UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2018
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
ALEXANDER & BALDWIN, INC.
(Exact name of registrant as specified in its charter)
Hawai`i
45-4849780
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
P. O. Box 3440, Honolulu, Hawai`i
(Address of principal executive offices)
96801
(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)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x   No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No x
Number of shares of common stock outstanding as of September 30, 2018 : 72,027,109
 



ALEXANDER & BALDWIN, INC.
FORM 10-Q
For the Quarterly Period Ended September 30, 2018

TABLE OF CONTENTS

 
Page
PART I. FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
Condensed Consolidated Statements of Operations  - Three and Nine Months Ended September 30, 2018 and 2017
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Loss)  - Three and Nine Months Ended September 30, 2018 and 2017
 
 
 
Condensed Consolidated Balance Sheets  - As of September 30, 2018 and December 31, 2017
 
 
 
Condensed Consolidated Statements of Cash Flows  - Nine Months Ended September 30, 2018 and 2017
 
 
 
Condensed Consolidated Statements of Equity  - Nine Months Ended September 30, 2018 and 2017
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 3.
 
Item 4.
 
Item 5.
 
 
 
 
 




PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

ALEXANDER & BALDWIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts) (Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Operating Revenue:
 
 
 
 
 
 
 
 
Commercial Real Estate
 
$
35.9

 
$
33.9

 
$
104.9


$
101.4

Land Operations
 
24.0

 
22.6

 
72.6


45.7

Materials & Construction
 
59.5

 
55.0

 
167.3


155.7

Total operating revenue
 
119.4

 
111.5

 
344.8


302.8

Operating Costs and Expenses:
 
 
 
 
 



Cost of Commercial Real Estate
 
19.2

 
19.2

 
57.0


56.9

Cost of Land Operations
 
17.4

 
11.7

 
67.0


29.1

Cost of Materials & Construction
 
50.5

 
44.3

 
143.5


125.1

Selling, general and administrative
 
14.6

 
18.4

 
44.7


47.9

REIT evaluation/conversion costs
 
—

 
4.4

 
—


11.4

Total operating costs and expenses
 
101.7

 
98.0

 
312.2

 
270.4

Operating Income (Loss)
 
17.7

 
13.5

 
32.6

 
32.4

Income (loss) related to joint ventures
 
4.5

 
4.3

 
6.3


7.5

Reductions in solar investments, net
 
(0.1
)
 
(0.4
)
 
(0.4
)

(2.6
)
Interest and other income (expense), net (Note 2)
 
3.8

 
(0.2
)
 
2.5


0.6

Interest expense
 
(9.1
)
 
(6.1
)
 
(26.4
)

(18.5
)
Income (Loss) from Continuing Operations Before Income Taxes and Net Gain (Loss) on Sale of Improved Properties and Ground Leased Land
 
16.8

 
11.1

 
14.6


19.4

Income tax benefit (expense)
 
(1.0
)
 
(3.7
)
 
1.8


(6.4
)
Income (Loss) from Continuing Operations Before Net Gain (Loss) on Sale of Improved Properties and Ground Leased Land
 
15.8

 
7.4

 
16.4


13.0

Net gain (loss) on the sale of improved properties and ground leased land
 
—

 
—

 
49.8


3.0

Income (Loss) from Continuing Operations
 
15.8

 
7.4

 
66.2


16.0

Income (loss) from discontinued operations, net of income taxes
 
(0.2
)
 
(0.8
)
 
(0.2
)

2.4

Net Income (Loss)
 
15.6

 
6.6

 
66.0


18.4

Income attributable to noncontrolling interest
 
(0.8
)
 
(0.5
)
 
(1.4
)

(1.7
)
Net Income (Loss) Attributable to A&B Shareholders
 
$
14.8

 
$
6.1

 
$
64.6


$
16.7

 
 
 
 
 
 



Basic Earnings (Loss) Per Share of Common Stock:
 
 
 
 
 



Continuing operations available to A&B shareholders
 
$
0.21

 
$
0.15

 
$
0.92


$
0.32

Discontinued operations available to A&B shareholders
 
—

 
(0.02
)
 
—


0.04

Net income (loss) available to A&B shareholders
 
$
0.21

 
$
0.13

 
$
0.92


$
0.36

Diluted Earnings (Loss) Per Share of Common Stock:
 
 
 
 
 



Continuing operations available to A&B shareholders
 
$
0.20

 
$
0.15

 
$
0.89


$
0.31

Discontinued operations available to A&B shareholders
 
—

 
(0.02
)
 
—


0.05

Net income (loss) available to A&B shareholders
 
$
0.20

 
$
0.13

 
$
0.89


$
0.36

 
 
 
 
 
 



Weighted-Average Number of Shares Outstanding:
 
 
 
 
 



Basic
 
72.0

 
49.2

 
70.2


49.1

Diluted
 
72.4

 
49.6

 
72.4


49.6

 
 
 
 
 
 





Amounts Available to A&B Shareholders (Note 4):
 
 
 
 
 





Continuing operations available to A&B shareholders
 
$
15.0

 
$
7.4

 
$
64.8


$
15.5

Discontinued operations available to A&B shareholders
 
(0.2
)
 
(0.8
)
 
(0.2
)

2.4

Net income (loss) available to A&B shareholders
 
$
14.8

 
$
6.6

 
$
64.6


$
17.9

See Notes to Condensed Consolidated Financial Statements.

1


ALEXANDER & BALDWIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions) (Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Net Income (Loss)
 
$
15.6

 
$
6.6

 
$
66.0

 
$
18.4

Other Comprehensive Income (Loss), net of tax:
 
 
 
 
 
 
 
 
Unrealized interest rate hedging gain (loss)
 
0.6

 
(0.2
)
 
3.0

 
(0.8
)
Reclassification adjustment for interest expense included in net income (loss)
 
—

 
0.1

 
—

 
0.4

Defined benefit pension plans:
 
 
 
 
 
 
 
 
Amortization of net loss included in net periodic pension cost
 
1.1

 
1.0

 
3.3

 
3.3

Amortization of prior service credit included in net periodic pension cost
 
(0.2
)
 
(0.2
)
 
(0.5
)
 
(0.7
)
Curtailment (gain)/loss
 
—

 
—

 
(0.4
)
 
—

Settlement (gain)/loss
 
—

 
1.4

 
—

 
1.4

Income taxes related to other comprehensive income (loss)
 
(0.4
)
 
(0.8
)
 
(1.4
)
 
(1.4
)
Other comprehensive income (loss), net of tax
 
1.1

 
1.3

 
4.0

 
2.2

Comprehensive Income (Loss)
 
16.7

 
7.9

 
70.0

 
20.6

Comprehensive income (loss) attributable to noncontrolling interest
 
(0.8
)
 
(0.5
)
 
(1.4
)
 
(1.7
)
Comprehensive Income (Loss) Attributable to A&B Shareholders
 
$
15.9

 
$
7.4

 
$
68.6

 
$
18.9

See Notes to Condensed Consolidated Financial Statements.

2


ALEXANDER & BALDWIN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions) (Unaudited)
 
September 30,
2018
 
December 31, 2017
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
7.5

 
$
68.9

Accounts receivable, net
60.3

 
47.3

Costs and estimated earnings in excess of billings on uncompleted contracts
9.6

 
20.2

Inventories
32.2

 
31.9

Real estate development inventory and property held for sale
23.7

 
67.4

Prepaid expenses and other assets
41.3

 
39.1

Total current assets
174.6

 
274.8

Investments in Affiliates
379.2

 
401.7

Real Estate Developments
141.9

 
151.0

Property – Net
1,322.3

 
1,147.5

Intangible Assets – Net
75.9

 
46.9

Deferred Tax Asset
17.6

 
16.5

Goodwill
102.3

 
102.3

Restricted Cash
0.2

 
34.3

Other Assets
62.2

 
56.2

Total assets
$
2,276.2

 
$
2,231.2

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Notes payable and current portion of long-term debt
$
37.1

 
$
46.0

Accounts payable
33.7

 
43.3

Billings in excess of costs and estimated earnings on uncompleted contracts
3.6

 
5.7

Accrued dividends
—

 
783.0

Accrued and other liabilities
46.3

 
48.8

Total current liabilities
120.7

 
926.8

Long-term Liabilities:
 
 
 
Long-term debt
741.3

 
585.2

Accrued retirement benefits
23.1

 
22.7

Other non-current liabilities
34.5

 
37.4

Total long-term liabilities
798.9

 
645.3

Total liabilities
919.6

 
1,572.1

Redeemable Noncontrolling Interest
8.0

 
8.0

Equity:
 
 
 
Common stock - no par value; authorized, 150 million shares; outstanding, 72.0 million and 49.3 million shares at September 30, 2018 and December 31, 2017, respectively
1,792.1

 
1,161.7

Accumulated other comprehensive income (loss)
(38.3
)
 
(42.3
)
Distributions in excess of accumulated earnings
(410.5
)
 
(473.0
)
Total A&B shareholders' equity
1,343.3

 
646.4

Noncontrolling interest
5.3

 
4.7

Total equity
1,348.6

 
651.1

Total liabilities and equity
$
2,276.2

 
$
2,231.2

See Notes to Condensed Consolidated Financial Statements.

3


ALEXANDER & BALDWIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) (Unaudited)
 
Nine Months Ended September 30,
 
2018
 
2017
Cash Flows from Operating Activities:
 
 
 
Net income (loss)
$
66.0

 
$
18.4

Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:

 

Depreciation and amortization
31.6

 
31.4

Deferred income taxes
(2.4
)
 
19.1

Gains on asset transactions and other
(62.1
)
 
(22.2
)
Share-based compensation expense
4.0

 
3.4

Investments in affiliates, net of distributions of income
2.0

 
3.2

Changes in operating assets and liabilities:

 

Trade, contracts retention, and other contract receivables
(4.9
)
 
(4.2
)
Inventories
(0.3
)
 
13.2

Prepaid expenses, income tax receivable and other assets
(4.1
)
 
(19.8
)
Accrued pension and post-retirement benefits
2.5

 
(48.0
)
Accounts payable
(8.3
)
 
(3.0
)
Accrued and other liabilities
(7.3
)
 
(38.2
)
Real estate inventory sales (real estate developments held for sale)
41.0

 
16.5

Expenditures for real estate inventory (real estate developments held for sale)
(20.0
)
 
(15.0
)
Net cash provided by (used in) operations
37.7

 
(45.2
)
 
 
 
 
Cash Flows from Investing Activities:
 
 
 
Capital expenditures for acquisitions
(201.6
)
 
(10.1
)
Capital expenditures for property, plant and equipment
(40.0
)
 
(23.6
)
Proceeds from disposal of property and other assets
169.3

 
16.7

Payments for purchases of investments in affiliates and other investments
(21.3
)
 
(31.5
)
Distributions of capital from investments in affiliates and other investments
32.8

 
3.9

Net cash provided by (used in) investing activities
(60.8
)
 
(44.6
)
 
 
 
 
Cash Flows from Financing Activities:
 
 
 
Proceeds from issuance of long-term debt
533.5

 
145.5

Payments of long-term debt and deferred financing costs
(433.6
)
 
(46.4
)
Borrowings (payments) on line-of-credit agreement, net
(14.2
)
 
9.8

Distribution to noncontrolling interests
(0.2
)
 
(0.2
)
Cash dividends paid
(156.6
)
 
(10.3
)
Proceeds from issuance (repurchase) of capital stock and other, net
(1.3
)
 
(4.1
)
Net cash provided by (used in) financing activities
(72.4
)
 
94.3

 
 
 
 
Cash, Cash Equivalents and Restricted Cash:
 
 
 
Net increase (decrease) in cash, cash equivalents, and restricted cash
(95.5
)
 
4.5

Balance, beginning of period
103.2

 
12.3

Balance, end of period
$
7.7

 
$
16.8


4


Other Cash Flow Information:
 
 
 
Interest paid, net of capitalized interest
$
(26.1
)
 
$
(15.1
)
Income tax (payments)/refunds, net
$
1.9

 
$
(4.0
)
 
 
 
 
Noncash Investing and Financing Activities:
 
 
 
Uncollected proceeds from disposal of equipment
$
—

 
$
1.9

Capital expenditures included in accounts payable and accrued expenses
$
2.0

 
$
3.2

Fair value of loan assumed in connection with acquisition
$
61.0

 
$
—

Issuance of shares for stock dividend
$
626.4

 
$
—

 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash:
 
 
 
Beginning of the period
 
 
 
Cash and cash equivalents
$
68.9

 
$
2.2

Restricted cash
34.3

 
10.1

Cash, cash equivalents and restricted cash
$
103.2

 
$
12.3

 
 
 
 
End of the period
 
 
 
Cash and cash equivalents
$
7.5

 
$
13.3

Restricted cash
0.2

 
3.5

Cash, cash equivalents and restricted cash
$
7.7

 
$
16.8

See Notes to Condensed Consolidated Financial Statements.

5


ALEXANDER & BALDWIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Nine Months Ended September 30, 2018 and 2017
(In millions) (Unaudited)
 
Total Equity
 
 
 
 




(Distributions
 

 
 
 
 
 
 

Accumulated
in Excess of
 

 
 
 
Redeem-
 
 
Common
Other
Accumulated
 

 
 
 
able
 
 
Stock
Compre-
Earnings)
 
Non-
 
 
 
Non-
 
 


Stated
hensive
Retained
 
Controlling
 
 
 
Controlling
 
 
Shares

Value
 
Income (Loss)
 
Earnings
 
Interest
 
Total
 
Interest
Balance, January 1, 2017
 
49.0

 
$
1,157.3

 
$
(43.2
)
 
$
95.2

 
$
3.9

 
$
1,213.2

 
$
10.8

Net income (loss)
 
—

 
—

 
—

 
16.7

 
0.5

 
17.2

 
1.2

Other comprehensive income (loss), net of tax
 
—

 
—

 
2.2

 
—

 
—

 
2.2

 
—

Dividends on common stock ($0.21 per share)
 
—

 
—

 
—

 
(10.3
)
 
—

 
(10.3
)
 
—

Distributions to noncontrolling interest
 
—

 
—

 
—

 
—

 
(0.2
)
 
(0.2
)
 
—

Adjustments to redemption value of redeemable noncontrolling interest
 
—

 
—

 
—

 
1.2

 
—

 
1.2

 
(1.2
)
Share-based compensation
 
—

 
3.4

 
—

 
—

 
—

 
3.4

 
—

Shares issued or repurchased, net
 
0.2

 
(0.2
)
 
—

 
(3.4
)
 
—

 
(3.6
)
 
—

Balance, September 30, 2017
 
49.2

 
$
1,160.5

 
$
(41.0
)
 
$
99.4

 
$
4.2

 
$
1,223.1

 
$
10.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Equity
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
Redeem-
 
 
Common
 
Other
 
Distributions
 
 
 
 
 
able
 
 
Stock
 
Compre-
 
in Excess of
 
Non-
 
 
 
Non-
 
 
 
 
Stated
 
hensive
 
Accumulated
 
Controlling
 
 
 
Controlling
 
 
Shares
 
Value
 
Income (Loss)
 
Earnings
 
Interest
 
Total
 
Interest
Balance, January 1, 2018
 
49.3

 
$
1,161.7

 
$
(42.3
)
 
$
(473.0
)
 
$
4.7

 
$
651.1

 
$
8.0

Net income (loss)
 
—

 
—

 
—

 
64.6

 
0.8

 
65.4

 
0.6

Impact of adoption of ASU 2014-09
 
—

 
—

 
—

 
(1.4
)
 
—

 
(1.4
)
 
—

Other comprehensive income (loss), net of tax
 
—

 
—

 
4.0

 
—

 
—

 
4.0

 
—

Stock dividend ($11.65 per share)
 
22.6

 
626.4

 
—

 
—

 
—

 
626.4

 
—

Distributions to noncontrolling interest
 
—

 
—

 
—

 
—

 
(0.2
)
 
(0.2
)
 
—

Adjustments to redemption value of redeemable noncontrolling interest
 
—

 
—

 
—

 
0.6

 
—

 
0.6

 
(0.6
)
Share-based compensation
 
—

 
4.0

 
—

 
—

 
—

 
4.0

 
—

Shares issued or repurchased, net
 
0.1

 
—

 
—

 
(1.3
)
 
—

 
(1.3
)
 
—

Balance, September 30, 2018
 
72.0

 
$
1,792.1

 
$
(38.3
)
 
$
(410.5
)
 
$
5.3

 
$
1,348.6

 
$
8.0

See Notes to Condensed Consolidated Financial Statements.

6


Alexander & Baldwin, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.
DESCRIPTION OF BUSINESS
Alexander & Baldwin, Inc. ("A&B" or the "Company") is headquartered in Honolulu, Hawai`i and operates three segments: Commercial Real Estate ("CRE"); Land Operations; and Materials & Construction ("M&C"). In the fourth quarter of 2017, the Company completed a conversion process to comply with the requirements to be treated as a real estate investment trust ("REIT") commencing with the taxable year ended December 31, 2017.

On November 16, 2017, the Company declared a special distribution to its shareholders in the aggregate amount of $783.0 million (approximately $15.92 per share) (the "Special Distribution") in connection with its conversion to a REIT. On January 23, 2018, the Company completed the Special Distribution to shareholders in the form of  $156.6 million  of cash dividends and issuance of $626.4 million of common shares. On October 15, 2018 the Company filed its tax return including the 2017 Form 1120-REIT with the Internal Revenue Service. As of September 30, 2018 , the Company had 72.0 million shares outstanding.

2.
BASIS OF PRESENTATION
The interim 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 accounting principles generally accepted in the United States of America ("GAAP") for complete financial statements. Therefore, the interim condensed consolidated financial statements should be read in conjunction with the consolidated balance sheets as of December 31, 2017 and 2016 , and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2017 and the notes thereto included in the Company's Annual Report filed on Form 10-K for the year ended December 31, 2017 (" 2017 Form 10-K"), and other subsequent filings with the U.S. Securities and Exchange Commission.
Reclassifications: Certain amounts in the Company's prior period condensed consolidated financial statements have been reclassified to conform to the current period presentation. In connection with the adoption of Accounting Standards Update ("ASU") No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash , transfers to or from restricted cash which have previously been shown in the Company's investing activities section of the condensed consolidated statements of cash flows are now required to be shown as part of the total change in cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows. This change resulted in a decrease in cash flows used in investing activities of $6.6 million during the nine months ended September 30, 2017 . Additionally, the Company disaggregated and separately presented long-term costs of its employee benefit plans within Accrued retirement benefits in its condensed consolidated balance sheet. In connection with such presentation, the Company reclassified $2.8 million of accrued costs related to its non-qualified benefit plans from Other non-current liabilities and $19.9 million of accrued costs related to its qualified pension and post-retirement benefit plans from Accrued pension and post-retirement benefits in its condensed consolidated balance sheet as of December 31, 2017 .
Rounding: Amounts in the condensed consolidated financial statements and notes are rounded to the nearest tenth of a million. Accordingly, a recalculation of some per-share amounts and percentages, if based on the reported data, may result in differences.
Significant Accounting Policies:  The Company's significant accounting policies are described in Note 2 to the consolidated financial statements included in Item 8 of the Company's 2017 Form 10-K. Changes to significant accounting policies are included herein.
Revenue recognition
Sources of revenue for the Company primarily include commercial property rentals, sales of real estate, real estate development projects, material sales and paving construction projects. The Company generates revenue from three distinct business segments:
Commercial Real Estate: The Commercial Real Estate segment owns, operates, leases, and manages a portfolio of retail, office, and industrial properties in Hawai`i; it also leases urban land in Hawai`i to third-party lessees. Commercial Real Estate revenue is recognized on a straight-line basis over the term of the corresponding lease. Also included in rental revenues are certain

7


tenant reimbursements and percentage rents determined in accordance with the terms of the lease. The Company records revenue for real estate taxes paid by its tenants for commercial properties with an offsetting expense in Cost of Commercial Real Estate in the accompanying condensed consolidated statement of operations, as the Company has concluded it is the primary obligor.
Land Operations: Revenues from sales of real estate are recognized at the point in time when control of the underlying goods is transferred to the customer and the payment is due (generally on the closing date). For certain development projects the Company will use a percentage of completion for revenue recognition. Under this method, the amount of revenue recognized is based on the development costs that have been incurred throughout the reporting period as a percentage of total expected developments associated with the development project.
Materials & Construction: Revenue from the Materials & Construction segment is primarily generated from material sales and paving and construction contracts. The recognition of revenue is based on the underlying terms of the transactions.
Materials : Revenues from material sales, which include basalt aggregate, liquid asphalt and hot mix asphalt, are usually recognized at a point in time when control of the underlying goods is transferred to the customers (generally this occurs when materials are picked up by customers or their agents) and when the Company has a present right to payment for materials sold.
Construction : The Company's construction contracts generally contain a single performance obligation as the promise to transfer individual goods or services are not separately identifiable from other promises in the contracts and is, therefore, not distinct. Revenue is earned from construction contracts over a period of time as control is continuously transferred to customers.
Construction contracts can generally be categorized into two types of contracts with customers based on the respective payment terms; either lump sum or unit priced. Lump sum contracts require the total amount of work be performed under a single fixed price irrespective of actual quantities or actual costs. Earnings on both unit price contracts and lump sum fixed-price paving contracts are recognized using the percentage of completion, cost-to-cost, input method as it is able to faithfully depict the transfer of control of the underlying assets to the customer. Certain construction contracts include retainage provisions. The balances billed but not paid by customers pursuant to these provisions generally become due upon completion and acceptance of the project work or products by the owners.
The Company deems its contract prices reflective of the standalone selling prices of the underlying goods and services since the contracts are required to go through a competitive bidding process. The Company recognizes revenue on a net basis excluding indirect taxes, such as sales tax and value added tax collected from customers and remitted to government authorities.
Interest and other income (expense), net
Interest and other income (expense), net is primarily comprised of a net gain on the sale of the Company's joint venture interest in the Ka Milo real estate development-for-sale project, the non-service cost components of pension and postretirement benefit expense and interest income. For the three and nine months ended September 30, 2018 and 2017 , Interest and other income (expense), net included the following:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
Pension and postretirement benefit expense
 
$
(0.7
)
 
$
(1.7
)
 
$
(2.2
)
 
$
(3.1
)
Interest income
 
0.3

 
1.6

 
0.5

 
3.9

Sale of Ka Milo joint venture interest
 
4.2

 
—

 
4.2

 
—

Other income (expense)
 
—

 
(0.1
)
 
—

 
(0.2
)
Interest and other income (expense), net
 
$
3.8

 
$
(0.2
)
 
$
2.5

 
$
0.6

Interest costs on developments and major redevelopments are capitalized as part of real estate development and redevelopment projects that have not yet been placed into service. Capitalization of interest commences when development activities and expenditures begin and end upon completion, which is when the asset is ready for its intended use. Capitalized interest costs related to development activities were $0.4 million and $0.8 million for the nine months ended September 30, 2018 and 2017 , respectively.
Recently adopted accounting pronouncements
In May 2014, Financial Accounting Standards Board (the "FASB") issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09") to provide guidance for revenue recognition and has superseded the revenue recognition requirements in FASB Accounting Standards Codification ("ASC") 605, as well as most industry-specific guidance.

