x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
|
SECURITIES EXCHANGE ACT OF 1934
|
|
For the quarterly period ended
June 30, 2012
|
|
OR
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
|
SECURITIES EXCHANGE ACT OF 1934
|
|
For the transition period from ______________________ to _________________
|
|
Commission file number
001-35492
|
|
(Exact name of registrant as specified in its charter)
|
Hawaii
|
45-4849780
|
(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)
|
|
(808) 525-6611
|
|
(Registrant’s telephone number, including area code)
|
|
N/A
|
|
(Former name, former address, and former
|
|
fiscal year, if changed since last report)
|
Large accelerated filer
x
|
Accelerated filer
o
|
Non-accelerated filer
o
(Do not check if a smaller reporting company)
|
Smaller reporting company
o
|
|
Number of shares of common stock outstanding as of June 30, 2012: 42,403,694
|
Three Months Ended
|
Six Months Ended
|
||||||||||||
June 30,
|
June 30,
|
||||||||||||
2012
|
2011
|
2012
|
2011
|
||||||||||
Operating Revenue:
|
|||||||||||||
Real estate leasing
|
$
|
25.5
|
$
|
24.2
|
$
|
51.0
|
$
|
48.9
|
|||||
Real estate development and sales
|
7.0
|
5.6
|
9.4
|
11.1
|
|||||||||
Agribusiness
|
39.9
|
43.4
|
53.5
|
59.3
|
|||||||||
Total operating revenue
|
72.4
|
73.2
|
113.9
|
119.3
|
|||||||||
Operating Costs and Expenses:
|
|||||||||||||
Cost of real estate leasing
|
14.6
|
14.1
|
28.9
|
28.6
|
|||||||||
Cost of real estate development and sales
|
3.1
|
3.2
|
4.1
|
6.5
|
|||||||||
Costs of agribusiness revenues
|
32.8
|
34.8
|
42.9
|
48.0
|
|||||||||
Selling, general and administrative
|
7.4
|
7.3
|
15.5
|
14.4
|
|||||||||
Impairment of real estate assets (Santa Barbara)
|
5.1
|
--
|
5.1
|
--
|
|||||||||
Separation costs, including equity conversion costs
|
4.4
|
--
|
6.1
|
--
|
|||||||||
Total operating costs and expenses
|
67.4
|
59.4
|
102.6
|
97.5
|
|||||||||
Operating Income
|
5.0
|
13.8
|
11.3
|
21.8
|
|||||||||
Other Income and (Expense):
|
|||||||||||||
Income (loss) related to real estate joint ventures
|
(1.1
|
)
|
(0.4
|
)
|
(2.7
|
)
|
1.6
|
||||||
Impairment and equity losses related to Bakersfield joint venture
|
(4.7
|
)
|
--
|
(4.7
|
)
|
--
|
|||||||
Gain on sale of investment and other
|
--
|
2.5
|
--
|
6.2
|
|||||||||
Interest income
|
--
|
0.2
|
0.1
|
0.2
|
|||||||||
Interest expense
|
(4.0
|
)
|
(4.2
|
)
|
(8.1
|
)
|
(8.5
|
)
|
|||||
Income (Loss) From Continuing Operations Before Income Taxes
|
(4.8
|
)
|
11.9
|
(4.1
|
)
|
21.3
|
|||||||
Income tax expense (benefit)
|
(0.4
|
)
|
5.2
|
(0.1
|
)
|
9.2
|
|||||||
Income (Loss) From Continuing Operations
|
(4.4
|
)
|
6.7
|
(4.0
|
)
|
12.1
|
|||||||
Income From Discontinued Operations (net of income taxes)
|
--
|
5.6
|
2.4
|
10.0
|
|||||||||
Net Income (Loss)
|
$
|
(4.4
|
)
|
$
|
12.3
|
$
|
(1.6
|
)
|
$
|
22.1
|
|||
Basic Earnings (Loss) Per Share:
|
|||||||||||||
Continuing operations
|
$
|
(0.10
|
)
|
$
|
0.16
|
$
|
(0.10
|
)
|
$
|
0.28
|
|||
Discontinued operations
|
--
|
0.13
|
0.06
|
0.24
|
|||||||||
Net income (Loss)
|
$
|
(0.10
|
)
|
$
|
0.29
|
$
|
(0.04
|
)
|
$
|
0.52
|
|||
Diluted Earnings (Loss) Per Share:
|
|||||||||||||
Continuing operations
|
$
|
(0.10
|
)
|
$
|
0.16
|
$
|
(0.10
|
)
|
$
|
0.28
|
|||
Discontinued operations
|
--
|
0.13
|
0.06
|
0.24
|
|||||||||
Net income (Loss)
|
$
|
(0.10
|
)
|
$
|
0.29
|
$
|
(0.04
|
)
|
$
|
0.52
|
|||
Weighted Average Number of Shares Outstanding:
|
|||||||||||||
Basic and Diluted
|
42.4
|
42.4
|
42.4
|
42.4
|
Three Months Ended
|
Six Months Ended
|
||||||||||||
June 30,
|
June 30,
|
||||||||||||
2012
|
2011
|
2012
|
2011
|
||||||||||
Net Income (Loss)
|
$
|
(4.4
|
)
|
$
|
12.3
|
$
|
(1.6
|
)
|
$
|
22.1
|
|||
Other Comprehensive Income, Net of Tax:
|
|||||||||||||
Defined benefit pension plans:
|
|||||||||||||
Net loss and prior service cost
|
(1.9
|
)
|
(1.9
|
)
|
|||||||||
Less: amortization of prior service cost (credit) included in net periodic pension cost
|
(0.4
|
)
|
0.2
|
(0.4
|
)
|
0.4
|
|||||||
Less: amortization of net loss included in net periodic pension cost
|
2.2
|
1.3
|
3.9
|
2.6
|
|||||||||
Income taxes
|
--
|
(0.6
|
)
|
(0.9
|
)
|
(1.2
|
)
|
||||||
Other Comprehensive Income
|
(0.1
|
