0WX8/Pm/A3gvuWa85 3NQjPwnWNO9r5laUUTRxVg== 0000003453-01-500009.txt : 20010228 0000003453-01-500009.hdr.sgml : 20010228 ACCESSION NUMBER: 0000003453-01-500009 CONFORMED SUBMISSION TYPE: U-3A-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALEXANDER & BALDWIN INC CENTRAL INDEX KEY: 0000003453 STANDARD INDUSTRIAL CLASSIFICATION: WATER TRANSPORTATION [4400] IRS NUMBER: 990032630 STATE OF INCORPORATION: HI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-3A-2 SEC ACT: SEC FILE NUMBER: 069-00166 FILM NUMBER: 1555345 BUSINESS ADDRESS: STREET 1: 822 BISHOP STREET STREET 2: PO BOX 3440 CITY: HONOLULU STATE: HI ZIP: 96801 BUSINESS PHONE: 8085256611 MAIL ADDRESS: STREET 1: 822 BISHOP STREET STREET 2: PO BOX 3440 CITY: HONOLULU STATE: HI ZIP: 96801 U-3A-2 1 u3a2_01.txt ALEXANDER & BALDWIN, INC. FORM U-3A-2, 12/31/2000 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. ______________________________________________ FORM U-3A-2 STATEMENT BY HOLDING COMPANY CLAIMING EXEMPTION UNDER RULE U-2 FROM THE PROVISIONS OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 TO BE FILED ANNUALLY PRIOR TO MARCH 1 ALEXANDER & BALDWIN, INC. (Name of Company) P. O. Box 3440 Honolulu, Hawaii 96801 (hereinafter called the "Claimant") hereby files with the Securities and Exchange Commission, pursuant to Rule U-2, its statement claiming exemption as a holding company from the provisions of the Public Utility Holding Company Act of 1935. In support of such claim for exemption, the following information is submitted: 1. The name, jurisdiction of organization, location and nature of business of Claimant and every subsidiary thereof, other than any exempt wholesale generator (EWG) or foreign utility company in which Claimant directly or indirectly holds an interest, as at January 31, 2001 (indirect subsidiaries are indicated by indentation). Jurisdiction of Name Organization Location Nature of Business ---- ------------ -------- ------------------ Alexander & Baldwin, Hawaii Honolulu, Ocean carriage of goods, Inc. Hawaii real property management and development, food products, investments Subsidiaries: A&B Inc. Hawaii Honolulu, Inactive Hawaii A&B Development California Honolulu, Ownership, manage- Company Hawaii ment and development of (California) real property in Arizona and Hawaii A & B Properties, Hawaii Kahului, Ownership, management, Inc. Hawaii development and selling of real property Prospect Hawaii Honolulu, Development and selling of Venture LLC Hawaii real property Haleakala Town Hawaii Honolulu, Development and selling of Center LLC Hawaii real property Upcountry Maui Hawaii Honolulu, Development and selling of Town Center LLC Hawaii real property West Maui Hawaii Honolulu, Development and selling of Development Hawaii real property Company LLC ABHI-Crockett, Hawaii Honolulu, Ownership of interest in Inc. Hawaii sugar refining and marketing business C&H Sugar Delaware Crockett, Refining raw sugar and Company, Inc. California marketing of refined sugar products Agri-Quest Hawaii Puunene, Diversified agriculture Development Hawaii Company, Inc. East Maui Irrigation Hawaii Puunene, Collection and distribu- Company, Limited Hawaii tion of irrigation water on island of Maui Hawaiian Hawaii Puunene, Production of fiberboard DuraGreen, Inc. Hawaii Kahului Trucking & Hawaii Kahului, Motor carriage of goods, Storage, Inc. Hawaii repair and maintenance shop services, self- storage services and stevedoring on island of Maui Kauai Commercial Hawaii Lihue, Motor carriage of goods Company, Hawaii and self-storage services Incorporated on island of Kauai Kukui'ula Hawaii Koloa, Ownership, management Development Hawaii and development of real Company, Inc. property on island of Kauai South Shore Hawaii Koloa, Development and Community Hawaii operation of sewer trans- Services LLC mission and treatment system on island of Kauai South Shore Hawaii Koloa, Development and Resources LLC Hawaii operation of water source and delivery system on island of Kauai McBryde Sugar Hawaii Eleele, Coffee plantation and Company, Limited Hawaii hydroelectric power generation Kauai Coffee Hawaii Eleele, Grow, process and sell Company, Inc. Hawaii coffee Ohanui Corporation Hawaii Puunene, Collection and distribu- Hawaii tion of domestic water on island of Maui WDCI, Inc. Hawaii Honolulu, Ownership, manage- Hawaii ment and development of property Hawaiian Sugar & Hawaii Puunene, Ocean carriage of sugar Transportation Hawaii from Hawaii Cooperative Matson Navigation Hawaii San Ocean carriage of goods Company, Inc. Francisco, between West Coast of California United States and Hawaii, Western Pacific and Asian ports Matson Intermodal Hawaii Oakbrook Broker, shipper's agent System, Inc. Terrace, and freight forwarder for Illinois overland cargo services of ocean carriers Matson Hawaii Oakbrook Broker, shipper's agent Intermodal- Terrace, and freight forwarder for Paragon, Inc. Illinois overland cargo services of ocean carriers Matson Services Hawaii San Tugboat services Company, Inc. Francisco, California Matson Terminals, Hawaii San Stevedoring and terminal Inc. Francisco, services California Matson Logistics Hawaii San Agent to provide delivery Solutions, Inc. Francisco, of equipment, goods and California supplies for businesses and projects Matson Ventures, Hawaii San Ownership of interest Inc. Francisco, in stevedoring and California terminal services entity SSA Terminals, Delaware Seattle, Stevedoring and LLC Washington terminal services Sea Star Line, Delaware Jacksonville, Investment in business LLC Florida providing ocean carriage of goods between Florida and Puerto Rico The Matson California San Inactive Company Francisco, California The Oceanic California San Inactive Steamship Francisco, Company California 2. A brief description of the properties of Claimant and each of its subsidiary public utility companies used for the generation, transmission and distribution of electric energy for sale, or for the production, transmission and distribution of natural or manufactured gas: Claimant: 3 steam-driven generators with rated capacities of 1 of 10,000 KW, 1 of 16,000 KW, and 1 of 20,000 KW (also 2 currently inactive steam-driven generators with rated capacities of 1 of 4,000 KW and 1 of 10,000 KW); 5 hydroelectric plants with rated capacities of 1 of 1,000 KW, 3 of 1,500 KW and 1 of 500 KW; about 80 miles of transmission lines; all located on the island of Maui, State of Hawaii McBryde Sugar Company, 2 hydroelectric plants with rated capacities of Limited ("McBryde") 1 of 1,000 KW and 1 of 3,600 KW; about 18 miles (Note 1) of transmission lines; all located on the island of Kauai, State of Hawaii _______________ Note 1. McBryde Sugar Company, Limited has filed with the Securities and Exchange Commission an application for an order declaring that it is not an electric utility company. 3. Information for the calendar year 2000 with respect to Claimant and each of its subsidiary public utility companies: (a)(1) Number of kwh of electric energy sold (all sales were at wholesale): Claimant 67,105,000 kwh, with associated revenues of $7,045,000 McBryde 23,375,463 kwh, with associated revenues of $1,978,288 (2) Number of Mcf of natural or manufactured gas distributed at retail: None. Neither Claimant nor any of its subsidiary public utility companies distributes any natural or manufactured gas at retail. (b) Number of kwh of electric energy and Mcf of natural or manufactured gas distributed at retail outside the State in which each such company is organized: None. Neither Claimant nor any of its subsidiary public utility companies distributes any electric energy or natural or manufactured gas at retail outside the State in which each such company is organized. (c) Number of kwh of electric energy and Mcf of natural or manufactured gas sold at wholesale outside the State in which each such company is organized, or at the State line: None. Neither Claimant nor any of its subsidiary public utility companies sells electric energy or natural or manufactured gas at wholesale (or otherwise) outside the State in which each such company is organized, or at the State line. (d) Number of kwh of electric energy and Mcf of natural or manufactured gas purchased outside the State in which each such company is organized, or at the State line: None. Neither Claimant nor any of its subsidiary public utility companies purchases any electric energy or natural or manufactured gas outside the State in which each such company is organized, or at the State line. 4. The following information for the reporting period with respect to Claimant and each interest it holds directly or indirectly in an EWG or a foreign utility company, stating monetary amounts in United States dollars: (a) Name, location, business address and description of the facilities used by the EWG or foreign utility company for the generation, transmission and distribution of electric energy for sale or for the distribution at retail of natural or manufactured gas. Not applicable. Claimant does not hold any interest, directly or indirectly, in an EWG or a foreign utility company. (b) Name of each system company that holds an interest in such EWG or foreign utility company; and description of the interest held. Not applicable (see 4(a) above). (c) Type and amount of capital invested, directly or indirectly, by the