8


Under ASU 2014-09, revenue is recognized when a customer obtains control of the promised goods or services in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services.
The Company adopted the provisions of ASU 2014-09 as of January 1, 2018 using the modified retrospective transition method and applied ASU 2014-09 to those contracts that were not completed as of January 1, 2018 and whose revenue was historically accounted for under ASC 605. The cumulative impact of the adoption was a net reduction to other assets and distributions in excess of retained earnings of $1.4 million as of January 1, 2018.
In accordance with ASU 2014-09, the disclosure of the impact of adoption to our condensed consolidated balance sheet was as follows (in millions):

 
Balance as of December 31, 2017
 
Impact of adoption
 
Balance as of January 1, 2018
Other Assets
$
56.2

 
$
(1.4
)
 
$
54.8

Distributions in excess of accumulated earnings
$
(473.0
)
 
$
(1.4
)
 
$
(474.4
)

The adoption of ASU 2014-09 did not significantly impact the Company's revenue recognition treatment for its Materials & Construction business segment due to the short term duration of the Company's construction contracts.
The Company's Commercial Real Estate business segment recognizes its revenue under the accounting framework of ASC 840, Leases and is therefore excluded from the scope of ASU 2014-09.
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting . The guidance clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The adoption of this standard did not have an impact on the Company's financial position or results of operations.
Recently issued accounting pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. The guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. This ASU is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires the identification of arrangements that should be accounted for as leases by lessees. In general, lease arrangements exceeding a twelve month term must now be recognized as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2018. The FASB has subsequently issued other related ASUs, which amend ASU 2016-02 to provide transition practical expedients that an entity may elect to apply and other guidance. The Company is currently in the process of finalizing its assessment of the inventory of its leases that will be impacted by the adoption. The Company does not expect the adoption of the new guidance to have a material impact on the accounting treatment and disclosures of the Company's leases.
In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities. The guidance amends the hedge accounting model in ASC 815 to enable entities to better portray the economics of their risk management activities in the financial statements and enhance the transparency and understandability of hedge results. The amendments expand an entity's ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest rate risk. This ASU eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period or fiscal year before the effective date. For cash flow and net investment hedges existing at the date of adoption, entities will apply the new guidance using a modified retrospective approach (i.e., with a cumulative effect

9


adjustment recorded to the opening balance of retained earnings as of the initial application date). The guidance provides transition relief to make it easier for entities to apply certain amendments to existing hedges (including fair value hedges) where the hedge documentation needs to be modified. The presentation and disclosure requirements apply prospectively. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income . The guidance gives entities the option to reclassify tax effects stranded in accumulated other comprehensive income as a result of tax reform to retained earnings. The FASB also gives entities the option to apply the guidance retrospectively or in the period of adoption. When adopted, the standard requires all entities to make new disclosures, regardless of whether they elect to reclassify stranded amounts. Entities are required to disclose whether or not they elected to reclassify the tax effects related to the Tax Cuts and Jobs Act of 2017 as well as their policy for releasing income tax effects from accumulated OCI. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Entities are able to early adopt the guidance in any interim or annual period for which financial statements have not yet been issued and apply it either (1) in the period of adoption or (2) retrospectively to each period in which the income tax effects of the Tax Cuts and Jobs Act of 2017 related to items in accumulated OCI are recognized. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.
In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting . The guidance expands the scope of ASC 718 to include share-based payment transactions with the exception of specific guidance related to the attribution of compensation cost. The guidance also clarifies that any share-based payment awards granted in conjunction with selling goods or services to customers should be evaluated under ASC 606. This ASU is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new standard will have on its consolidated financial statements and footnote disclosures.
In August 2018, the FASB issued ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement . The guidance amends and removes several disclosure requirements including the valuation processes for Level 3 fair value measurements. This ASU also modifies some disclosure requirements and requires additional disclosures for changes in unrealized gains and losses included n other comprehensive income for recurring Level 3 fair value measurements and requires the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new standard will have on its consolidated financial statements and footnote disclosures.
In August 2018, the FASB issued ASU 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans . The guidance clarifies current disclosures and removes several disclosure requirements including accumulated other comprehensive income expected to be recognized over the next fiscal year and amount and timing of plan assets expected to be returned to the employer. This ASU also requires additional disclosures for the weighted-average interest crediting rates for cash balance plans and explanations for significant gains and losses related to changes in the benefit plan obligation. This ASU is effective for fiscal years beginning after December 15, 2020. The Company is currently assessing the impact that adopting this new standard will have on its consolidated financial statements and footnote disclosures.
3.
COMMITMENTS AND CONTINGENCIES
Commitments, Guarantees and Contingencies:   Commitments and financial arrangements not recorded on the Company's condensed consolidated balance sheet, excluding lease commitments that are disclosed in Note 9 of the Company's 2017 Form 10-K, included the following (in millions) as of September 30, 2018 :
Standby letters of credit (a)
$
11.8

Bonds (b)
$
463.7

(a) Consists of standby letters of credit, issued by the Company’s lenders under the Company’s revolving credit facilities, and relate primarily to the Company’s real estate activities. In the event the letters of credit are drawn upon, the Company would be obligated to reimburse the issuer of the letter of credit.
(b) Represents bonds related to construction and real estate activities in Hawai`i. Approximately $437.7 million represents the face value of construction bonds issued by third party sureties (bid, performance and payment bonds) and the remainder is related to commercial bonds issued by third party sureties (permit, subdivision, license and notary bonds). In the event the bonds are drawn upon, the Company would be obligated to reimburse the surety that issued the bond for the amount of the bond, reduced for the work completed to date.

10


Indemnity Agreements:  For certain real estate joint ventures, the Company may be obligated under bond indemnities to complete construction of the real estate development if the joint venture does not perform. These indemnities are designed to protect the surety in exchange for the issuance of surety bonds that cover joint venture construction activities, such as project amenities, roads, utilities, and other infrastructure, at its joint ventures. Under the indemnities, the Company and its joint venture partners agree to indemnify the surety bond issuer from all losses and expenses arising from the failure of the joint venture to complete the specified bonded construction. The maximum potential amount of aggregate future payments is a function of the amount covered by outstanding bonds at the time of default by the joint venture, reduced by the amount of work completed to date. The recorded amounts of the indemnity liabilities were not material individually or in the aggregate.
The Company is a guarantor of indebtedness for certain of its unconsolidated joint ventures' borrowings with third party lenders, relating to the repayment of construction loans and performance of construction for the underlying project. As of September 30, 2018 , the Company's limited guarantees on indebtedness related to one of its unconsolidated joint ventures totaled $3.1 million .
Other than obligations described above and those described in the Company's 2017 Form 10-K, obligations of the Company's joint ventures do not have recourse to the Company and the Company's "at-risk" amounts are limited to its investment.
Legal Proceedings and Other Contingencies: A&B owns 16,000 acres of watershed lands in East Maui. A&B also held four water licenses to another 30,000 acres owned by the State of Hawai`i in East Maui. The last of these water license agreements expired in 1986, and all four agreements were then extended as revocable permits that were renewed annually. In 2001, a request was made to the State Board of Land and Natural Resources (the "BLNR") to replace these revocable permits with a long-term water lease. Pending the conclusion by the BLNR of this contested case hearing on the request for the long-term lease, the BLNR has kept the existing permits on a holdover basis. Three parties filed a lawsuit on April 10, 2015 (the "4/10/15 Lawsuit") alleging that the BLNR has been renewing the revocable permits annually rather than keeping them in holdover status. The lawsuit asks the court to void the revocable permits and to declare that the renewals were illegally issued without preparation of an environmental assessment ("EA"). In December 2015, the BLNR decided to reaffirm its prior decisions to keep the permits in holdover status. This decision by the BLNR is being challenged by the three parties. In January 2016, the court ruled in the 4/10/15 Lawsuit that the renewals were not subject to the EA requirement, but that the BLNR lacked legal authority to keep the revocable permits in holdover status beyond one year . The court has allowed the parties to make an immediate appeal of this ruling. In May 2016, the Hawai`i State Legislature passed House Bill 2501, which specified that the BLNR has the legal authority to issue holdover revocable permits for the disposition of water rights for a period not to exceed three years. The governor signed this bill into law as Act 126 in June 2016. Pursuant to Act 126, the annual authorization of the existing holdover permits was sought and granted by the BLNR in December 2016 and November 2017.
Hawaii Commercial & Sugar Company ("HC&S") used water from four streams in Central Maui ("Na Wai Eha") to irrigate its agricultural lands in Central Maui. Beginning in 2004, the Water Commission began proceedings to establish IIFS for the Na Wai Eha streams. Before the IIFS proceedings were concluded, the Water Commission designated Na Wai Eha as a surface water management area, meaning that all uses of water from these streams required water use permits issued by the Water Commission. Following contested case proceedings, the Water Commission established IIFS in 2010, but that decision was appealed, and the Hawai`i Supreme Court remanded the case to the Water Commission for further proceedings. The parties to the IIFS contested case settled the case in 2014. Thereafter, proceedings for the issuance of water use permits commenced with over 100 applicants, including HC&S, vying for permits. While the water use permit proceedings were ongoing, A&B announced the cessation of sugar cane cultivation in 2016. This announcement triggered a re-opening and reconsideration of the 2014 IIFS decision. Contested case proceedings were held to simultaneously reconsider the IIFS, determine appurtenant water rights, and consider applications for water use permits. Based on those proceedings, the Hearing Officer issued his recommendation to the Water Commission on November 1, 2017. The Commission has not yet issued its decision.
If the Company is not permitted to use sufficient quantities of stream waters, it would have a material adverse effect on the Company's pursuit of a diversified agribusiness model in subsequent years and the value of the Company's agricultural lands.
A&B is a party to, or may be contingently liable in connection with, other legal actions arising in the normal conduct of its businesses, the outcomes of which, in the opinion of management after consultation with counsel, would not have a material effect on A&B's consolidated financial statements as a whole.
4.
EARNINGS PER SHARE ("EPS")
Basic earnings per common share excludes dilution and is calculated by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding for the

11


period, as adjusted for the potential dilutive effect of non-participating share-based awards as well as adjusted by the number of additional shares, if any, that would have been outstanding had the potentially dilutive common shares been issued.
The following table provides a reconciliation of income (loss) from continuing operations to income (loss) from continuing operations available to A&B shareholders and net income (loss) available to A&B shareholders (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2018

2017
 
2018
 
2017
Income (loss) from Continuing Operations
$
15.8

 
$
7.4

 
$
66.2

 
$
16.0

Less: Income (loss) attributable to noncontrolling interest
(0.8
)
 
(0.5
)
 
(1.4
)
 
(1.7
)
Income (loss) from continuing operations attributable to A&B shareholders
15.0

 
6.9

 
64.8

 
14.3

Undistributed earnings allocated to redeemable noncontrolling interest
—

 
0.5

 
—

 
1.2

Income (loss) from continuing operations available to A&B shareholders
15.0

 
7.4

 
64.8

 
15.5

Income (loss) from discontinued operations available to A&B shareholders, net of income taxes
(0.2
)
 
(0.8
)
 
(0.2
)
 
2.4

Net income (loss) available to A&B shareholders
$
14.8

 
$
6.6

 
$
64.6

 
$
17.9

The number of shares used to compute basic and diluted earnings per share is as follows (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2018
 
2017
 
2018
 
2017
Denominator for basic EPS - weighted average shares outstanding
72.0

 
49.2

 
70.2

 
49.1

Effect of dilutive securities:
 
 
 
 
 
 
 
Non-participating stock options and restricted stock unit awards
0.4

 
0.4

 
0.4

 
0.5

Special Distribution
—

 
—

 
1.8

 
—

Denominator for diluted EPS - weighted average shares outstanding
72.4

 
49.6

 
72.4

 
49.6

There were 0.1 million shares of anti-dilutive securities outstanding during the three and nine months ended September 30, 2018 . There were no anti-dilutive securities outstanding during the three and nine months ended September 30, 2017 .
5.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's cash and cash equivalents, accounts receivable and short-term borrowings approximate their carrying values due to the short-term nature of the instruments. The fair value of the Company's long-term notes receivable is estimated using a discounted cash flow analysis in which the Company uses unobservable inputs such as market interest rates determined by the loan to value and market capitalization rates related to the underlying collateral at which management believes similar loans would be made and classified as Level 3 in the fair value hierarchy. The fair value of these notes approximates the carrying amount of $16.4 million at September 30, 2018 . The fair value and carrying amount of these notes was immaterial at December 31, 2017 .
The carrying amount and fair value of the Company's debt at September 30, 2018 was $778.4 million and $763.0 million , respectively, and $631.2 million and $642.3 million at December 31, 2017 respectively. The fair value of 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).
The Company carries its interest rate swaps at fair value. See Note 16 for fair value information regarding the Company's derivative instruments.

12


6.
INVENTORIES
Inventories are stated at the lower of cost (principally average cost, first-in, first-out basis) or net realizable value. Inventories as of September 30, 2018 and December 31, 2017 were as follows (in millions):
 
September 30, 2018
 
December 31, 2017
Asphalt
$
13.1

 
$
12.2

Processed rock and sand
11.8

 
13.5

Work in progress
3.7

 
2.8

Retail merchandise
1.8

 
1.7

Parts, materials and supplies inventories
1.8

 
1.7

Total
$
32.2

 
$
31.9

7.
SHARE-BASED PAYMENT AWARDS
The 2012 Incentive Compensation Plan ("2012 Plan") allows for the granting of stock options, restricted stock units and common stock. During the three months ended September 30, 2018 , the Company retroactively approved an increase to the shares of common stock reserved for issuance to 5.4 million as of January 1, 2018 . The shares of common stock authorized to be issued under the 2012 Plan may be drawn from the shares of the Company's authorized but unissued common stock or from shares of its common stock that the Company acquires, including shares purchased on the open market or private transactions.
The following table summarizes the Company's stock option activity for the nine months ended September 30, 2018 (in thousands, except weighted-average exercise price and weighted-average contractual life):
 
2012 Plan
Stock Options
 
Weighted-
Average
Exercise Price
 
Weighted-
Average
Contractual Life
 
Aggregate
Intrinsic
Value
Outstanding, January 1, 2018
630.5
 
$
12.58

 

 


Exercised
(11.3)
 
$
12.24

 

 


Outstanding, September 30, 2018
619.2
 
$
12.58

 
2.2
 
$
6,128

Vested or expected to vest
619.2
 
$
12.58

 
2.2
 
$
6,128

Exercisable, September 30, 2018
619.2
 
$
12.58

 
2.2
 
$
6,128

The following table summarizes non-vested restricted stock unit activity for the nine months ended September 30, 2018 (in thousands, except weighted-average grant-date fair value amounts):
 
2012 Plan
Restricted
Stock Units
 
Weighted-
Average
Grant-date
Fair Value
Outstanding, January 1, 2018
318.9

 
$
36.66

Anti-dilutive adjustment for Special Distribution
182.9

 


Granted
248.4

 
$
28.76

Vested
(181.4
)
 
$
22.59

Canceled
(66.0
)
 
$
24.47

Outstanding, September 30, 2018
502.8

 
$
25.92

The time-based restricted stock units granted to employees vest ratably over a period of three years . The time-based restricted stock units granted to non-employee directors prior to 2018 vest ratably over a period of three years , and the time-based restricted stock units granted to non-employee directors during 2018 vest over one year . The market-based performance share units cliff vest over three years , provided that the total shareholder return of the Company's common stock over the relevant period meets or exceeds pre-defined levels of total shareholder returns relative to indices, as defined.

13


The fair value of the Company's time-based awards is determined using the Company's stock price on the date of grant. The fair value of the Company's market-based awards is estimated using the Company's stock price on the date of grant and the probability of vesting using a Monte Carlo simulation with the following weighted-average assumptions:
 
2018 Grants
 
2017 Grants
Volatility of A&B common stock
22.7
%
 
24.1
%
Average volatility of peer companies
21.6
%
 
25.6
%
Risk-free interest rate
2.3
%
 
1.6
%
The Company recognizes compensation cost net of actual forfeitures of time-based or market-based awards. A summary of compensation cost related to share-based payments is as follows (in millions):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
 
 
2018
 
2017
 
2018
 
2017
Share-based expense:
 

 

 
 
 
 
Time-based and market-based restricted stock units
 
$
1.3

 
$
1.2

 
$
4.0

 
$
3.4

Total share-based expense
 
1.3

 
1.2

 
4.0

 
3.4

Total recognized tax benefit
 
(0.1
)
 
(0.5
)
 
(0.4
)
 
(1.3
)
Share-based expense (net of tax)
 
$
1.2

 
$
0.7

 
$
3.6

 
$
2.1


8.
RELATED PARTY TRANSACTIONS
Construction Contracts and Material Sales. The Company entered into contracts in the ordinary course of business, as a supplier, with affiliates that are members in entities in which the Company also is a member. Revenues earned from transactions with affiliates were $4.5 million and $5.5 million for the three months ended September 30, 2018 and 2017 , respectively. Revenues earned from transactions with affiliates were $10.8 million and $15.4 million for the nine months ended September 30, 2018 and 2017 , respectively. Receivables from these affiliates were $2.0 million and $2.9 million as of September 30, 2018 and December 31, 2017 . Amounts due to these affiliates were $1.0 million as of September 30, 2018 and immaterial as of December 31, 2017 .
Commercial Real Estate. The Company entered into contracts in the ordinary course of business, as a lessor of property, with unconsolidated affiliates in which the Company has an interest, as well as with certain entities that are partially owned by a director of the Company. Revenues earned from transactions with affiliates were $1.2 million and $1.4 million for the three months ended September 30, 2018 and 2017 , respectively. Revenues earned from these transactions were $3.5 million and $4.0 million for the nine months ended September 30, 2018 and 2017 , respectively. Receivables from these affiliates were $0.1 million and immaterial as of September 30, 2018 and December 31, 2017 , respectively.
Land Operations. During the three and nine months ended September 30, 2017 , the Company-recorded developer fee revenues were $0.5 million and $2.1 million , respectively, related to management and administrative services provided to certain unconsolidated investments in affiliates. Developer fee revenues recorded in 2018 were $0.1 million . Receivables from these affiliates were immaterial as of September 30, 2018 and December 31, 2017 .
In 2017, the Company extended a five -year construction loan secured by a mortgage on real property to one of its joint ventures. Receivables from this affiliate were $13.6 million as of September 30, 2018 and immaterial as of December 31, 2017.
On July 5, 2018, the Company completed the acquisition of five commercial units at The Collection high-rise residential condominium project on Oahu from its joint venture partners for $6.9 million paid in cash.

14


9.
EMPLOYEE BENEFIT PLANS
Components of the net periodic benefit cost for the three months ended September 30, 2018 and 2017 are shown below (in millions):
 
Pension Benefits
 
Post-retirement Benefits
 
Non-qualified Plan Benefits
 
Three Months Ended September 30,
 
Three Months Ended September 30,
 
Three Months Ended September 30,
Components of Net Periodic Benefit Cost
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Service cost
$
0.5

 
$
0.7

 
$
—

 
$
—

 
$
—

 
$
—

Interest cost
1.9

 
2.0

 
0.1

 
0.1

 
—

 
—

Expected return on plan assets
(2.1
)
 
(2.3
)
 
—

 
—

 
—

 
—

Amortization of net loss
1.0

 
0.9

 
—

 
(0.1
)
 
0.1

 
0.1

Amortization of prior service credit
(0.2
)
 
(0.1
)
 
—

 
—

 
—

 
(0.1
)
Settlement (gain)/loss
—

 
—

 
—

 
—

 
—

 
1.4

Net periodic benefit cost
$
1.1

 
$
1.2

 
$
0.1

 
$
—

 
$
0.1

 
$
1.4

Components of the net periodic benefit cost for the nine months ended September 30, 2018 and 2017 are shown below (in millions):
 
Pension Benefits
 
Post-retirement Benefits
 
Non-qualified Plan Benefits
 
Nine Months Ended September 30,
 
Nine Months Ended September 30,
 
Nine Months Ended September 30,
Components of Net Periodic Benefit Cost
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Service cost
$
1.4

 
$
2.1

 
$
0.1

 
$
0.1

 
$
0.1

 
$
0.1

Interest cost
5.6

 
6.0

 
0.3

 
0.3

 
0.1

 
0.2

Expected return on plan assets
(6.2
)
 
(7.1
)
 
—

 
—

 
—

 
—

Amortization of net loss
3.1

 
3.1

 
0.1

 
—

 
0.1

 
0.2

Amortization of prior service credit
(0.4
)
 
(0.4
)
 
—

 
—

 
(0.1
)
 
(0.3
)
Curtailment (gain)/loss
—

 
—

 
—

 
—

 
(0.4
)
 
(0.3
)
Settlement (gain)/loss
—

 
—

 
—

 
—

 
—

 
1.4

Net periodic benefit cost
$
3.5

 
$
3.7

 
$
0.5

 
$
0.4

 
$
(0.2
)
 
$
1.3

10.
ASSET ACQUISITION
On February 23, 2018, the Company completed the acquisition of three commercial properties in Hawai`i ("TRC Acquisition"): (1) Laulani Village located in Ewa Beach, Oahu, (2) Hokulei Village located in Lihue, Kauai, and (3) Pu`unene Shopping Center located in Kahului, Maui.

The total purchase price for the TRC Acquisition was $256.7 million and consisted of total consideration paid to the seller of $254.1 million , including a mortgage with a contractual principal amount of $62.0 million that is secured by Laulani Village, and $2.6 million of capitalized and acquisition-related costs paid to third parties.


15


The allocation of purchase price to assets acquired and liabilities assumed is as follows (in millions):
Fair value of assets acquired and liabilities assumed
Assets acquired:
 
Land
$
80.2

Property and improvements
141.7

In-place/favorable leases
36.0

Total assets acquired
$
257.9

 
 
Liabilities assumed:
 
Unfavorable leases
$
2.2

Long term debt*
61.0

Total liabilities assumed
63.2

Net assets acquired
$
194.7

* Includes a fair value adjustment of $1.0 million.

As of the acquisition date, the weighted-average remaining lives of both the in-place/favorable leases and unfavorable leases were approximately 12 years .
On July 5, 2018, the Company completed the acquisition of five commercial units at The Collection high-rise residential condominium project on Oahu from its joint venture partners for $6.9 million paid in cash. The acquisition price represents the estimated fair market value of the commercial units, based on a deferred cash flow valuation.
11.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2018 were as follows (in millions, net of tax):
 
Employee
Benefit Plans
 
Interest Rate Swap
 
Total
Balance, January 1, 2018
$
(44.2
)
 
$
1.9

 
$
(42.3
)
Other comprehensive income (loss) before reclassifications, net of taxes of $0.8 for interest rate swap
—

 
2.2

 
2.2

Amounts reclassified from accumulated other comprehensive income (loss), net of taxes of $0.6 for employee benefit plans
1.8

 
—

 
1.8

Balance, September 30, 2018
$
(42.4
)
 
$
4.1

 
$
(38.3
)


16


The reclassifications of other comprehensive income (loss) components out of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2018 and 2017 were as follows (in millions):
Details about Other Comprehensive Income (Loss) Components:
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Unrealized interest rate hedging gain (loss)
 
$
0.6

 
$
(0.2
)
 
$
3.0

 
$
(0.8
)
Reclassification adjustment for interest expense included in net income (loss)
 
—

 
0.1

 
—

 
0.4

Amortization of defined benefit pension items reclassified to net periodic pension cost:
 
 
 
 
 
 
 
 
Net loss*
 
1.1

 
1.0

 
3.3

 
3.3

Prior service credit*
 
(0.2
)
 
(0.2
)
 
(0.5
)
 
(0.7
)
Curtailment (gain)/loss*
 
—

 
—

 
(0.4
)
 
—

Settlement (gain)/loss*
 
—

 
1.4

 
—

 
1.4

Total before income tax
 
1.5

 
2.1

 
5.4

 
3.6

Income taxes
 
(0.4
)
 
(0.8
)
 
(1.4
)
 
(1.4
)
Other comprehensive income (loss), net of tax
 
$
1.1

 
$
1.3

 
$
4.0

 
$
2.2

* This accumulated other comprehensive income (loss) component is included in the computation of net periodic pension cost (see Note 9 for additional details).

12.
INCOME TAXES
For the prior taxable years, the Company has filed a consolidated federal income tax return, which includes all of its wholly owned subsidiaries. On October 15, 2018, the Company filed its 2017 Form 1120-REIT with the Internal Revenue Service. The Company's taxable REIT subsidiary ("TRS") filed separately as a C corporation. The Company also files separate income tax returns in various states. The Company completed the necessary preparatory work and obtained the necessary approvals such that the Company believes it has been organized and operates in a manner that enables it to qualify, and continue to qualify, as a REIT for federal income tax purposes. As a result of the Company's conversion to a REIT, the effective tax rate for the three and nine months ended September 30, 2018 differed from the effective tax rate for the same periods in 2017.
For the three months ended September 30, 2018 and 2017 , the Company recorded a reduction to the carrying value of its solar tax equity investments of $0.1 million and $0.4 million , respectively. For the nine months ended September 30, 2018 and 2017 , the Company recorded a reduction of $0.4 million and $2.6 million , respectively, in "Reduction in Solar Investments, net" in the accompanying condensed consolidated statements of operations.
The Company recognizes accrued interest and penalties on income taxes as a component of income tax expense. As of September 30, 2018 , accrued interest and penalties were not material. As of September 30, 2018 , the Company has not identified any material unrecognized tax positions.
The federal audit of the 2013, 2014, 2015 and 2016 tax years has concluded. There were no material adjustments to the income statement resulting from the completion of this audit.