)
|
0.9
|
0.7
|
1.8
|
||||||||
Comprehensive Income (Loss)
|
$
|
(4.5
|
)
|
$
|
13.2
|
$
|
(0.9
|
)
|
23.9
|
June 30,
|
December 31,
|
|||||||
2012
|
2011
|
|||||||
ASSETS
|
||||||||
Current Assets:
|
||||||||
Cash and cash equivalents
|
$
|
2.5
|
$
|
11.7
|
||||
Accounts receivable, net
|
7.3
|
6.7
|
||||||
Inventories
|
60.0
|
36.3
|
||||||
Real estate held for sale
|
1.5
|
2.8
|
||||||
Deferred income taxes
|
4.0
|
3.5
|
||||||
Prepaid expenses and other assets
|
8.5
|
7.8
|
||||||
Total current assets
|
83.8
|
68.8
|
||||||
Investments in Affiliates
|
290.5
|
290.8
|
||||||
Real Estate Developments
|
158.6
|
143.3
|
||||||
Property – net
|
832.1
|
830.6
|
||||||
Other Assets
|
59.9
|
53.1
|
||||||
Total assets
|
$
|
1,424.9
|
$
|
1,386.6
|
||||
LIABILITIES AND EQUITY
|
||||||||
Current Liabilities:
|
||||||||
Notes payable and current portion of long-term debt
|
$
|
28.4
|
$
|
34.5
|
||||
Accounts payable
|
27.0
|
20.8
|
||||||
Accrued and other liabilities
|
28.3
|
34.7
|
||||||
Total current liabilities
|
83.7
|
90.0
|
||||||
Long-term Liabilities:
|
||||||||
Long-term debt
|
223.8
|
327.2
|
||||||
Deferred income taxes
|
156.5
|
164.1
|
||||||
Accrued pension and postretirement benefits
|
55.2
|
54.6
|
||||||
Other non-current liabilities
|
24.4
|
24.9
|
||||||
Total long-term liabilities
|
459.9
|
570.8
|
||||||
Commitments and Contingencies (Note 3)
|
||||||||
Equity:
|
||||||||
Common stock, no par value; authorized, 150 million shares; issued and outstanding, 42.4 million shares at June 30, 2012
|
928.2
|
--
|
||||||
Preferred stock, no par value; authorized, 15 million shares; none issued or outstanding at June 30, 2012
|
--
|
--
|
||||||
Net investment
|
--
|
773.4
|
||||||
Accumulated other comprehensive loss
|
(46.9
|
)
|
(47.6
|
)
|
||||
Total equity
|
881.3
|
725.8
|
||||||
Total liabilities and equity
|
$
|
1,424.9
|
$
|
1,386.6
|
Six Months Ended
|
||||||||
June 30,
|
||||||||
2012
|
2011
|
|||||||
Cash Flows used in Operating Activities
|
$
|
(24.3
|
)
|
$
|
(8.5
|
)
|
||
Cash Flows from Investing Activities:
|
||||||||
Capital expenditures
|
(12.4
|
)
|
(7.2
|
)
|
||||
Proceeds from disposal of property and other assets
|
0.8
|
8.7
|
||||||
Payments for purchases of investments in affiliates
|
(7.3
|
)
|
(15.0
|
)
|
||||
Proceeds from investments in affiliates
|
0.1
|
7.9
|
||||||
Net cash used in investing activities
|
(18.8
|
)
|
(5.6
|
)
|
||||
Cash Flows from Financing Activities:
|
||||||||
Proceeds from issuances of debt
|
94.0
|
62.0
|
||||||
Payments of debt and deferred financing costs
|
(200.9
|
)
|
(37.1
|
)
|
||||
Proceeds from (payments on) line-of-credit agreements, net
|
(5.5
|
)
|
2.6
|
|||||
Contributions from (distribution to) Alexander & Baldwin Holdings, Inc., net (a)
|
146.3
|
(16.3
|
)
|
|||||
Net cash provided by financing activities
|
33.9
|
11.2
|
||||||
Cash and Cash Equivalents:
|
||||||||
Net decrease for the period
|
(9.2
|
)
|
(2.9
|
)
|
||||
Balance, beginning of period
|
11.7
|
5.5
|
||||||
Balance, end of period
|
$
|
2.5
|
$
|
2.6
|
||||
Other Cash Flow Information:
|
||||||||
Interest paid
|
$
|
(9.2
|
)
|
$
|
(8.3
|
)
|
||
Income taxes paid
|
$
|
(1.0
|
)
|
$
|
(14.4
|
)
|
||
Other Non-cash Information:
|
||||||||
Depreciation and amortization expense
|
$
|
17.6
|
$
|
17.0
|
||||
Tax-deferred property sales
|
$
|
9.0
|
$
|
36.0
|
||||
Tax-deferred property purchases
|
$
|
(9.4
|
)
|
$
|
(10.9
|
)
|
Accumulated
|
|||||||||||||||||||
Other
|
|||||||||||||||||||
Compre-
|
|||||||||||||||||||
Common Stock
|
Net
|
hensive
|
|||||||||||||||||
Shares
|
Value
|
Investment
|
Loss
|
Total
|
|||||||||||||||
Balance at January 1, 2012
|
—
|
$
|
—
|
$
|
773.4
|
$
|
(47.6
|
)
|
$
|
725.8
|
|||||||||
Net loss
|
—
|
—
|
(1.6
|
)
|
—
|
(1.6
|
)
|
||||||||||||
Other comprehensive income, net of tax
|
—
|
—
|
—
|
0.7
|
0.7
|
||||||||||||||
Contribution from Alexander & Baldwin Holdings, Inc.—net (a)
|
—
|
—
|
156.4
|
—
|
156.4
|
||||||||||||||
Conversion of net investment of Alexander & Baldwin Holdings, Inc. into common stock
|
42.4
|
928.2
|
(928.2
|
)
|
—
|
—
|
|||||||||||||
Balance, June 30, 2012
|
42.4
|
$
|
928.2
|
$
|
—
|
$
|
(46.9
|
)
|
$
|
881.3
|
(1)
|
Description of Business.