holding company claiming exemption; any direct or indirect guarantee of the security of the EWG or foreign utility company by the holding company claiming exemption; and any debt or other financial obligation for which there is recourse, directly or indirectly, to the holding company claiming exemption or another system company, other than the EWG or foreign utility company. Not applicable (see 4(a) above). (d) Capitalization and earnings of the EWG or foreign utility company during the reporting period. Not applicable (see 4(a) above). (e) Identify any service, sales or construction contract(s) between the EWG or foreign utility company and a system company, and describe the services to be rendered or goods sold and fees or revenues under such agreement(s). Not applicable (see 4(a) above). EXHIBIT A --------- A consolidating statement of income and retained earnings of Claimant and its subsidiary companies for the last calendar year, together with a consolidating balance sheet of Claimant and its subsidiary companies as of the close of such calendar year, are attached hereto. EXHIBIT B --------- An organizational chart showing the relationship of each EWG or foreign utility company to associate companies in the holding-company system. Not applicable. Claimant does not hold any interest, directly or indirectly, in an EWG or a foreign utility company. The above-named Claimant has caused this statement to be duly executed on its behalf by its authorized officer this 27th day of February, 2001. ALEXANDER & BALDWIN, INC. (Name of Claimant) By: /s/ Michael J. Marks --------------------------- Michael J. Marks Vice President (Corporate Seal) Attest: By: /s/ Alyson J. Nakamura ---------------------- Secretary Name, title and address of Officer to whom notices and correspondence concerning this statement should be addressed: Michael J. Marks Vice President and General Counsel Alexander & Baldwin, Inc. P. O. Box 3440 Honolulu, Hawaii 96801
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2000 ($000 OMITTED) ABIC ABI MCB OTHER Operating Revenue: Ocean transportation 800,558 - - 800,558 Property development & management 96,452 34,129 198 62,125 Food products 87,610 70,145 6,876 10,589 Power generation 9,023 7,045 1,978 - ------- ------- ------- ------- Total operating revenue 993,643 111,319 9,052 873,272 ------- ------- ------- ------- Operating Costs and Expenses: Cost of operations 771,751 83,881 7,187 680,683 Power generation 2,112 1,615 497 - ------- ------- ------- ------- Total operating costs and expenses 773,863 85,496 7,684 680,683 ------- ------- ------- ------- Gross Margin 219,780 25,823 1,368 192,589 General, Admin & Selling Expenses 88,058 11,609 - 76,449 ------- ------- ------- ------- Income from Operations 131,722 14,214 1,368 116,140 Other Income 25,699 5,055 2,190 18,454 Other Expense 34,706 20,220 - 14,486 ------- ------- ------- ------- Income Before Taxes 122,715 (951) 3,558 120,108 Provision for Income Taxes (Benefit) 44,391 (1,273) 1,372 44,292 ------- ------- ------- ------- Income Before Accounting Change 78,324 322 2,186 75,816 Change in Accounting (See Note 2) 12,250 - - 12,250 ------- ------- ------- ------- Net Income 90,574 322 2,186 88,066 ======= ======= ======= =======
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEET DECEMBER 31, 2000 ($000 OMITTED) ABIC ABI MCB OTHER ASSETS Current Assets: Cash 3,451 126 (192) 3,517 Accounts and notes receivable 141,553 10,065 768 130,720 Inventories 17,137 - 3,787 13,350 Prepaid expenses and other current assets 46,726 13,432 322 32,972 --------- --------- ------- --------- Total current assets 208,867 23,623 4,685 180,559 --------- --------- ------- --------- Investments: Subsidiaries and divisions - 678,636 - (678,636) Other 183,141 110,714 7 72,420 --------- --------- ------- --------- Total investments 183,141 789,350 7 (606,216) --------- --------- ------- --------- Real Estate Developments 62,628 - - 62,628 --------- --------- ------- --------- Property: Land 95,195 45,179 2,224 47,792 Buildings 269,149 96,321 1,099 171,729 Vessels 770,352 - - 770,352 Machinery and equipment 498,976 104,418 5,080 389,478 Power generation 55,759 53,414 2,345 - Other 118,763 49,442 764 68,557 --------- --------- ------- --------- Total 1,808,194 348,774 11,512 1,447,908 Less accumulated depreciation 853,502 161,246 6,564 685,692 --------- --------- ------- --------- Property - net 954,692 187,528 4,948 762,216 --------- --------- ------- --------- Other Assets 256,684 74,679 (9,443) 191,448 --------- --------- ------- --------- Total 1,666,012 1,075,180 197 590,635 ========= ========= ======= ========= LIABILITIES & SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt 30,500 7,500 - 23,000 Accounts payable 63,075 2,784 810 59,481 Other current liabilities 59,431 23,693 1,030 34,708 --------- --------- ------- --------- Total current liabilities 153,006 33,977 1,840 117,189 --------- --------- ------- --------- Long-term Liabilities: Long-term debt 330,766 231,000 - 99,766 Other long-term liabilities 488,589 116,552 7,549 364,488 --------- --------- ------- --------- Total long-term liabilities 819,355 347,552 7,549 464,254 --------- --------- ------- --------- Shareholders' Equity: Capital stock 33,248 33,248 2,350 (2,350) Additional capital 58,007 58,007 13,316 (13,316) Unrealized holding gains 61,937 61,937 - - Retained earnings 552,637 552,637 (24,941) 24,941 Treasury stock (12,178) (12,178) 83 (83) --------- --------- ------- --------- Total shareholders' equity 693,651 693,651 (9,192) 9,192 --------- --------- ------- --------- Total 1,666,012 1,075,180 197 590,635 ========= ========= ======= =========
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2000 ($000 OMITTED) ABIC ABI MCB OTHER Balance at December 31, 1999 545,849 545,849 (26,962) 26,962 Net income 90,574 90,574 2,186 (2,186) Dividends to shareholders (36,785) (36,785) - - Stock options exercised (524) (524) - - Capital stock purchased and retired (46,477) (46,477) - - ------- ------- ------- ------ Balance at December 31, 2000 552,637 552,637 (24,776) 24,776 ======= ======= ======= ======
LEGEND OF COMPANY REFERENCES IN CONSOLIDATING FINANCIAL SCHEDULES: ABIC Alexander & Baldwin, Inc. Consolidated ABI Alexander & Baldwin, Inc., Parent Company MCB McBryde Sugar Company, Limited OTHER All other subsidiaries and consolidating adjustments NOTES TO FINANCIAL STATEMENTS ALEXANDER & BALDWIN, INC. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of Alexander & Baldwin, Inc. and all wholly owned subsidiaries ("Company"), after elimination of significant intercompany amounts. Significant investments in businesses, partnerships and joint ventures in which the Company does not have control are accounted for under the equity method. Generally, these are investments in 20 to 50 percent owned businesses. Segment Information: The Company has three operating segments: Ocean Transportation, Real Estate Development and Management, and Food Products. The Company reports segment information in the same way that management assesses segment performance. Additional information regarding these segments is found on page 26 and in Note 12. Cash and Cash Equivalents: Cash equivalents are composed of all highly liquid investments with an original maturity of three months or less and which have no significant risk of change in value. Inventories: Raw sugar and coffee inventories are stated at the lower of cost (first-in, first-out basis) or market. Other inventories, composed principally of materials and supplies, are stated at the lower of cost (principally average cost) or market. Materials and supplies inventories are carried at historical cost, which is not greater than replacement cost. Property: Property is stated at cost. Expenditures for major renewals and betterments are capitalized. Replacements, maintenance and repairs, which do not improve or extend asset lives, are charged to expense as incurred. Gains or losses from property disposals are included in the determination of net income. As discussed in Note 2, the Company changed its accounting for drydocking costs in 2000. Costs of regularly scheduled drydocking of vessels and planned major vessel repairs performed during drydocking are capitalized and amortized over the periods benefited. Coffee Orchards: Costs of developing coffee orchards are capitalized during the development period and depreciated over the estimated productive lives. In 1999, following the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company reduced the carrying value of its coffee orchards and field and factory processing equipment. This is described further in Note 3. Capitalized Interest: Interest costs incurred in connection with significant expenditures for real estate developments or the construction of assets are capitalized. Interest expense is shown net of capitalized interest on the Statements of Income, because the amounts are not significant. Construction Expenditures: Expenditures for real estate developments are capitalized during construction and are classified as Real Estate Developments on the Balance Sheets. When construction is complete, the costs are reclassified as either Real Estate Held for Sale or Property, based upon the Company's intent to sell the completed asset or to hold it as an investment. Cash flows related to real estate