17


13.
NOTES PAYABLE AND LONG-TERM DEBT
At September 30, 2018 and December 31, 2017 , notes payable and long-term debt consisted of the following (in millions):
 
 
 
 
 
Principal Outstanding
Debt
Stated
Rate
(%)
 
Maturity
Date
 
September 30, 2018
 
December 31, 2017
Secured:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GLP Asphalt Plant
( a )
 
2021
 
$
—

 
$
4.8

Kailua Town Center
( b )
 
2021
 
10.6

 
10.8

Kailua Town Center #2
3.15%
 
2021
 
4.8

 
4.9

Laulani Village
3.93%
 
2024
 
62.0

 
—

Pearl Highlands
4.15%
 
2024
 
85.7

 
87.0

Manoa Marketplace
( c )
 
2029
 
60.0

 
60.0

 
 
 
 
 
 
 
 
Subtotal
 
 
 
 
$
223.1

 
$
167.5

 
 
 
 
 
 
 
 
Unsecured:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term Loan 1
2.00%
 
2018
 
—

 
0.1

Term Loan 2
3.31%
 
2018
 
—

 
1.0

Term Loan 3
5.19%
 
2019
 
3.0

 
4.4

Series D Note
6.90%
 
2020
 
32.5

 
48.8

Term Loan 4
( d )
 
2021
 
9.4

 
9.4

Bank Syndicated Loan
( e )
 
2023
 
50.0

 
—

Series A Note
5.53%
 
2024
 
28.5

 
28.5

Series E Note
3.90%
 
2024
 
—

 
62.6

Series J Note
4.66%
 
2025
 
10.0

 
—

Series B Note
5.55%
 
2026
 
46.0

 
46.0

Series C Note
5.56%
 
2026
 
24.0

 
25.0

Series F Note
4.35%
 
2026
 
22.0

 
22.0

Series H Note
4.04%
 
2026
 
50.0

 
50.0

Series K Note
4.81%
 
2027
 
34.5

 
—

Series G Note
3.88%
 
2027
 
50.0

 
50.0

Series L Note
4.89%
 
2028
 
18.0

 
—

Series I Note
4.16%
 
2028
 
25.0

 
25.0

Term Loan 5
4.30%
 
2029
 
25.0

 
25.0

 
 
 
 
 
 
 
 
Subtotal
 
 
 
 
$
427.9

 
$
397.8

 
 
 
 
 
 
 
 
Revolving Credit Facilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GLP Asphalt Revolving Credit Facility
( f )
 
2020
 
4.5

 
0.5

Revolving credit facility
( g )
 
2022
 
124.1

 
66.0

 
 
 
 
 
 
 
 
Subtotal
 
 
 
 
$
128.6

 
$
66.5

 
 
 
 
 
 
 
 
Total debt (contractual)
 
 
 
 
$
779.6

 
$
631.8

Unamortized debt premium (discount)
 
 
 
 
(0.2
)
 
0.5

Unamortized debt issuance costs
 
 
 
 
(1.0
)
 
(1.1
)
Total debt (carrying value)
 
 
 
 
$
778.4

 
$
631.2

Less current portion
 
 
 
 
(37.1
)
 
(46.0
)
Long-term debt
 
 
 
 
$
741.3

 
$
585.2

(a) Loan has a stated interest rate of LIBOR plus 1.00%.
(b) Loan has a stated interest rate of LIBOR plus 1.50%, and is swapped through maturity to a 5.95% fixed rate.
(c) Loan has a stated interest rate of LIBOR plus 1.35%, and is swapped through maturity to a 3.14% fixed rate.
(d) Loan has a stated interest rate of LIBOR plus 2.00%, and is secured by a letter of credit.
(e) Loan has a stated interest rate of LIBOR plus 1.80%, based on pricing grid.
(f) Loan has a stated interest rate of LIBOR plus 1.25%.
(g) Loan has a stated interest rate of LIBOR plus 1.85%, based on pricing grid.

18


In connection with the TRC Acquisition, the Company assumed a $62.0 million mortgage secured by Laulani Village that matures on May 1, 2024. The note bears interest at 3.93% and requires monthly interest payments of approximately $0.2 million until May 2020 and principal and interest payments of approximately $0.3 million thereafter.

On February 26, 2018, the Company entered into an agreement with Wells Fargo Bank, National Association and a syndicate of other financial institutions that provides for a $50 million term loan facility ("Wells Fargo Term Facility" or "Bank Syndicated Loan"). The Company also drew $50 million under the Wells Fargo Term Facility on February 26, 2018 and used such term loan proceeds to repay amounts that were borrowed under the Company's Revolving Credit Facility. Borrowings under the Wells Fargo Term Facility bear interest at a stated rate, as defined, plus a margin that is determined using a leverage based pricing grid.

On April 18, 2018, the Company completed an agreement with Prudential Investment Management, Inc. and its affiliates to refinance its previously existing term loan of $62.5 million that bore interest at 3.90% and matured in 2024, which resulted in three separate term loans: $10.0 million at a fixed interest rate of 4.66% maturing in 2025; $34.5 million at a fixed interest rate of 4.81% maturing in 2027; and $18.0 million at a fixed interest rate of 4.89% maturing in 2028.
     On September 5, 2018, one of the Company’s subsidiaries GLP Asphalt LLC entered into a Third Amended Credit Agreement with Wells Fargo Bank, National Association, which amended and extended its existing $30 million committed revolving credit facility ("GLP Asphalt Revolving Credit Facility"). The GLP Asphalt Revolving Credit Facility maturity was extended to October 5, 2020.  Additionally, the interest rate was reduced by 25 basis points and a fee of 20 basis points on the unused amount of the GLP Asphalt Revolving Credit Facility has been added. All other terms of the Revolving Credit Facility remain substantially unchanged.

Subsequent to September 30, 2018 the interest rates for all Prudential Notes and the AIG Note increased by 20 basis points based on a leverage based ratio maximum requirement.  The 20 basis point increase shall be in effect until the leverage based ratio hurdle has been achieved.
14.
CESSATION OF SUGAR OPERATIONS
Activity of the Cessation-related liabilities during the nine months ended September 30, 2018 is as follows (in millions):

 
Other Exit Costs 1
Balance at December 31, 2017
 
$
4.6

Expense
 
0.1

Cash payments
 
(0.4
)
Balance as of September 30, 2018
 
$
4.3

1 Includes asset retirement obligations.
15.
INVESTMENTS IN AFFILIATES
The Company's investments in affiliates consist principally of equity investments in limited liability companies in which the Company has the ability to exercise significant influence over the operating and financial policies of these investments. Accordingly, the Company accounts for its investments using the equity method of accounting.

19


Operating results include the Company's proportionate share of net income (loss) from its equity method investments. A summary of combined financial information related to the Company's equity method investments for the three and nine months ended September 30, 2018 and 2017 is as follows (in millions):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Revenues
 
$
78.0

 
$
52.4

 
$
202.6

 
$
136.6

Operating costs and expenses
 
64.8

 
43.9

 
172.5

 
113.4

Gross Profit (loss)
 
$
13.2

 
$
8.5

 
$
30.1

 
$
23.2

Income (loss) from Continuing Operations*
 
$
9.9

 
$
4.0

 
$
14.3

 
$
10.6

Net Income (loss)*
 
$
9.8

 
$
3.8

 
$
14.0

 
$
10.2

* Includes earnings from equity method investments held by the investee.
16.
DERIVATIVE INSTRUMENTS
The Company is exposed to interest rate risk related to its floating rate interest debt. The Company balances its cost of debt and exposure to interest rates primarily through its mix of fixed and floating rate debt. From time to time, the Company may use interest rate swaps to manage its exposure to interest rate risk.
Cash Flow Hedges of Interest Rate Risk
During 2016, the Company entered into an interest rate swap agreement with a notional amount of $60.0 million which was designated as a cash flow hedge. The Company structured the interest rate swap agreement to hedge the variability of future interest payments due to changes in interest rates with regards to the Company's long-term debt. A summary of the key terms related to the Company's outstanding cash flow hedge as of September 30, 2018 , is as follows (dollars in millions):
Effective
Maturity
Fixed Interest
 
Notional Amount at
 
Fair Value at
Classification on
Date
Date
Rate
 
September 30, 2018
 
September 30, 2018
 
December 31, 2017
Balance Sheet
4/7/2016
8/1/2029
3.14%
 
$
60.0

 
$
5.8

 
$
2.8

Other assets
The Company assessed the effectiveness of the cash flow hedge at inception and will continue to do so on an ongoing basis. The effective portion of the changes in fair value of the cash flow hedge is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest expense as interest is incurred on the related-variable rate debt. When ineffectiveness exists, the ineffective portion of changes in fair value of the cash flow hedge is recognized in earnings in the period affected.
Non-designated Hedges
As of September 30, 2018 , the Company has one interest rate swap that has not been designated as a cash flow hedge whose key terms are as follows (dollars in millions):
Effective
Maturity
Fixed Interest
 
Notional Amount at
 
Fair Value at
Classification on
Date
Date
Rate
 
September 30, 2018
 
September 30, 2018
 
December 31, 2017
Balance Sheet
1/1/2014
9/1/2021
5.95%
 
$
10.6

 
$
(0.5
)
 
$
(0.9
)
Other non-current liabilities
During the nine months ended September 30, 2018 , the Company terminated an interest rate swap that was not designated as a cash flow hedge. The interest rate swap was classified as Other non-current liabilities on the consolidated balance sheet and had a fair value of $0.3 million as of December 31, 2017 .

20


The following table represents the pre-tax effect of the derivative instruments in the Company's condensed consolidated statement of comprehensive income (loss) (in millions):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Derivatives in Designated Cash Flow Hedging Relationships:
 

 

 
 
 
 
Amount of (gain) loss recognized in OCI on derivatives (effective portion)
 
$
(0.6
)
 
$
0.2

 
$
(3.0
)
 
$
0.8

Amounts of (gain) loss reclassified from accumulated OCI into earnings under "interest expense" (ineffective portion and amount excluded from effectiveness testing)
 
$
—

 
$
(0.1
)
 
$
—

 
$
(0.4
)
The Company records gains or losses related to interest rate swaps that have not been designated as cash flow hedges in interest expense in its condensed consolidated statements of operations, and the amounts were immaterial during each of the three and nine months ended September 30, 2018 and 2017 .
The Company measures all of its interest rate swaps at fair value. The fair values of the Company's interest rate swaps (Level 2) are based on the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting date and are determined using interest rate pricing models and interest rate related observable inputs.
17.
DISCONTINUED OPERATIONS
In December 2016, the Company completed its final sugar harvest and ceased its sugar operations.
The historical results of operations have been presented as discontinued operations in the condensed consolidated financial statements and prior periods have been recast.
The revenue, operating income (loss), gain on asset dispositions, income tax benefit (expense) and after-tax effects of these transactions for the three and nine months ended September 30, 2018 and 2017 were as follows (in millions):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Sugar operations revenue
 
$
—

 
$
0.4

 
$
—

 
$
22.9

Cost of discontinued sugar operations
 
0.3

 
1.5

 
0.4

 
25.1

Operating income (loss) from sugar operations
 
(0.3
)
 
(1.1
)
 
(0.4
)
 
(2.2
)
Gain (loss) on asset dispositions
 
—

 
(0.2
)
 
0.1

 
6.0

Income (loss) from discontinued operations before income taxes
 
(0.3
)
 
(1.3
)
 
(0.3
)
 
3.8

Income tax benefit (expense)
 
0.1

 
0.5

 
0.1

 
(1.4
)
Income (loss) from discontinued operations, net of income taxes
 
$
(0.2
)
 
$
(0.8
)
 
$
(0.2
)
 
$
2.4

 
 
 
 
 
 
 
 
 
Basic earnings (loss) per share
 
$
—

 
$
0.02

 
$
—

 
$
0.04

Diluted earnings (loss) per share
 
$
—

 
$
0.02

 
$
—

 
$
0.05

There was no depreciation and amortization related to discontinued operations for the three and nine months ended September 30, 2018 and 2017 .

21


18.
SEGMENT RESULTS
Operating segment information for the three and nine months ended September 30, 2018 and 2017 is summarized below (in millions):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,

 
2018
 
2017
 
2018
 
2017
Operating Revenue:
 
 
 
 
 
 
 
 
Commercial Real Estate
 
$
35.9

 
$
33.9

 
$
104.9

 
$
101.4

Land Operations
 
24.0

 
22.6

 
72.6

 
45.7

Materials & Construction
 
59.5

 
55.0

 
167.3

 
155.7

Total operating revenue
 
119.4

 
111.5

 
344.8

 
302.8

Operating Profit (Loss):
 
 
 
 
 
 
 
 
Commercial Real Estate 1
 
15.9

 
13.6

 
45.0

 
41.3

Land Operations 2
 
13.1

 
10.4

 
9.3

 
9.7

Materials & Construction
 
3.4

 
6.5

 
7.2

 
18.8

Total operating profit (loss)
 
32.4

 
30.5

 
61.5

 
69.8

Interest expense
 
(9.1
)
 
(6.1
)
 
(26.4
)
 
(18.5
)
General corporate expenses
 
(6.5
)
 
(8.9
)
 
(20.5
)
 
(20.5
)
REIT evaluation/conversion costs
 
—

 
(4.4
)
 
—

 
(11.4
)
Income (Loss) from Continuing Operations Before Income Taxes and Net Gain (Loss) on Sale of Improved Properties and Ground Leased Land
 
16.8

 
11.1

 
14.6

 
19.4

Income tax benefit (expense)
 
(1.0
)
 
(3.7
)
 
1.8

 
(6.4
)
Income (Loss) from Continuing Operations Before Net Gain (Loss) on Sale of Improved Properties and Ground Leased Land
 
15.8

 
7.4

 
16.4

 
13.0

Net gain on the sale of improved properties and ground leased land
 
—

 
—

 
49.8

 
3.0

Income (Loss) from Continuing Operations
 
15.8

 
7.4

 
66.2

 
16.0

Income (loss) from discontinued operations, net of income taxes
 
(0.2
)
 
(0.8
)
 
(0.2
)
 
2.4

Net Income (Loss)
 
15.6

 
6.6

 
66.0

 
18.4

Income attributable to noncontrolling interest
 
(0.8
)
 
(0.5
)
 
(1.4
)
 
(1.7
)
Net Income (Loss) Attributable to A&B Shareholders
 
$
14.8

 
$
6.1

 
$
64.6

 
$
16.7

1 Commercial Real Estate segment operating profit (loss) includes intersegment operating revenue, primarily from the Materials & Construction segment, and is eliminated in the consolidated results of operations.
2 Land Operations segment operating profit (loss) includes equity in earnings (losses) from the Company's various real estate joint ventures and non-cash reductions related to the Company's solar tax equity investments.

19.
REVENUES
The Company recognizes revenue when control of promised goods or services is transferred to the customer at an amount that reflects the consideration which the Company expects to be entitled to in exchange for those goods or services.
The Company disaggregates revenue from contracts with customers by revenue type as the Company believes it best depicts how the nature, amount, timing and uncertainty of the Company's revenue and cash flows are affected by economic factors.

22


 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017 1
 
2018
 
2017 1
Revenues:
 
 
 
 
 
 
 
 
     Commercial real estate 2
 
$
35.9

 
$
33.9

 
$
104.9

 
$
101.4

     Land Operations:
 
 
 
 
 
 
 
 
Development sales revenue
 
9.0

 
1.5

 
42.8

 
6.1

Unimproved/other property sales revenue
 
9.1

 
15.4

 
11.5

 
21.4

Other operating revenue
 
5.9

 
5.7

 
18.3

 
18.2

Land Operations
 
24.0

 
22.6

 
72.6

 
45.7

     Materials & Construction 3
 
59.5

 
55.0

 
167.3

 
155.7

Total revenues
 
$
119.4

 
$
111.5

 
$
344.8

 
$
302.8

1 As discussed in Note 2, prior period amounts have not been adjusted under the modified retrospective method.
2 As discussed in Note 2, Commercial Real Estate revenue is not in scope under ASU 2014-09 however is presented here for completeness.
3 Materials & Construction included $4.5 million and $13.9 million of revenue not in scope under ASU 2014-09 for the three and nine months ended September 30, 2018 , respectively.
The total amount of contract consideration allocated to either wholly unsatisfied or partially satisfied performance obligations was $157.4 million as of the nine months ended September 30, 2018 . The Company expects to recognize as revenue approximately 25% - 30% of the remaining contract consideration allocated to either wholly unsatisfied or partially satisfied performance obligations in 2018, with the remaining recognized thereafter.
The Company has elected the practical expedient provided in ASU 2014-09 to not disclose information about remaining performance obligations that have original expected durations of one year or less. In addition, the Company has elected the transition practical expedient in ASU 2014-09 to not disclose the amount of the transaction price allocated to the remaining performance obligations and an explanation of when the Company expects to recognize that amount as revenue for the nine months ended September 30, 2018 . The Company has elected these practical expedients as the majority of its wholly, or partially, unfulfilled performance obligations are expected to be recognized in less than one year .
20.
CONTRACT BALANCES
Timing of revenue recognition may differ from the timing of invoicing to customers.

Costs and estimated earnings in excess of billings represent amounts earned and reimbursable under contracts but have a conditional right for billing and payment such as achievement of milestones or completion of the project. When events or conditions indicate that it is probable that the amounts outstanding become unbillable, the transaction price and associated contract asset is reduced.

Billings in excess of costs and estimated earnings are billings to customers on contracts in advance of work performed, including advance payments negotiated as a contract condition. Generally, unearned project-related costs will be earned over the next twelve months.

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers:
 
Beginning Balance as of
 
Ending Balance as of
(in millions)
January 1, 2018
 
September 30, 2018
Accounts receivable, net
$
34.1

 
$
48.7

Contracts retention
$
13.2

 
$
11.6

Costs and estimated earnings in excess of billings on uncompleted contracts
$
20.2

 
$
9.6

Current deferred revenue
$
0.9

 
$
2.1

Billings in excess of costs and estimated earnings on uncompleted contracts
$
5.7

 
$
3.6

Long term deferred revenue
$
2.5

 
$
1.8


23


As of the nine months ended September 30, 2018 , the Company recognized revenue of $3.5 million related to the Company's contract liabilities reported as of January 1, 2018.
The amount of revenue recognized from performance obligations satisfied in prior periods was not material.
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the condensed consolidated financial condition and results of operations of Alexander & Baldwin, Inc. and its subsidiaries should be read in conjunction with the condensed consolidated financial statements and related notes thereto included in Item 1 of this Form 10-Q and the Company's Annual Report on Form 10-K for the year ended December 31, 2017 filed with the U.S. Securities and Exchange Commission ("SEC").
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Statements in this Form 10-Q that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding possible or assumed future results of operations, business strategies, growth opportunities and competitive positions. Such forward-looking statements speak only as of the date the statements were made and are not guarantees of future performance. Forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from those expressed in or implied by the forward-looking statements. These factors include, but are not limited to, prevailing market conditions and other factors related to the Company's REIT status and the Company's business, as well as the evaluation of alternatives by the Company's joint venture related to the development of Kukui`ula, generally discussed in the Company's most recent Form 10-K, Form 10-Q and other filings with the SEC. The information in this Form 10-Q should be evaluated in light of these important risk factors. We do not undertake any obligation to update the Company's forward-looking statements.    
INTRODUCTION
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is a supplement to the accompanying condensed consolidated financial statements and provides additional information about A&B's business, recent developments, financial condition, liquidity and capital resources, cash flows, results of operations and how certain accounting principles, policies and estimates affect A&B’s financial statements. MD&A is organized as follows:
•
Business Overview: This section provides a general description of A&B's business, as well as recent developments that A&B 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 consolidated results of operations for the three and nine months ended September 30, 2018 and 2017 .
•
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 nine months ended September 30, 2018 and 2017 , as well as a discussion of A&B's ability to fund its future commitments and ongoing operating activities through internal and external sources of capital.
•
Critical Accounting Estimates: This section identifies and summarizes those accounting policies that significantly impact A&B's reported results of operations and financial condition and require significant judgment or estimates on the part of management in their application.
•
Rounding: Amounts in the MD&A are rounded to the nearest tenth of a million. Accordingly, a recalculation of totals and percentages, if based on the reported data, may be slightly different.

24


BUSINESS OVERVIEW
A&B, whose history dates back to 1870, is headquartered in Honolulu and operates through three reportable segments: Commercial Real Estate; Land Operations; and Materials & Construction.
The Company completed a conversion process to comply with the requirements to be treated as a real estate investment trust ("REIT") commencing with the taxable year ended December 31, 2017 (the "REIT Conversion"). In connection with the REIT Conversion, the Company completed the payment of the Special Distribution on January 23, 2018 through an aggregate of $156.6 million in cash and the issuance of 22.6 million shares of the Company's common stock. On October 15, 2018, the Company filed its tax return including the 2017 Form 1120-REIT with the Internal Revenue Service.
Commercial Real Estate
The Commercial Real Estate segment owns, operates and manages retail, industrial, and office properties in Hawai`i and on the mainland. The Commercial Real Estate segment also leases urban land in Hawai`i to third-party lessees.
Land Operations
The Land Operations segment actively manages the Company's land and real estate-related assets and deploys these assets to their highest and best use. Primary activities of the Land Operations segment include planning, zoning, financing, constructing, purchasing, managing, selling, and investing in real property; renewable energy; and diversified agribusiness activities.
As a result of our conversion to a REIT and consequent de-emphasis of real estate development-for-sale, the Company is undergoing efforts in order to accelerate the monetization of and/or to raise third-party capital for certain development-for-sale projects and investments.

The Company, in conjunction with its joint venture partner, is in the process of evaluating a range of alternatives related to the development project at Kukui`ula that includes, but is not limited to, seeking additional third-party capital in order to accelerate the absorption of land in the joint venture. Any potential transaction would be dependent upon a number of external factors that may be beyond the Company’s and/or joint venture’s control, including, among other factors, market conditions, industry trends and the interest of third parties in the Kukui`ula development project. Accordingly, there can be no assurance that any of the options evaluated will be pursued or completed, and there can be no assurance that the outcome of the evaluation or any potential transaction, will result in the Company being able to maintain the carrying value of the Kukui`ula joint venture project.
Materials & Construction
The Materials & Construction segment performs asphalt paving as prime contractor and subcontractor; imports and sells liquid asphalt; mines, processes and sells basalt aggregate; produces and sells asphaltic and ready-mix concrete; provides and sells various construction- and traffic-control-related products and manufactures and sells precast concrete products.