Prior to June 29, 2012, Alexander & Baldwin, Inc. (“A&B” or the “Company”) was a wholly owned subsidiary of Alexander & Baldwin Holdings, Inc. (“Holdings”). On June 29, 2012, Holdings distributed to its shareholders all of the shares of A&B stock in a tax-free distribution (the “Separation”). Holders of Holdings common stock received one share of A&B common stock for each share of Holdings common stock held at the close of business on June 18, 2012, the record date. On July 2, 2012, A&B began regular trading on the New York Stock Exchange under the ticker symbol “ALEX” as an independent, public company. A&B is headquartered in Honolulu and operates in three segments in two industries—Real Estate and Agribusiness.
|
|
Real Estate:
The Real Estate Industry consists of two segments, both of which have operations in Hawaii and on the Mainland. The Real Estate Development and Sales segment generates its revenues through the development and sale of land and commercial and residential properties. The Real Estate Leasing segment owns, operates, and manages retail, office, and industrial properties. Real estate activities are conducted through A&B Properties, Inc. and various other wholly owned subsidiaries of A&B.
|
|
Agribusiness:
Agribusiness, which contains one segment, produces bulk raw sugar, specialty food grade sugars, and molasses; markets and distributes specialty food-grade sugars; provides general trucking services, mobile equipment maintenance, and repair services in Hawaii; and generates and sells electricity, to the extent not used in the Company’s Agribusiness operations.
|
|
Separation.
On June 29, 2012, the Company completed its legal separation from Alexander & Baldwin Holdings, Inc. In connection with the Separation, Holdings entered into several agreements with the Company that govern the ongoing relationship between Holdings and the Company, including a Separation and Distribution Agreement, Tax Matters Agreement, Employee Matters Agreement and Transition Services Agreement.
|
|
Additionally, in connection with the Separation and pursuant to the terms of the Separation Agreement with Holdings:
|
·
|
Holdings contributed $159.3 million to A&B, which was used to pay down A&B’s revolving credit facilities;
|
·
|
Intercompany receivables, payables, loans and other accounts between A&B and its subsidiaries and Holdings and its subsidiaries, in existence immediately prior to the Separation were satisfied and/or settled; and
|
·
|
Intercompany agreements and all other arrangements in effect immediately prior to the distribution have been terminated or canceled, subject to certain exceptions.
|
|
(a)
|
A&B’s consolidated shareholders equity not be less than the sum of $612 million plus, to the extent positive, 25 percent of consolidated net income for each fiscal quarter ended after March 31, 2012;
|
|
(b)
|
A&B’s ratio of adjusted earnings before interest, taxes, depreciation and amortization (commonly referred to as "EBITDA") to fixed charges, as defined, not be less than 1.50 to 1.00 at the end of any fiscal quarter;
|
|
(c)
|
A&B’s ratio of debt to total adjusted asset value, as defined, not be greater than 0.50 to 1.00;
|
|
(d)
|
A&B’s ratio of unencumbered income producing assets value to unsecured debt, as defined, not be less than 1.75 to 1.00; and
|
|
(e)
|
The aggregate principal amount of priority debt, as defined, at any time should not exceed 20 percent of total adjusted asset value, as defined.
|
(2)
|
Basis of Presentation.
The consolidated financial statements of A&B include the financial position, results of operations and cash flows of the real estate and agriculture businesses and corporate functions of Alexander & Baldwin, Inc., all of which were under common ownership and common management prior to the Separation, and are presented as if the Separation had occurred as of the earliest period presented. Due to common ownership and control, there was no change in the basis of the assets or liabilities as a result of the Separation. The consolidated financial statements included herein may not necessarily reflect the Company’s results of operations, financial position and cash flows in the future or what its results of operations, financial position and cash flows would have been had the Company been a stand-alone company during the periods presented.
|
|
All significant transactions between A&B and Holdings have been included in the consolidated financial statements. In connection with the Separation, the Company completed certain transactions with Holdings, which resulted in a net increase to equity of approximately $156.4 million.
|
|
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 (GAAP) for complete financial statements. Therefore, the interim condensed consolidated financial statements should be read in conjunction with the combined balance sheets as of December 31, 2011 and 2010, and the related combined statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2011 and the notes thereto included in the Company’s Form 10.
|
(3)
|
Commitments, Guarantees and Contingencies.
Commitments and financial arrangements (excluding lease commitments disclosed in Note 8 of the Company’s Form 10) at June 30, 2012, included the following (in millions):
|
Standby letters of credit related to real estate development projects
|
$11.9
|
||
Performance bonds related to real estate construction
|
$36.1
|
(4)
|
Earnings (Loss) Per Share (“EPS”).
The computation of basic and diluted earnings (loss) per common share for all periods is calculated using the number of shares of ALEX common stock outstanding on July 2, 2012, the first day of trading following the June 29, 2012 distribution of ALEX common stock to Holdings shareholders. For all periods presented, there were no dilutive shares because no actual A&B shares or share-based awards were outstanding prior to the Separation.
|
(5)
|
Fair Value of Financial Instruments.