developments are classified as either operating or investing activities, based upon the Company's intention to sell the property or to retain ownership of the property as an investment following completion of construction. Depreciation: Depreciation is computed using the straight-line method. Estimated useful lives of property are as follows: -------------------------------------------- Range of Life Classification (in years) -------------------------------------------- Buildings 10 to 50 Vessels 10 to 40 Marine containers 2 to 25 Terminal facilities 3 to 35 Machinery and equipment 3 to 35 Utility systems and other 5 to 60 -------------------------------------------- Fair Values: The carrying values of current assets (other than inventories, real estate held for sale, deferred income taxes, and prepaid and other current assets) and of debt instruments are reasonable estimates of their fair values. Real estate is carried at the lower of cost or fair value. Fair values are generally determined using the expected market value for the property, less sales costs. For residential units and lots held for sale, market value is determined by reference to the sales of similar property, market studies, tax assessments and cash flows. For commercial property, market value is determined using recent comparable sales, tax assessments and cash flows. A large portion of the Company's real estate is undeveloped land located in Hawaii. This land has a cost basis which averages approximately $150 per acre, a value which is much lower than fair value. Impairments of Long-lived Assets: Long-lived assets are reviewed for possible impairment when events or circumstances indicate that the carrying value may not be recoverable. In such evaluation, the estimated future undiscounted cash flows generated by the asset are compared with the amount recorded for the asset to determine if a write-down may be required. If this review determines that the recorded value will not be recovered, the amount recorded for the asset is reduced to estimated fair value. (See Note 3.) Voyage Revenue Recognition: Voyage revenue and variable costs and expenses associated with voyages are included in income at the time each voyage leg commences. This method of accounting does not differ materially from other acceptable accounting methods. Freight rates are provided in tariffs filed with the Surface Transportation Board of the U.S. Department of Transportation. Real Estate Sales Revenue Recognition: Sales are recorded when the risks and benefits of ownership have passed to the buyers (generally on closing dates), adequate down payments have been received, and collection of remaining balances is reasonably assured. Sugar and Coffee Revenue Recognition: Revenue from bulk raw sugar sales is recorded when delivered to the cooperative of Hawaiian producers, based on the estimated net return to producers in accordance with contractual agreements. Revenue from coffee is recorded when the title to the product and risk of loss passes to third parties and when collection is reasonably assured. Non-voyage Ocean Transportation Costs: Vessel depreciation, charter hire, terminal operating overhead and general and administrative expenses are charged to expense as incurred. Agricultural Costs: Costs of growing and harvesting sugar cane are charged to the cost of production in the year incurred and to cost of sales as raw sugar is delivered to the cooperative of Hawaiian producers as allowed in Statement of Position No. 85-3. Costs of growing coffee are charged to inventory in the year incurred and to cost of sales as coffee is sold. Employee Benefit Plans: Certain ocean transportation subsidiaries are members of the Pacific Maritime Association (PMA) and the Hawaii Stevedoring Industry Committee, which negotiate multi-employer pension plans covering certain shoreside bargaining unit personnel. The subsidiaries directly negotiate multi-employer pension plans covering other bargaining unit personnel. Pension costs are accrued in accordance with contribution rates established by the PMA, the parties to a plan or the trustees of a plan. Several trusteed, non- contributory, single-employer defined benefit plans, a profit sharing plan and an individual deferred contribution plan cover substantially all other employees. Stock-based Compensation: In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." As allowed by that standard, the Company has elected to continue to apply the principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as discussed in Note 10. Income Taxes: Deferred tax assets and liabilities are established for temporary differences between the way certain income and expense items are reported for financial reporting and tax purposes. Deferred tax assets and liabilities are adjusted to the extent necessary to reflect tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is established for deferred tax assets for which realization is not likely. Basic and Diluted Earnings per Share of Common Stock: Basic Earnings per Share is determined by dividing Net Income by the weighted-average common shares outstanding during the year. The impact on Earnings per Share of the Company's stock options is immaterial; consequently, Diluted Earnings per Share is generally the same amount as Basic Earnings per Share. Comprehensive Income: Comprehensive Income includes changes from either recognized transactions or other economic events, excluding capital stock transactions, which impact Shareholders' Equity. For the Company, the only difference between Net Income and Comprehensive Income is the unrealized holding gains on securities available for sale. Comprehensive Income is not used in the calculation of Earnings per Share. Environmental Costs: Environmental expenditures that relate to current operations are expensed or capitalized, as appropriate. Expenditures that relate to an existing condition caused by past operations or events, and which do not contribute to current or future revenue generation, are charged to expense. Liabilities are recorded when environmental assessments or remedial efforts are probable and the costs can be estimated reasonably. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Future actual amounts could differ from those estimates. Impact of Newly Issued Accounting Standards: SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, establishes the accounting and reporting standards for derivative instruments and hedging activities. Adoption of the standard was required on January 1, 2001. The Company has reviewed its contracts and agreements, and has determined that adoption of this standard will not have a material effect on the financial statements. The Company has adopted SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 140 provides standards for transfers and servicing of financial assets and extinguishments of liabilities using a financial-components approach that focuses on control. While application of this standard is prospective, no significant changes in the Company's accounting practices are expected to result from its adoption. Reclassifications: Certain amounts in the 1999 and 1998 financial statements have been reclassified to conform with the 2000 presentation. 2. CHANGE IN ACCOUNTING METHODS 2000 - Change in Accounting Method for Vessel Drydocking Costs: The Company changed its method of accounting for vessel drydocking costs, as of January 1, 2000, from the accrual method to the deferral method. Drydocking costs had been accrued as a liability and an expense on an estimated basis, in advance of the next scheduled drydocking. Subsequent payments for drydocking were charged against the accrued liability. Under the deferral method, actual drydocking costs are capitalized when incurred and amortized over the period benefited; generally, this is the period between scheduled drydockings. This method eliminates the uncertainty of estimating these costs. This change was made to conform with prevailing industry accounting practices. The cumulative effect of this accounting change, as of January 1, 2000, is shown separately in the Statements of Income and resulted in net income of $12,250,000 (net of income tax expense of $7,668,000) or $0.29 per basic share. The effect of this change in accounting method on the balance sheets was to increase other assets by $4,765,000, eliminate drydocking reserves of $15,153,000, increase deferred taxes by $7,668,000, and increase total shareholders' equity by $12,250,000. Had this change been applied retroactively, the impact on net income for 1999 and 1998 would not have been materially different from reported net income. 