25


CONSOLIDATED RESULTS OF OPERATIONS
The following analysis of the consolidated financial condition and results of operations of Alexander & Baldwin, Inc. and its subsidiaries should be read in conjunction with the consolidated financial statements and related notes thereto. Amounts in this narrative are rounded to millions, but per-share calculations and percentages were calculated based on thousands. Accordingly, a recalculation of some per-share amounts and percentages, if based on the reported data, may be slightly different than the amounts included herein. The financial information included in the following table and narrative reflects the presentation of the Company's former sugar operations as discontinued operations for all periods presented.
Consolidated - Third quarter of 2018 compared with 2017
 
Three Months Ended September 30,
 
 
 
 
(dollars in millions, except per share amounts, unaudited)
2018
 
2017
 
$ Change
 
Change
Operating revenue
$
119.4

 
$
111.5

 
7.9

 
7.1
 %
Cost of operations
87.1

 
75.2

 
11.9

 
15.8
 %
Selling, general and administrative
14.6

 
18.4

 
(3.8
)
 
(20.7
)%
REIT evaluation/conversion costs
—

 
4.4

 
(4.4
)
 
(100.0
)%
Operating income (loss)
17.7

 
13.5

 
4.2

 
31.1
 %
Other income (expense), net
(0.9
)
 
(2.4
)
 
1.5

 
62.5
 %
Income tax benefit (expense)
(1.0
)
 
(3.7
)
 
2.7

 
73.0
 %
Income (loss) from continuing operations
15.8

 
7.4

 
8.4

 
113.5
 %
Discontinued operations (net of income taxes)
(0.2
)
 
(0.8
)
 
0.6

 
75.0
 %
Net income (loss)
15.6

 
6.6

 
9.0

 
136.4
 %
Income attributable to noncontrolling interest
(0.8
)
 
(0.5
)
 
(0.3
)
 
(60.0
)%
Net income (loss) attributable to A&B
$
14.8

 
$
6.1

 
8.7

 
142.6
 %
 
 
 
 
 
 
 
 
Basic earnings (loss) per share - continuing operations
$
0.21

 
$
0.15

 
0.06

 
37.0
 %
Basic earnings (loss) per share - discontinued operations
—

 
(0.02
)
 
0.02

 
100.0
 %
Net income (loss) available to A&B shareholders
$
0.21

 
$
0.13

 
0.08

 
58.1
 %
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share - continuing operations
$
0.20

 
$
0.15

 
0.05

 
36.3
 %
Diluted earnings (loss) per share - discontinued operations
—

 
(0.02
)
 
0.02

 
100.0
 %
Net income (loss) available to A&B shareholders
$
0.20

 
$
0.13

 
0.07

 
57.2
 %
Operating revenue for the third quarter ended September 30, 2018 increased 7.1% , or $7.9 million , to $119.4 million , primarily due to higher revenue from the Commercial Real Estate and Materials & Construction segments. The reasons for business and segment-specific year-to-year fluctuations in revenue are further described below in the Analysis of Operating Revenue and Profit by Segment.
Cost of operations for the third quarter ended September 30, 2018 increased 15.8% , or $11.9 million , to $87.1 million , primarily due to increases in operating expenses incurred by the Land Operations and Materials & Construction segments. The reasons for the cost of operations changes are described below, by business segment, in the Analysis of Operating Revenue and Profit by Segment.
Selling, general and administrative expenses for the third quarter ended September 30, 2018 decreased 20.7% , or $3.8 million , to $14.6 million , primarily due to decreases in professional services costs.
REIT evaluation/conversion costs for the third quarter ended September 30, 2017  were $ 4.4 million and related to the Company's conversion to a real estate investment trust, as compared to the quarter ended September 30, 2018 in which no such charges were incurred.
Other income (expense), net was a net expense of $0.9 million in the third quarter ended September 30, 2018 compared to a net expense of $2.4 million in the third quarter ended September 30, 2017 . The change from the prior year was primarily due to an increase of $4.0 million in interest and other income (expense), net due primarily to a gain of $4.2 million related to the sale

26


of the Company's joint venture interest in the Ka Milo real estate development-for-sale project, offset by a $3.0 million increase in interest expense.
Income tax (expense) benefit was an expense of $1.0 million in the third quarter ended September 30, 2018 due to taxable income generated by the operations of the Company's taxable REIT subsidiary. During the third quarter ended September 30, 2017 , the Company generated operating income of $13.5 million and a related income tax expense of $3.7 million .
Income attributable to noncontrolling interest increased $0.3 million in the third quarter ended September 30, 2018 compared to the third quarter ended September 30, 2017 . The noncontrolling interest represents third-party noncontrolling interests in two entities consolidated within our Materials & Construction segment, and in which Grace Pacific owns a 70 percent and 51 percent share in each.
Consolidated - First nine months of 2018 compared with 2017
 
Nine Months Ended September 30,
 
 
 
 
(dollars in millions, except per share amounts, unaudited)
2018
 
2017
 
$ Change
 
Change
Operating revenue
$
344.8

 
$
302.8

 
42.0

 
13.9
 %
Cost of operations
267.5

 
211.1

 
56.4

 
26.7
 %
Selling, general and administrative
44.7

 
47.9

 
(3.2
)
 
(6.7
)%
REIT evaluation/conversion costs
—

 
11.4

 
(11.4
)
 
(100.0
)%
Operating income (loss)
32.6

 
32.4

 
0.2

 
0.6
 %
Other income (expense), net
(18.0
)
 
(13.0
)
 
(5.0
)
 
(38.5
)%
Income tax benefit (expense)
1.8

 
(6.4
)
 
8.2

 
NM

Net gain (loss) on sale of improved property and ground leased land
49.8

 
3.0

 
46.8

 
16X

Income (loss) from continuing operations
66.2

 
16.0

 
50.2

 
3X

Discontinued operations (net of income taxes)
(0.2
)
 
2.4

 
(2.6
)
 
NM

Net income (loss)
66.0

 
18.4

 
47.6

 
3X

Income attributable to noncontrolling interest
(1.4
)
 
(1.7
)
 
0.3

 
17.6
 %
Net income (loss) attributable to A&B
$
64.6

 
$
16.7

 
47.9

 
3X

 
 
 
 
 
 
 
 
Basic earnings (loss) per share - continuing operations
$
0.92

 
$
0.32

 
0.60

 
187.6
 %
Basic earnings (loss) per share - discontinued operations
—

 
0.04

 
(0.04
)
 
(100.0
)%
Net income (loss) available to A&B shareholders
$
0.92

 
$
0.36

 
0.56

 
155.6
 %
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share - continuing operations
$
0.89

 
$
0.31

 
0.58

 
187.8
 %
Diluted earnings (loss) per share - discontinued operations
—

 
0.05

 
(0.05
)
 
(100.0
)%
Net income (loss) available to A&B shareholders
$
0.89

 
$
0.36

 
0.53

 
147.9
 %
Operating revenue for the nine months ended September 30, 2018 increased 13.9% , or $ 42.0 million , to $ 344.8 million , primarily due to higher revenue from the Land Operations and Materials & Construction segments. The reasons for business and segment-specific year-to-year fluctuations in revenue are further described below in the Analysis of Operating Revenue and Profit by Segment.
Cost of operations for the nine months ended September 30, 2018 increased 26.7% , or $ 56.4 million , to $267.5 million , primarily due to increases in operating expenses incurred by the Land Operations and Materials & Construction segments. The reasons for the cost of operations changes are described below, by business segment, in the Analysis of Operating Revenue and Profit by Segment.
Selling general and administrative expenses for the nine months ended September 30, 2018 decreased 6.7% , or $3.2 million , to $44.7 million , primarily due to decreases in professional services costs. In 2017 the Company had an increase in general and administrative expenses that reflected strategic initiatives taken to grow the commercial real estate business such as costs incurred to transition third party property management and leasing functions internally.

27


REIT evaluation/conversion costs for the nine months ended September 30, 2017  were  $11.4 million related to the Company's conversion to a real estate investment trust, as compared to the nine months ended September 30, 2018 in which no such charges were incurred.
Other income (expense), net was a net expense of $ 18.0 million in the nine months ended September 30, 2018 compared to a net expense of $ 13.0 million in the nine months ended September 30, 2017 . The change from the prior year was primarily due to a $7.9 million increase in interest expense offset by a $2.2 million change in the adjustment to reduce the carrying amount of tax equity solar investments.
Income tax (expense) benefit was a benefit of $ 1.8 million in the nine months ended September 30, 2018 due to a taxable loss incurred in the operations of the Company's taxable REIT subsidiary. During the nine months ended September 30, 2017 , the Company generated operating income of $32.4 million and a related income tax expense of $ 6.4 million .
Net gain (loss) on sale of improved property and ground leased land during the nine months ended September 30, 2018 was $ 49.8 million due to the aggregate gain realized on the sales of six mainland properties (Concorde Commerce Center, Deer Valley Financial Center, 1800 and 1820 Preston Park, Little Cottonwood Center, Royal MacArthur Center, and Sparks Business Center) and three Hawai`i assets (Stangenwald Building, Judd Building and land underlying a ground lease) as compared to a gain on the sale of a Hawai`i commercial property (Maui Clinic Building) of $ 3.0 million during the nine months ended September 30, 2017 .

28


ANALYSIS OF OPERATING REVENUE AND PROFIT BY SEGMENT
Commercial Real Estate - Third quarter of 2018 compared with 2017
 
Three Months Ended September 30,
 
 
(dollars in millions, unaudited)
2018
 
2017
 
Change
Commercial Real Estate operating revenue
$
35.9

 
$
33.9

 
5.9
 %
Commercial Real Estate operating costs and expenses
(19.2
)
 
(19.2
)
 
—
 %
Selling, general and administrative
(1.4
)
 
(1.9
)
 
26.3
 %
Intersegment operating revenue, net 1
0.6

 
0.9

 
(33.3
)%
Other income/(expense), net
—

 
(0.1
)
 
100.0
 %
Commercial Real Estate operating profit (loss)
$
15.9

 
$
13.6

 
16.9
 %
Operating profit (loss) margin
44.3
%
 
40.1
%

 
Cash Net Operating Income ("Cash NOI") 2
 
 
 
 
 
   Hawai`i
$
22.1

 
18.5

 
 
   Mainland
—

 
2.7

 
 
Total
$
22.1

 
$
21.2

 
 
 
 
 
 
 
 
Same-Store Cash Net Operating Income ("Same-Store Cash NOI") 2
$
18.8

 
$
17.8

 


Gross Leasable Area ("GLA") (million sq. ft.) - Improved (end of period)
 
 
 
 
 
Hawai`i
3.4

 
3.0

 
 
Mainland
—

 
1.8

 
 
Total improved
3.4

 
4.8

 
 
Hawai`i ground leases (acres at end of period)
109

 
117

 
 
1 Intersegment operating revenue, net for Commercial Real Estate is primarily from the Materials & Construction segment and is eliminated in the consolidated results of operations.
2 Refer to page 31 for a discussion of management's use of a non-GAAP financial measure and the required reconciliation of non-GAAP measures to GAAP measures.
Commercial Real Estate operating revenue increased 5.9% , or $2.0 million to $35.9 million for the third quarter ended September 30, 2018 , as compared to the third quarter ended September 30, 2017 . Operating profit increased 16.9% , or $2.3 million , to $15.9 million for the third quarter ended September 30, 2018 , as compared to the second quarter ended September 30, 2017 . Results reflect increases in Hawai`i same-store rents offset by the cumulative impact of the sales and acquisitions of assets in 2018. "Same-store" refers to properties that were owned and operated for the entirety of the prior calendar year. The same-store pool excludes properties under development or redevelopment, properties held for sale and also excludes properties acquired or sold during the comparable reporting periods, including stabilized properties. New developments and redevelopments are moved into the same-store pool upon one full calendar year of stabilized operation. New developments and redevelopments are generally considered stabilized upon the initial attainment of 90% occupancy.
Occupancy represents the percentage of square footage leased and commenced to gross leasable space at the end of the period reported. The Company's commercial portfolio's occupancy and same-store occupancy percentage summarized by property type as of September 30, 2018 and 2017 was as follows:
Occupancy
 
 
 
 
 
 
As of
 
As of
 
Percentage Point Change
 
September 30, 2018
 
September 30, 2017
 
Retail
92.7%
 
92.5%
 
0.2
Industrial
90.2%
 
94.2%
 
(4.0)
Office
91.7%
 
91.9%
 
(0.2)
Total
91.9%
 
93.0%
 
(1.1)

29


Same-Store Occupancy
 
 
 
 
 
As of
 
As of
 
Percentage Point Change
 
September 30, 2018
 
September 30, 2017
 
Retail
92.7%
 
92.8%
 
(0.1)
Industrial
89.2%
 
94.3%
 
(5.1)
Office
91.7%
 
93.5%
 
(1.8)
Total
91.5%
 
93.3%
 
(1.8)
GLA was 3.4 million square feet at September 30, 2018 , compared to 4.0 million square feet as of December 31, 2017 , as a result of the following activity:
Dispositions
 
Acquisitions
Date
 
Property
 
GLA (SF)
 
Date
 
Property
 
GLA (SF)
3/18
 
Sparks Business Center
 
396,100

 
2/18
 
Laulani Village
 
175,600

3/18
 
Preston Park
 
198,800

 
2/18
 
Hokulei Village
 
119,200

3/18
 
Little Cottonwood Center
 
141,500

 
2/18
 
Pu`unene Shopping Center
 
120,400

1/18
 
Concorde Commerce Center
 
138,700

 
7/18
 
The Collection
 
12,000

2/18
 
Deer Valley Financial Center
 
126,600

 
 
 
 
 
 
3/18
 
Royal MacArthur Center
 
44,900

 
 
 
 
 
 
3/18
 
Stangenwald Building
 
27,100

 
 
 
 
 
 
3/18
 
Judd Building
 
20,200

 
 
 
 
 
 
3/18
 
Kaiser Permanente Ground Lease
 
N/A

 
 
 
 
 
 
 
 
Total improved dispositions
 
1,093,900

 
 
 
Total improved acquisitions
 
427,200

Commercial Real Estate - First nine months of 2018 compared with 2017
 
Nine Months Ended September 30,
 
 
(dollars in millions, unaudited)
2018
 
2017
 
Change
Commercial Real Estate operating revenue
$
104.9

 
$
101.4

 
3.5
 %
Commercial Real Estate operating costs and expenses
(57.0
)
 
(56.9
)
 
(0.2
)%
Selling, general and administrative
(4.7
)
 
(4.9
)
 
4.1
 %
Intersegment operating revenue, net 1
1.9

 
2.1

 
(9.5
)%
Other income/(expense), net
(0.1
)
 
(0.4
)
 
75.0
 %
Commercial Real Estate operating profit (loss)
$
45.0

 
$
41.3

 
9.0
 %
Operating profit (loss) margin
42.9
%
 
40.7
%
 
 
Cash Net Operating Income ("Cash NOI") 2
 
 
 
 
 
   Hawai`i
$
63.6

 
55.5

 
 
   Mainland
1.5

 
8.3

 
 
Total
$
65.1

 
$
63.8

 
 
 
 
 
 
 
 
Same-Store Cash Net Operating Income ("Same-Store Cash NOI") 2
$
55.9

 
$
53.8

 
 
1 Intersegment operating revenue, net for Commercial Real Estate is primarily from the Materials & Construction segment and is eliminated in the consolidated results of operations.
2 Refer to page 31 for a discussion of management's use of a non-GAAP financial measure and the required reconciliation of non-GAAP measures to GAAP measures.
Commercial Real Estate operating revenue increased 3.5% , or $3.5 million to $104.9 million for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017 . Operating profit increased 9.0% , or $3.7 million to $45.0 million for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017 .

30


Results reflect increases in Hawai`i same-store rents. "Same-store" refers to properties that were owned and operated for the entirety of the prior calendar year. The same-store pool excludes properties under development or redevelopment, properties held for sale and also excludes properties acquired or sold during the comparable reporting periods, including stabilized properties. New developments and redevelopments are moved into the same-store pool upon one full calendar year of stabilized operation. New developments and redevelopments are generally considered stabilized upon the initial attainment of 90% occupancy.
Use of Non-GAAP Financial Measures
The Company uses non-GAAP measures when evaluating operating performance because management believes that they provide additional insight into the Company's and segments' core operating results, and/or the underlying business trends affecting performance on a consistent and comparable basis from period to period. These measures generally are provided to investors as an additional means of evaluating the performance of ongoing core operations.
Cash Net Operating Income ("Cash NOI") is a non-GAAP measure used internally in evaluating the unlevered performance of the Company's Commercial Real Estate portfolio. The Company believes Cash NOI provides useful information to investors regarding the Company's financial condition and results of operations because it reflects only those cash income and expense items that are incurred at the property level, and when compared across periods, can be used to determine trends in earnings of the Company's properties as this measure is not affected by non-cash revenue and expense recognition items, the impact of depreciation and amortization expenses or other gains or losses that relate to the Company's ownership of properties. The Company believes the exclusion of these items from operating profit (loss) is useful because the resulting measure captures the actual revenue generated and actual expenses incurred in operating the Company's Commercial Real Estate portfolio as well as trends in occupancy rates, rental rates, and operating costs. Cash NOI should not be viewed as a substitute for, or superior to, financial measures calculated in accordance with GAAP.
    
Cash NOI is calculated as total Commercial Real Estate operating revenues less direct property-related operating expenses. Cash NOI excludes straight-line lease adjustments, amortization of favorable/unfavorable leases, amortization of lease incentives, selling, general and administrative expenses, impairment of commercial real estate assets, lease termination income, and depreciation and amortization (including amortization of maintenance capital, tenant improvements and leasing commissions).

The Company's methods of calculating non-GAAP measures may differ from methods employed by other companies and thus may not be comparable to such other companies.

A reconciliation of Commercial Real Estate operating profit (loss) to Commercial Real Estate Cash NOI for the three and nine months ended September 30, 2018 and 2017 are as follows (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions, unaudited)
2018
 
2017
 
2018
 
2017
Commercial Real Estate Operating Profit (Loss)
$
15.9

 
$
13.6

 
$
45.0

 
$
41.3

Plus: Depreciation and amortization
7.2

 
6.6

 
20.5

 
19.7

Less: Straight-line lease adjustments
(2.0
)
 
(0.3
)
 
(2.7
)
 
(1.3
)
Less: Favorable/(unfavorable) lease amortization
(0.4
)
 
(0.7
)
 
(1.4
)
 
(2.2
)
Less: Termination income
—

 
—

 
(1.1
)
 
—

Plus: Other (income)/expense, net
—

 
0.1

 
0.1

 
0.4

Plus: Selling, general, administrative and other expenses
1.4

 
1.9

 
4.7

 
5.9

Commercial Real Estate Cash NOI
$
22.1

 
$
21.2

 
$
65.1

 
$
63.8

Land Operations - Third quarter of 2018 compared with 2017
Direct year-over-year comparison of the Land Operations segment results may not provide a consistent, measurable indicator of future performance because results from period to period are significantly affected by the mix and timing of property sales. Operating results, by virtue of each project's asset class, geography and timing are inherently variable. Earnings from joint venture investments are not included in segment revenue, but are included in operating profit. The mix of real estate sales in any year or quarter can be diverse and can include developed residential real estate, developable subdivision lots, undeveloped land,

31


and property sold under threat of condemnation. The sale of undeveloped land and vacant parcels in Hawai`i generally provides higher margins than does the sale of developed property, due to the low historical cost basis of the Company's land owned in Hawai`i. Consequently, Land Operations revenue trends, cash flows from the sales of real estate, and the amount of real estate held for sale on the Company's balance sheet do not necessarily indicate future profitability trends for this segment. Additionally, the operating profit reported in each quarter does not necessarily follow a percentage of sales trend because the cost basis of property sold can differ significantly between transactions.
 
Three Months Ended September 30,
(in millions, unaudited)
2018

2017
Development sales revenue
$
9.0

 
$
1.5

Unimproved/other property sales revenue
9.1

 
15.4

Other operating revenues 1
5.9

 
5.7

Total Land Operations operating revenue
24.0

 
22.6

Land operations costs and operating expenses
(19.3
)
 
(17.4
)
Earnings (loss) from joint ventures
4.5

 
2.9

Reductions in solar investments, net
(0.1
)
 
(0.4
)
Interest and other income (expense), net
4.0

 
2.7

Total Land Operations operating profit (loss)
$
13.1

 
$
10.4

1 Other operating revenues includes revenue related to trucking, renewable energy and diversified agriculture. In December 2016, the Company completed its final sugar harvest and ceased its sugar operations. The results of sugar operations have been presented within discontinued operations for all periods presented.

Third quarter of 2018 : Land Operations revenue for the third quarter ended September 30, 2018 was $24.0 million and included sales of 22 units at the Company's Kamalani project in Kihei, Maui, the sale of 313 acres to the State of Hawai`i for the expansion of the Kahului airport on Maui, and trucking service and power sales revenues.
The Land Operations segment incurred an operating profit of $13.1 million during the third quarter ended September 30, 2018 that primarily resulted from the Kahului airport expansion sale and an increase in earnings from the Company's real estate development-related joint ventures and investments. The Land Operations segment results also included a $0.1 million non-cash reduction in the carrying value of the Company's Solar Investment and $4.0 million of other net income primarily resulting from the sale of the Company's equity investment in a real estate development-related joint venture.
Third quarter of 2017 : Land Operations operating revenue and operating profit were $ 22.6 million and $10.4 million during the third quarter ended September 30, 2017 , respectively. Operating results for the Land Operations segment included sales related to a 293-acre parcel in Haiku, Maui, a 273-acre parcel on the island of Kauai, and a 1.5-acre parcel at Maui Business Park II, as well as earnings from the Company's real estate development-related joint ventures and investments. The segment results also included segment operating expenses of $17.4 million and non-cash reductions in the carrying value of the Company's Solar Investment of $0.4 million.
Land Operations - First nine months of 2018 compared with 2017
 
Nine Months Ended September 30,
(in millions, unaudited)
2018
 
2017
Development sales revenue
$
42.8

 
$
6.1

Unimproved/other property sales revenue
11.5

 
21.4

Other operating revenues 1
18.3

 
18.2

Total Land Operations operating revenue
72.6

 
45.7

Land operations costs and operating expenses
(71.8
)
 
(40.7
)
Earnings (loss) from joint ventures
6.0

 
3.6

Reductions in solar investments, net
(0.4
)
 
(2.6
)
Interest and other income (expense), net
2.9

 
3.7

Total Land Operations operating profit (loss)
$
9.3

 
$
9.7


32


1 Other operating revenues includes revenue related to trucking, renewable energy and diversified agriculture. In December 2016, the Company completed its final sugar harvest and ceased its sugar operations. The results of sugar operations have been presented within discontinued operations for all periods presented.

First nine months of 2018 : Land Operations revenue was $72.6 million and included sales of 68 units for the Company's Kamalani project in Kihei, Maui, the sale of one Kahala Avenue parcel, the sale of 313 acres to the State of Hawai`i for the expansion of the Kahului airport on Maui, and trucking service and power sales revenues. The Land Operations segment incurred an operating profit of $9.3 million during the nine months ended September 30, 2018 that primarily resulted from the Kahului airport expansion sale and an increase in earnings from the Company's real estate development-related joint ventures and investments. The Land Operations segment results also included a $ 0.4 million non-cash reduction in the carrying value of the Company's Solar Investment and $ 2.9 million from other net income primarily resulting from the sale of the Company's equity investment in a real estate development-related joint venture offset by other pension expense.
First nine months of 2017 : Land Operations operating revenue and operating profit were $ 45.7 million and $9.7 million , respectively. Operating results for the Land Operations segment included sales related to a 293-acre parcel in Haiku, Maui, a 273-acre parcel on the island of Kauai, a 3-acre parcel in Wailea, Maui, a 6-acre parcel in Haliimaile, Maui, two lots at Maui Business Park, and a 0.8-acre vacant, urban parcel on Maui, as well as earnings from the Company's real estate development-related joint ventures and investments. The segment results also included a $2.6 million non-cash reduction in the carrying value of the Company's Solar Investment.
Discontinued Operations - Third quarter of 2018 compared with 2017 and First nine months of 2018 compared with 2017
The revenue, operating income (loss), and after-tax effects of discontinued operations for the third quarters ended September 30, 2018 and 2017 and the first half of 2018 compared with 2017 were as follows (in millions):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions, unaudited)
 
2018
 
2017
 
2018
 
2017
Sugar operations revenue
 
$
—

 
$
0.4

 
$
—

 
$
22.9

Cost of discontinued sugar operations
 
0.3

 
1.5

 
0.4

 
25.1

Operating income (loss) from sugar operations
 
(0.3
)
 
(1.1
)
 
(0.4
)
 
(2.2
)
Gain (loss) on asset dispositions
 
—

 
(0.2
)
 
0.1

 
6.0

Income (loss) from discontinued operations before income taxes
 
(0.3
)
 
(1.3
)
 
(0.3
)
 
3.8

Income tax benefit (expense)
 
0.1

 
0.5

 
0.1

 
(1.4
)
Income (loss) from discontinued operations, net of income taxes
 
$
(0.2
)
 
$
(0.8
)
 
$
(0.2
)
 
$
2.4

Third quarter of 2018 : Loss from discontinued operations, net of income taxes was $0.2 million during the third quarter ended September 30, 2018 ; see Note 14 "Cessation of Sugar Operations".
Third quarter of 2017 : Loss from discontinued operations, net of income taxes of $0.8 million during the third quarter of 2017 reflected exit related costs, as well as property removal and restoration costs. See Note 14 "Cessation of Sugar Operations" for further discussion regarding the cessation and the related costs associated with such exit and disposal activities.
First nine months of 2018 : There was no income (loss) from discontinued operations, net of income taxes during the nine months ended September 30, 2018 ; see Note 14 "Cessation of Sugar Operations".
First nine months of 2017 : Income from discontinued operations, net of income taxes of $2.4 million during the first nine months of 2017 reflected the gain on asset dispositions and the results of operations related to the final sugar voyage, partially offset by cessation-related costs. During the first nine months of 2017, the Company sold mobile equipment assets, its bulk sugar transportation vessel and factory equipment, which resulted in a total gain of $6.0 million. Additionally, the Company recognized revenue and operating profit during the first nine months of 2017, primarily related to the final delivery of sugar inventory, which occurred in January 2017. The cessation charges included costs related to employee severance and benefits, as well as property removal, restoration and other exit-related costs. See Note 14 "Cessation of Sugar Operations" for further discussion regarding the cessation and the related costs associated with such exit and disposal activities.