The fair values of receivables and short-term borrowings approximate their carrying values due to the short-term nature of the instruments. The Company’s cash and cash equivalents, consisting principally of cash on deposit, may from time to time include short-term money markets funds. The fair values of these money market funds, based on market prices (level 2), approximate their carrying values due to their short-maturities. The carrying amount and fair value of the Company’s long-term debt at June 30, 2012 was $228.8 million and $243.8 million, respectively, and $327.2 million and $342.2 million at December 31, 2011, respectively. The fair value of long-term debt is calculated by discounting the future cash flows of the debt at rates based on instruments with similar risk, terms and maturities as compared to the Company’s existing debt arrangements (level 2).
|
|
Non-financial assets measured at fair value on a nonrecurring basis at June 30, 2012 consisted of land held for real estate development and an investment in affiliate that was written-down to estimated fair value during the second quarter of 2012. See Note 10 for additional information on impairment and equity losses recognized during the second quarter of 2012. There were no impairment write-downs in the second quarter of 2011. The aggregate fair values of these assets were classified in level 3 of the fair value hierarchy.
|
|
|
(6)
|
Share-Based Compensation.
A&B employees have historically participated in equity plans of Alexander & Baldwin Holdings, Inc. The following disclosures represent A&B’s portion of the plans maintained by Holdings, in which A&B’s employees participated prior to the Separation.
|
|
·
|
The number of A&B replacement stock options was computed by multiplying the number of Holdings stock options held by the employee on the Distribution Date by the ratio of the sum of the A&B when-issued and Holdings when-issued closing stock prices to the A&B when-issued closing stock price on the Distribution Date.
|
·
|
The exercise prices of replacement A&B stock options were adjusted by multiplying the exercise prices of Holdings stock options by the ratio of the A&B when-issued closing stock price to the sum of the A&B when-issued and Holdings when-issued closing stock prices on the Distribution Date.
|
·
|
The number of A&B replacement RSUs was computed by multiplying the number of Holdings RSUs held by the employee on the Distribution Date by the ratio of the sum of the A&B when-issued and Holdings when-issued closing stock prices to the A&B when-issued closing stock price on the Distribution Date.
|
Quarter Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
Share-based expense (net of estimated forfeitures):
|
||||||||||||||||
Stock options
|
$
|
1.1
|
$
|
0.3
|
$
|
1.4
|
$
|
0.6
|
||||||||
Restricted stock units
|
1.0
|
0.8
|
2.0
|
1.8
|
||||||||||||
Total share-based expense
|
2.1
|
1.1
|
3.4
|
2.4
|
||||||||||||
Total recognized tax benefit
|
(0.7
|
)
|
(0.2
|
)
|
(1.1
|
)
|
(0.6
|
)
|
||||||||
Share-based expense (net of tax)
|
$
|
1.4
|
$
|
0.9
|
$
|
2.3
|
$
|
1.8
|
(7)
|
Discontinued Operations.
In 2012, the revenues and expenses of Firestone Boulevard Building, an industrial property in California, have been classified as a discontinued operation. In 2011, the revenues and expenses of Arbor Park Shopping Center, a retail property in Texas, and Wakea Business Center II, a commercial facility on Maui, have been classified as discontinued operations.
|
Quarter Ended
|
Six Months Ended
|
||||||||||||||
June 30,
|
June 30,
|
||||||||||||||
2012
|
2011
|
2012
|
2011
|
||||||||||||
Proceeds from the Sale of Income-Producing Properties
|
--
|
22.4
|
8.9
|
36.6
|
|||||||||||
Real Estate Leasing Revenue
|
--
|
0.9
|
0.1
|
2.1
|
|||||||||||
Gain on Sale of Income-Producing Properties
|
--
|
8.7
|
3.9
|
15.3
|
|||||||||||
Real Estate Leasing Operating Profit
|
--
|
0.6
|
--
|
1.4
|
|||||||||||
Total Operating Profit Before Taxes
|
--
|
9.3
|
3.9
|
16.7
|
|||||||||||
Income Tax Expense
|
--
|
3.7
|
1.5
|
6.7
|
|||||||||||
Income from Discontinued Operations
|
$
|
--
|
$
|
5.6
|
$
|
2.4
|
$
|
10.0
|
(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.
|
|
Effective January 1, 2012, the Company froze benefit accruals under its traditional defined benefit plans for non-bargaining unit employees hired before January 1, 2008 and instituted a cash balance defined benefit pension plan. Employees hired after January 1, 2008 also participate in a cash balance defined benefit pension plan. Retirement benefits under the cash balance pension plan are based on a fixed percentage of employee eligible compensation, plus interest. The plan interest credit rate will vary from year-to-year based on the ten-year U.S. Treasury rate.
|
|
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 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 recorded for the second quarters of 2012 and 2011 were as follows (in millions):
|
Pension Benefits
|
Post-retirement Benefits
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
Service cost
|
$
|
0.3
|
$
|
0.9
|
$
|
--
|
$
|
0.1
|
||||||||
Interest cost
|
1.7
|
2.3
|
0.1
|
0.2
|
||||||||||||
Expected return on plan assets
|
(2.4
|
)
|
(2.9
|
)
|
--
|
--
|
||||||||||
Amortization of prior service cost
|
(0.5
|
)
|
0.2
|
--
|
--
|
|||||||||||
Amortization of net loss
|
2.4
|
1.2
|
(0.1
|
)
|
--
|
|||||||||||
Net periodic benefit cost
|
$
|
1.5
|
$
|
1.7
|
$
|
--
|
$
|
0.3
|
|
The components of net periodic benefit cost recorded for the first half of 2012 and 2011 were as follows (in millions):
|
Pension Benefits
|
Post-retirement Benefits
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
Service cost
|
$
|
1.2
|
$
|
1.8
|
$
|
0.1
|
$
|
0.2
|
||||||||
Interest cost
|
4.1
|
4.6
|
0.3
|
0.4
|
||||||||||||
Expected return on plan assets
|
(5.2
|
)
|
(5.8
|
)
|
--
|
--
|
||||||||||
Amortization of prior service cost
|
(0.4
|
)
|
0.4
|
--
|
--
|
|||||||||||
Amortization of net loss
|
4.0
|
2.4
|
(0.1
|
)
|
--
|
|||||||||||
Net periodic benefit cost
|
$
|
3.7
|
$
|
3.4
|
$
|
0.3
|
$
|
0.6
|
|
Based on the actuarial report dated as of January 1, 2012, net periodic benefit cost for 2012 is expected to total $7.2 million for pension benefits and $0.4 million for post-retirement benefits. In the first half of 2012, the Company made cash contributions to its pension plans totaling approximately $1.6 million.
|
(9)
|
Investments in Affiliates.