2000 - Change in Accounting for Certain Revenues and Expenses: The Company changed its method of presentation for certain freight services that are performed by third parties and billed by the Company to its customers. The expenses and related revenue for these services were previously reported on a net basis and were not reflected on the Statements of Income. Accordingly, operating revenue and expenses have been increased by $38,059,000, $31,874,000 and $25,377,000 for 2000, 1999 and 1998, respectively. The Company also changed its method of presentation for common area maintenance (CAM) costs. These costs, which are incurred by the Company but which are charged to tenants under various lease arrangements, were previously netted against Property Leasing Revenue. The Company now records CAM amounts in Costs of Leasing Services in the Statements of Income. Accordingly, Property Leasing Revenue and Costs of Leasing Services have been increased by $11,246,000, $8,852,000 and $6,478,000 for 2000, 1999 and 1998, respectively. These two changes were in response to the Securities and Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," which provides guidance about the classification, on a gross basis, of revenues and expenses. These changes had no effect on earnings or segment operating profit. Revenue on pages 26 and 32 for Ocean Transportation and Property Leasing have been restated to reflect this change. 1998 - Change in Accounting Method for Insurance-related Assessments: The Company self-insures a portion of its federal workers' compensation liability. As such, the Company utilized the U.S. Department of Labor (DOL) second injury fund, as authorized by Section 8(f) of the U.S. Longshore and Harborworkers' Compensation Act. Under this Act, the DOL annually assesses self-insurers for their share of the related costs. Through 1997, these assessments were recorded as an expense in the years the amounts were assessed and paid. Effective January 1, 1998, the Company adopted the provisions of the American Institute of Certified Public Accountants Statement of Position 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." This statement requires that the Company record, as a liability, the expected cost of future assessments relating to existing compensation claims made prior to the end of the fiscal year. In adopting this statement, the Company recorded a one-time, non-cash charge to 1998 earnings of $5,801,000 (net of income tax benefit of $3,481,000) or $0.13 per basic share. The effect of the change on operating costs was not significant for the current or prior years. The discount rate, discounted liability, and undiscounted liability at December 31, 2000, 1999 and 1998 were as follows (amounts in thousands): --------------------------------------------------------- 2000 1999 1998 --------------------------------------------------------- Discount Rate 6% 6.76% 5.43% Discounted Liability $ 9,956 $ 9,862 $ 9,282 Undiscounted Liability $14,753 $15,364 $13,869 --------------------------------------------------------- 3. WRITE-DOWN OF LONG-LIVED ASSETS 1999 - The Company began growing coffee in Hawaii in 1987 as an alternative crop to sugar cane. Since inception, the Company's coffee operation continually has generated operating losses and negative cash flows. During the second half of 1999, the Company significantly reduced the coffee workforce and changed its coffee marketing and selling plans. To exacerbate the problem, coffee commodity prices dropped significantly in 1999 due to an oversupply of coffee in the marketplace. Because of continuing cash-flow losses, the ongoing viability of the coffee operation was evaluated again. As a result, the Company determined that the estimated future cash flows of the coffee operation were less than the carrying value of its productive assets, consisting mainly of orchards and field and processing equipment. Accordingly, a $15,410,000 (pre-tax) charge was recorded to write down these productive assets to their fair value (i.e., present value of estimated future cash flows). 1998 - The Company changed the strategic direction of its 1,045-acre Kukui'Ula real estate development, from a single master-planned residential community to a series of individual subdivisions with fewer units, as a result of continued weaknesses in the State's and Kauai's economy and real estate markets. As a result, the Company determined that its investment in a waste water treatment plant (WWTP) could not be recovered through the WWTP's future cash flows; accordingly, the costs of the WWTP were reduced by $15,900,000, to the plant's fair value, which was based on the present value of estimated future cash flows. Under the original higher-density Kukui'Ula development plan, the cost of the WWTP would have been recoverable from its future cash flows. The changes in the development plan also resulted in the write-off of $4,316,000 for design and study costs, which were determined to have no future economic benefit. The remaining carrying cost of the Kukui'Ula project is approximately $29,650,000 and, based on current development plans, the Company has determined that this amount is recoverable from the project's future cash flows. 4. INVESTMENTS AND PARTIAL SALE OF SUBSIDIARY At December 31, 2000 and 1999, investments consisted principally of marketable equity securities, equity in affiliated companies, limited partnership interests and purchase-money mortgages, as follows (in thousands): - --------------------------------------------------------------------------- 2000 1999 - --------------------------------------------------------------------------- Marketable equity securities $108,069 $ 88,485 Equity in affiliated companies: California and Hawaiian Sugar Company, Inc. (C&H) 41,705 37,591 SSA Terminals, LLC (SSAT) 21,867 18,278 Sea Star Line, LLC (Sea Star) 7,586 8,429 Other 300 300 Limited partnership interests, purchase-money mortgages and other 3,614 5,643 - --------------------------------------------------------------------------- Total Investments $183,141 $158,726 =========================================================================== Marketable Equity Securities: The marketable equity securities are classified as "available for sale" and are stated at quoted market values as traded on national exchanges. The unrealized holding gains on these securities, net of deferred income taxes, have been recorded as a separate component of Shareholders' Equity and Comprehensive Income. The components of the net unrealized holding gains at December 31, 2000 and 1999 were as follows (in thousands): - --------------------------------------------------------------------------- 2000 1999 - --------------------------------------------------------------------------- Market value $108,069 $ 88,485 Less historical cost 9,761 10,173 - --------------------------------------------------------------------------- Unrealized holding gains 98,308 78,312 Less deferred income taxes 36,371 28,851 - --------------------------------------------------------------------------- Net unrealized holding gains $ 61,937 $ 49,461 =========================================================================== Equity in Affiliated Companies: On December 24, 1998, the Company recognized a loss of $19,756,000 on the sale of a majority of its equity interest in its sugar refining and marketing unit, C&H. The Company received approximately $45,000,000 in cash, after the repayment of certain C&H indebtedness, $25,000,000 in senior preferred stock, and $9,600,000 in junior preferred stock. The Company retained an approximately 36-percent common stock interest in the recapitalized C&H. The Company continues to hold all of C&H's senior preferred stock and 40 percent of C&H's junior preferred stock. Dividends on the senior and junior preferred stocks are cumulative. Through December 2003, dividends on the senior preferred stock may be paid either in cash or by issuance of additional shares of senior preferred stock. Shares of senior preferred stock received as dividends are valued at their estimated realizable values. C&H must redeem from the Company, at one thousand dollars per share, the outstanding senior preferred stock in December 2009 and outstanding junior preferred stock in December 2010. C&H is included in the consolidated results of the Company up to the date of the sale. The Company accounts for its investment in C&H under the equity method. Financial information for C&H as of and for the years ended December 31, 2000 and 1999 follows (in thousands): - --------------------------------------------------------------------------- CONDENSED BALANCE SHEETS 2000 1999 - --------------------------------------------------------------------------- ASSETS: Current $117,687 $ 82,707 Property and other 133,056 136,941 - --------------------------------------------------------------------------- Total $250,743 $219,648 =========================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY: Current $ 62,702 $ 39,044 Long-term debt and other 120,797 117,064 Shareholders' equity, including preferred stock 67,244 63,540 - --------------------------------------------------------------------------- Total $250,743 $219,648 =========================================================================== - --------------------------------------------------------------------------- CONDENSED STATEMENTS OF INCOME 2000 1999 - --------------------------------------------------------------------------- Revenue $413,250 $470,838 Cost and Expenses 409,545 463,454 - --------------------------------------------------------------------------- Net Income $ 3,705 $ 7,384 =========================================================================== The Company has an investment in a limited liability corporation (LLC) with Saltchuk Resources, Inc. and International Shipping Agency, Inc., named Sea Star Line, LLC, which operates an ocean transportation service between Florida and Puerto Rico. The Company charters two vessels to