33


Materials & Construction - Third quarter of 2018 compared with 2017
 
Three Months Ended September 30,
 
 
(in millions, unaudited)
2018
 
2017
 
Change
Materials & Construction operating revenue
$
59.5

 
$
55.0

 
8.2%
Operating Profit (Loss)
$
3.4

 
$
6.5

 
(47.7)%
Operating margin percentage
5.7
%
 
11.8
%
 
 
Depreciation and amortization
$
3.0

 
$
3.1

 
(3.2)%
Aggregate tons delivered (tons in thousands)
191.2

 
179.7

 
6.4%
Asphalt tons delivered (tons in thousands)
152.3

 
165.8

 
(8.1)%
Backlog 1,2  at period end
$
157.4

 
$
211.3

 
(25.5)%
1 Backlog represents the total amount of revenue that Grace Pacific and Maui Paving, LLC, a 50-percent-owned unconsolidated affiliate, expect to realize on contracts awarded. As of September 30, 2018 and 2017 , $12.2 million and $31.8 million are government contracts in which Grace Pacific has been confirmed to be the lowest bidder and formal communication of the award is perfunctory. Backlog primarily consists of asphalt paving and, to a lesser extent, Grace Pacific’s consolidated revenue from its Prestress and construction-and traffic control-related products. Backlog includes estimated revenue from the remaining portion of contracts not yet completed, as well as revenue from approved change orders. The length of time that projects remain in backlog can span from a few days for a small volume of work to 36 months for large paving contracts and contracts performed in phases. Maui Paving's backlog at September 30, 2018 and 2017 was $4.0 million and $12.9 million , respectively.
2 As of September 30, 2018 and 2017 , the backlog included contractual revenue with related parties of $2.7 million and $1.0 million , respectively.
Materials & Construction revenue was $59.5 million for the third quarter ended September 30, 2018 , compared to $55.0 million for the third quarter ended September 30, 2017 . Backlog at the end of September 30, 2018 was $157.4 million , compared to $202.1 million as of December 31, 2017 .
Operating profit was $3.4 million for the third quarter ended September 30, 2018 , compared to $6.5 million for the third quarter ended September 30, 2017 . Operating profit was negatively impacted by lower quarry production volume, lower joint venture earnings and higher general and administrative expenses related to process improvement initiatives. Earnings from joint venture investments are not included in segment revenue but are included in operating profit.
Materials & Construction - First nine months of 2018 compared with 2017
 
Nine Months Ended September 30,
 
 
(in millions, unaudited)
2018
 
2017
 
Change
Materials & Construction operating revenue
$
167.3

 
$
155.7

 
7.5%
Operating Profit (Loss)
$
7.2

 
$
18.8

 
(61.7)%
Operating margin percentage
4.3
%
 
12.1
%
 
 
Depreciation and amortization
$
9.1

 
$
9.2

 
(1.1)%
Aggregate tons delivered (tons in thousands)
542.0

 
526.3

 
3.0%
Asphalt tons delivered (tons in thousands)
412.6

 
442.9

 
(6.8)%
Materials & Construction revenue was $ 167.3 million for the nine months ended September 30, 2018 , compared to $155.7 million for the nine months ended September 30, 2017 .
Operating profit was $7.2 million for the nine months ended September 30, 2018 , compared to $18.8 million for the nine months ended September 30, 2017 . Operating profit was negatively impacted by lower margins primarily due to reduced quarry production and paving volumes, lower pricing margins, lower joint venture earnings and higher general and administrative expenses related to process improvement initiatives and personnel transition costs. Earnings from joint venture investments are not included in segment revenue but are included in operating profit.

34


LIQUIDITY AND CAPITAL RESOURCES
Overview: A&B's primary liquidity needs have historically been to support working capital requirements and fund capital expenditures, commercial real estate acquisitions and real estate developments. A&B's principal sources of liquidity have been cash flows provided by operating activities, available cash and cash equivalent balances, and borrowing capacity under its various credit facilities.
A&B's operating income (loss) is generated by its subsidiaries. There are no material restrictions on the ability of A&B's wholly owned subsidiaries to pay dividends or make other distributions to A&B. A&B regularly evaluates investment opportunities, including development projects, commercial real estate acquisitions, joint venture investments, share repurchases, business acquisitions and other strategic transactions to increase shareholder value. A&B cannot predict whether or when it may make investments or what impact any such transactions could have on A&B's results of operations, cash flows or financial condition.
Cash Flows: Cash flows from operations was $37.7 million for the nine months ended September 30, 2018 , while cash flows used in operations for the nine months ended September 30, 2017 was $45.2 million . The change in cash flows from operating activities is primarily attributable to an increase in cash received from the Company's real estate development sales, as well as a decrease in cash outlays related to the Company's pension plan contributions for the nine months ended September 30, 2018 as compared to the comparable period in the prior year.
Cash flows used in investing activities was $60.8 million and $44.6 million for the nine months ended September 30, 2018 and 2017 , respectively. During the nine months ended September 30, 2018 , the net cash used in investing activities included cash outlays of $241.6 million related to capital expenditures, which included cash outflows of $194.7 million related to the Company's acquisitions of Laulani Village Shopping Center ("Laulani Village"), Hokulei Village Shopping Center, and Pu`unene Shopping Center (collectively, "TRC Acquisition") and cash outlays of $6.9 million related to the Company's acquisition of the five commercial units at The Collection, a high-rise residential condominium project on Oahu, from its joint venture partners. Cash used in investing activities during the nine months ended September 30, 2018 also included $ 21.3 million related to investments in unconsolidated affiliates. Cash flows from investing activities during the nine months ended September 30, 2018 included proceeds of $169.3 million resulting from the sales of six mainland properties and three Hawai`i assets. Other investing cash flow activity during the nine months ended September 30, 2018 included $ 32.8 million of proceeds from joint ventures and other investments.
Net cash flows used in investing activities for capital expenditures were as follows:
 
Three Months Ended September 30,
 
 
(in millions, unaudited)
2018
 
2017
 
Change
Commercial real estate property acquisitions/improvements
$
16.8

 
$
5.6

 
200.0%
Tenant improvements
1.9

 
2.5

 
(24.0)%
Quarrying and paving
1.9

 
1.1

 
72.7%
Agribusiness and other
1.0

 
1.1

 
(9.1)%
Total capital expenditures¹
$
21.6

 
$
10.3

 
109.7%
 
Nine Months Ended September 30,
 
 
(in millions, unaudited)
2018
 
2017
 
Change
Commercial real estate property acquisitions/improvements
$
226.8

 
$
22.0

 
9X
Tenant improvements
6.7

 
4.0

 
67.5%
Quarrying and paving
6.0

 
5.1

 
17.6%
Agribusiness and other
2.1

 
2.6

 
(19.2)%
Total capital expenditures¹
$
241.6

 
$
33.7

 
6X
1  
Excludes capital expenditures for real estate developments to be held and sold as real estate development inventory, which are classified in the consolidated statement of cash flows as operating activities and are excluded from the tables above.
Net cash flows used in financing activities was $72.4 million for the nine months ended September 30, 2018 , as compared to net cash provided by financing activities for the nine months ended September 30, 2017 of $94.3 million . The change in cash flows used in financing activities in 2018 as compared to 2017 was primarily due to $156.6 million of cash dividends paid made

35


in connection with the Special Distribution to the Company's shareholders related to the REIT Conversion, offset by the net impact of proceeds from the issuance and payments of long-term debt.
The Company believes that funds generated from results of operations, available cash and cash equivalents, and available borrowings under credit facilities will be sufficient to finance the Company's business requirements for the next fiscal year, including working capital, capital expenditures, potential acquisitions and stock repurchases. There can be no assurance, however, that the Company will continue to generate cash flows at or above current levels or that it will be able to maintain its ability to borrow under its available credit facilities.
Other Sources of Liquidity: Additional sources of liquidity for the Company consisted of cash and cash equivalents, trade and income tax receivables, contracts retention, and inventories, totaling $123.4 million at September 30, 2018 , a decrease of $50.7 million from December 31, 2017 . The decrease is primarily due to a reduction in cash from capital expenditures and asset acquisitions during the nine months ended September 30, 2018 .
The Company also has revolving credit and term facilities that provide additional sources of liquidity for working capital requirements or investment opportunities on a short-term as well as longer-term basis. At September 30, 2018 , the Company had $124.1 million of revolving credit borrowings outstanding, $11.8 million in letters of credit had been issued against the facility, and $314.1 million remained unused.
Balance Sheet: The Company had working capital of $53.9 million as of September 30, 2018 , which is an increase of $705.9 million , from a $652.0 million working capital deficit as of December 31, 2017 . The change in the working capital is primarily due to cash dividends of $156.6 million paid and stock dividends of $626.4 million issued in January 2018, offset by a decrease in cash due primarily to capital expenditures and asset acquisitions.
Tax-Deferred Real Estate Exchanges:
Sales: During the third quarter ended September 30, 2018 , sales and condemnation proceeds that qualified for potential tax-deferral treatment under Internal Revenue Code §1031 and §1033 totaled approximately $8.5 million from the sale of a land parcel on Maui.
Purchases: During the third quarter ended September 30, 2018 , there were no acquisitions utilizing proceeds from tax-deferred sales or condemnations.
Proceeds from §1031 tax-deferred sales are held in escrow pending future use to purchase new real estate assets. The proceeds from §1033 condemnations are held by the Company until the funds are redeployed. As of  September 30, 2018 , there were approximately $8.5 million from tax-deferred condemnations and no proceeds from tax-deferred sales that had not yet been reinvested.

Commitments, Contingencies and Off-balance Sheet Arrangements : A description of other commitments, contingencies, and off-balance sheet arrangements at September 30, 2018 , and herein incorporated by reference, is included in Note 3 to the condensed consolidated financial statements of Item 1 in this Form 10-Q.

OTHER MATTERS
Critical Accounting Estimates:   The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, upon which the Management's Discussion and Analysis is based, requires that management exercise judgment when making estimates and assumptions about future events that may affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty and actual results will, inevitably, differ from those critical accounting estimates. These differences could be material. The most significant accounting estimates inherent in the preparation of A&B's financial statements were described in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's 2017 Form 10-K.

36


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information concerning market risk is incorporated herein by reference to Item 7A of the Company's Form 10-K for the fiscal year ended December 31, 2017 . There has been no material change in the quantitative and qualitative disclosures about market risk since December 31, 2017 .
ITEM 4. CONTROLS AND PROCEDURES
(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 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 September 30, 2018 , the Company’s disclosure controls and procedures were 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 Company's fiscal third quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

37


PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS     
The information set forth under the "Legal Proceedings and Other Contingencies" section in Note 3 of Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, is incorporated herein by reference.
ITEM 1A. RISK FACTORS     
There have been no material changes to the risk factors previously disclosed in Item 1A. "Risk Factors" in the Company's most recent annual report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
Period
Total Number of Shares Purchased¹
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
Maximum Number
of Shares that
May Yet Be Purchased
Under the Plans
or Programs
July 1-31, 2018
1,670
$
25.13

—
—
August 1-31, 2018
—
$
—

—
—
September 1-30, 2018
—
$
—

—
—
1 Represents shares accepted in satisfaction of tax withholding obligations arising upon the vesting of restricted stock unit awards.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4. MINE SAFETY DISCLOSURES
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulations S-K (17 CFR 229.104) is included in Exhibit 95 to this periodic report on Form 10-Q.

ITEM 5. OTHER INFORMATION
None.

38


EXHIBIT INDEX
10.b.1.(iv)
31.1
31.2
32
101
The following information from Alexander & Baldwin, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 , formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017 , (ii) Condensed Consolidated Statement of Comprehensive Income (Loss) for the three and nine months ended September 30, 2018 and 2017 , (iii) Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017 , (iv) Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2018 and 2017 , (v) Condensed Consolidated Statements of Equity for the nine months ended September 30, 2018 and 2017 , and (vi) the Notes to the Condensed Consolidated Financial Statements.
95

39


SIGNATURE
    
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
 
 
 
 
ALEXANDER & BALDWIN, INC.
 
 
(Registrant)
 
 
 
 
 
 
November 2, 2018
 
By: /s/ James E. Mead
 
 
James E. Mead
 
 
Executive Vice President and Chief Financial Officer
 
 
 
 
 
 
November 2, 2018
 
By: /s/ Clayton K.Y. Chun
 
 
Clayton K.Y. Chun
 
 
Vice President, Chief Accounting Officer and Controller

40

ALEXANDER & BALDWIN, INC.

AMENDED AND RESTATED
2012 INCENTIVE COMPENSATION PLAN
AS ASSUMED ON NOVEMBER 8, 2017
AS FURTHER AMENDED AND RESTATED EFFECTIVE JANUARY 23, 2018
Explanatory Note: On November 8, 2017, the Alexander & Baldwin, Inc. 2012 Incentive Compensation Plan, as amended, was amended and restated and assumed upon the consummation of a merger (the “ Merger ”) in which A&B REIT Merger Corporation, a wholly-owned subsidiary of the Corporation, merged with and into the Predecessor Company. On November 16, 2017, the Corporation declared a special dividend (the “Special Distribution”) which became payable on January 23, 2018 to those stockholders who were holders of Common Stock on November 29, 2017. As a result of the Merger and the assumption of the Plan by the Corporation, the securities issuable pursuant to the provisions of this Plan shall be securities of the Corporation.
article 1
GENERAL PROVISIONS
I.
PURPOSE OF THE PLAN
This Amended and Restated 2012 Incentive Compensation Plan is intended to promote the interests of Alexander & Baldwin, Inc., a Hawaii corporation, by providing eligible persons in the Corporation’s service with the opportunity to participate in one or more cash or equity incentive compensation programs designed to encourage them to continue their service relationship with the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the attached Appendix.
II.
STRUCTURE OF THE PLAN
A.      The Plan shall be divided into a series of separate incentive compensation programs:
• the Discretionary Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock or stock appreciation rights tied to the value of such Common Stock,
-      the Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of Common Stock pursuant to restricted stock awards, restricted stock units, performance shares or other stock-based awards which vest upon the completion of a designated service period or the attainment of pre-established



performance milestones, or such shares of Common Stock may be issued through direct purchase or as a bonus for services rendered the Corporation (or any Parent or Subsidiary),
-      the Incentive Bonus Program under which eligible persons may, at the discretion of the Plan Administrator, be provided with incentive bonus opportunities through performance unit awards and special cash incentive programs tied to the attainment of pre-established performance milestones, and
-      the Automatic Grant Program under which eligible non-employee Board members will automatically receive equity awards at designated intervals over their period of continued Board service.
B.      The provisions of Articles One and Six shall apply to all incentive compensation programs under the Plan and shall govern the interests of all persons under the Plan.
III.
ADMINISTRATION OF THE PLAN
A.      The Compensation Committee (either acting directly or through a subcommittee of two or more members of the Compensation Committee) shall have sole and exclusive authority to administer the Discretionary Grant, Stock Issuance and Incentive Bonus Programs with respect to Section 16 Insiders. Administration of the Discretionary Grant, Stock Issuance and Incentive Bonus Programs with respect to all other persons eligible to participate in those programs may, at the Board’s discretion, be vested in the Compensation Committee or a Secondary Board Committee, or the Board may retain the power to administer those programs with respect to all such persons. However, all Awards to non-employee Board members (other than pursuant to the Automatic Grant Program) shall be made by the Compensation Committee (or subcommittee thereof) which shall at the time of any such Award be comprised solely of independent directors, as determined in accordance with the governance standards established by the Stock Exchange on which the Common Stock is at the time primarily traded (the “ Independent Directors ”). In addition, any Awards for members of the Compensation Committee (other than pursuant to the Automatic Grant Program) must be authorized by a disinterested majority of the Independent Directors.
B.      Members of the Compensation Committee or any Secondary Board Committee shall serve for such period of time as the Board may determine and may be removed by the Board at any time. The Board may also at any time terminate the functions of any Secondary Board Committee and reassume all powers and authority previously delegated to such committee.
C.      Each Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority (subject to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of the Discretionary Grant, Stock Issuance and Incentive Bonus Programs and to make such determinations under, and issue such interpretations of, the provisions of those programs and any outstanding Awards thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator within the scope of its administrative functions under the Plan shall be final and binding on all

2


parties who have an interest in the Discretionary Grant, Stock Issuance and Incentive Bonus Programs under its jurisdiction or any Award thereunder.
D.      Service as a Plan Administrator by the members of the Compensation Committee or the Secondary Board Committee shall constitute service as Board members, and the members of each such committee shall accordingly be entitled to full indemnification and reimbursement as Board members for their service on such committee. No member of the Compensation Committee or the Secondary Board Committee shall be liable for any act or omission made in good faith with respect to the Plan or any Award thereunder.
E.      Administration of the Automatic Grant Program shall be self-executing in accordance with the terms of that program, and no Plan Administrator shall exercise any discretionary functions with respect to any Awards made under that program, except that the Compensation Committee (or subcommittee thereof) shall have the express authority to establish from time to time the applicable dollar amount to be used to determine the specific number of shares of Common Stock for which the initial and annual Awards are to be made to the non-employee Board members in accordance with the dollar value formula set forth in Article Five.
IV.
ELIGIBILITY
A.      The persons eligible to participate in the Plan are as follows:
(i)      Employees,
(ii)      non-employee members of the Board or the board of directors of any Parent or Subsidiary,
(iii)      consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary), and
(iv)      the Legacy Participants who qualify for Substitute Awards or Substitute Director Awards pursuant to the provisions of the Legacy Addendum.
B.      The Plan Administrator shall have full authority to determine, (i) with respect to Awards made under the Discretionary Grant Program, which eligible persons are to receive such Awards, the time or times when those Awards are to be made, the number of shares to be covered by each such Award, the time or times when the Award is to become exercisable, the vesting schedule (if any) applicable to the Award, the maximum term for which such Award is to remain outstanding and the status of a granted option as either an Incentive Option or a Non-Statutory Option; (ii) with respect to Awards under the Stock Issuance Program, which eligible persons are to receive such Awards, the time or times when the Awards are to be made, the number of shares subject to each such Award, the vesting and issuance schedules applicable to the shares which are the subject of such Award, the cash consideration (if any) payable for those shares and the form (cash or shares of Common Stock) in which the Award is to be settled; and (iii) with respect to Awards under the Incentive Bonus Program, which eligible persons are to receive such Awards, the time or times

3


when the Awards are to be made, the performance objectives for each such Award, the amounts payable at designated levels of attained performance, any applicable service vesting requirements, the payout schedule for each such Award and the form (cash or shares of Common Stock) in which the Award is to be settled.
C.      The Plan Administrator shall have the absolute discretion to grant options or stock appreciation rights in accordance with the Discretionary Grant Program, to effect stock issuances and other stock-based awards in accordance with the Stock Issuance Program and to grant incentive bonus awards in accordance with the Incentive Bonus Program.
D.      The individuals who shall be eligible to participate in the Automatic Grant Program shall be limited to (i) those individuals who first become non-employee Board members on or after the Plan Effective Date, whether through appointment by the Board or election by the Corporation’s stockholders, and (ii) those individuals who continue to serve as non-employee Board members on or after the Plan Effective Date. A non-employee Board member who has previously been in the employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to receive a grant under the Automatic Grant Program at the time he or she first becomes a non-employee Board member, but shall be eligible to receive periodic grants under the Automatic Grant Program while he or she continues to serve as a non-employee Board member.
V.
STOCK SUBJECT TO THE PLAN
A.      The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Corporation on the open market. The number of shares of Common Stock reserved for issuance over the term of the Plan shall be limited to Five Million Three Hundred Fifty Thousand One Hundred Eighty-Seven (5,350, 187) shares. Such share reserve is comprised of (i) the original Four Million Three Hundred Thousand (4,300,000) shares of Common Stock authorized for issuance under the Plan and (ii) an additional One Million Fifty Thousand One Hundred Eighty-Seven (1,050,187) shares of Common Stock authorized pursuant to Section V.E of Article One as a result of the Special Distribution.
B.      The maximum number of shares of Common Stock that may be issued pursuant to Incentive Options granted under Plan shall not exceed Five Million Three Hundred Fifty Thousand One Hundred Eighty-Seven (5,350,187) shares .
C.      Each person participating in the Plan shall be subject the following limitations:
-    for Awards denominated in terms of shares of Common Stock (whether payable in Common Stock, cash or a combination of both), the maximum number of shares of Common Stock for which such Awards (including, without limitation, stock options, stock appreciation rights, restricted stock, restricted stock units and performance shares) may be made to such person in any calendar year shall not exceed Five Hundred Thousand (500,000) shares of Common Stock in the aggregate, and

4


-    for Awards denominated in terms of cash dollars (whether payable in cash, Common Stock or a combination of both), the maximum dollar amount for which such Awards may be made to such person in any calendar year shall not exceed Five Million Dollars ($5,000,000.00), with such limitation to be measured at the time the Award is made and not at the time the Award becomes payable.
D.      Shares of Common Stock subject to outstanding Awards made under the Plan shall be available for subsequent issuance under the Plan to the extent those Awards expire or terminate for any reason prior to the issuance of the shares of Common Stock subject to those Awards. Unvested shares issued under the Plan and subsequently forfeited or repurchased by the Corporation, at a price per share not greater than the original issue price paid per share, pursuant to the Corporation’s repurchase rights under the Plan shall be added back to the number of shares of Common Stock reserved for issuance under the Plan and shall accordingly be available for subsequent reissuance. Should the exercise price of an option under the Plan be paid with shares of Common Stock, then the authorized reserve of Common Stock under the Plan shall be reduced by the gross number of shares for which that option is exercised, and not by the net number of shares issued under the exercised stock option. Upon the exercise of any stock appreciation right under the Plan, the share reserve shall be reduced by the gross number of shares as to which such right is exercised, and not by the net number of shares actually issued by the Corporation upon such exercise. If shares of Common Stock otherwise issuable under the Plan are withheld by the Corporation in satisfaction of the withholding taxes incurred in connection with the issuance, vesting or exercise of an Award or the issuance of Common Stock thereunder, then the number of shares of Common Stock available for issuance under the Plan shall be reduced on the basis of the gross number of shares issued, vested or exercised under such Award, calculated in each instance prior to any such share withholding.
E.      Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares, spin-off transaction or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, or should the value of outstanding shares of Common Stock be substantially reduced as a result of a spin-off transaction or an extraordinary dividend or distribution, or should there occur any merger, consolidation or other reorganization, then equitable adjustments shall be made by the Plan Administrator to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the maximum number and/or class of securities that may be issued pursuant to Incentive Options granted under the Plan, (iii) the maximum number and/or class of securities for which any one person may be granted Common Stock-denominated Awards under the Plan per calendar year, (iv) the number and/or class of securities and the exercise or base price per share in effect under each outstanding Award under the Discretionary Grant Program, (v) the number and/or class of securities subject to each outstanding Award under the Stock Issuance Program and the cash consideration (if any) payable per share, (vi) the number and/or class of securities subject to each outstanding Award under the Automatic Grant Program, (vii) the number and/or class of securities for which Awards may subsequently be made to new and continuing non-employee Board members under the Automatic Grant Program, (vii) the number and/or class of securities subject to each outstanding Award under the Incentive Bonus Program denominated in

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shares of Common Stock and (ix) the number and/or class of securities subject to the Corporation’s outstanding repurchase rights under the Plan and the repurchase price payable per share. The adjustments shall be made in such manner as the Plan Administrator deems appropriate in order to prevent the dilution or enlargement of benefits under the Plan and the outstanding Awards thereunder, and such adjustments shall be final, binding and conclusive. However, no such adjustments shall be made pursuant to the foregoing provisions of this Paragraph E. to reflect the impact of the A&B Distribution (as that term is defined in the attached Legacy Addendum) upon the outstanding Common Stock or the value of such Common Stock. In the event of a Change in Control, the adjustments (if any) shall be made solely in accordance with the applicable provisions of the Plan governing Change in Control transactions.
F.      Outstanding Awards granted pursuant to the Plan shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

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ARTICLE 2     

DISCRETIONARY GRANT PROGRAM
I.
OPTION TERMS
Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided , however, that each such document shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such options.
A.      Exercise Price .
1.      The exercise price per share shall be fixed by the Plan Administrator; provided, however, that, except for the Substitute Awards and Substitute Director Awards made pursuant to the provisions of the Legacy Addendum, such exercise price shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the grant date.
2.      The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of the documents evidencing the option, be payable in one or more of the forms specified below:
(i)      cash or check made payable to the Corporation,
(ii)      shares of Common Stock (whether delivered in the form of actual stock certificates or through attestation of ownership) held for the requisite period (if any) necessary to avoid any resulting charge to the Corporation’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date,
(iii)      shares of Common Stock otherwise issuable under the option but withheld by the Corporation in satisfaction of the exercise price, with such withheld shares to be valued at Fair Market Value on the exercise date, and
(iv)      to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide instructions to (a) a brokerage firm (reasonably satisfactory to the Corporation for purposes of administering such procedure in compliance with the Corporation’s pre-clearance/pre-notification policies) to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and (b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm on such settlement date in order to complete the sale.