At June 30, 2012 and 2011, investments in affiliates consisted principally of equity investments in limited liability companies. The Company has the ability to exercise significant influence over the operating and financial policies of these investments and, accordingly, accounts for its investments using the equity method of accounting. The Company’s operating results include its proportionate share of net income (loss) from its equity method investments. Summarized financial information for the Company’s significant equity method investments in its Bakersfield and Kukui’ula joint ventures for the three and six months ended June 30, 2012 and 2011 was as follows (in millions):
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||
2012
|
2011
|
2012
|
2011
|
|
Real Estate joint ventures:
|
||||
Operating revenue
|
$ 5.7
|
$ 2.3
|
$ 7.3
|
$ 8.9
|
Operating income
*
|
$ (7.2)
|
$ (1.2)
|
$ (8.7)
|
$ 1.7
|
Income (loss) from continuing operations
*
|
$ (7.8)
|
$ (1.8)
|
$ (9.7)
|
$ 0.7
|
Net income (loss)
*
|
$ (7.8)
|
$ (1.8)
|
$ (9.7)
|
$ 0.7
|
|
*
|
Includes a $6.5 million non-cash impairment write-down of entitled land (recognized at the joint venture level) owned by the Bakersfield joint venture.
|
(10)
|
Impairment of Real Estate and Investment in Joint Venture.
The Company’s real estate assets are reviewed for possible impairment when events or circumstances indicate that the carrying value may not be recoverable. Additionally, the Company’s investments in unconsolidated affiliates are reviewed for impairment whenever there is evidence that fair value may be below carrying cost.
|
|
During the second quarter of 2012, as a result of a change in its development strategy, A&B recorded non-cash impairments and equity losses totaling $9.8 million related to two of its three real estate development projects on the Mainland, of which $5.1 million relates to the Company’s Santa Barbara (CA) landholdings and $4.7 million relates to the Company’s joint venture investment in Bakersfield (CA) for a commercial development. The impairment write-downs to estimated fair values reflect the Company’s change to its development strategy to focus on development projects in Hawaii, and therefore, its related decision not to proceed with the development of these California real estate assets. The impairment of the Santa Barbara landholdings are classified within
Operating costs and expenses
in the condensed consolidated statements of income and the impairment and equity losses of the Company’s investment in its Bakersfield joint venture is classified as
Impairment and equity losses related to Bakersfield joint venture
in the condensed consolidated statements of income. The remaining aggregate book value of the two projects is $12.9 million, and the third project, in Palmdale, California, has a book value of $4.7 million.
|
(11)
|
Related Party Transactions.
Effective upon the completion of the Separation, A&B ceased to be a related party of Holdings. Prior to the Separation, transactions with Holdings were considered related party transactions, as discussed below.
|
|
Services and lease agreements.
Historically, Holdings provided vessel management services to the Company for its bulk sugar vessel, the MV Moku Pahu, the cost of which is included in the cost of Agribusiness revenues. Additionally, the Company recognized lease income in Real Estate Leasing revenue for an industrial warehouse space in Savannah, Georgia, that is leased to Holdings. The Company also recognized Agribusiness revenue for equipment and repair services provided to Holdings, and is reimbursed at cost for various other services provided to Holdings.
|
|
The amounts of these related party transactions are as follows:
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
(In millions)
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
Vessel management services expenses
|
$ | (1.1 | ) | $ | (1.0 | ) | $ | (2.0 | ) | $ | (1.9 | ) | ||||
Lease income from affiliate
|
$ | 1.0 | $ | 1.2 | $ | 2.1 | $ | 2.1 | ||||||||
Equipment and repair services income and other
|
$ | 0.9 | $ | 0.6 | $ | 1.4 | $ | 1.2 | ||||||||
Related party income, net
|
$ | 0.8 | $ | 0.8 | $ | 1.5 | $ | 1.4 |
(12)
|
New Accounting Pronouncements.
Comprehensive Income -
In June 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-05,
Comprehensive Income (Topic 220)—Presentation of Comprehensive Income
(ASU 2011-05), to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity. ASU 2011-05 is to be applied retrospectively and is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. The Company adopted the standard effective January 1, 2012. The standard changed the presentation of the Company’s condensed consolidated financial statements but did not affect the calculation of net income, comprehensive income or earnings per share.
|
Income Taxes.
The Company will be included in the consolidated tax return of Matson, Inc. (formerly Alexander & Baldwin Holdings, Inc.) for results occurring prior to June 30, 2012. Subsequent to June 30, 2012, the Company will be reporting as a separate taxpayer. The current and deferred income tax expense recorded in the condensed consolidated financial statements has been determined by applying the provisions of ASC 740 as if the Company were a separate taxpayer.
|
|
In connection with the Separation, the Company incurred certain financial advisory, legal, tax and other professional fees, a portion of which is not deductible under the tax regulations. Accordingly, the Company’s income taxes for the second quarter of 2012 were impacted by approximately $1.7 million related to the non-deductibility of certain Separation costs. Additionally, the Company will pay approximately $4.7 million in accrued taxes in the second half of 2012 on previously deferred intercompany gains in connection with the Separation.
|
|
The Company makes certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments are applied in the calculation of tax credits, tax benefits and deductions, and in the calculation of certain deferred tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. Deferred tax assets and deferred tax liabilities are adjusted to the extent necessary to reflect tax rates expected to be in effect when the temporary differences reverse. Adjustments may be required to deferred tax assets and deferred tax liabilities due to changes in tax laws and audit adjustments by tax authorities. To the extent adjustments are required in any given period, the adjustments would be included within the tax provision in the condensed consolidated statements of income or balance sheets.
|
(14)
|
Segment Results.