Sea Star Line, LLC. This investment represents a minority interest and is accounted for under the equity method. The Company is part owner of an LLC with Stevedoring Services of America, named SSA Terminals, LLC, which provides stevedoring and terminal services at six terminals in three West Coast ports to the Company and other shipping lines. In 1999, each company contributed the assets of California and Seattle, Washington terminals to form the LLC. This investment represents a minority interest and is accounted for under the equity method. The carrying amounts of investments in unconsolidated affiliated companies approximated their fair values at December 31, 2000 and 1999. Limited Partnership Interests and Purchase-money Mortgages: The investments in limited partnerships are recorded at the lower of cost or fair value and purchase-money mortgages are recorded at cost. The purchase-money mortgages are intended to be held to maturity. The values of the investments in limited partnerships are assessed annually. See Note 5 for a discussion of fair values of investments in the Capital Construction Fund. 5. CAPITAL CONSTRUCTION FUND A subsidiary is party to an agreement with the United States government which established a Capital Construction Fund (CCF) under provisions of the Merchant Marine Act, 1936, as amended. The agreement has program objectives for the acquisition, construction or reconstruction of vessels and for repayment of existing vessel indebtedness. Deposits to the CCF are limited by certain applicable earnings. Such deposits are federal income tax deductions in the year made; however, they are taxable, with interest payable from the year of deposit, if withdrawn for general corporate purposes or other non-qualified purposes, or upon termination of the agreement. Qualified withdrawals for investment in vessels and certain related equipment do not give rise to a current tax liability, but reduce the depreciable bases of the vessels or other assets for income tax purposes. Amounts deposited into the CCF are a preference item for calculating federal alternative minimum taxable income. Deposits not committed for qualified purposes within 25 years from the date of deposit, will be treated as non- qualified withdrawals over the subsequent five years. As of December 31, 2000, the oldest CCF deposits date from 1994. Management believes that all amounts on deposit in the CCF at the end of 2000 will be used or committed for qualified purposes prior to the expiration of the applicable 25-year periods. Under the terms of the CCF agreement, the subsidiary may designate certain qualified earnings as "accrued deposits" or may designate, as obligations of the CCF, qualified withdrawals to reimburse qualified expenditures initially made with operating funds. Such accrued deposits to and withdrawals from the CCF are reflected on the Balance Sheets either as obligations of the Company's current assets or as receivables from the CCF. The Company has classified its investments in the CCF as "held-to-maturity" and, accordingly, has not reflected temporary unrealized market gains and losses on the Balance Sheets or Statements of Income. The long-term nature of the CCF program supports the Company's intention to hold these investments to maturity. At December 31, 2000 and 1999, the balances on deposit in the CCF are summarized as follows (in thousands):
- --------------------------------------------------------------------------------------------------------- 2000 1999 --------------------------------- ---------------------------------- Amortized Fair Unrealized Amortized Fair Unrealized Cost Value Gain (Loss) Cost Value Loss - --------------------------------------------------------------------------------------------------------- Mortgage-backed securities $ 32,302 $ 32,281 $ (21) $ 37,086 $ 35,843 $ (1,243) Cash and cash equivalents 113,583 113,871 288 105,153 104,958 (195) Accrued deposits 4,520 4,520 -- 3,152 3,152 - --------------------------------------------------------------------------------------------------------- Total $150,405 $150,672 $ 267 $145,391 $143,953 $ (1,438) =========================================================================================================
Fair value of the mortgage-backed securities was determined by an outside investment management company, based on experience trading identical or substantially similar securities. No central exchange exists for these securities; they are traded over-the-counter. The Company earned $2,654,000 in 2000, $3,152,000 in 1999, and $4,514,000 in 1998 on its investments in mortgage-backed securities. The fair values of other CCF investments are based on quoted market prices. These other investments mature no later than December 2, 2002. Three securities classified as "held-to-maturity" were sold during 2000 for a combined loss of $48,400. These securities no longer met authorized credit requirements. No securities classified as "held-to-maturity" were sold in 1999. 6. NOTES PAYABLE AND LONG-TERM DEBT At December 31, 2000 and 1999, long-term debt consisted of the following (in thousands): - ------------------------------------------------------------------- 2000 1999 - ------------------------------------------------------------------- Commercial paper, 2000 high 6.79%, low 5.66% $ 99,766 $ 99,570 Bank variable rate loans, due after 2000, 2000 high 7.53%, low 6.06% 136,500 78,000 Term loans: 7.29%, payable through 2007 52,500 60,000 7.42%, payable through 2009 20,000 -- 7.43%, payable through 2007 15,000 15,000 7.57%, payable through 2009 15,000 15,000 7.55%, payable through 2009 15,000 15,000 7.65%, payable through 2001 7,500 10,000 8%, repaid in 2000 -- 7,500 - ------------------------------------------------------------------- Total 361,266 300,070 Less current portion 30,500 22,500 - ------------------------------------------------------------------- Long-term debt $330,766 $277,570 =================================================================== Commercial Paper: At December 31, 2000, $99,766,000 of commercial paper notes was outstanding under a commercial paper program used by a subsidiary to finance the construction of a vessel. Maturities ranged from two to 24 days. The borrowings outstanding under this program are classified as long-term because the subsidiary intends to continue the program and, eventually, to repay the borrowings with qualified withdrawals from the Capital Construction Fund. Variable Rate Loans: The Company has a revolving credit and term loan agree- ment with four commercial banks, whereby it may borrow up to $140,000,000 under revolving loans to November 30, 2001, at varying rates of interest. Any revolving loan outstanding on that date may be converted into a term loan, which would be payable in 12 equal quarterly installments. The agreement contains certain restrictive covenants, the most significant of which requires the maintenance of an interest coverage ratio of 2:1. At December 31, 2000 and 1999, $113,500,000 and $60,000,000, respectively, were outstanding under this agreement. The Company has an uncommitted $70,000,000 short-term revolving credit agreement with a commercial bank. This facility was increased from $45,000,000 during 2000. The agreement extends to November 30, 2001, but may be canceled by the bank or the Company at any time. The amount which the Company may draw under the facility is reduced by the amount drawn against the bank under the previously referenced $140,000,000 multi-bank facility, in which it is a participant, and by letters of credit issued under the $70,000,000 uncommitted facility. At December 31, 2000 and 1999, $7,500,000 and $13,000,000, respectively, were outstanding under this agreement. Under the borrowing formula for this facility, the Company could have borrowed an additional $22,700,000 at December 31, 2000. The Company has a $50,000,000 one-year revolving credit agreement with a commercial bank containing a two-year term option. At December 31, 2000 and 1999, $15,500,000 and $5,000,000, respectively, were outstanding under this agreement. The Company has a $25,000,000 one-year revolving credit agreement with a commercial bank which serves as a commercial paper liquidity back-up line. At December 31, 2000 and 1999, no amounts were outstanding under this agreement. In 1999, the Company had an uncommitted $25,000,000 revolving credit agreement with a commercial bank. That agreement expired December 31, 1999 and was replaced in January 2000 with a comparable uncommitted $25,000,000 revolving credit agreement with another commercial bank. Other Debt Agreements: The Company has a private shelf agreement for a total of $65,000,000. At December 31, 2000 this full amount had been drawn. At December 31, 1999, $20,000,000 had not been drawn on the facility. The amounts drawn on the agreement are included in term loans. Long-term Debt Maturities: At December 31, 2000, maturities and planned prepayments of all long-term debt during the next five years is $30,500,000 for 2001, $7,500,000 for 2002, $9,643,000 for 2003, $12,500,000 for 2004 and $17,500,000 for 2005. 