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Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date.
B.      Exercise and Term of Options .
1.      Each option shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. However, no option shall have a term in excess of ten (10) years measured from the option grant date.
2.      The Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure one or more Awards under the Discretionary Grant Program so that those Awards shall vest and become exercisable only after the achievement of pre-established corporate performance objectives based on one or more Performance Goals and measured over the performance period specified by the Plan Administrator at the time of the Award
3.      Notwithstanding the foregoing, the following limitations shall apply with respect to the vesting schedules established for the Awards made under the Discretionary Grant Program, subject to the acceleration provisions in Paragraph C.2 below and Section IV of this Article Two:
(i)      for any such Award which is to vest on the basis of Service, the minimum vesting period shall be three (3) years, with the rate of vesting over that period to be determined by the Plan Administrator; and
(ii)      for any such Award which is to vest on the basis of performance objectives, the performance period shall have a duration of at least one year.
C.      Effect of Termination of Service .
1.      The following provisions shall govern the exercise of any options granted pursuant to the Discretionary Grant Program that are outstanding at the time of the Optionee’s cessation of Service or death:
(i)      Any option outstanding at the time of the Optionee’s cessation of Service for any reason shall remain exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but no such option shall be exercisable after the expiration of the option term.
(ii)      Any option held by the Optionee at the time of the Optionee’s death and exercisable in whole or in part at that time may be subsequently exercised by the personal representative of the Optionee’s estate or by the person or persons to whom the option is transferred pursuant to the Optionee’s will or the laws

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of inheritance or by the Optionee’s designated beneficiary or beneficiaries of that option.
(iii)      Should the Optionee’s Service be terminated for Cause or should the Optionee otherwise engage in conduct constituting grounds for a termination for Cause while holding one or more outstanding options granted under this Article Two, then all of those options shall terminate immediately and cease to be outstanding.
(iv)      During the applicable post-Service exercise period, the option may not be exercised for more than the number of vested shares for which the option is at the time exercisable; provided, however, that one or more options under the Discretionary Grant Program may be structured so that those options continue to vest in whole or part during the applicable post-Service exercise period. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any shares for which the option has not been exercised.
2.      The Plan Administrator shall have complete discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to:
(i)      extend the period of time for which the option is to remain exercisable following the Optionee’s cessation of Service from the limited exercise period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term,
(ii)      include an automatic extension provision whereby the specified post-Service exercise period in effect for any option granted under this Article Two shall automatically be extended by an additional period of time equal in duration to any interval within the specified post-Service exercise period during which the exercise of that option or the immediate sale of the shares acquired under such option could not be effected in compliance with applicable federal and state securities laws, but in no event shall such an extension result in the continuation of such option beyond the expiration date of the term of that option, and/or
(iii)      permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which such option is exercisable at the time of the Optionee’s cessation of Service but also with respect to one or more additional installments in which the Optionee would have vested had the Optionee continued in Service.
D.      Stockholder Rights . The holder of an option shall have no stockholder rights with respect to the shares subject to the option until such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares.

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E.      Repurchase Rights . The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of Common Stock. Should the Optionee cease Service while such shares are unvested, the Corporation shall have the right to repurchase any or all of those unvested shares at a price per share equal to the lower of (i) the exercise price paid per share or (ii) the Fair Market Value per share of Common Stock at the time of repurchase. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right.
F.           Transferability of Options . The transferability of options granted under the Plan shall be governed by the following provisions:
(i)     Incentive Options : During the lifetime of the Optionee, Incentive Options shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or the laws of inheritance following the Optionee’s death.
(ii)     Non-Statutory Options . Non-Statutory Options shall be subject to the same limitation on transfer as Incentive Options, except that the Plan Administrator may structure one or more Non-Statutory Options so that the option may be assigned in whole or in part during the Optionee’s lifetime to one or more Family Members of the Optionee or to a trust established exclusively for the Optionee and/or such Family Members, to the extent such assignment is in connection with the Optionee’s estate plan or pursuant to a domestic relations order. The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate.
(iii)     Beneficiary Designations . Notwithstanding the foregoing, the Optionee may designate one or more persons as the beneficiary or beneficiaries of his or her outstanding options under this Article Two (whether Incentive Options or Non-Statutory Options), and those options shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee’s death while holding those options. Such beneficiary or beneficiaries shall take the transferred options subject to all the terms and conditions of the applicable agreement evidencing each such transferred option, including (without limitation) the limited time period during which the option may be exercised following the Optionee’s death.
II.
INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles One, Two and Six shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall not be subject to the terms of this Section II.
A.      Eligibility . Incentive Options may only be granted to Employees.

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B.      Dollar Limitation . The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000).
To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, then for purposes of the foregoing limitations on the exercisability of those options as Incentive Options, such options shall be deemed to become first exercisable in that calendar year on the basis of the chronological order in which they were granted, except to the extent otherwise provided under applicable law or regulation.

C.      10% Stockholder . If any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date, and the option term shall not exceed five (5) years measured from the option grant date.
III.
STOCK APPRECIATION RIGHTS
A.      Authority . The Plan Administrator shall have full power and authority, exercisable in its sole discretion, to grant stock appreciation rights in accordance with this Section III to selected Optionees or other individuals eligible to receive option grants under the Discretionary Grant Program.
B.      Types . Two types of stock appreciation rights shall be authorized for issuance under this Section III: (i) tandem stock appreciation rights (“ Tandem Rights ”) and (ii) stand-alone stock appreciation rights (“ Stand-alone Rights ”).
C.      Tandem Rights . The following terms and conditions shall govern the grant and exercise of Tandem Rights.
1.      One or more Optionees may be granted a Tandem Right, exercisable upon such terms and conditions as the Plan Administrator may establish, to elect between the exercise of the underlying option for shares of Common Stock or the surrender of that option in exchange for a distribution from the Corporation in an amount equal to the excess of (i) the Fair Market Value (on the option surrender date) of the number of shares in which the Optionee is at the time vested under the surrendered option (or surrendered portion thereof) over (ii) the aggregate exercise price payable for such vested shares.
2.      Any distribution to which the Optionee becomes entitled upon the exercise of a Tandem Right may be made in (i) shares of Common Stock valued at Fair Market Value on the option surrender date, (ii) cash or (iii) a combination of cash and shares of Common Stock, as specified in the applicable Award agreement.
D.      Stand-Alone Rights . The following terms and conditions shall govern the grant and exercise of Stand-alone Rights:

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1.      One or more individuals eligible to participate in the Discretionary Grant Program may be granted a Stand-alone Right not tied to any underlying option under this Discretionary Grant Program. The Stand-alone Right shall relate to a specified number of shares of Common Stock and shall be exercisable upon such terms and conditions as the Plan Administrator may establish. In no event, however, may the Stand-alone Right have a maximum term in excess of ten (10) years measured from the grant date. The provisions and limitations of Paragraphs B.2 and B.3 of Section I of this Article Two shall also be applicable to any Stand-Alone Right awarded under the Plan.
2.      Upon exercise of the Stand-alone Right, the holder shall be entitled to receive a distribution from the Corporation in an amount equal to the excess of (i) the aggregate Fair Market Value (on the exercise date) of the shares of Common Stock underlying the exercised right over (ii) the aggregate base price in effect for those shares.
3.      The number of shares of Common Stock underlying each Stand-alone Right and the base price in effect for those shares shall be determined by the Plan Administrator in its sole discretion at the time the Stand-alone Right is granted. In no event, however, may the base price per share be less than the Fair Market Value per underlying share of Common Stock on the grant date.
4.      Stand-alone Rights shall be subject to the same transferability restrictions applicable to Non-Statutory Options and may not be transferred during the holder’s lifetime, except if such assignment is in connection with the holder’s estate plan and is to one or more Family Members of the holder or to a trust established for the holder and/or one or more such Family Members or pursuant to a domestic relations order covering the Stand-alone Right as marital property. In addition, one or more beneficiaries may be designated for an outstanding Stand-alone Right in accordance with substantially the same terms and provisions as set forth in Section I.F of this Article Two.
5.      The distribution with respect to an exercised Stand-alone Right may be made in (i) shares of Common Stock valued at Fair Market Value on the exercise date, (ii) cash or (iii) a combination of cash and shares of Common Stock, as specified in the applicable Award agreement.
6.      The holder of a Stand-alone Right shall have no stockholder rights with respect to the shares subject to the Stand-alone Right unless and until such person shall have exercised the Stand-alone Right and become a holder of record of the shares of Common Stock issued upon the exercise of such Stand-alone Right.
E.      Post-Service Exercise . The provisions governing the exercise of Tandem and Stand-alone Rights following the cessation of the recipient’s Service shall be substantially the same as those set forth in Section I.C.1 of this Article Two for the options granted under the Discretionary Grant Program, and the Plan Administrator’s discretionary authority under Section I.C.2 of this Article Two shall also extend to any outstanding Tandem or Stand-alone Appreciation Rights.

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IV.
CHANGE IN CONTROL
A.      In the event of an actual Change in Control transaction, each outstanding Award under the Discretionary Grant Program shall automatically accelerate so that each such Award shall, immediately prior to the effective date of that Change in Control, become exercisable as to all the shares of Common Stock at the time subject to such Award and may be exercised as to any or all of those shares as fully vested shares of Common Stock. However, an outstanding Award under the Discretionary Grant Program shall not become exercisable on such an accelerated basis if and to the extent: (i) such Award is to be assumed by the successor corporation (or parent thereof) or is otherwise to continue in full force and effect pursuant to the terms of the Change in Control transaction or (ii) such Award is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing at the time of the Change in Control on any shares as to which the Award is not otherwise at that time exercisable and provides for the subsequent vesting and concurrent payout of that spread in accordance with the same exercise/vesting schedule in effect for that Award or (iii) the acceleration of such Award is subject to other limitations imposed by the Plan Administrator. No such cash incentive program shall be established for any Award under the Discretionary Grant Program to the extent such program would otherwise be deemed to constitute a deferred compensation arrangement subject to the requirements of Code Section 409A and the Treasury Regulations thereunder. Notwithstanding the foregoing, any Award outstanding under the Discretionary Grant Program on the date of such Change in Control shall be subject to cancellation and termination, without cash payment or other consideration due the Award holder, if the Fair Market Value per share of Common Stock on the date of such Change in Control (or any earlier date specified in the definitive agreement for the Change in Control transaction) is less than the per share exercise or base price in effect for such Award.
B.      All outstanding repurchase rights under the Discretionary Grant Program shall automatically terminate, and the shares of Common Stock subject to those terminated rights shall immediately vest in full, immediately prior to the effective date of an actual Change in Control transaction, except to the extent: (i) those repurchase rights are to be assigned to the successor corporation (or parent thereof) or are otherwise to continue in full force and effect pursuant to the terms of the Change in Control transaction or (ii) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator.
C.      Immediately following the consummation of the Change in Control, all outstanding Awards under the Discretionary Grant Program shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) or are otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction.
D.      Each Award which is assumed in connection with a Change in Control or otherwise continued in effect shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities into which the shares of Common Stock subject to that Award would have been converted in consummation of such Change in Control had those shares actually been outstanding at that time. Appropriate adjustments to reflect such Change in Control shall also be made to (i) the exercise or base price per share in effect under each outstanding Award, provided the aggregate exercise or base price in effect for such securities shall remain the

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same, (ii) the maximum number and/or class of securities available for issuance over the remaining term of the Plan, (iii) the maximum number and/or class of securities that may be issued pursuant to Incentive Options granted under the Plan, (iv) the maximum number and/or class of securities for which any one person may be granted Common Stock-denominated Awards under the Plan per calendar year, (v) the number and/or class of securities and the exercise or base price per share in effect under each outstanding Award under the Discretionary Grant Program, (vi) the number and/or class of securities subject to each outstanding Award under the Stock Issuance Program and the cash consideration (if any) payable per share, (vii) the number and/or class of securities subject to each outstanding Award under the Incentive Bonus Program denominated in shares of Common Stock, (vii) the number and/or class of securities subject to each outstanding Award under the Automatic Grant Program, (ix) the number and/or class of securities for which Awards may subsequently be made to new and continuing non-employee Board members under the Automatic Grant Program and (x) the number and/or class of securities subject to the Corporation’s outstanding repurchase rights under the Plan and the repurchase price payable per share. To the extent the actual holders of the Corporation’s outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation may, in connection with the assumption or continuation of the outstanding Awards under the Discretionary Grant Program, substitute, for the securities underlying those assumed rights, one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control transaction, provided such common stock is readily traded on an established U.S. securities exchange or market.
E.      The Plan Administrator shall have the discretionary authority to structure one or more outstanding Awards under the Discretionary Grant Program so that those Awards shall, immediately prior to the effective date of an actual Change in Control transaction, become exercisable as to all the shares of Common Stock at the time subject to those Awards and may be exercised as to any or all of those shares as fully vested shares of Common Stock, whether or not those Awards are to be assumed in the Change in Control transaction or otherwise continued in effect. In addition, the Plan Administrator shall have the discretionary authority to structure one or more of the Corporation’s repurchase rights under the Discretionary Grant Program so that those rights shall terminate immediately prior to the effective date of an actual Change in Control transaction, and the shares subject to those terminated rights shall thereupon vest in full.
F.      The Plan Administrator shall have full power and authority to structure one or more outstanding Awards under the Discretionary Grant Program so that those Awards shall become exercisable as to all the shares of Common Stock at the time subject to those Awards in the event the Optionee’s Service is subsequently terminated by reason of an Involuntary Termination within a designated period following the effective date of any Change in Control transaction in which those Awards do not otherwise fully accelerate. In addition, the Plan Administrator may structure one or more of the Corporation’s repurchase rights so that those rights shall immediately terminate with respect to any shares held by the Optionee at the time of such Involuntary Termination, and the shares subject to those terminated repurchase rights shall accordingly vest in full at that time.

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G.      The portion of any Incentive Option accelerated in connection with a Change in Control shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-statutory Option under the Federal tax laws.
V.
PROHIBITION ON REPRICING PROGRAMS
The Plan Administrator shall not (i) implement any cancellation/regrant program pursuant to which outstanding options or stock appreciation rights under the Plan are cancelled and new options or stock appreciation rights are granted in replacement with a lower exercise price per share, (ii) cancel outstanding options or stock appreciation rights under the Plan with exercise or base prices per share in excess of the then current Fair Market Value per share of Common Stock for consideration payable in cash, equity securities of the Corporation or in the form of any other Award under the Plan, except in connection with a Change in Control transaction, or (iii) otherwise directly reduce the exercise price in effect for outstanding options or stock appreciation rights under the Plan, without in each such instance obtaining stockholder approval.

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ARTICLE 3     

STOCK ISSUANCE PROGRAM
I.
STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program, either as vested or unvested shares, through direct and immediate issuances. Each such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below. Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to performance shares or restricted stock units which entitle the recipients to receive the shares underlying those Awards upon the attainment of designated performance goals or the satisfaction of specified Service requirements or upon the expiration of a designated time period following the vesting of those Awards.
A.      Issue Price .
1.      The issue price per share shall be fixed by the Plan Administrator, but, except as to the Substitute Awards or Substitute Director Awards made pursuant to the provisions of the Legacy Addendum, shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the Award date.
2.      Shares of Common Stock may be issued under the Stock Issuance Program for any of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance:
(i)      cash or check made payable to the Corporation,
(ii)      past services rendered to the Corporation (or any Parent or Subsidiary); or
(iii)      any other valid consideration under the State in which the Corporation is at the time incorporated.
B.      Vesting Provisions .
1.      Shares of Common Stock issued under the Stock Issuance Program may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance as a bonus for Service rendered or may vest in one or more installments over the Participant’s period of Service or upon the attainment of specified performance objectives. The elements of the vesting schedule applicable to any unvested shares of Common Stock issued under the Stock Issuance Program shall be determined by the Plan Administrator and incorporated into the Stock Issuance Agreement. Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to performance shares or restricted stock units which entitle the recipients to receive the shares underlying those Awards upon the attainment of designated performance goals or the satisfaction

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of specified Service requirements or upon the expiration of a designated time period following the vesting of those Awards, including (without limitation) a deferred distribution date following the termination of the Participant’s Service. Notwithstanding the foregoing, the following limitations shall apply with respect to the vesting schedules established for the Awards made under the Stock Issuance Program, subject to the acceleration provisions in Paragraphs B.6 and B.7 below and Section II of this Article Three:
(i)      for any such Award which is to vest on the basis of Service, the minimum vesting period shall be three (3) years, with the rate of vesting over that period to be determined by the Plan Administrator; and
(ii)      for any such Award which is to vest on the basis of performance objectives, the performance period shall have a duration of at least one year.
The foregoing minimum vesting requirements shall not be applicable to any Awards made under the Stock Issuance Program to an individual who is at the time of such Award serving solely in the capacity of a non-employee Board member; provided, however, that any Award made under the Stock Issuance Program to such non-employee Board member must have a minimum vesting period of at least one year, with not greater than monthly pro-rated vesting over that period.
2.      The Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure one or more Awards under the Stock Issuance Program so that the shares of Common Stock subject to those Awards shall vest (or vest and become issuable) upon the achievement of pre-established corporate performance objectives based on one or more Performance Goals and measured over the performance period specified by the Plan Administrator at the time of the Award.
3.      Any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to the Participant’s unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares, spin-off transaction, extraordinary dividend or distribution or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant’s unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate. Equitable adjustments to reflect each such transaction shall also be made by the Plan Administrator to the repurchase price payable per share by the Corporation for any unvested securities subject to its existing repurchase rights under the Plan; provided the aggregate repurchase price shall in each instance remain the same.
4.      The Participant shall have full stockholder rights with respect to any shares of Common Stock issued to the Participant under the Stock Issuance Program, whether or not the Participant’s interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any dividends paid on such shares, subject to any applicable vesting requirements, including (without limitation) the requirement that any dividends paid on

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shares subject to performance-vesting conditions shall be held in escrow by the Corporation and shall not vest or actually be paid to the Award holder prior to the time those shares vest. The Participant shall not have any stockholder rights with respect to the shares of Common Stock subject to a performance share or restricted stock unit Award until that Award vests and the shares of Common Stock are actually issued thereunder. However, dividend-equivalent units may be paid or credited, either in cash or in actual or phantom shares of Common Stock, on outstanding performance share or restricted stock unit Awards, subject to such terms and conditions as the Plan Administrator may deem appropriate; provided, however, that no such dividend-equivalent units relating to Awards subject to performance-vesting conditions shall vest or otherwise become payable prior to the time the underlying Award (or portion thereof to which such dividend-equivalents units relate) vests upon the attainment of the applicable performance goals and shall accordingly be subject to cancellation and forfeiture to the same extent as the underlying Award.
5.      Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further stockholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent, the Corporation shall repay to the Participant the lower of (i) the cash consideration paid for the surrendered shares or (ii) the Fair Market Value of those shares at the time of cancellation.
6.      The Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock which would otherwise occur upon the cessation of the Participant’s Service or the non-attainment of the performance objectives applicable to those shares, but only to the extent such waiver is effected in connection with (i) the Participant’s cessation of Service by reason of death, Permanent Disability, Retirement or Involuntary Termination or (ii) the consummation of a Change in Control transaction. Any such waiver shall result in the immediate vesting of the Participant’s interest in the shares of Common Stock as to which the waiver applies. However, no vesting requirements tied to the attainment of performance objectives may be waived with respect to shares which were intended at the time of issuance to qualify as performance-based compensation under Code Section 162(m), except in the event of the Participant’s cessation of Service by reason of death or Permanent Disability or as otherwise provided in Section II of this Article Three.
7.      Outstanding performance shares or restricted stock units under the Stock Issuance Program shall automatically terminate, and no shares of Common Stock shall actually be issued in satisfaction of those Awards, if the performance goals or Service requirements established for those Awards are not attained or satisfied. The Plan Administrator, however, shall have the discretionary authority to issue vested shares of Common Stock under one or more outstanding Awards of performance shares or restricted stock units as to which the designated performance goals or Service requirements have not been attained or satisfied, but only in connection with (i) the Participant’s cessation of Service by reason of death, Permanent Disability, Retirement or Involuntary Termination or (ii) the consummation of a Change in Control transaction. However, no vesting requirements tied to the attainment of performance goals may be waived with respect to

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Awards which were intended, at the time those Awards were made, to qualify as performance-based compensation under Code Section 162(m), except in the event of the Participant’s death or Permanent Disability or as otherwise provided in Section II of this Article Three.
8.      The following additional requirements shall be in effect for any performance shares awarded under this Article Three:
(i)      At the end of the performance period, the Plan Administrator shall determine the actual level of attainment for each performance objective and the extent to which the performance shares awarded for that period are to vest and become payable based on the attained performance levels.
(ii)      The performance shares which so vest shall be paid as soon as practicable following the end of the performance period, unless such payment is to be deferred for the period specified by the Plan Administrator at the time the performance shares are awarded or the period selected by the Participant in accordance with the applicable requirements of Code Section 409A.
(iii)      Performance shares may be paid in (i) cash, (ii) shares of Common Stock or (iii) any combination of cash and shares of Common Stock, as determined by the Plan Administrator in its sole discretion.
(iv)      Performance shares may also be structured so that the shares are convertible into shares of Common Stock, but the rate at which each performance share is to so convert shall be based on the attained level of performance for each applicable performance objective.
II.
CHANGE IN CONTROL
A.      Each Award outstanding under the Stock Issuance Program on the effective date of an actual Change in Control transaction may be (i) assumed by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction or (ii) replaced with a cash incentive program of the successor corporation which preserves the Fair Market Value of the underlying shares of Common Stock at the time of the Change in Control and provides for the subsequent vesting and payment of that value in accordance with the same vesting and payment schedules in effect for those shares at the time of such Change in Control. To the extent any such Award is at the time subject to performance-vesting requirements tied to the attainment of one or more specified performance goals and the Plan Administrator does not at the time provide otherwise, those performance-vesting requirements shall upon the assumption, continuation or replacement of that Award be cancelled, and such Award shall thereupon be converted into a Service-vesting Award, based on an assumed attainment of the applicable performance goals at target level, that will vest in one or more increments over the Service-vesting period in effect for that Award immediately prior to the effective date of the Change in Control. However, to the extent any Award outstanding under the Stock Issuance Program on the effective date of such Change in Control Transaction is not to be so assumed, continued or replaced, that Award shall vest in full immediately prior to the effective date of the actual Change in Control

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transaction, and the shares of Common Stock underlying the portion of the Award that vests on such accelerated basis shall be issued in accordance with the applicable Award Agreement, unless such accelerated vesting is precluded by other limitations imposed in the Stock Issuance Agreement.
B.      Each outstanding Award under the Stock Issuance Program which is assumed in connection with a Change in Control or otherwise continued in effect shall be adjusted immediately after the consummation of that Change in Control so as to apply to the number and class of securities into which the shares of Common Stock subject to that Award immediately prior to the Change in Control would have been converted in consummation of such Change in Control had those shares actually been outstanding at that time, and appropriate adjustments shall also be made to the cash consideration (if any) payable per share thereunder, provided the aggregate amount of such consideration shall remain the same. To the extent the actual holders of the Corporation’s outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation may, in connection with the assumption or continuation of the outstanding Awards, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control transaction, provided such common stock is readily traded on an established U.S. securities exchange or market.
C.      The Plan Administrator shall have the discretionary authority to structure one or more unvested Awards under the Stock Issuance Program so that the shares of Common Stock subject to those Awards shall automatically vest (or vest and become issuable) in whole or in part immediately prior to the effective date of an actual Change in Control transaction or upon the subsequent termination of the Participant’s Service by reason of an Involuntary Termination within a designated period following the effective date of that Change in Control transaction. The Plan Administrator’s authority under this Section II.C shall also extend to any Awards intended to qualify as performance-based compensation under Code Section 162(m), even though the automatic vesting of those Awards pursuant to this Section II.C may result in their loss of performance-based status under Code Section 162(m).