Segment results for the quarter and the six months ended June 30, 2012 and 2011 were as follows (in millions):
|
Three Months Ended
|
Six Months Ended
|
||||||||||||
June 30,
|
June 30,
|
||||||||||||
2012
|
2011
|
2012
|
2011
|
||||||||||
Revenue:
|
|||||||||||||
Real Estate:
|
|||||||||||||
Leasing
|
$
|
25.5
|
$
|
25.1
|
$
|
51.0
|
$
|
51.0
|
|||||
Development and Sales
|
7.0
|
28.0
|
18.4
|
47.7
|
|||||||||
Less amounts reported in discontinued operations
|
--
|
(23.3
|
)
|
(9.0
|
)
|
(38.7
|
)
|
||||||
Agribusiness
|
39.9
|
43.4
|
53.5
|
59.3
|
|||||||||
Total revenue
|
$
|
72.4
|
$
|
73.2
|
$
|
113.9
|
$
|
119.3
|
|||||
Operating Profit (Loss), Net Income (Loss):
|
|||||||||||||
Real Estate:
|
|||||||||||||
Leasing
|
$
|
10.5
|
$
|
10.4
|
$
|
21.2
|
$
|
21.0
|
|||||
Development and Sales
|
(9.9
|
)
|
10.6
|
(9.0
|
)
|
22.6
|
|||||||
Less amounts reported in discontinued operations
|
--
|
(9.3
|
)
|
(3.9
|
)
|
(16.7
|
)
|
||||||
Agribusiness
|
7.0
|
8.5
|
10.5
|
11.1
|
|||||||||
Total operating profit
|
7.6
|
20.2
|
18.8
|
38.0
|
|||||||||
Interest Expense
|
(4.0
|
)
|
(4.2
|
)
|
(8.1
|
)
|
(8.5
|
)
|
|||||
General Corporate Expenses
|
(4.0
|
)
|
(4.1
|
)
|
(8.7
|
)
|
(8.2
|
)
|
|||||
Separation Costs
|
(4.4
|
)
|
--
|
(6.1
|
)
|
--
|
|||||||
Income (Loss) From Continuing Operations Before
Income Taxes
|
(4.8
|
)
|
11.9
|
(4.1
|
)
|
21.3
|
|||||||
Income Tax Expense (Benefit)
|
(0.4
|
)
|
5.2
|
(0.1
|
)
|
9.2
|
|||||||
Income (Loss) From Continuing Operations
|
(4.4
|
)
|
6.7
|
(4.0
|
)
|
12.1
|
|||||||
Income (Loss) From Discontinued Operations
(net of income taxes)
|
--
|
5.6
|
2.4
|
10.0
|
|||||||||
Net Income (Loss)
|
$
|
(4.4
|
)
|
$
|
12.3
|
$
|
(1.6
|
)
|
$
|
22.1
|
|
•
|
Business Overview:
This section provides a general description of A&B’s business, as well as recent developments that the Company believes are important in understanding its results of operations and financial condition or in understanding anticipated future trends.
|
|
•
|
Consolidated
Results of Operations:
This section provides an analysis of A&B’s results of operations for the three and six months ended June 30, 2012 and 2011.
|
|
•
|
Analysis of Operating Revenue and Profit by Segment:
This section provides an analysis of A&B’s results of operations by business segment.
|
|
•
|
Liquidity and Capital Resources:
This section provides a discussion of A&B’s financial condition and an analysis of A&B’s cash flows for the six months ended June 30, 2012 and 2011, as well as a discussion of A&B’s ability to fund the its future commitments and ongoing operating activities through internal and external sources of capital.
|
|
•
|
Outlook:
This section provides a discussion of management’s general outlook about the Hawaii economy and the Company’s markets.
|
|
•
|
Other Matters:
This section provides a summary of other matters, such as officer and management changes.
|
Quarter Ended June 30,
|
||||||||||
(dollars in millions)
|
2012
|
2011
|
Change
|
|||||||
Operating revenue
|
$
|
72.4
|
$
|
73.2
|
-1
|
%
|
||||
Operating costs and expenses
|
67.4
|
59.4
|
13
|
%
|
||||||
Operating income
|
5.0
|
13.8
|
-64
|
%
|
||||||
Other income and (expense)
|
(9.8
|
)
|
(1.9
|
)
|
-5
|
X
|
||||
Income (loss) from continuing operations before income taxes
|
(4.8
|
)
|
11.9
|
N
|
M
|
|||||
Income tax expense (benefit)
|
(0.4
|
)
|
5.2
|
N
|
M
|
|||||
Discontinued operations (net of income taxes)
|
--
|
5.6
|
N
|
M
|
||||||
Net income (loss)
|
$
|
(4.4
|
)
|
$
|
12.3
|
N
|
M
|
|||
Basic earnings (loss) per share
|
$
|
(0.10
|
)
|
$
|
0.29
|
N
|
M
|
|||
Diluted earnings (loss) per share
|
$
|
(0.10
|
)
|
$
|
0.29
|
N
|
M
|
Six Months Ended June 30,
|
||||||||||
(dollars in millions)
|
2012
|
2011
|
Change
|
|||||||
Operating revenue
|
$
|
113.9
|
$
|
119.3
|
-5
|
%
|
||||
Operating costs and expenses
|
102.6
|
97.5
|
5
|
%
|
||||||
Operating income
|
11.3
|
21.8
|
-48
|
%
|
||||||
Other income and (expense)
|
(15.4
|
)
|
(0.5
|
)
|
-31
|
X
|
||||
Income (loss) from continuing operations before income taxes
|
(4.1
|
)
|
21.3
|
N
|
M
|
|||||
Income tax expense (benefit)
|
(0.1
|
)
|
9.2
|
N
|
M
|
|||||
Discontinued operations (net of income taxes)
|
2.4
|
10.0
|
-76
|
%
|
||||||
Net income (loss)
|
$
|
(1.6
|