7. LEASES The Company as Lessee: Principal operating leases include office and terminal facilities, containers and equipment, leased for periods which expire between 2002 and 2052. Management expects that, in the normal course of business, most operating leases will be renewed or replaced by other similar leases. Rental expense under operating leases totaled $19,741,000, $28,343,000 and $45,519,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Future minimum payments under operating leases as of December 31, 2000 were as follows (in thousands): --------------------------------------------------------------- Operating Leases --------------------------------------------------------------- 2001 $ 11,701 2002 11,884 2003 11,882 2004 11,865 2005 8,759 Thereafter 99,567 --------------------------------------------------------------- Total minimum lease payments $155,658 =============================================================== The Company is obligated to pay terminal facility rent equal to the principal and interest on Special Facility Revenue Bonds issued by the Department of Transportation of the State of Hawaii. Interest on the bonds is payable semi- annually and principal, in the amount of $16,500,000, is due in 2013. An accrued liability of $9,887,000 and $9,344,000 at December 31, 2000 and 1999, respectively, included in other long-term liabilities, provides for a pro-rata portion of the principal due on these bonds. The Company as Lessor: The Company leases land, buildings, land improvements, and five vessels under operating leases. Two of the vessels are chartered-out to an unconsolidated affiliate. The historical cost of and accumulated depreciation on leased property at December 31, 2000 and 1999 were as follows (in thousands): --------------------------------------------------------------- 2000 1999 --------------------------------------------------------------- Leased property $621,860 $571,640 Less accumulated amortization 154,467 129,465 --------------------------------------------------------------- Property under operating leases - net $467,393 $442,175 =============================================================== Total rental income under these operating leases for the three years ended December 31, 2000 was as follows (in thousands): - --------------------------------------------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------------- Minimum rentals $ 98,607 $ 93,275 $ 79,268 Contingent rentals (based on sales volume) 1,917 1,244 1,079 - --------------------------------------------------------------------------- Total $100,524 $ 94,519 $ 80,347 =========================================================================== Future minimum rental income on non-cancelable leases at December 31, 2000 was as follows (in thousands): -------------------------------------------------------------- Operating Leases -------------------------------------------------------------- 2001 $ 94,657 2002 90,913 2003 87,132 2004 81,211 2005 76,138 Thereafter 139,925 -------------------------------------------------------------- Total $569,976 ============================================================== 8. EMPLOYEE BENEFIT PLANS The Company has funded single-employer defined benefit pension plans which cover substantially all non-bargaining unit employees. In addition, the Company has plans that provide certain retiree health care and life insurance benefits to substantially all salaried and to certain hourly employees. Employees are generally eligible for such benefits upon retirement and completion of a specified number of years of credited service. The Company does not pre-fund these benefits and has the right to modify or terminate certain of these plans in the future. Certain groups of retirees pay a portion of the benefit costs. The status of the funded defined benefit pension plans and the unfunded accumulated post-retirement benefit plans, at December 31, 2000, 1999 and 1998, is shown in Table 1 (page 47). The net periodic benefit cost for the defined benefit pension plans and the post-retirement health care and life insurance benefit plans during 2000, 1999 and 1998 is summarized in Table 2 (page 48). As described in Note 4, the Company sold a majority of its interest in C&H during 1998. The impact of this transaction on the benefit obligation and the plan assets is noted in Table 1. At the time of the transaction, C&H had recorded in its financial statements net obligations of $12,300,000 and $46,500,000 for its pension and post-retirement benefit plans, respectively. The assumptions used to determine the benefit information were as follows:
------------------------------------------------------------------------------------------------ Pension Benefits Other Post-retirement Benefits ------------------------ ------------------------------ 2000 1999 1998 2000 1999 1998 ------------------------------------------------------------------------------------------------ Discounted rate 7.75% 7.75% 6.75% 7.75% 7.75% 6.75% Expected return on plan assets 9.00% 9.00% 9.00% -- -- -- Rate of compensation increase 4.25% 4.25% 4.25% 4.25% 4.25% 4.25%
For post-retirement benefit measurement purposes, a ten percent annual rate of increase in the per capita cost of covered health care benefits was assumed through 2001. The rate was assumed to decrease to five percent for 2002 and remain at that level thereafter. Unrecognized gains and losses of the post- retirement benefit plans are amortized over five years. If the assumed health care cost trend rate were increased or decreased by one percentage point, the accumulated post-retirement benefit obligation, as of December 31, 2000, 1999 and 1998, and the net periodic post-retirement benefit cost for 2000, 1999 and 1998, would have increased or decreased as follows (in thousands):
- ------------------------------------------------------------------------------------------------------- Other Post-retirement Benefits One Percentage Point ------------------------------------------------------------------- Increase Decrease ----------------------------- ------------------------------- 2000 1999 1998 2000 1999 1998 - ------------------------------------------------------------------------------------------------------- Effect on total of service and interest cost components $ 196 $ 416 $ 689 $ (226) $ (347) $ (583) Effect on post-retirement benefit obligation $ 1,664 $ 4,062 $ 5,157 $(2,278) $(3,388) $(4,387)
The assets of the defined benefit pension plans consist principally of listed stocks and bonds. Contributions are determined annually for each plan by the Company's pension administrative committee, based upon the actuarially determined minimum required contribution under the Employee Retirement Income Security Act of 1974 (ERISA), as amended, and the maximum deductible contribution allowed for tax purposes. For the plans covering employees who are members of collective bargaining units, the benefit formulas are determined according to the collective bargaining agreements, either using career average pay as the base or a flat dollar amount per year of service. The benefit formulas for the remaining defined benefit plans are based on final average pay. The Company has non-qualified supplemental pension plans covering certain employees and retirees, which provide for incremental pension payments from the Company's general funds, so that total pension benefits would be substantially equal to amounts that would have been payable from the Company's qualified pension plans if it were not for limitations imposed by income tax regulations. The obligation, included with other non-current liabilities, relating to these unfunded plans, totaled $12,597,000 and $10,801,000 at December 31, 2000 and 1999, respectively. The annual expense associated with the non-qualified plans was not significant. Total contributions to the multi-employer pension plans covering personnel in shoreside and seagoing bargaining units were $3,027,000 in 2000, $4,367,000 in 1999 and $5,633,000 in 1998. Union collective bargaining agreements provide that total employer contributions during the terms of the agreements must be sufficient to meet the normal costs and amortization payments required to be funded during those periods. Contributions are generally based on union labor paid or cargo volume. A portion of such contributions is for unfunded accrued actuarial liabilities of the plans being funded over periods of 25 to 40 years, which began between 1967 and 1976. The multi-employer plans are subject to the plan termination insurance provisions of ERISA and are paying premiums to the Pension Benefit Guarantee Corporation (PBGC). The statutes provide that an employer who withdraws from, or significantly reduces its contribution obligation to, a multi-employer plan generally will be required to continue funding its proportional share of the plan's unfunded vested benefits. Under special rules approved by the PBGC and adopted by the Pacific Coast longshore plan in 1984, the Company could cease Pacific Coast cargo-handling operations permanently and stop contributing to the plan without any withdrawal liability, provided that the plan meets certain funding obligations as defined in the plan. The estimated withdrawal liabilities under the Hawaii longshore plan and the seagoing plans aggregated approximately $971,000 as of December 31, 2000, based on estimates by plan actuaries. Management has no present intention of withdrawing from and does not anticipate termination of any of the aforementioned plans.