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ARTICLE 4     

INCENTIVE BONUS PROGRAM
I.
INCENTIVE BONUS TERMS
The Plan Administrator shall have full power and authority to implement one or more of the following incentive bonus programs under the Plan:
(i)    cash bonus awards (“ Cash Awards ”),
(ii)    performance unit awards (“ Performance Unit Awards ”), and
(iii)    dividend equivalent rights (“ DER Awards ”)
A.      Cash Awards . The Plan Administrator shall have the discretionary authority under the Plan to make Cash Awards which are to vest in one or more installments over the Participant’s continued Service with the Corporation or upon the attainment of specified performance goals. Each such Cash Award shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided however, that each such document shall comply with the terms specified below.
1.      The elements of the vesting schedule applicable to each Cash Award shall be determined by the Plan Administrator and incorporated into the Incentive Bonus Award Agreement.
2.      The Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure one or more Cash Awards so that those Awards shall vest upon the achievement of pre-established corporate performance objectives based upon one or more Performance Goals.
3.      Should the Participant cease to remain in Service while holding one or more unvested Cash Awards or should the performance objectives not be attained with respect to one or more such Cash Awards, then those Awards shall be immediately terminate, and the Participant shall not be entitled to any cash payment or other consideration with respect to those terminated Awards.
4.      Outstanding Cash Awards shall automatically terminate, and no cash payment or other consideration shall be due the holders of those Awards, if the performance goals or Service requirements established for the Awards are not attained or satisfied. The Plan Administrator may in its discretion waive the cancellation and termination of one or more unvested Cash Awards which would otherwise occur upon the cessation of the Participant’s Service or the non-attainment of the performance objectives applicable to those Awards. Any such waiver shall result in the immediate vesting of the Participant’s interest in the Cash Award as to which the waiver applies. Such wavier may be effected at any time, whether before or after the Participant’s cessation of Service or the attainment or non-attainment of the applicable performance objectives. However,

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no vesting requirements tied to the attainment of performance goals may be waived with respect to awards which were intended, at the time those awards were granted, to qualify as performance-based compensation under Code Section 162(m), except in the event of the Participant’s death or Permanent Disability or as otherwise provided in Section II of this Article Four.
5.      Cash Awards which become due and payable following the attainment of the applicable performance goals or satisfaction of the applicable Service requirement (or the waiver of such goals or Service requirement) may be paid in (i) cash, (ii) shares of Common Stock valued at Fair Market Value on the payment date or (iii) a combination of cash and shares of Common Stock as the Plan Administrator shall determine.
B.      Performance Unit Awards . The Plan Administrator shall have the discretionary authority to make Performance Unit Awards in accordance with the terms of this Article Four. Each such Performance Unit Award shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided however, that each such document shall comply with the terms specified below.
1.      A Performance Unit shall represent either (i) a unit with a dollar value range tied to the level at which pre-established performance objectives based on one or more Performance Goals are attained or (ii) a participating interest in a special bonus pool tied to the attainment of pre-established corporate performance objectives based on one or more Performance Goals. The amount of the bonus pool may vary with the level at which the applicable performance objectives are attained, and the value of each Performance Unit which becomes due and payable upon the attained level of performance shall be determined by dividing the amount of the resulting bonus pool (if any) by the total number of Performance Units issued and outstanding at the completion of the applicable performance period.
2.      Performance Units may also be structured to include a Service requirement which the Participant must satisfy following the completion of the performance period in order to vest in the Performance Units awarded with respect to that performance period.
3.      Performance Units which become due and payable following the attainment of the applicable performance objectives and the satisfaction of any applicable Service requirement may be paid in (i) cash, (ii) shares of Common Stock valued at Fair Market Value on the payment date or (iii) a combination of cash and shares of Common Stock as the Plan Administrator shall determine.
C.      DER Awards . The Plan Administrator shall have the discretionary authority to make DER Awards in accordance with the terms of this Article Four. Each such DER Award shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided however , that each such document shall comply with the terms specified below.
1.      The DER Awards may be made as stand-alone awards or in tandem with other Awards made under the Plan. The term of each such DER Award shall be established by the Plan Administrator at the time of grant, but no DER Award shall have a term in excess of ten (10) years.

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2.      Each DER shall represent the right to receive the economic equivalent of each dividend or distribution, whether in cash, securities or other property (other than shares of Common Stock), which is made per issued and outstanding share of Common Stock during the term the DER remains outstanding. A special account on the books of the Corporation shall be maintained for each Participant to whom a DER Award is made, and that account shall be credited per DER with each such dividend or distribution made per issued and outstanding share of Common Stock during the term of that DER remains outstanding.
3.      Payment of the amounts credited to such book account may be made to the Participant either concurrently with the actual dividend or distribution made per issued and outstanding share of Common Stock or may be deferred for a period specified by the Plan Administrator at the time the DER Award is made or selected by the Participant in accordance with the requirements of Code Section 409A. In no event, however, shall any DER Award made with respect to an Award subject to performance-vesting conditions under the Stock Issuance or Incentive Bonus Program vest or become payable prior to the vesting of that Award (or the portion thereof to which the DER Award relates) upon the attainment of the applicable performance goals and shall accordingly be subject to cancellation and forfeiture to the same extent as the underlying Award.
4.      Payment may be paid in (i) cash, (ii) shares of Common Stock or (iii) a combination of cash and shares of Common Stock as the Plan Administrator shall determine If payment is to be made in the form of Common Stock, the number of shares of Common Stock into which the cash dividend or distribution amounts are to be converted for purposes of the Participant’s book account may be based on the Fair Market Value per share of Common Stock on the date of conversion, a prior date or an average of the Fair Market Value per share of Common Stock over a designated period, as the Plan Administrator shall determine in its sole discretion.
5.      The Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure one or more DER Awards so that those Awards shall vest only after the achievement of pre-established corporate performance objectives based upon one or more Performance Goals.
II.
CHANGE IN CONTROL
A.      The Plan Administrator shall have the discretionary authority to structure one or more Awards under the Incentive Bonus Program so that those Awards shall automatically vest in whole or in part immediately prior to the effective date of an actual Change in Control transaction or upon the subsequent termination of the Participant’s Service by reason of an Involuntary Termination within a designated period following the effective date of such Change in Control. To the extent any such Award is, at the time of such Change in Control, subject to performance vesting upon the attainment of one or more specified performance goals and the Plan Administrator does not at that time provide otherwise, the performance vesting condition shall automatically be cancelled on the effective date of such Change in Control, and such Award shall thereupon be converted into a Service-vesting Award, based on an assumed attainment of each applicable performance goal at target level, that will vest in one or more increments over the Service-vesting schedule in effect for that Award immediately prior to the Change in Control.

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B.      The Plan Administrator’s authority under Section II.A shall also extend to any performance bonus awards intended to qualify as performance-based compensation under Code Section 162(m), even though the automatic vesting of those awards pursuant to such Paragraph A may result in their loss of performance-based status under Code Section 162(m).

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ARTICLE 5     

AUTOMATIC GRANT PROGRAM
I.
AWARD TERMS
A.      Automatic Grants . The Awards to be made pursuant to the Automatic Grant Program shall be as follows:
1.      Each individual who (i) was first elected or appointed as a non-employee Board member at any time on or after June 4, 2012 but prior to the Distribution Date (as defined in the attached Legacy Addendum) and (ii) was not a non-employee member of the Board of Directors of Alexander & Baldwin Holdings, Inc. prior to such election or appointment or did not otherwise have his or her outstanding A&B Holdings Awards (as such term is defined in the attached Legacy Addendum) replaced under the Legacy Addendum with substitute awards covering shares of the Corporation’s common stock was automatically granted, on the first trading day following the Distribution Date, an Award in the form of restricted stock units covering that number of shares of Common Stock (rounded up to the next whole share) determined by dividing the Applicable Dollar Amount by the Fair Market Value per share on such date, provided that individual had not been in the employ of the Predecessor Company or any Parent or Subsidiary during the twelve (12) months preceding the Distribution Date. For such purpose, the Applicable Dollar Amount was be Eight Three Thousand Three Hundred Thirty-Three Dollars ($83,333.00) per non-employee Board member.
2.      Each individual who is first elected or appointed as a non-employee Board member at any time after the Distribution Date shall automatically be granted, on the date of such initial election or appointment, an Award in the form of restricted stock units covering that number of shares of Common Stock (rounded up to the next whole share) determined by dividing the Applicable Dollar Amount by the Fair Market Value per share on such date, provided that individual has not been in the employ of the Corporation or any Parent or Subsidiary during the preceding twelve (12) months. The Applicable Dollar Amount shall be determined by the Plan Administrator at the time of each such grant, but in no event shall such amount exceed Three Hundred Thousand Dollars ($300,000.00) per non-employee Board member.
3.      On the date of each annual stockholders meeting, beginning with the 2013 Annual Meeting, each individual who will continue to serve as a non-employee Board member, whether or not such individual is standing for re-election at that particular meeting, shall automatically be granted an Award in the form of restricted stock units covering that number of shares of Common Stock (rounded up to the next whole share) determined by dividing the Applicable Annual Amount by the Fair Market Value per share on such date. There shall be no limit on the number of such annual grants any one continuing non-employee Board member may receive over his or her period of Board service, and non-employee Board members who have previously been in the employ of the Corporation (or any Parent or Subsidiary) shall be eligible to receive one or more such annual grants over their period of continued Board service. The Applicable Annual Amount shall be determined by the Plan Administrator on or before the date of the annual

25


stockholders meeting at which those annual grants are to be made, but in no event shall exceed Three Hundred Thousand Dollars ($300,000.00).
3.    Each restricted unit awarded under this Article Five shall entitle the non-employee Board member to one share of Common Stock on the applicable issuance date following the vesting of that unit.
B.      Vesting of Awards and Issuance of Shares . Each restricted stock unit award made under this Article Five prior to October 24, 2017 shall vest in a series of three (3) successive equal annual installments upon the non-employee Board member’s completion of each year of Board service over the three (3)-year period measured from the Award date. Each restricted stock unit award made under this Article Five on or after October 24, 2017 shall vest in full upon the non-employee Board member’s completion of one (1) year of Board service measured from the Award date. Notwithstanding the foregoing, should a non-employee Board member cease Board service by reason of (i) death or Permanent Disability or (ii) retirement at or after age seventy two (72), then each restricted stock unit award made to such individual under this Article Five and outstanding at the time of such cessation of Board service shall immediately vest in full at that time. The shares of Common Stock underlying each restricted stock unit award which vests in accordance with the foregoing vesting provisions shall be issued as they vest; provided, however , that the Plan Administrator may allow one or more non-employee Board members to defer, in accordance with the applicable requirements of Code Section 409A and the regulations thereunder, the issuance of the shares beyond the vesting date to a designated date or until cessation of Board service or an earlier Change in Control.
C.     Dividend Equivalent Rights . Each restricted stock unit under this Article Five shall include a dividend equivalent right pursuant to which a book account shall be established for the non-employee Board member and credited from time to time with each dividend or distribution, whether in cash, securities or other property (other than shares of Common Stock) which is made per issued and outstanding share of Common Stock during the period the share of Common Stock underlying that restricted stock unit remains unissued. The amount credited to the book account with respect to such restricted stock unit shall be paid to the non-employee Board member concurrently with the issuance of the share of Common Stock underlying that unit, subject to the Corporation’s collection of any applicable withholding taxes.
II.
CHANGE IN CONTROL
Should the non-employee Board member continue in Board service until the effective date of an actual Change in Control transaction, then the shares of Common Stock subject to each outstanding restricted stock unit award made to such Board member under this Article Five shall, immediately prior to the effective date of that Change in Control transaction, vest in full and shall be issued to him or her as soon as administratively practicable thereafter, but in no event more than fifteen (15) business days after such effective date, except to the extent such issuance is subject to a deferred distribution date under Code Section 409A, or shall otherwise be converted into the right to receive the same consideration per share of Common Stock payable to the other stockholders in the Change in Control and distributed at the same time as such stockholder payments, subject to any applicable deferred distribution date under Code Section 409A.

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ARTICLE 6     

MISCELLANEOUS
I.
DEFERRED COMPENSATION
A.      The Plan Administrator may, in its sole discretion, structure one or more Awards under the Stock Issuance or Incentive Bonus Programs so that the Participants may be provided with an election to defer the compensation associated with those Awards for federal income tax purposes. Any such deferral opportunity shall comply with all applicable requirements of Code Section 409A.
B.      The Plan Administrator may implement a non-employee Board member retainer fee deferral program under the Plan that allows the non-employee Board members the opportunity to elect, prior to the start of each calendar year, to convert the Board and Board committee retainer fees to be earned for that year into restricted stock units under the Stock Issuance Program that will defer the issuance of the shares of Common Stock that vest under those restricted stock units to a permissible date or event under Code Section 409A. If such program is implemented, the Plan Administrator shall have the authority to establish such rules and procedures as it deems appropriate for the filing of such deferral elections and the designation of the permissible distribution events under Code Section 409A.
C.    To the extent the Corporation maintains one or more separate non-qualified deferred compensation arrangements which allow the participants the opportunity to make notional investments of their deferred account balances in shares of Common Stock, the Plan Administrator may authorize the share reserve under the Plan to serve as the source of any shares of Common Stock that become payable under those deferred compensation arrangements. In such event, the share reserve under the Plan shall be reduced on a share-for-one share basis for each share of Common Stock issued under the Plan in settlement of the deferred compensation owed under those separate arrangements.
D.    To the extent there is any ambiguity as to whether any provision of any Award made under the Plan that is deemed to constitute a deferred compensation arrangement under Code Section 409A would otherwise contravene one or more requirements or limitations of such Code Section 409A and the Treasury Regulations thereunder, such provision shall be interpreted and applied in a manner that complies with the applicable requirements of Code Section 409A and the Treasury Regulations thereunder.
II.
TAX WITHHOLDING
A.      The Corporation’s obligation to deliver shares of Common Stock upon the exercise, issuance or vesting of an Award under the Plan shall be subject to the satisfaction of all applicable income and employment tax withholding requirements.

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B.      The Plan Administrator may, in its discretion, structure one or more Awards so that shares of Common Stock may be used as follows to satisfy all or part of the Withholding Taxes to which such holders of those Awards may become subject in connection with the issuance, exercise, vesting or settlement of those Awards:
1.      Stock Withholding : The Corporation may be provided with the right to withhold, from the shares of Common Stock otherwise issuable upon the issuance, exercise or vesting of such Award or the issuance of shares of Common Stock thereunder, a portion of those shares with an aggregate Fair Market Value equal to the applicable Withholding Taxes. The shares of Common Stock so withheld shall reduce the number of shares of Common Stock authorized for issuance under the Plan.
2.      Stock Delivery : The Award holder may be provided with the right to deliver to the Corporation, at the time of the issuance, exercise or vesting of such Award or the issuance of shares of Common Stock thereunder, one or more shares of Common Stock previously acquired by such individual (other than in connection with the exercise, share issuance or share vesting triggering the Withholding Taxes) with an aggregate Fair Market Value equal to the percentage of the Withholding Taxes (not to exceed one hundred percent (100%)) designated by the individual. The shares of Common Stock so delivered shall neither reduce the number of shares of Common Stock authorized for issuance under the Plan nor be added to the number of shares of Common Stock authorized for issuance under the Plan.
III.
EFFECTIVE DATE AND TERM OF THE PLAN
A.      The Plan was originally adopted by the Board of Directors of the Predecessor Company on the Plan Effective Date, and was approved by the sole stockholder of the Predecessor Company on the same date. On January 24, 2017 and October 24, 2017, the Plan was amended by the Predecessor Company and on November 8, 2017, the Plan was amended and restated and assumed by the Corporation upon the consummation of the Merger. Effective January 23, 2018, the Plan was further amended and restated to adjust the share reserve under the Plan in connection with the Special Distribution.
B.      Except otherwise provided in Section III.A of this Article Six, the Plan shall terminate upon the earliest to occur of (i) June 26, 2022, (ii) the date on which all shares available for issuance under the Plan shall have been issued as fully vested shares or (iii) the termination of all outstanding Awards in connection with a Change in Control. Should the Plan terminate on June 26, 2022, then all Awards outstanding at that time shall continue to have force and effect in accordance with the provisions of the documents evidencing those Awards.
IV.
AMENDMENT OF THE PLAN
A.      The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects; provided, however, that stockholder approval shall be required for any amendment to the Plan which materially increases the number of shares of Common Stock authorized for issuance under the Plan (other than pursuant to Section V.F of Article One), materially increases the benefits accruing to Optionees or Participants, materially expands the class

28


of individuals eligible to participate in the Plan, expands the types of awards which may be made under the Plan or extends the term of the Plan or to the extent such stockholder approval may otherwise be required under applicable law or regulation or pursuant to the listing standards of the Stock Exchange on which the Common Stock is at the time primarily traded. However, no such amendment or modification shall adversely affect the rights and obligations with respect to Awards at the time outstanding under the Plan unless the Optionee or the Participant consents to such amendment or modification.
B.      The Compensation Committee shall have the discretionary authority to adopt and implement from time to time such addenda or subplans to the Plan as it may deem necessary in order to bring the Plan into compliance with applicable laws and regulations of any foreign jurisdictions in which grants or awards are to be made under the Plan and/or to obtain favorable tax treatment in those foreign jurisdictions for the individuals to whom the grants or awards are made.
C.          Except as otherwise provided in Section IV.B of this Article Six, Awards may be made under the Plan that involve shares of Common Stock in excess of the number of shares then available for issuance under the Plan, provided no shares shall actually be issued pursuant to those Awards until the number of shares of Common Stock available for issuance under the Plan is sufficiently increased by stockholder approval of an amendment of the Plan authorizing such increase. If such stockholder approval is not obtained within twelve (12) months after the date the first excess Award is made, then all Awards granted on the basis of such excess shares shall terminate and cease to be outstanding.
V.
USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes.
VI.
REGULATORY APPROVALS
A.      The implementation of the Plan, the granting of any Award under the Plan and the issuance of any shares of Common Stock in connection with the issuance, exercise or vesting of any Award under the Plan shall be subject to the Corporation’s procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the Awards made under the Plan and the shares of Common Stock issuable pursuant to those Awards.
B.      No shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable requirements of applicable securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any Stock Exchange on which Common Stock is then listed for trading.
VII.
NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any

29


way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Optionee or the Participant, which rights are hereby expressly reserved by each, to terminate such person’s Service at any time for any reason, with or without cause.


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APPENDIX
The following definitions shall be in effect under the Plan:
A.      1934 Act shall mean the Securities Exchange Act of 1934, as amended.
B.      2013 Annual Meeting shall mean the 2013 annual meeting of the Predecessor Company’s stockholders.
C.      Automatic Grant Program shall mean the automatic grant program in effect for non-employee Board members under Article Five of the Plan.
D.      Award shall mean any of the following awards authorized for issuance or grant under the Plan: stock options, stock appreciation rights, direct stock issuances, restricted stock or restricted stock unit awards, performance shares, performance units, dividend-equivalent rights and cash incentive awards.
E.      Award Agreement shall mean the agreement(s) between the Corporation and the Optionee or Participant evidencing a particular Award made to that individual under the Plan, as such agreement(s) may be in effect from time to time
F.      Board shall mean the Corporation’s Board of Directors.
G.      Cause shall, with respect to each Award made under the Plan, be defined in accordance with the following provisions:
-    Cause shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any other agreement incorporated by reference into the Award Agreement for purposes of defining such term.
-    In the absence of any other Cause definition in the Award Agreement for a particular Award (or in any other agreement incorporated by reference into the Award Agreement), an individual’s termination of Service shall be deemed to be for Cause if such termination occurs by reason his or her commission of any act of fraud, embezzlement or dishonesty, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner.
H.      Change in Control shall, with respect to each Award made under the Plan, be defined in accordance with the following provisions:
-    Change in Control shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any other agreement incorporated by reference into the Award Agreement for purposes of defining such term.

A-1


-    In the absence of any other Change in Control definition in the Award Agreement (or in any other agreement incorporated by reference into the Award Agreement), Change in Control shall mean a change in ownership or control of the Corporation effected through any of the following transactions:
(i)      a merger, consolidation or other reorganization approved by the Corporation’s stockholders, unless securities representing fifty percent (50%) or more of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately prior to such transaction,
(ii)      a sale, transfer or other disposition of all or substantially all of the Corporation’s assets,
(iii)      the closing of any transaction or series of related transactions pursuant to which any person or any group of persons comprising a “group” within the meaning of Rule 13d-5(b)(1) of the 1934 Act (other than the Corporation or a person that, prior to such transaction or series of related transactions, directly or indirectly controls, is controlled by or is under common control with, the Corporation) acquires directly or indirectly (whether as a result of a single acquisition or by reason of one or more acquisitions within the twelve (12)-month period ending with the most recent acquisition) beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing (or convertible into or exercisable for securities possessing) thirty-five percent (35%) of the total combined voting power of the Corporation’s securities (as measured in terms of the power to vote with respect to the election of Board members) outstanding immediately after the consummation of such transaction or series of related transactions, whether such transaction involves a direct issuance from the Corporation or the acquisition of outstanding securities held by one or more of the Corporation’s existing stockholders, or
(iv)      a change in the composition of the Board over a period of twelve (12) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination.
I.      Code shall mean the Internal Revenue Code of 1986, as amended.
J.      Common Stock shall mean the Corporation’s common stock.

A-2


K.      Compensation Committee shall mean the Compensation Committee of the Board comprised of two (2) or more non-employee Board members.
L.      Corporation shall mean Alexander & Baldwin, Inc., a Hawaii corporation formerly known as “Alexander & Baldwin REIT Holdings, Inc.” that has by appropriate action assumed this Plan in connection with the Merger, and any subsequent corporate successor to all or substantially all of the assets or voting stock of Alexander & Baldwin, Inc. which has by appropriate action assumed the Plan.
M.      Discretionary Grant Program shall mean the discretionary grant program in effect under Article Two of the Plan pursuant to which stock options and stock appreciation rights may be granted to one or more eligible individuals.
N.      Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary, whether now existing or subsequently established), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.
O.      Exercise Date shall mean the date on which the Corporation shall have received written notice of the option exercise.
P.      Fair Market Value per share of Common Stock on any relevant date shall be the closing selling price per share of Common Stock at the close of regular hours trading (i.e., before after-hours trading begins) on date on question on the Stock Exchange serving as the primary market for the Common Stock, as such price is reported by the National Association of Securities Dealers (if primarily traded on the Nasdaq Global Select Market) or as officially quoted in the composite tape of transactions on any other Stock Exchange on which the Common Stock is then primarily traded. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.
Q.      Family Member shall mean, with respect to a particular Optionee or Participant, any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law.
R.      Good Reason shall, with respect to each Award made under the Plan, be defined in accordance with the following provisions:
-    Good Reason shall have the meaning assigned to such term in the Award Agreement for the particular Award or in any other agreement incorporated by reference into the Award Agreement for purposes of defining such term.
-    In the absence of any other Good Reason definition in the Award Agreement (or in any other agreement incorporated by reference into the Award Agreement), Good Reason shall mean an individual’s voluntary resignation following the occurrence of any of the

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following events effected without such individual’s consent: (A) a change in his or her position with the Corporation (or any Parent or Subsidiary) which materially reduces his or her duties and responsibilities or the level of management to which he or she reports, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and target bonus under any corporate-performance based bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of such individual’s place of employment by more than fifty (50) miles or (D) the failure by the Corporation to continue in effect any stock option or other equity-based plan in which such individual is participating, or in which such individual is entitled to participate, immediately prior to a change in control of the Corporation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan; or the failure by the Corporation to continue such individual’s participation therein (or in such substitute or alternative plan) on a substantially equivalent basis, both in terms of the amount or timing of payment of benefits provided and the level of such individual’s participation relative to other participants, as existed immediately prior to the change in control of the Corporation.
S.      Incentive Bonus Program shall mean the incentive bonus program in effect under Article Four of the Plan.
T.      Incentive Option shall mean an option which satisfies the requirements of Code Section 422.
U.      Involuntary Termination shall mean the termination of the Service of any individual which occurs by reason of:
(i)      such individual’s involuntary dismissal or discharge by the Corporation (or any Parent or Subsidiary) for reasons other than for Cause, or
(ii)      such individual’s voluntary resignation for Good Reason.
V.      Legacy Addendum shall mean the Legacy Addendum to the Corporation’s Amended and Restated 2012 Incentive Compensation Plan, as such addendum may be amended from time to time.
W.      Merger shall have the meaning set forth in the Explanatory Note on the first page of this Plan.
X.      Non-Statutory Option shall mean an option not intended to satisfy the requirements of Code Section 422.
Y.      Optionee shall mean any person to whom an option is granted under the Discretionary Grant or Automatic Grant Program.
Z.      Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing

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fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
AA.      Participant shall mean any person who is issued (i) shares of Common Stock, restricted stock units, performance shares, performance units or other stock-based awards under the Stock Issuance Program or (ii) an incentive bonus award under the Incentive Bonus Program.
BB.      Permanent Disability or Permanently Disabled shall mean the inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. However, solely for purposes of the Automatic Grant Program, Permanent Disability or Permanently Disabled shall mean the inability of the non-employee Board member to perform his or her usual duties as a Board member by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more.
CC.      Performance Goals shall mean any of the following performance criteria upon which the vesting of one or more Awards under the Plan may be based: (i) cash flow; (ii) earnings (including earnings before interest and taxes, earnings before taxes, earnings before interest, taxes, depreciation, amortization and charges for stock-based compensation, earnings before interest, taxes, depreciation and amortization, and net earnings); (iii) earnings per share; (iv) growth in earnings or earnings per share; (v) stock price; (vi) return on equity or average stockholder equity; (vii) total stockholder return or growth in total stockholder return either directly or in relation to a comparative group; (viii) return on capital; (ix) return on assets or net assets; (x) invested capital, required rate of return on capital or return on invested capital; (xi) revenue, growth in revenue or return on sales; (xii) income or net income; (xiii) operating income, net operating income or net operating income after tax; (xiv) operating profit or net operating profit; (xv) operating margin or gross margin; (xvi) return on operating revenue or return on operating profit; (xvii) collections and recoveries, (xviii) property purchases, sales, investments and construction goals, (xix) application approvals, (xx) litigation and regulatory resolution goals, (xxi) occupancy or occupancy rates, (xxii) leases, contracts or financings, including renewals, (xxiii) overhead, savings, G&A and other expense control goals, (xxiv) budget comparisons, (xxv) growth in stockholder value relative to the growth of the S&P 400 or S&P 400 Index, the S&P Global Industry Classification Standards (“ GICS ”) or GICS Index, or another peer group or peer group index; (xxvi) credit rating; (xxvii) development and implementation of strategic plans and/or organizational restructuring goals; (xxviii) development and implementation of risk and crisis management programs; (xxix) improvement in workforce diversity; (xxx) net cost per ton; (xxxi) number of units or size of units delivered; (xxxii) compliance requirements and compliance relief; (xxxiii) safety goals; (xxxiv) productivity goals; (xxxv) workforce management and succession planning goals; (xxxvi) economic value added (including typical adjustments consistently applied from generally accepted accounting principles required to determine economic value added performance measures); (xxxvii) measures of  customer satisfaction, employee satisfaction or staff development; (xxxviii) development or marketing collaborations, formations of joint ventures or partnerships or the completion of other similar transactions intended to enhance the Corporation’s revenue or profitability or enhance its customer base; (xxxix) merger and acquisitions; and (xl) other

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similar criteria consistent with the foregoing. In addition, such performance criteria may be based upon the attainment of specified levels of the Corporation’s performance under one or more of the measures described above relative to the performance of other entities and may also be based on the performance of any of the Corporation’s business units or divisions or any Parent or Subsidiary. Each applicable Performance Goal may include a minimum threshold level of performance below which no Award will be earned, levels of performance at which specified portions of an Award will be earned and a maximum level of performance at which an Award will be fully earned. Each applicable performance goal may be structured at the time of the Award to provide for appropriate adjustment for one or more of the following items: (A) asset impairments or write-downs; (B) litigation judgments or claim settlements; (C) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results; (D) accruals for reorganization and restructuring programs; (E) any extraordinary nonrecurring items; (F) the operations of any business acquired by the Corporation; (G) the divestiture of one or more business operations or the assets thereof; (H) the effects of any corporate transaction, such as a merger, consolidation, separation (including spin-off or other distributions of stock or property by the Corporation) or reorganization (whether or not such reorganization is within the definition of that term in Code Section 368) any (I) other adjustment consistent with the operation of the Plan.
DD.      Plan shall mean the Alexander & Baldwin, Inc. Amended and Restated 2012 Incentive Compensation Plan, as amended and restated in this document and assumed by the Corporation upon consummation of the Merger.
EE.      Plan Administrator shall mean the particular entity, whether the Compensation Committee (or subcommittee thereof), the Board or the Secondary Board Committee, which is authorized to administer the Discretionary Grant and Stock Issuance Programs with respect to one or more classes of eligible persons, to the extent such entity is carrying out its administrative functions under the Plan with respect to the persons under its jurisdiction.
FF.      Plan Effective Date shall mean June 28, 2012.
GG.      Predecessor Company shall mean the Hawaii limited liability company which was formed as a Hawaii Corporation known as “A & B II, Inc.” and known as “Alexander & Baldwin, Inc.” from the Distribution Date (as defined in the Legacy Addendum) until the date of the Merger. Following the Merger, the Predecessor Company, then a wholly-owned subsidiary of the Corporation, converted into a Hawaii limited liability company known as “Alexander & Baldwin Investments, LLC”.
HH.      Retirement shall mean (i) the Participant’s termination of Service on or after attainment of age sixty-five (65) or (ii) the Participant’s early retirement, with the prior approval of the Corporation (or Parent or Subsidiary employing Participant), on or after attainment of age fifty-five (55) and completion of at least five (5) years of Service.
II.      Secondary Board Committee shall mean a committee of one or more Board members appointed by the Board to administer the Plan with respect to eligible persons other than Section 16 Insiders.