)
|
$
|
22.1
|
N
|
M
|
|||
Basic earnings (loss) per share
|
$
|
(0.04
|
)
|
$
|
0.52
|
N
|
M
|
|||
Diluted earnings (loss) per share
|
$
|
(0.04
|
)
|
$
|
0.52
|
N
|
M
|
Quarter Ended June 30,
|
||||||||||
(dollars in millions)
|
2012
|
2011
|
Change
|
|||||||
Real estate leasing segment revenue
|
$
|
25.5
|
$
|
25.1
|
2
|
%
|
||||
Real estate leasing operating costs and expenses
|
14.6
|
14.4
|
1
|
%
|
||||||
Selling, general and administrative
|
0.5
|
0.5
|
--
|
%
|
||||||
Other income
|
0.1
|
0.2
|
-50
|
%
|
||||||
Real estate leasing operating profit
|
$
|
10.5
|
$
|
10.4
|
1
|
%
|
||||
Operating profit margin
|
41.2
|
%
|
41.4
|
%
|
||||||
Average Occupancy Rates:
|
||||||||||
Mainland
|
93
|
%
|
93
|
%
|
||||||
Hawaii
|
91
|
%
|
91
|
%
|
||||||
Leasable Space (million sq. ft.) — Improved
|
||||||||||
Mainland
|
6.5
|
6.3
|
||||||||
Hawaii
|
1.4
|
1.5
|
Dispositions
|
Acquisitions
|
|||||
Date
|
Property
|
Leasable sq. ft
|
Date
|
Property
|
Leasable sq. ft
|
|
9-11
|
Wakea Business Center II (HI)
|
61,500
|
9-11
|
Issaquah Office Center (WA)
|
146,900
|
|
3-12
|
Firestone Boulevard Building (CA)
|
28,100
|
12-11
|
Gateway at Mililani Mauka (HI)
|
5,900
|
|
6-12
|
Gateway at Mililani Mauka South (HI)..
|
18,700
|
||||
Total Dispositions
|
89,600
|
Total Acquisitions
|
171,500
|
Six Months Ended June 30,
|
||||||||||
(dollars in millions)
|
2012
|
2011
|
Change
|
|||||||
Real estate leasing segment revenue
|
$
|
51.0
|
$
|
51.0
|
--
|
%
|
||||
Real estate leasing operating costs and expenses
|
29.0
|
29.2
|
-1
|
%
|
||||||
Selling, general and administrative
|
1.0
|
0.9
|
11
|
%
|
||||||
Other income
|
0.2
|
0.1
|
2
|
X
|
||||||
Real estate leasing operating profit
|
$
|
21.2
|
$
|
21.0
|
1
|
%
|
||||
Operating profit margin
|
41.6
|
%
|
41.2
|
%
|
||||||
Average Occupancy Rates:
|
||||||||||
Mainland
|
93
|
%
|
92
|
%
|
||||||
Hawaii
|
91
|
%
|
91
|
%
|
||||||
Leasable Space (million sq. ft.) — Improved
|
||||||||||
Mainland
|
6.5
|
6.3
|
||||||||
Hawaii
|
1.4
|
1.5
|
Quarter Ended June 30,
|
||||||||||
(dollars in millions)
|
2012
|
2011
|
Change
|
|||||||
Improved property sales revenue
|
$
|
--
|
$
|
22.4
|
N
|
M
|
||||
Development sales revenue
|
6.8
|
2.9
|
2
|
X
|
||||||
Unimproved/other property sales revenue
|
0.2
|
2.7
|
-93
|
%
|
||||||
Total real estate development and sales revenue
|
7.0
|
28.0
|
-75
|
%
|
||||||
Cost of real estate development and sales
|
3.1
|
16.9
|
-82
|
%
|
||||||
Operating expenses
|
2.9
|
2.7
|
7
|
%
|
||||||
Impairment of Santa Barbara development project
|
5.1
|
--
|
N
|
M
|
||||||
Impairment and equity loss related to Bakersfield joint venture
|
4.7
|
--
|
N
|
M
|
||||||
Loss from joint ventures
|
1.1
|
0.4
|
3
|
X
|
||||||
Other income (loss)
|
--
|
2.6
|
N
|
M
|
||||||
Total real estate development and sales operating profit (loss)
|
$
|
(9.9
|
)
|
$
|
10.6
|
N
|
M
|
|||
Real estate development and sales operating profit margin
|
NM
|
37.9
|
%
|
Six Months Ended June 30,
|
||||||||||
(dollars in millions)
|
2012
|
2011
|
Change
|
|||||||
Improved property sales revenue
|
$
|
5.0
|
$
|
36.6
|
-86
|
%
|
||||
Development sales revenue
|
8.1
|
4.8
|
69
|
%
|
||||||
Unimproved/other property sales revenue
|
5.3
|
6.3
|
-16
|
%
|
||||||
Total real estate development and sales segment revenue
|
18.4
|
47.7
|
-61
|
%
|
||||||
Cost of real estate development and sales
|
9.1
|
27.7
|
-67
|
%
|
||||||
Operating expenses
|
5.9
|
5.3
|
11
|
%
|
||||||
Impairment of Santa Barbara development project
|
5.1
|
--
|
N
|
M
|
||||||
Impairment and equity loss related to Bakersfield joint venture
|
4.7
|
--
|
N
|
M
|
||||||
Earnings (loss) from joint ventures
|
(2.7
|
)
|
1.6
|
N
|
M
|
|||||
Other income (loss)
|
0.1
|
6.3
|
-98
|
%
|
||||||
Total real estate development and sales operating profit (loss)
|
$
|
(9.0
|
)
|
$
|
22.6
|
N
|
M
|
|||
Real estate development and sales operating profit margin
|
NM
|
47.4
|
%
|
Quarter Ended
|
Six Months Ended
|
||||||||||||||
June 30,
|
June 30,
|
||||||||||||||
2012
|
2011
|
2012
|
2011
|
||||||||||||
Proceeds from the Sale of Income-Producing Properties
|
--
|
22.4
|
8.9
|
36.6
|
|||||||||||
Real Estate Leasing Revenue
|
--
|
0.9
|
0.1
|
2.1
|
|||||||||||
Gain on Sale of Income-Producing Properties