Table 1 (in thousands) Pension Benefits Other Post-retirement Benefits ----------------------------------- ----------------------------------- 2000 1999 1998 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $ 218,189 $ 229,573 $ 354,883 $ 47,836 $ 55,298 $ 91,112 Service cost 4,877 5,705 7,182 504 892 1,154 Interest cost 16,882 15,013 25,024 2,939 3,460 5,474 Plan participants' contributions -- -- -- 1,165 1,423 1,615 Actuarial (gain) loss (2,016) (25,177) 20,682 (2,652) (8,198) (8,482) Sale of subsidiary -- -- (158,758) -- -- (29,615) Benefits paid (13,146) (12,109) (22,631) (3,635) (4,320) (6,326) Amendments 1,137 10,129 3,191 -- -- 366 Settlements 8,602 (1,304) -- (8,247) -- -- Curtailments -- (3,823) -- -- (719) -- Special or contractual termination benefits 475 182 -- -- -- -- - ------------------------------------------------------------------------------------------------------------- Benefit obligation at end of year 235,000 218,189 229,573 37,910 47,836 55,298 - ------------------------------------------------------------------------------------------------------------- CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year 381,090 338,267 443,249 -- -- -- Actual return on plan assets (3,645) 56,236 72,646 -- -- -- Settlements -- (1,304) -- -- -- -- Sale of subsidiary -- -- (154,997) -- -- -- Benefits paid (13,146) (12,109) (22,631) -- -- -- - ------------------------------------------------------------------------------------------------------------- Fair value of plan assets at end of year 364,299 381,090 338,267 -- -- -- - ------------------------------------------------------------------------------------------------------------- ACCRUED ASSET OBLIGATION Plan assets less benefit obligation 129,299 162,901 108,694 (37,910) (47,836) (55,298) Unrecognized net actuarial gain (91,307) (135,670) (88,373) (9,134) (15,841) (10,104) Unrecognized transition asset (63) (183) (876) -- -- -- Unrecognized prior service cost 12,547 13,939 4,767 79 32 358 - ------------------------------------------------------------------------------------------------------------- Accrued asset (obligation) $ 50,476 $ 40,987 $ 24,212 $ (46,965) $ (63,645) $(65,044) ============================================================================================================= _____________________________________________________________________________________________________________
Table 2 (in thousands) - ------------------------------------------------------------------------------------------------------------- Pension Benefits Other Post-retirement Benefits ----------------------------------- ----------------------------------- 2000 1999 1998 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------- COMPONENTS OF NET PERIODIC BENEFIT COST/(INCOME) Service cost $ 4,877 $ 5,705 $ 7,182 $ 504 $ 892 $ 1,154 Interest cost 16,882 15,013 25,024 2,939 3,460 5,474 Expected return on plan assets (33,651) (29,922) (38,862) -- -- -- Recognition of net gain (9,083) (4,251) (4,128) (2,872) (2,644) (7,221) Amortization of prior service cost 2,528 905 1,105 7 8 (359) Amortization of unrecognized transition asset (119) (713) (992) -- -- -- Recognition of settlement (gain)/loss 8,602 53 -- (14,800) -- -- Recognition of curtailment gain -- (3,641) -- -- (292) -- - -------------------------------------------------------------------------------------------------------------- Net periodic benefit cost/(income) $ (9,964) $ (16,957) $ (10,671) $ (14,222) $ 1,424 $ (952) ============================================================================================================== Cost of termination benefits recognized $ 475 $ 182 $ -- $ -- $ -- $ -- =============================================================================================================
9. INCOME TAXES The income tax expense for the three years ended December 31, 2000 consisted of the following (in thousands): - ---------------------------------------------------------------------------- 2000 1999 1998 - ---------------------------------------------------------------------------- Current: Federal $ 26,186 $ 21,035 $ 28,877 State 847 3,461 3,723 - ---------------------------------------------------------------------------- Current 27,033 24,496 32,600 Deferred 17,358 8,465 (8,248) - ---------------------------------------------------------------------------- Income tax expense $ 44,391 $ 32,961 $ 24,352 ============================================================================ Income tax expense for the three years ended December 31, 2000 differs from amounts computed by applying the statutory federal rate to pre-tax income, for the following reasons (in thousands): - ---------------------------------------------------------------------------- 2000 1999 1998 - ---------------------------------------------------------------------------- Computed income tax expense $ 42,950 $ 33,439 $ 19,353 State tax on income, less applicable federal tax 2,968 3,790 1,824 Low-income housing credits (1,124) (1,161) (1,204) Dividend exclusion (954) (860) (931) Prior years' tax settlement -- (2,815) -- Bases differences in net assets acquired -- -- 3,114 Other - net 551 568 2,196 - ---------------------------------------------------------------------------- Income tax expense $ 44,391 $ 32,961 $ 24,352 ============================================================================ The tax effects of temporary differences that give rise to significant portions of the net deferred tax liability at December 31, 2000 and 1999 were as follows (in thousands): - ---------------------------------------------------------------------------- 2000 1999 - ---------------------------------------------------------------------------- Property basis and depreciation $ 179,510 $ 187,301 Tax-deferred gains on real estate transactions 104,033 93,966 Capital Construction Fund 58,704 52,374 Unrealized holding gains on securities 36,371 28,851 Pensions 19,447 15,913 Post-retirement benefits (17,900) (24,662) Insurance reserves (10,740) (10,996) Other - net 4,528 (653) - ---------------------------------------------------------------------------- Total $ 373,953 $ 342,094 ============================================================================ The Internal Revenue Service (IRS) completed its examination of the Company's tax returns through 1997. In 1999, the Company reached an agreement with the IRS settling certain valuation issues relating to the Company's tax returns for 1992 through 1995. This agreement resulted in a one-time reduction of income tax expense of $2,815,000, due to the reversal of previously accrued income tax liabilities. The IRS is currently auditing the Company's tax returns for 1998 and 1999. Management believes that the outcome of the current audit will not have a material effect on the Company's financial position or results of operations. 10. STOCK OPTIONS AND CAPITAL STOCK Employee Stock Option Plans: The Company has two stock option plans under which key employees are granted options to purchase shares of the Company's common stock. There are no longer any outstanding options under a third plan, which terminated in 1993. Adopted in 1998, the Company's 1998 Plan provides for the issuance of non- qualified stock options to employees of the Company. Under the 1998 Plan, option prices may not be less than the fair market value of the Company's common stock on the dates of grant, and the options become exercisable over periods determined, at the dates of grant, by the committee that administers the plan (generally ratably over three years), and generally expire ten years from the date of grant. Payments for options exercised may be made in cash or in shares of the Company's stock. If an option to purchase shares is exercised within five years of the date of grant and if payment is made in shares of the Company's stock, the option holder may receive, under a reload feature, a new stock option grant for such number of shares as is equal to the number surrendered, with an option price not less than the greater of the fair market value of the Company's stock on the date of exercise or one and one-half times the original option price. Adopted in 1989, the 1989 Plan is substantially the same as the 1998 Plan, except that each option is generally exercisable in-full one year after the date granted. The 1989 Plan terminated in January 1999, but options granted through 1997 remain exercisable. The 1998 and 1989 Plans also permit the issuance of shares of the Company's common stock as a reward for past service rendered to the Company or one of its subsidiaries or as an incentive for future service with such entities. The recipients' interest in such shares may be vested fully upon issuance or may vest in one or more installments, upon such terms and conditions as are determined by the committee which administers the plans. The number of incentive shares issued during 2000 or outstanding at the end of the year was not material. Director Stock Option Plans: The Company has two Directors' stock option plans. Under the 1998 Directors' Plan, each non-employee Director of the Company, elected at an Annual Meeting of Shareholders, is automatically granted, on the date of each such Annual Meeting, an option to purchase 3,000 shares of the Company's common stock at the fair market value of the shares on the date of grant. Each option to purchase shares becomes exercisable in three successive annual installments of 1,000 shares beginning one year after the date granted. The 1989 Directors' Plan is substantially the same as the 1998 Directors' Plan, except that each option generally becomes exercisable in-full one year after the date granted. This plan terminated in January 1999, but options granted through termination remain exercisable. Changes in shares and the weighted average exercise prices for the three years ended December 31, 2000, were as follows (shares in thousands):