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JJ.      Section 16 Insider shall mean an officer or director of the Corporation subject to the short-swing profit liabilities of Section 16 of the 1934 Act.
KK.      Service shall mean the performance of services for the Corporation (or any Parent or Subsidiary, whether now existing or subsequently established) by a person in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant or stock issuance. For purposes of the Plan (but subject to the provisions of Legacy Addendum applicable to Substitute Awards and Substitute Director Awards thereunder), an Optionee or Participant shall be deemed to cease Service immediately upon the occurrence of the either of the following events: (i) the Optionee or Participant no longer performs services in any of the foregoing capacities for the Corporation or any Parent or Subsidiary or (ii) the entity for which the Optionee or Participant is performing such services ceases to remain a Parent or Subsidiary of the Corporation, even though the Optionee or Participant may subsequently continue to perform services for that entity. Service shall not be deemed to cease during a period of military leave, sick leave or other personal leave approved by the Corporation; provided, however, that should such leave of absence exceed three (3) months, then for purposes of determining the period within which an Incentive Option may be exercised as such under the federal tax laws, the Optionee’s Service shall be deemed to cease on the first day immediately following the expiration of such three (3)-month period, unless Optionee is provided with the right to return to Service following such leave either by statute or by written contract. Except to the extent otherwise required by law or expressly authorized by the Plan Administrator or by the Corporation’s written policy on leaves of absence, no Service credit shall be given for vesting purposes for any period the Optionee or Participant is on a leave of absence.
LL.      Stock Exchange shall mean the American Stock Exchange, the Nasdaq Global Market or the New York Stock Exchange.
MM.      Stock Issuance Agreement shall mean the agreement entered into by the Corporation and the Participant at the time of issuance of shares of Common Stock under the Stock Issuance Program.
NN.      Stock Issuance Program shall mean the stock issuance program in effect under Article Three of the Plan.
OO.      Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. The term Subsidiary shall also include any wholly-owned limited liability company in such chain of subsidiaries.
PP.      10% Stockholder shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary).

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QQ.      Withholding Taxes shall mean the applicable federal and state income and employment withholding taxes to which the holder of an Award under the Plan may become subject in connection with the issuance, exercise or vesting of that Award or the issuance of shares of Common Stock thereunder.


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LEGACY ADDENDUM
TO
ALEXANDER & BALDWIN, INC.
AMENDED AND RESTATED
2012 INCENTIVE COMPENSATION PLAN
Explanatory Note: The terms of the Legacy Addendum as set forth below were implemented in 2012 and are applicable to Substitute Awards and Substitute Director Awards (each as defined herein) for so long as such awards remain outstanding. No additional awards may be made under this Legacy Addendum. For purposes of this Legacy Addendum, “Corporation” may refer to the Corporation or to the Predecessor Company as applicable.
I.
PURPOSE OF THE ADDENDUM
This Addendum to the Plan (the “ Legacy Addendum ”) shall provide the Compensation Committee in its capacity as Plan Administrator with the authority to effect the equity awards contemplated by the terms of Article VII of the Employee Matters Agreement between Alexander & Baldwin Holdings, Inc. (“ A&B Holdings ”) and the Corporation (known at that time as A & B II, Inc.) dated as of June 8, 2012 (the “ Employee Matters Agreement ”) in connection with the separation of the Corporation from A&B Holdings through the spin-off distribution of all the outstanding shares of the Corporation’s common stock to the holders of the outstanding A&B Holdings common stock (the “ A&B Distribution ”) on the specified record date as set forth in the Separation and Distribution Agreement between A&B Holdings and the Corporation, dated as of June 8, 2012. The date on which the A&B Distribution is effected is hereby designated the “ Distribution Date. ”
Pursuant to the Employee Matters Agreement, all stock options and restricted stock unit awards (with and without dividend equivalent rights) pertaining to shares of A&B Holdings common stock that are outstanding at the close of market on the Distribution Date (collectively referred to as “ A&B Holdings Awards ”) and held by the New A&B Employees (as defined in the Employee Matters Agreement) shall be cancelled at that time and immediately replaced with substitute awards covering shares of the Corporation’s common stock (referred to herein as the “ Substitute Awards ”), adjusted as set forth in the Employee Matters Agreement and in this Legacy Addendum.
In addition, this Legacy Addendum shall provide the Compensation Committee in its capacity as Plan Administrator with the authority to issue equity awards to members of the Board of Directors of A&B Holdings who, prior to the Distribution Date and in connection with the A&B Distribution, resign from that Board and become members of the Corporation’s Board (“ Transferred Directors ”) which will replace their stock options and restricted stock unit awards (with and without dividend equivalent rights) pertaining to shares of A&B Holdings common stock that are outstanding at the close of market on the Distribution Date. However, the term Transferred Directors shall also include any individual who is a member of the Board of Directors of both the Corporation and A&B Holdings immediately prior to the A&B Distribution and who is also at that time serving as the lead independent director of the Corporation’s Board of Directors.

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II.
ASSUMED A&B PLANS
Each A&B Holdings Award that is (i) outstanding under any of the following Alexander & Baldwin, Inc. equity incentive plans assumed by A&B Holdings in connection with the June 2012 merger of Alexander & Baldwin, Inc. with a wholly-owned A&B Holdings subsidiary (collectively, the “ Assumed A&B Plans ”) and (ii) held by a New A&B Employee at the close of market on the Distribution Date will be cancelled at that time and will be immediately replaced with a Substitute Award covering shares of the Corporation’s common stock (“ Shares ”) pursuant to the provisions of Article V of this Legacy Addendum:
 
(i)      Amended and Restated Alexander & Baldwin, Inc. 2007 Incentive Compensation Plan;
(ii)      Alexander & Baldwin, Inc. 1998 Stock Option/Stock Incentive Plan, as amended on October 25, 2000, January 24, 2002, February 24, 2005, June 22, 2006, and October 26, 2006, respectively; and
(iii)      Alexander & Baldwin, Inc. 1998 Non-Employee Director Stock Option Plan, as amended on October 25, 2000, February 26, 2004, June 24, 2004, and October 26, 2006.
In addition, any outstanding equity awards held under any of the Assumed A&B Plans at the close of market on the Distribution Day by the Transferred Directors will be cancelled at that time and immediately replaced with Director Substitute Awards in accordance with the provisions of Article V of this Legacy Addendum.
III.
ADMINISTRATION
A.      All equity awards under this Legacy Addendum shall be made and administered by the Compensation Committee (or any subcommittee comprised of two (2) or members of the Compensation Committee).
B.      The Compensation Committee shall have full power and authority to interpret the provisions of this Legacy Addendum or any Substitute Award or Substitute Director Award made pursuant to this Legacy Addendum or any agreement evidencing such award. All decisions and determinations by the Compensation Committee with respect thereto shall be final, binding, and conclusive on all parties.
IV.
RECIPIENTS OF GRANTS PURSUANT TO THIS ADDENDUM
The individuals eligible to receive Substitute Awards and Substitute Director Awards pursuant to this Legacy Addendum shall be limited to those New A&B Employees and Transferred Directors who hold one or more A&B Holdings Awards under one or more of the Assumed A&B Plans (“ Legacy Participants ”) at the close of market on the Distribution Date. No awards other than such Substitute Awards or Substitute Director Awards will be made to Legacy Participants pursuant to this Legacy Addendum.

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V.
TERMS AND CONDITIONS FOR SUBSTITUTION OF AWARDS IN CANCELLATION OF OUTSTANDING AWARDS UNDER THE ASSUMED PLANS
Each outstanding A&B Holdings Award held by a New A&B Employee or Transferred Director at the close of market on the Distribution Date shall be cancelled at that time and shall be immediately replaced with the appropriate Substitute Award or Substitute Director Award determined in accordance with the following parameters.
The substitution shall be effected by cancelling the outstanding A&B Holdings Award (with the shares of A&B Holdings common stock subject to each cancelled award to be returned to the Amended and Restated Alexander & Baldwin 2007 Incentive Compensation Plan as assumed by A&B Holdings) and by issuing a new award under this Legacy Addendum in substitution for such cancelled award in accordance with the following parameters:

(i)    The number of shares of the Corporation’s common stock subject to the Substitute Award or Substitute Director Award (as the case may be) shall be determined by multiplying the number of shares of A&B Holdings common stock subject to the A&B Holdings Award immediately prior to cancellation by a fraction the numerator of which is the sum of the closing “when issued” price per share of the Corporation’s common stock on the Distribution Date plus the closing price of A&B Holdings common stock as traded on an ex-distribution basis on that same trading day and the denominator is the closing “when issued” price of the Corporation’s common stock on the Distribution Date. Any fractional share per award will be rounded down to the next whole share.

(ii)    The exercise price per share for each Substitute Award or Substitute Director Award that is a stock option grant shall be determined by multiplying the exercise per share in effect for the A&B Holdings Award immediately prior to cancellation by a fraction the numerator of which is the closing “when issued” price per share of the Corporation’s common stock on the Distribution Date and the denominator is the sum of that “when issued” price plus the closing price per share of A&B Holdings common stock as traded on an ex-distribution basis on such Distribution Date. Any fractional cent will be rounded up to the nearest whole cent.

(iii)     The foregoing calculations as to the number of shares of the Corporation’s common stock subject to the Substitute Award or Substitute Director Award and the exercise price in effect for each Substitute Award or Substitute Director Award that is a stock option grant are intended to ensure that the spread between the aggregate fair market value of the adjusted number of shares of the Corporation’s common stock purchasable under each Substitute Award or Substitute Director Award and the aggregate Exercise Price (if any) payable for those shares immediately after the A&B Distribution remains substantially equal to (and not greater than) the same spread that existed immediately prior to the A&B Distribution between the aggregate fair market value of the number of shares of A&B Holdings common stock

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subject to the cancelled A&B Holdings Award immediately prior to cancellation and the aggregate exercise price (if any) in effect at that time for those shares under the cancelled award. Such calculations are also intended to preserve on a per-share basis, immediately after the A&B Distribution, the same ratio of exercise price per option share to fair market value per share which existed under each cancelled A&B Holdings Award (to the extent that award is a stock option grant) immediately prior to the A&B Distribution.

(iv)    Notwithstanding the cancellation of the A&B Holdings Award, any amounts that are at the time of cancellation credited to the Participant under that award pursuant to any dividend-equivalent rights provided under that award but that have not yet been distributed shall subsequently be distributed to the Participant in accordance with the distribution provisions (including the timing and method of distribution) applicable to such dividend equivalent rights, and nothing in the Substitute Award or Substitute Director Award shall affect the Participant’s right and entitlement to receive such credited amount in accordance with the terms and conditions of those distribution provisions. However, the Participant shall have no further dividend equivalent rights under the cancelled A&B Holdings Award with respect to any dividends or distributions paid on A&B Holdings common stock on or after the cancellation date, but shall have continuing dividend-equivalent rights under the Substitute Award or Substitute Director Award with respect to any dividends or distribution paid on the Corporation’s common stock; provided, however , that no such dividend-equivalent rights shall be provided with respect to any stock option grants made pursuant to this Addendum.

(v)    The remaining terms and provisions of each such Substitute Award or Substitute Director Award shall be the same as the terms and provisions that are in effect under the cancelled A&B Holdings Award to which it pertains immediately prior to cancellation, including (without limitation) the same vesting schedule and applicable issuance dates, the same expiration date and other applicable termination provisions, the same applicable exercise procedures and the same dividend equivalent rights (if applicable), except that (A) all references in the cancelled A&B Holdings Award to A&B Holdings shall be replaced with references to the Corporation, (B) the shares of common stock issuable under Substitute Award or Substitute Director Award shall be shares of the Corporation’s common stock and (iii) the foregoing adjustments to the number of shares and the exercise price (if any) shall be reflected in the new award agreement.

In addition, each such Substitute Award or Substitute Director Award shall contain the following special Service credit and Separation from Service provisions:

A.    For purposes of the Award, the following provisions shall govern the determination of the Legacy Participant’s period of Service:


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(i)     The Legacy Participant shall be deemed to continue in Service for so long as the Legacy Participant performs services for the Corporation (or any Parent or Subsidiary) in one or more of the following capacities specified in the applicable A&B Holdings Award that the Substitute Award or Substitute Director Award replaces: Employee, non-employee member of the board of directors or a consultant or independent advisor.

(ii)    The Legacy Participant shall be deemed to cease Service immediately upon the occurrence of the either of the following events: (a) the Legacy Participant no longer performs services for the Corporation (or any Parent or Subsidiary) in any of the specified service capacities set forth in the applicable A&B Holdings Award that the Substitute Award or Substitute Director Award replaces or (b) the entity for which the Legacy Participant performs such services ceases to remain a Parent or Subsidiary of the Corporation, even though the Legacy Participant may subsequently continue to perform services for that entity.
    
(iii)    Notwithstanding the provisions of subparagraph (ii) above, should A&B Holdings effect a distribution of all of the outstanding common stock of the Corporation to the holders of the outstanding common stock of A&B Holdings in a spin-off transaction, then the Legacy Participant shall be deemed to continue in Service for so long as the Legacy Participant performs services following such spin-off distribution (and prior to the Legacy Participant’s Separation from Service date), in one or more of the service capacities set forth in the applicable A&B Holdings Award that the Substitute Award or Substitute Director Award replaces, with the Corporation (or any Parent (other than A&B Holdings) or Subsidiary of the Corporation), if the Legacy Participant’s Service relationship is with any of those entities immediately prior to the spin-off distribution. Accordingly, for so long as the Legacy Participant remains in such Service relationship following the spin-off distribution (and prior to the Legacy Participant’s Separation from Service date), the Award shall remain in full force and effect and the Legacy Participant shall continue to vest in such Award; and any post-Service exercise period for the Award shall not commence until the Legacy Participant no longer remains in the applicable Service relationship. However, should the Legacy Participant be a member of the Board of Directors of both A&B Holdings and the Corporation immediately prior to the spin-off distribution, then that Legacy Participant shall, for purposes of the foregoing provisions of this Service definition and the Separation from Service definition set forth below, be deemed to be solely in service of A&B Holdings immediately prior to the spin-off distribution, unless that Legacy Participant is also serving as the lead independent director of the Corporation’s Board of Directors immediately prior to the spin-off distribution, in which event that Legacy Participant shall be deemed hereunder to be solely in the service of the Corporation immediately prior to the spin-off distribution and shall accordingly be treated as a Transferred Director.

(iv)    For purposes of any existing service-vesting schedule in effect for any such Substitute Award or Substitute Director Award, the Legacy Participant

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will receive appropriate service credit under each such Substitute Award or Substitute Director Award for his or her period of continuous service with A&B Holdings or its subsidiaries, in one or more of the service capacities set forth in the applicable A&B Holdings Award that such Substitute Award or Substitute Director Award replaces, through the date of the A&B Distribution.
(v)    Service as an Employee shall not be deemed to cease during a period of military leave, sick leave or other personal leave approved by the Corporation (or any Parent or Subsidiary) employing the Legacy Participant; provided, however, that the following special provisions shall be in effect for any such leave:

a.    Should the period of such leave (other than a disability leave) exceed six (6) months, then the Legacy Participant shall be deemed to cease Service and to incur a Separation from Service upon the expiration of the initial six (6)-month period of that leave, unless the Legacy Participant retains a right to re-employment under applicable law or by contract with the Corporation (or any Parent or Subsidiary) employing the Legacy Participant.

b.    Should the period of a disability leave exceed twenty-nine (29) months, then the Legacy Participant shall be deemed to cease Service and to incur a Separation from Service upon the expiration of the initial twenty-nine (29)-month period of that leave, unless the Legacy Participant retains a right to re-employment under applicable law or by contract with the Corporation (or any Parent or Subsidiary) employing Participant For such purpose, a disability leave shall be a leave of absence due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than six (6) months and causes the Legacy Participant to be unable to perform the duties of his or her position of employment (or any substantially similar position of employment) with the Corporation (or any Parent or Subsidiary).

c.     Except to the extent otherwise required by law or expressly authorized by the Plan Administrator or by the written policy on leaves of absence of the Corporation, no Service credit shall be given for vesting purposes for any period the Legacy Participant is on a leave of absence.

(vi)    Notwithstanding anything to the contrary in the foregoing provisions of this Service definition, the Legacy Participant shall in all events be deemed to cease Service for all purposes of this Award immediately upon the Legacy Participant’s incurrence of a Separation from Service.

B.     The following provision shall be added to the “ Separation from Service ” definition in each Substitute Award or Substitute Director Award:


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-    Notwithstanding the foregoing provisions of this definition, a Separation from Service will not be deemed to occur in the event that (i) A&B Holdings effects a distribution of all of the outstanding common stock of the Corporation to the holders of the outstanding common stock of A&B Holdings in a spin-off transaction and (ii) the Legacy Participant, if in the Service of the Corporation (or any Subsidiary of the Corporation) immediately prior to the spin-off distribution, continues to remain in such Service relationship immediately after the spin-off distribution. However, should the Legacy Participant experience a permanent reduction in his or her level of services to the less than fifty percent (50%) level specified in the preceding provisions of this Separation from Service definition, whether that reduction occurs before or after the spin-off distribution, then the Legacy Participant shall immediately upon such permanent reduction in the level of his or her services incur a Separation from Service.

VI.
AMENDMENT AND TERMINATION
The Board or the Compensation Committee may amend this Legacy Addendum from time to time or terminate this Legacy Addendum at any time; provided, however , that unless expressly provided otherwise in a Legacy Participant’s Substitute Award or Substitute Director Award, no such action shall adversely affect the terms and provisions of such award without the Legacy Participant’s consent.
VII.
EFFECTIVE DATE OF LEGACY ADDENDUM
This Legacy Addendum shall become effective on the Distribution Date, and all Substitute Awards or Substitute Director Awards made hereunder shall become effective immediately upon the close of business on the Distribution Date.

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EXHIBIT 31.1
CERTIFICATION
I, Christopher J. Benjamin, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Alexander & Baldwin, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
By  /s/ Christopher J. Benjamin
 
 
Christopher J. Benjamin
 
 
President and Chief Executive Officer
Date:
November 2, 2018
 




EXHIBIT 31.2
CERTIFICATION
I, James E. Mead, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Alexander & Baldwin, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
By /s/ James E. Mead
 
 
James E. Mead
 
 
Executive Vice President and Chief Financial Officer
Date:
November 2, 2018
 




EXHIBIT 32
Certification of Chief Executive Officer and
Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Alexander & Baldwin, Inc. (the "Company") for the quarterly period ended September 30, 2018 , as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Christopher J. Benjamin, as President and Chief Executive Officer of the Company, and James E. Mead, as Executive Vice President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to their knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/ s/ Christopher J. Benjamin
Name:
Christopher J. Benjamin
Title:
President and Chief Executive Officer
Date:
November 2, 2018
/ s/ James E. Mead
Name:
James E. Mead
Title:
Executive Vice President and Chief Financial Officer
Date:
November 2, 2018


Exhibit 95
MINE SAFETY DISCLOSURE
The operation of Grace Pacific LLC’s Makakilo Quarry (the “Quarry”) is subject to regulation by the federal Mine Safety and Health Administration (MSHA) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). MSHA inspects the Quarry on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. Whenever MSHA issues a citation or order, it also generally proposes a civil penalty, or fine, related to the alleged violation. Citations or orders can be contested and appealed, and as part of that process, are often reduced in severity and amount, and are sometimes dismissed.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Company is required to present information regarding certain mining safety and health citations which MSHA has issued with respect to its mining operation in its periodic reports filed with the Securities and Exchange Commission (the “SEC”). We have provided information below in response to the rules and regulations of the SEC issued under Section 1503(a) of the Dodd-Frank Act.
The Dodd-Frank Act and the subsequent implementing regulation issued by the SEC require disclosure of the following categories of violations, orders and citations: (1) Section 104 S&S Citations, which are citations issued for violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard; (2) Section 104(b) Orders, which are orders issued upon a follow up inspection where the inspector finds the violation previously cited has not been totally abated in the prescribed time period; (3) Section 104(d) Citations and Orders, which are issued upon violations of mandatory health or safety standards caused by an unwarrantable failure of the operator to comply with the standards; (4) Section 110(b)(2) Violations, which result from the reckless and repeated failure to eliminate a known violation; (5) Section 107(a) Orders, which are given when MSHA determines that an imminent danger exists and results in an order of immediate withdrawal from the area of the mine affected by the condition; and (6) written notices from MSHA of a pattern of violations-or the potential to have such pattern-of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of mine health or safety hazards under Section 104(e). In addition, the Dodd-Frank Act requires the disclosure of the total dollar value of proposed assessments from MSHA under the Mine Act and the total number of mining related fatalities. This information for the Quarry for the quarter ended September 30, 2018 is as follows:
Total Number of S&S Citations
0
Mine Act § 104(b) Orders
0
Mine Act § 104(d) Citations and Orders
0
Mine Act § 110(b)(2) Violations
0
Mine Act § 107(a) Orders
0
Total Dollar Value of Proposed MSHA Assessments
$3,179*
Total Number of Mining Related Fatalities
0
Received Written Notice of Pattern of Violation under Mine Act §104(e) (yes/no)
No
Received Written Notice of Potential to Have Pattern under Mine Act §104(e) (yes/no)
No
* Related to citations from the quarter ended June 30, 2018.
As of September 30, 2018, there were no pending legal actions before the Federal Mine Safety and Health Review Commission involving the Quarry. No legal actions were instituted during the quarter ended September 30, 2018 and no legal actions were resolved during the quarter ended September 30, 2018.