|
--
|
8.7
|
3.9
|
15.3
|
|||||||||||
Real Estate Leasing Operating Profit
|
--
|
0.6
|
--
|
1.4
|
|||||||||||
Total Operating Profit Before Taxes
|
--
|
9.3
|
3.9
|
16.7
|
|||||||||||
Income Tax Expense
|
--
|
3.7
|
1.5
|
6.7
|
|||||||||||
Income from Discontinued Operations
|
$
|
--
|
$
|
5.6
|
$
|
2.4
|
$
|
10.0
|
Quarter Ended June 30,
|
||||||||||
(dollars in millions)
|
2012
|
2011
|
Change
|
|||||||
Revenue
|
$
|
39.9
|
$
|
43.4
|
-8
|
%
|
||||
Operating profit
|
$
|
7.0
|
$
|
8.5
|
-18
|
%
|
||||
Operating profit margin
|
17.5
|
%
|
19.6
|
%
|
||||||
Tons sugar produced
|
57,500
|
67,700
|
-15
|
%
|
||||||
Tons sugar sold (bulk raw sugar)
|
36,000
|
36,300
|
-1
|
%
|
Six Months Ended June 30,
|
||||||||||
(dollars in millions)
|
2012
|
2011
|
Change
|
|||||||
Revenue
|
$
|
53.5
|
$
|
59.3
|
-10
|
%
|
||||
Operating profit
|
$
|
10.5
|
$
|
11.1
|
-5
|
%
|
||||
Operating profit margin
|
19.6
|
%
|
18.7
|
%
|
||||||
Tons sugar produced
|
59,300
|
74,400
|
-20
|
%
|
||||||
Tons sugar sold (bulk raw sugar)
|
36,000
|
36,300
|
-1
|
%
|
|
(a)
|
A&B’s consolidated shareholders equity not be less than the sum of $612 million plus, to the extent positive, 25 percent of consolidated net income for each fiscal quarter ended after March 31, 2012;
|
|
(b)
|
A&B’s ratio of adjusted earnings before interest, taxes, depreciation and amortization (commonly referred to as "EBITDA") to fixed charges, as defined, not be less than 1.50 to 1.00 at the end of any fiscal quarter;
|
|
(c)
|
A&B’s ratio of debt to total adjusted asset value, as defined, not be greater than 0.50 to 1.00;
|
|
(d)
|
A&B’s ratio of unencumbered income producing assets value to unsecured debt, as defined, not be less than 1.75 to 1.00; and
|
|
(e)
|
The aggregate principal amount of priority debt, as defined, at any time not exceed 20 percent of total adjusted asset value, as defined.
|
Property Type
|
Vacancy Rate
|
Average Asking Rent Per Square Foot Per Month (NNN)
|
Retail
|
4.3%
|
$3.35
|
Industrial
|
4.2%
|
$0.96
|
Office
|
13.6%
|
$1.57
|
Name
|
Position
|
|
Stanley M. Kuriyama
|
Chairman and Chief Executive Officer
|
|
Christopher J. Benjamin
|
President and Chief Operating Officer
|
|
Meredith J. Ching
|
Senior Vice President, Government & Community Relations
|
|
Nelson N.S. Chun
|
Senior Vice President and Chief Legal Officer
|
|
Paul K. Ito
|
Senior Vice President, Chief Financial Officer, Treasurer & Controller
|
|
George M. Morvis Jr.
|
Vice President, Corporate Development
|
|
Son-Jai Paik
|
Vice President, Human Resources
|
(a)
|
Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the 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.
|
|
(b)
|
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.
|
ALEXANDER & BALDWIN, INC.
|
|||
(Registrant)
|
|||
Date: August 3, 2012
|
/s/ Paul K. Ito
|
||
Paul K. Ito
|
|||
Senior Vice President,
|
|||
Chief Financial Officer, Treasurer
|
|||
and Controller
|
|||
1.
|
The mortality table used shall be the mortality table then in use by the A&B Retirement Plan for Salaried Employees of A&B, LLC for the purpose of determining lump sum payments to participants of such plan who are entitled to such payments.
|
2.
|
The discount rate shall be the after-tax equivalent of the discount rate then in use by the A&B Retirement Plan for Salaried Employees of A&B, LLC for the purpose of determining lump sum payments to participants of such plan who are entitled to such payments. The after-tax equivalent rate shall be determined by multiplying the discount rate in use by the A&B Retirement Plan for Salaried Employees of A&B, LLC by the excess of 100% over the effective marginal tax rate declared by the Committee.
|
3.
|
The Committee shall declare the effective marginal tax rate at the beginning of each calendar year.
|
4.
|
The effective marginal tax rate shall apply to lump sum payments made at any time during such calendar year and may not be changed during the year.
|
|
EXHIBIT "A"
|
/s/ Stanley M. Kuriyama
|
|
Name:
|
Stanley M. Kuriyama
|
Title:
|
Chairman and Chief Executive Officer
|
Date:
|
August 3, 2012
|
/
s
/ Paul K. Ito
|
|
Name:
|
Paul K. Ito
|
Title:
|
Senior Vice President, Chief Financial Officer, Treasurer and Controller
|
Date:
|
August 3, 2012
|