- ----------------------------------------------------------------------------------------------------------- Employee Plans Directors' Plans ------------------------ -------------------------- Weighted 1998 1989 Average 1998 1989 1983 Directors' Directors' Total Exercise Plan Plan Plan Plan Plan Shares Price - ----------------------------------------------------------------------------------------------------------- December 31,1997 -- 2,862 161 -- 183 3,206 $26.54 Granted 100 485 -- -- 21 606 27.10 Exercised -- (66) -- -- -- (66) 23.91 Canceled -- (18) -- -- -- (18) 28.66 - ----------------------------------------------------------------------------------------------------------- December 31, 1998 100 3,263 161 -- 204 3,728 26.69 Granted 515 -- -- 24 -- 539 20.65 Exercised -- (4) -- -- -- (4) 22.02 Canceled (2) (373) (161) -- (15) (551) 29.16 - ---------------------------------------------------------------------------------------------------------- December 31, 1999 613 2,886 -- 24 189 3,712 25.43 Granted 511 -- -- 24 -- 535 21.70 Exercised (7) (139) -- -- -- (146) 23.79 Canceled (31) (340) -- -- (21) (392) 29.49 - ----------------------------------------------------------------------------------------------------------- December 31, 2000 1,086 2,407 -- 48 168 3,709 $24.52 =========================================================================================================== Exercisable 256 2,406 -- 8 168 2,838 $25.52 ===========================================================================================================
As of December 31, 2000, the Company had reserved 1,089,000 shares of its common stock for the exercise of options. Additional information about stock options outstanding as of 2000 year-end is summarized below (shares in thousands):
- ---------------------------------------------------------------------------------------------- Weighted Weighted Shares Average Weighted Shares Average Range of Outstanding Remaining Average Exercisable Price of Exercise as of Contractual Exercise as of Exercisable Price 12/31/2000 Years Price 12/31/2000 Options - ---------------------------------------------------------------------------------------------- $ 0.00 5 4.00 $ 0.00 -- $ 0.00 $20.01 - 22.00 1,254 7.30 $21.32 428 $21.41 $22.01 - 24.00 397 6.00 $23.10 357 $23.04 $24.01 - 26.00 572 1.70 $24.39 572 $24.39 $26.01 - 28.00 1,058 4.70 $27.03 1,058 $27.03 $28.01 - 30.00 325 1.50 $28.35 325 $28.35 $30.01 - 34.88 98 4.50 $33.51 98 $33.51 - ---------------------------------------------------------------------------------------------- $ 0.00 - 34.88 3,709 5.00 $24.52 2,838 $25.52 ==============================================================================================
ACCOUNTING METHOD FOR STOCK-BASED COMPENSATION: The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations, to account for its stock-based compensation plans. Accordingly, no compensation cost is recognized in the Company's income statement for stock option plans at the time grants are awarded. Pro forma information regarding net income and earnings per share is required, using the fair value method, by SFAS No. 123, "Accounting for Stock-based Compensation." The fair value of options granted for the three years ended December 31, 2000 reported below have been estimated using a Black-Scholes option pricing model. This model was developed for use in estimating the fair value of traded options which do not have vesting requirements and which are fully transferable. The Company's options have characteristics significantly different from those of traded options. The following assumptions were used in determining the pro- forma amounts: ------------------------------------------------------------------- 2000 1999 1998 ------------------------------------------------------------------- Stock volatility 25.0% 24.8% 25.1% Expected term from grant date (in years) 6.7 6.5 5.8 Risk-free interest rate 6.0% 5.0% 5.0% Forfeiture discount 0.3% 0.2% 0.3% Dividend yield 3.4% 4.0% 4.0% ------------------------------------------------------------------- Based upon the above assumptions, the computed annual weighted average fair value of employee stock options granted during 2000, 1999 and 1998 was $5.54, $4.63 and $5.84, respectively, per option. Had compensation cost for the stock options granted during the past three years been based on the estimated fair value at grant dates, as prescribed by SFAS No. 123, the Company's pro forma net income and net income per share would have been as follows (in thousands, except per share amounts): -------------------------------------------------------------- 2000 1999 1998 -------------------------------------------------------------- Net Income: As reported $ 90,574 $ 62,579 $ 25,142 Pro forma $ 89,060 $ 61,108 $ 23,127 Net Income Per Share: Basic, as reported $ 2.21 $ 1.45 $ 0.56 Basic, pro forma $ 2.18 $ 1.42 $ 0.51 Diluted, as reported $ 2.21 $ 1.45 $ 0.56 Diluted, pro forma $ 2.17 $ 1.42 $ 0.51 -------------------------------------------------------------- The pro forma disclosures of net income and earnings per share are not likely to be representative of the pro forma effects on future net income or earnings per share, because the number of future shares which may be issued is not known, shares vest over several years, and assumptions used to determine the fair value can vary significantly. SHAREHOLDER RIGHTS PLAN: The Company has a Shareholder Rights Plan, designed to protect the interests of shareholders in the event an attempt is made to acquire the Company. The rights initially will trade with the Company's out- standing common stock and will not be exercisable absent certain acquisitions or attempted acquisitions of specified percentages of such stock. If exercisable, the rights generally entitle shareholders to purchase additional shares of the Company's stock or shares of an acquiring company's stock at prices below market value. SHARE REPURCHASES: During 2000, the Company purchased and retired 2,378,195 shares of its stock, at an average per-share price of $20.29. During 1999, the Company purchased and retired 1,564,500 shares, at an average per-share price of $22.26. 11. RELATED PARTY TRANSACTIONS, COMMITMENTS AND CONTINGENCIES At December 31, 2000, the Company and its subsidiaries had an unspent balance of total appropriations for capital expenditures of approximately $92,679,000. However, there are no contractual obligations to spend this entire amount. The Company has arranged for standby letters of credit totaling $25,237,000. This includes letters of credit, totaling approximately $14,000,000, which enable the Company to qualify as a self-insurer for state and federal workers' compensation liabilities. The amount also includes a letter of credit of $7,596,000 for workers' compensation claims incurred by C&H employees, under a now-closed self-insurance plan, prior to December 24, 1998 (see Note 4). The Company only would be called upon to honor this letter of credit in the event of C&H's insolvency. The remaining letters of credit are for insurance-related matters, construction performance guarantees and other routine operating matters. C&H, in which A&B has a 36-percent common stock interest, is a party to a long- term sugar supply contract with Hawaiian Sugar & Transportation Cooperative (HSTC), a raw sugar marketing and transportation cooperative that is partially owned by the Company. Under the terms of this contract, C&H is obligated to purchase, and HSTC is obligated to sell, all of the raw sugar delivered to HSTC by the Hawaii sugar growers, at prices determined by the quoted domestic sugar market. The Company delivered to HSTC raw sugar totaling $64,455,000, $83,412,000 and $79,422,000, during 2000, 1999 and 1998, respectively. The Company has guaranteed up to $15,000,000 of HS&TC's $35,000,000 working capital line. The Company's operating expenses in 2000 and 1999 include approximately $99,151,000 and $46,856,000, respectively, paid to an unconsolidated affiliate. A subsidiary has guaranteed obligations of $22,500,000 of an unconsolidated affiliate in which it has a minority interest. In 1999, a subsidiary transferred assets with a value of $16,438,000 to an unconsolidated joint venture. The Company and certain subsidiaries are parties to various legal actions and are contingently liable in connection with claims and contracts arising in the normal course of business, the outcome of which, in the opinion of management after consultation with legal counsel, will not have a material adverse effect on the Company's financial position or results of operations. 12. INDUSTRY SEGMENTS Industry segment information on page 26, is incorporated herein by reference. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company's chief operating decision-making group is made up of the president and lead executives of the Company and each of the Company's segments. The lead executive for each operating segment manages the profitability, cash flows and assets of his or her respective segment's various product or service lines and businesses. The operating segments are managed separately, because each operating segment represents a strategic business unit that offers different products or services and serves different markets. The Company's reportable operating segments include Ocean Transportation, Property Development and Management and Food Products. The Ocean Transportation segment carries freight between various United States and Canadian West Coast, Hawaii and other Pacific ports; holds investments in ocean transportation and terminal service businesses (see Note 4); and provides terminal and cargo logistics services. The Property Development and Management segment develops, manages and sells residential, commercial and industrial properties. The Food Products segment grows and processes raw sugar and molasses; invests in a sugar refining and marketing business (see Note 4); grows, mills and markets coffee; and generates and sells electricity. The accounting policies of the operating segments are the same as those described in the summary of significant policies. Reportable segments are measured based on operating profit, exclusive of non-operating or unusual transactions, interest expense, general corporate expenses and income taxes. February 27, 2001 Securities and Exchange Commission Judiciary Plaza 450 Fifth Street, N. W. Washington, D. C. 20549 Re: Form U-3A-2 - Alexander & Baldwin, Inc. - SEC File No. 69-166 ---------------------------------------- Gentlemen: Submitted herewith for filing is the Statement of Alexander & Baldwin, Inc. ("A&B") on Form U-3A-2, claiming an exemption under Rule U-2 from the provisions of the Public Utility Holding Company Act of 1935. This filing is being made by direct transmission to the Commission's EDGAR system. Very truly yours, /s/ Francis K. Mukai Francis K. Mukai Assistant General Counsel FKM/smt Enclosure -----END PRIVACY-ENHANCED MESSAGE-----